Table of Contents

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 Shares,Stock, par value $0.001 per share

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.

Table of Contents

Kiromic BioPharma, Inc.

Quarterly Report on Form 10-Q

Period Ended June 30, 2021

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

   

   

Item 1.

Financial Statements

45

Condensed Consolidated Balance Sheets as of June 30, 2021,2022 (Unaudited) and December 31, 2020 (Unaudited)

4

Condensed Consolidated Statements of Operations for the three months and six months ended June 30, 2021 and 2020 (Unaudited)

5

Condensed Consolidated Statements of Stockholders’ EquityOperations for the three months and six months ended June 30, 20212022 and 20202021 (Unaudited)

6

Condensed Consolidated Statements of Stockholders’ Equity for the three months and six months ended June 30, 2022 and 2021 (Unaudited)

7

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 20212022 and 20202021 (Unaudited)

89

Notes to Condensed Consolidated Financial Statements (Unaudited)

910

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

28

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

42

Item 4.

Controls and Procedures

42

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

4443

Item 1A.

Risk Factors

45

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

46

Item 3.

Defaults Upon Senior Securities

46

Item 4.

Mine Safety Disclosures

46

Item 5.

Other information

46

Item 6.

Exhibits

4446

Signatures

4648

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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; and
our ability to raise capital when needed;
relevant government policies and regulations relating to our industry.industry; and
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

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"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.

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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:

 

  

 

  

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)

 

  

 

  

Stockholders’ Equity:

 

  

 

  

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

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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

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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

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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 A1

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

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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

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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

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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.

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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

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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.

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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 AssetsThe 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.

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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

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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.

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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.

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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

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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:

valuations of the common stock performed by third-party specialists;
the prices, rights, preferences, and privileges of the Company’s Series A-1 Preferred Stock and Series B Preferred Stock relative to those of the Company’s common stock;
lack of marketability of the common stock;
current business conditions and projections;
hiring of key personnel and the experience of management;
the Company’s stage of development;
likelihood of achieving a liquidity event, such as an initial public offering, a merger or acquisition of the Company given prevailing market conditions, or other liquidation event;
the market performance of comparable publicly traded companies; and
the US and global capital market conditions.

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.

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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

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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

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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,

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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

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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, LLCOn 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

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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:

    

2021

2022

2021

Common Stock

 

  

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:

    

2020

Series B Preferred Stock

 

  

Balance at January 1,

$

1,306,900

Series B Preferred Stock proceeds

 

3,000,000

Series B Preferred Stock discount

 

(2,668,300)

Series B Preferred Stock discount amortization

 

368,400

Balance at March 31,

$

2,007,000

Series B Preferred Stock discount amortization

324,300

Balance at June 30,

$

2,331,300

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.

30% of the warrants beginning sixmonths after the date on which the securities of the Company are first listed on a United States national securities exchange (such date, the "Listing Date");
An additional 30% of the warrants beginning ninemonths after the Listing Date; and
The remainder of the warrants beginning twelvemonths after the Listing Date.

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.

21

Table of Contents

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:

Risk-free interest rate

1.54% - 1.88

%

Expected volatility

71.95% - 72.71

%

Expected life (years)

10

Expected dividend yield

0

%

Representative'sRepresentative’s WarrantsIn 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:

Risk-free interest rate

 

0.18

%

Expected volatility

 

94.08

%

Expected life (years)

 

2.74

Expected dividend yield

 

0

%

In connection with the public offering on July 2, 2021, the Company granted the underwriters warrants (the “Additional Underwriters’ Warrants”) to purchase an aggregate of 400,000 shares of common stock at an exercise price of $6.25 per share, which is 125% of the initial public offering price. The Additional Underwriters’ Warrants have a five-year term and are not exercisable prior to January 2, 2022. All of the Additional Underwriters’ Warrants were outstanding at June 30, 2022.

These warrants were equity classified. As of June 30, 2022 and December 31, 2021, the fair value of the warrants was $807,900 and $929,300, respectively, and 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 July 2, 2021:

Risk-free interest rate

0.40

%  

Expected volatility

98.27

%  

Expected life (years)

2.75

Expected dividend yield

0

%  

10.11.STOCK-BASED COMPENSATION

2017 Stock Incentive Plan— Stock Options

The Black-Scholes option-pricing model was used to estimate the fair value of stock options with the following weighted-average assumptions for the six months ended June 30:30, 2022 and 2021:

    

June 30,

    

June 30,

 

    

June 30,

    

June 30,

 

2021

2020

 

2022

2021

 

Risk-free interest rate

 

1.09

%  

0.23% - 2.92

%

 

1.09

%  

1.09

%

Expected volatility

 

83.34

%  

72.29% - 82.15

%

 

83.34

%  

83.34

%

Expected life (years)

 

6.22

 

4.93 - 6.07

 

6.22

 

6.22

Expected dividend yield

 

0

%  

0

%

 

0

%  

0

%

In the six months ended June 30, 2021, the fair value of the common shares underlying the stock options was determined by the closing stock price listed on the Nasdaq Capital Market on the grant date.

Prior to the Company’s initial public offering, the fair value of the common shares underlying the stock options had historically been determined by the board of directors, with input from management. Because there was no public market for the Company’s common shares prior to October 15, 2020, the board of directors determined the fair value of the common shares at the time of grant of the stock option by considering a number of objective and subjective factors, including important developments in the Company’s operations, third-party valuations performed, sales of Series A-1 Preferred Stock, sales of Series B Preferred Stock, actual operating results and financial performance, the conditions in

22

the biotechnology industry and the economy in general, the stock price performance and volatility of comparable public companies, and the lack of liquidity of the Company’s common shares, among other factors.

The following table summarizes the activity for all stock options outstanding at June 30 under the 2017 Plan:

2021

2020

    

    

Weighted

    

    

Weighted

Average

Average

Exercise

Exercise

Shares

Price

Shares

Price

Options outstanding at beginning of year

 

489,718

$

10.03

 

598,083

$

11.04

Granted

 

147,038

 

8.47

 

65,424

 

19.15

Exercised

 

(18,891)

 

6.64

 

 

Cancelled and forfeited

 

(59,430)

 

17.86

 

(45,508)

 

14.25

Balance at June 30

 

558,435

$

8.90

 

617,999

$

11.84

Options exercisable at June 30:

 

391,572

$

8.84

 

382,204

$

8.50

Weighted average grant date fair value for options granted during the year:

 

  

$

8.47

 

  

$

20.54

The intrinsic value of the options exercised during the six months ended June 30, 2021 was $33,000.

2022

2021

    

    

Weighted

    

    

Weighted

Average

Average

Exercise

Exercise

Shares

Price

Shares

Price

Options outstanding at beginning of year

 

380,909

$

8.57

 

489,718

$

10.03

Granted

 

 

 

147,038

 

8.47

Exercised

 

 

 

(18,891)

 

6.64

Cancelled and forfeited

 

(42,037)

 

9.19

 

(59,430)

 

17.86

Balance at June 30

 

338,872

$

8.49

 

558,435

$

8.90

Options exercisable at June 30:

 

334,964

$

8.50

 

391,572

$

8.84

Weighted average grant date fair value for options granted and expected to be vested during the period:

 

  

$

 

  

$

8.47

The following table summarizes additional information about stock options outstanding and exercisable at June 30, 20212022 and 20202021 under the 2017 Plan:

Options Outstanding

Options Exercisable

Options Outstanding

Options Exercisable

Weighted

Weighted

Average

Weighted

Weighted

Average

Weighted

Weighted

Remaining

Average

Aggregate

Average

Aggregate

Remaining

Average

Aggregate

Average

Aggregate

As of

Options

Contractual

Exercise

Intrinsic

Options

Exercise

Intrinsic

Options

Contractual

Exercise

Intrinsic

Options

Exercise

Intrinsic

June 30,

    

Outstanding

    

Life

    

Price

    

Value

    

Exercisable

    

Price

    

Value

    

Outstanding

    

Life

    

Price

    

Value

    

Exercisable

    

Price

    

Value

2022

 

338,872

5.52

$

8.49

334,964

$

8.50

2021

 

558,435

7.43

8.90

391,572

8.84

 

558,435

7.43

$

8.90

391,572

$

8.84

2020

 

617,999

8.03

11.84

2,008,892

382,204

8.50

1,718,959

Total stock compensation expense recognized from stock-based compensation awards classified as stock options were recognized in the condensed consolidated statements of operations for the three and six months ended June 30, 20212022 and 20202021 as follows:

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

Research and development

$

22,900

$

386,000

$

41,900

$

811,000

$

3,000

$

22,900

$

52,000

$

41,900

General and administrative

 

54,900

 

57,000

 

156,900

 

88,000

 

7,000

 

54,900

 

15,000

 

156,900

Total

$

77,800

$

443,000

$

198,800

$

899,000

$

10,000

$

77,800

$

67,000

$

198,800

On August 20, 2020, the board of directors canceled and terminated 15,792 stock options, granted during the quarter ended June 30, 2020 to 4 non-employees. Thereafter, on August 20, 2020, the board of directors granted 21,112 stock options to the same individuals with a grant date fair value of $12.81 per share. There were 3,959 stock option grants that were considered vested on the grant date. The effects of the stock option modifications resulted in $14,000 and $34,900 of stock compensation expense allocable to general and administrative for the three and six months ended June 30, 2021, respectively. Included in that amount were $6,400 and $16,000 of incremental compensation costs resulting from the modifications for the three and six months ended June 30, 2021, respectively.

As of June 30, 2021,2022, total unrecognized stock compensation expense is $1,054,500,$21,400 related to unvested stock options to be recognized over the remaining weighted-average vesting period of 3.470.57 years.

23

2017 Stock Incentive Plan—Restricted Stock Units

In January 2017, the Company’s board of directors approved the adoption of the 2017 Plan. The 2017 Plan permits the Company to grant equity awards for up to 1,708,615 shares of the Company’s common stock awards, including incentive stock options; non-statutory stock options; and conditional share awards to employees, directors, and consultants of the Company. All granted shares that are canceled, forfeited, or expired are returned to the

23

2017 Plan and are available for grant in conjunction with the issuance of new common stock awards. Restricted stock units (“RSUs”) vest over a specified amount of time or when certain performance metrics are achieved by the Company.

In the six months ended June 30, 2022 and 2021, the fair value of the shares of common sharesstock underlying restricted stock units was determined by the closing stock price listed on the Nasdaq Capital Market on the grant date.

Prior to the Company’s initial public offering, the fair value of the common shares underlying the stock options had historically been determined by the board of directors, with input from management. As there was no public market for Company’s common shares prior to October 15, 2020, the board of directors determined the fair value of the common shares at the time of grant of the RSUs by considering a number of objective and subjective factors, including important developments in the Company’s operations, third-party valuations performed, sales of Series A-1 Preferred Stock, sales of Series B Preferred Stock, actual operating results and financial performance, the conditions in the biotechnology industry and the economy in general, the stock price performance and volatility of comparable public companies, and the lack of liquidity of the Company’s common shares, among other factors.

The following table summarizes the activity for all RSUs outstanding at June 30 under the 2017 Plan:

2021

2022

2021

    

    

Weighted Average

    

    

    

Weighted Average

    

    

Weighted Average

Grant Date

Grant Date

Grant Date

Fair Value

Fair Value

Fair Value

Shares

Per Share

Shares

Per Share

Shares

Per Share

Nonvested RSUs at beginning of year

 

946,245

$

12.81

 

Nonvested RSUs at beginning of year, as restated

 

510,851

$

12.48

 

946,245

$

12.81

Granted

 

166,660

 

7.98

 

 

 

 

166,660

 

7.98

Vested

 

(36,791)

 

6.44

 

 

(10,682)

 

8.64

 

(36,791)

 

6.44

Cancelled and forfeited

 

(627)

 

9.00

 

 

(335,719)

 

12.79

 

(627)

 

9.00

Nonvested RSUs at June 30,

 

1,075,487

$

12.28

 

 

164,450

$

12.09

 

1,075,487

$

12.28

Subsequent to the issuance of the December 31, 2021 consolidated financial statements, the Company identified an error related to the calculation of the number of vested shares of restricted stock units related to the Company’s 2017 Equity Incentive Plan. The Company used an incorrect number of vested shares of restricted stock units for the year ended December 31, 2021. Accordingly, the Company restated the number of vested shares of restricted stock units for the year ended December 31, 2021 from 37,802 shares to 393,909 shares, and the resulting total non-vested restricted stock units at December 31, 2021 from 866,958 shares to 510,851 shares. Additionally, the weighted average grant date fair value of vested shares for the year ended December 31, 2021 was restated from $6.51 per share to $11.21 per share, and the weighted average grant date fair value for total nonvested restricted stock units as of December 31, 2021 was restated from $12.16 per share to $12.48 per share. This change did not have any impact on our earnings per share calculations, nor did it have any impact on any previous disclosures related to potentially dilutive securities excluded from the computations of diluted weighted-average shares of common stock outstanding. The Company has evaluated the materiality of this error and concluded that it is not material to the December 31, 2021 consolidated financial statements. Further, the Company will also prospectively restate the previously reported financial information for the related error in future and annual filings for the year ending December 31, 2022.

Total stock compensation expense recognized from stock-based compensation awards classified as restricted stock units were recognized in the condensed consolidated statements of operations for the three and six months ended June 30, 2022 and 2021, as follows:

Three Months Ended

Six Months Ended

Three Months Ended

Six Months Ended

June 30,

June 30,

June 30,

June 30,

    

2021

    

    

2021

    

2022

    

2021

2022

    

2021

Research and development

$

866,100

$

1,133,800

$

1,900

$

866,100

$

13,900

$

1,133,800

General and administrative

 

283,800

 

840,300

 

2,400

 

283,800

 

(4,700)

 

840,300

Total

$

1,149,900

$

1,974,100

$

4,300

$

1,149,900

$

9,200

$

1,974,100

On August 20, 2020, the board of directors canceled and terminated 709,334 RSUs, granted during the quarter ended June 30, 2020. The cancelled RSUs were originally granted to 5 individuals with a grant date fair value of $12.87$12.87 per share. Thereafter, on August 20, 2020, the board of directors granted 946,245 RSUs to the same individuals with a grant date fair value of $12.81$12.81 per share. NaN of the RSU grants were considered vested on the grant date. The RSU grants were modified for 3 employees and 2 non-employees.

The effects of the RSU modifications resulted in $268,900 and $621,800 of stock compensation expense allocable to research and development and general and administrative, respectively, during the three months ended June 30, 2021. Included in those amounts were incremental compensation costs of $20,600 and $45,200 of stock compensation expense

24

The effects of the RSU modifications resulted in $268,900 and $621,800 of stock compensation expense allocable to research and development and general and administrative, respectively, during the three months ended June 30, 2021. Included in those amounts were incremental compensation costs of $20,600 and $45,200 of stock compensation expense allocable to research and development and general and administrative, respectively, during the three months ended June 30, 2021.

The effects of the RSU modifications resulted in $536,600$536,600 and $1,178,300$1,178,300 of stock compensation expense allocable to research and development and general and administrative, respectively, during the six months ended June 30, 2021. Included in those amounts were incremental compensation costs of $41,000$41,000 and $89,900$89,900 of stock compensation expense allocable to research and development and general and administrative, respectively, during the six months ended June 30, 2021.

2021 Stock Incentive Plan—Restricted Stock Units

In June 2021, the Company’s board of directors approved the adoption of the 2021 Plan. The 2021 Plan permits the Company to grant equity awards for up to 217,2921,217,292 shares of the Company’s common stock awards, including incentive stock options; non-statutory stock options; and conditional share awards to employees, directors, and consultants of the Company. All granted shares that are canceled, forfeited, or expired are returned to the 2021 Plan and are available for grant in conjunction with the issuance of new common stock awards. RSUs vest over a specified amount of time or when certain performance metrics are achieved by the Company.

In the six months ended June 30, 2021,2022, the fair value of the shares of common sharesstock underlying restricted stock units was determined by the closing stock price listed on the Nasdaq Capital Market on the grant date.

The following table summarizes the activity for all RSUs outstanding at June 30, 2022 and 2021 under the 2021 Plan:

2021

2020

2022

2021

    

    

Weighted Average

    

    

Weighted Average

    

    

Weighted Average

    

    

Weighted Average

Grant Date

Grant Date

Grant Date

Grant Date

Fair Value

Fair Value

Fair Value

Fair Value

Shares

Per Share

Shares

Per Share

Shares

Per Share

Shares

Per share

Nonvested RSUs at beginning of year

 

$

 

$

 

62,049

$

5.52

 

$

Granted

 

23,613

 

8.47

 

 

 

 

 

23,613

 

8.47

Vested

 

(4,723)

 

8.47

 

 

 

 

 

(4,723)

 

8.47

Cancelled and forfeited

 

 

 

 

 

(3,939)

 

4.22

 

 

Nonvested RSUs at June 30,

 

18,890

$

8.47

 

$

 

58,110

$

5.61

 

18,890

$

8.47

Total stock compensation expense recognized from stock-based compensation awards classified as restricted stock units were recognized in the condensed consolidated statements of operations for the three and six months ended June 30, 2022 and 2021, as follows:

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

Research and development

$

17,400

$

$

25,700

$

General and administrative

 

40,900

 

 

40,900

 

 

19,900

 

40,900

 

29,800

 

40,900

Total

$

40,900

$

$

40,900

$

$

37,300

$

40,900

$

55,500

$

40,900

2021 Stock Incentive Plan — Stock Options

The Black-Scholes option-pricing model was used to estimate the fair value of stock options with the following weighted average assumptions for the month ended June 30:

June 30,

2022

Risk-free interest rate

2.99

%  

Expected volatility

119.55

%  

Expected life (years)

5.10

Expected dividend yield

0

%  

25

In the six months ended June 30, 2022, the fair value of the common shares underlying the stock options was determined

by the closing stock price listed on the Nasdaq Capital Market on the grant date.

The following table summarizes the activity for all stock options outstanding at June 30 under the 2021 Plan:

2022

    

    

Weighted

Average

Exercise

Shares

Price

Options outstanding at beginning of year

 

$

Granted

 

734,400

 

0.43

Exercised

 

 

Cancelled and forfeited

 

 

Balance at June 30

 

734,400

$

0.43

Options exercisable at June 30:

 

367,200

$

0.43

Weighted average grant date fair value for options granted and expected to be vested during the period:

 

  

$

0.36

The following table summarizes additional information about stock options outstanding and exercisable at June 30, 2022 under the 2021 Plan:

Options Outstanding

Options Exercisable

Weighted

Average

Weighted

Weighted

Remaining

Average

Aggregate

Average

Aggregate

As of

Options

Contractual

Exercise

Intrinsic

Options

Exercise

Intrinsic

June 30,

    

Outstanding

    

Life

    

Price

    

Value

    

Exercisable

    

Price

    

Value

2022

 

734,400

10.00

$

0.43

367,200

$

0.43

Total stock compensation expense recognized from stock-based compensation awards classified as stock options were recognized in the condensed consolidated statements of operations for the three and six months ended June 30, 2022 and 2021, as follows:

Three Months Ended

Six Months Ended

June 30,

June 30,

    

2022

    

2021

2022

    

2021

Research and development

$

$

$

$

General and administrative

 

132,600

 

 

132,600

 

Total

$

132,600

$

$

132,600

$

As of June 30, 2022, total unrecognized stock compensation expense is $131,300, related to unvested stock options to be recognized over the remaining weighted-average vesting period of 0.5 years.

26

11.12.INCOME TAXES

The Company’s effective tax rate from continuing operations was 0% for the three and six months ended June 30, 20212022 and 2020.2021. The Company recorded 0 income tax provision for the three and six months ended June 30, 2021 and 2020.2022 or 2021.

The provision for income taxes during the interim reporting periods is calculated by applying an estimate of the annual effective tax rate for the full fiscal year to "ordinary"“ordinary” income or loss for the reporting period. Each quarter, the estimate of the annual effective tax rate is updated, and if the estimated effective tax rate changes, a cumulative adjustment is made. There is a potential for volatility of the effective tax rate due to several factors, including changes in the mix of the pre-tax income and the jurisdictions to which it relates, changes in tax laws, business reorganizations and settlements with taxing authorities.

The income tax rates vary from the US federal statutory rate of 21% primarily due to the full valuation allowance on the Company’s deferred tax assets. The Company has recorded the full valuation allowance based on an evaluation of both positive and negative evidence, including latest forecasts and cumulative losses in recent years. The Company has concluded that it was more likely than not that NaN of its deferred tax assets would be realized.

12.RELATED PARTY TRANSACTIONS

During the three and six months ended June 30, 2020, the Company maintained 2 separate consulting agreements with the Company's CSIO, and the CFO and COO.

Beginning in the year ended December 31, 2014, the Company entered into its first consulting agreement with the CSIO. Pursuant to the amended agreement dated July 20, 2018, the CSIO is entitled to a consulting fee of $400 per hour, provided that he is limited to 19 (19) hours per month unless he obtains approval from the Company's Chief Executive Officer. The consulting agreement indicates that the CSIO will provide a leadership role for the Company's business development strategies. The consulting fees paid to the CSO totaled $540,700 in the six months ended June 30, 2020. In addition, the Company issued the CSIO 320,000 shares of common stock on June 19, 2020 in exchange for services rendered and 0 cash considerations.

Beginning in the year ended December 31, 2018, the Company entered into its first consulting agreement with the CFO and COO. Initially, his title was "Consultant", and the Company changed his title to CFO and COO on October 25, 2019. The CFO and COO was elected as a director of the Company on January 17, 2020. Pursuant to the agreement on April 18, 2018 and amended on September 4, 2019, the CFO and COO is entitled to a consulting fee of $2,500 per month amended to $10,000 per month plus discretionary bonuses approved by management. The consulting fees paid to the CFO and COO totaled $100,000 in the six months ended June 30, 2020. In addition, the Company issued the CFO and COO 402,000 shares of common stock on June 19, 2020 in exchange for services rendered and 0 cash considerations. 

After the Company completed the IPO on October 15, 2020, the CFO and COO and the CSIO became full time employees, at which time their consulting agreements were terminated.

There were 0 related party transactions during the three and six months ended June 30, 2021.

26

13.SUBSEQUENT EVENTS

Public Offering

On July 2, 2021, the Company received net proceeds of $37,121,200 for its public offering, after deducting underwriting discounts and commissions of $2,399,900 and other offering expenses of $478,900 incurred. The Company issued and sold 8,000,000 shares of common stock in the public offering at a price of $5.00 per share. In connection with the public offering, 400,000 representative warrants were issued with an exercise price of $6.25 per share.

Completion of In Silico Acquisition

On July 26, 2021, the Company completed its previously announced acquisition of In Silico, a bioinformatics and artificial intelligence company, pursuant to the Purchase Agreement with In Silico and the Seller.

Pursuant to the terms of the Purchase Agreement, the Company acquired 100% of the membership interest of In Silico by delivering 50,189 shares to the Seller, and granting 33,177 restricted stock units to the employees of In Silico under the Company’s 2021 Plan (the “Acquisition”). At the closing of the Acquisition, In Silico became a wholly-owned subsidiary of the Company.

Due to the recent nature of the acquisition, the Company has not yet completed its assessment of the fair value of the assets acquired and liabilities assumed as of the date these condensed consolidated financial statements are issued. Once determined, the acquisition purchase price will be allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date assessed by management.

27

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following management’s discussion and analysis of financial condition and results of operations provides information that management believes is relevant to an assessment and understanding of our plans and financial condition. The following financial information is derived from our financial statements and should be read in conjunction with such financial statements and notes thereto set forth elsewhere herein.

Our Business

Overview

Kiromic BioPharma, Inc. (together with its subsidiary, “we,” “us,” “our” or the “Company”) is aan Artificial Intelligence (“AI”) driven, end-to-end allogeneic cell therapy company, currently developing multi-indication allogeneic T cell therapies that exploits the natural potency of Gamma Delta T cells (“GDTs”) to target solid tumors. Our end-to-end approach consists of target discovery and gene-editing company utilizing artificial intelligencevalidation, product development, and current good manufacturing practices (“cGMP”), which we believe will allow us to leverage a new framework for the next generation of cell therapies. We also have new technologies in development that we believe will support our end-to-end approach.

From a development standpoint, we utilize innovative engineered and non-engineered GDT manufacturing technologies and are developing proprietary, neural networkvirus-free gene editing tools, to develop novel therapies for solid tumors that we believe will be effective and cost-efficient. Our Procel, Isocel, and Deltacel product platform withcandidates consists 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 therapeutic focus on immuno-oncology. Our proprietary target discovery engine is called "DIAMOND." Weprocess, and are focused on extendingused to treat solid tumors regardless of the benefits of immunotherapy by leveraging our proprietary technologies. Our approach seeks to generate a therapeutic immune response in patients by unleashing the demonstrated natural power of a patient's own immune system to recognize tumor-specific peptide sequences presented on cancer cells, known asspecific tumor specific iso-antigens, capable of generating an immunological response and therefore eradicate cancer cells.antigen expression.

We are developing our brand of chimeric antigen receptor (“CAR”) T cell product candidates known as ALEXIS. Our two product candidates are called ALEXIS-ISO-1 and ALEXIS-PRO-1. ALEXIS-ISO-1 is our allogenic gamma delta CAR-T cell therapycurrently have one clinical trial candidate with the Procel product candidate targeting Isomesothelin (the isoform of Mesothelin).platform titled ALEXIS-PRO-1. We currently have one clinical trial candidate with the Isocel product candidate platform titled ALEXIS-ISO-1. Our ALEXIS-PRO-1 clinical trial candidate is our allogeneic gamma delta chimeric T cellGDT therapy product candidate targeting PD-L1. These are designed to treat cancer by capitalizing on the immune system's ability to destroy cancer cells. These product candidates are in the pre-initial new drug (“IND”) stages of the US Food and Drug Administration (the “FDA”)Our ALEXIS-ISO-1 clinical trial process.candidate is our allogeneic GDT therapy product candidate targeting an isoform of Mesothelin that is preferentially present on tumor cells, namely Iso-Meso. The IND applications for these trial candidates have been on a clinical hold since June 2021. We are currently going throughworking on addressing the IND enabling trials process andFDA’s comments. Accordingly, we expect that first in human dosing in Phase I ofthe clinical trialshold on ALEXIS-PRO-1 will commencebe lifted in the first half of 2023 allowing us to begin the activation process for the clinical trial by the end of the second quarter of 2022.

CAR T cell therapy, a form2023. For ALEXIS-ISO-1, we are targeting the activation process for the clinical trial to begin by the end of cancer immunotherapy, has recently emerged as a revolutionary and potentially curative therapythe last quarter of 2023. The beginning of the activation process for patients with hematologic cancers, including refractory cancers. In 2017,the clinical trials begins after the following two autologous anti-CD19 CAR T cell therapies, Kymriah, developed by Novartis International AG, and Yescarta, developed by Kite Pharma, Inc., were approvedevents: (1) the IND is considered effective (which would take place 30 days after receipt by the FDA, unless the FDA raises concerns or questions regarding the proposed clinical trials and places the trial on a clinical hold within that 30-day time period); and (2) commencing the review and approval process by an independent IRB or ethics committee at the first clinical trial site.

We have also entered into a Sponsored Research Agreement (the “SRA”) with The University of Texas MD Anderson Cancer Center (“MD Anderson”) Principal Investigator to facilitate the development of our Deltacel, Procel, and Isocel product candidate platforms. We believe the SRA will generate sufficient in-vivo pre-clinical data to support three new GDT therapy IND submissions that we hope to submit, including INDs for: (1) Deltacel in combination with a standard anti-tumor modality (“IND #1”); (2) Procel in combination with a standard anti-tumor modality (“IND #2”); and (3) Isocel in combination with standard anti-tumor modality (“IND #3”). These three INDs have not been submitted to the FDA yet, and the trial candidates are described in further detail below. The beginning of the activation process for the treatmentclinical trials begins after the following two events: (1) the IND is considered effective (which would take place 30 days after receipt by the FDA, unless the FDA raises concerns or questions regarding the proposed clinical trials and places the trial on a clinical hold within that 30-day time period); and (2) commencing the review and approval process by an independent institutional review board (“IRB”) or ethics committee at the first clinical trial site.

IND #1 will evaluate Deltacel GDTs in combination with a standard anti-tumor modality. We are planning to submit this IND during the second half of relapsing/remitting B-cell precursor acute lymphoblastic leukemia2022, and relapsing/remitting large B cell lymphoma, respectively. Autologous CAR T cell therapies are manufactured individually forbelieve clinical activation may begin by the patient's use by modifyingend of the patient's own T cells outsidefourth quarter of 2022. IND #2 combines the body, causingstandard anti-tumor modality and our genetically engineered product candidate targeting PD-L1, which is the T cells to express CARs. The entire manufacturing process is dependenttarget associated with the ALEXIS-PRO-1 clinical trial candidate on the viabilityProcel product candidate platform. We are planning to submit this IND during the first half of each patient's T cells2023, and takes approximately twobelieve clinical activation will begin by the end of

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the second quarter of 2023. IND #3 combines the standard anti-tumor modality and our genetically engineered product candidate targeting Iso-Meso, the target associated with the ALEXIS-ISO-1 clinical trial candidate on the Isocel product candidate platform. We are planning to four weeks. Allogenic T cell therapies involve engineering healthy donor T cells, which we believe will allow forsubmit this IND during the creationsecond half of an inventory2023, with clinical activation targeted to begin by the end of off-the-shelf products that can be delivered to a larger portionthe fourth quarter of eligible patients throughout the world.2023.

We have not generated any revenue from sales to date, and we continue to incur significant research and development and other expenses related to our ongoing operations. As a result, we are not and have never been profitable and have incurred losses in each period since we began principal business operations in 2012.

Trends As discussed in more detail below, the Company is currently in discussions with financing sources in an attempt to secure short-term financing to continue operations and Uncertainties—COVID-19

We are subject to risks and uncertainties as a resultfund other liquidity needs through the end of the COVID-19 pandemic. The extentyear. In the absence of the impact of the COVID-19 pandemic on our business is highly uncertainsuch financing, management anticipates that existing cash resources will not be sufficient to meet operating and difficult to predict, as the responses that we, other businesses and governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude and overall effectiveness of these actions remain uncertain.

The severity of the impact of the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company's service providers, suppliers, contract research organizations and our clinical trials, all of which are uncertain and cannot be predicted. As of the date of this report, the extent to which the COVID-19 pandemic may in the future materially impact our financial condition, liquidity or results of operations is uncertain.needs beyond September 2022.

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Recent Developments

Terminated Equity Offering

On June 27, 2022, the Company filed a registration statement on Form S-1 (Registration No. 333-265860) with the Securities and Exchange Commission (the “SEC”), pursuant to which it planned to offer up to 62,500,000 shares of common stock (and/or pre-funded warrants in lieu thereof) and warrants to purchase up to 62,500,000 shares of the Company’s common stock in an underwritten public offering. The Company and ThinkEquity LLC, the underwriter (the “Underwriter”) of this planned offering were conducting road shows with potential investors when the plaintiffs in the securities litigation described below filed an amended complaint to add the Underwriter as a defendant in the lawsuit.

As discussed in more detail under Part II. “Item 1. Legal Proceedings”, on March 7, 2022, entities related to Sabby Management LLC and Empery Asset Management, LP filed a complaint in the United States District Court for the Southern District of New York alleging claims against the Company and certain current and former officers and directors of the Company. On July 22, 2022, the plaintiffs amended their complaint to, among other things, include the Underwriter as a defendant. As a result, the Underwriter suspended the offering, including the roadshows. As a result, on August 12, 2022, the Company terminated the engagement of the Underwriter for cause due to, among other reasons, its unwillingness to continue with the offering. As discussed below, the Company is currently in discussions with financing sources in an attempt to secure short-term financing to continue operations and fund other liquidity needs through the end of the year. However, there is no assurance that the Company will be able to secure financing on acceptable terms, if at all.

Going Concern and Liquidity

We do not have sufficient cash on hand and available liquidity to meet our 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, we don’t believe we will have sufficient cash on hand or available liquidity to meet our 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, this condition raises substantial doubt about the Company’s ability to continue as a going concern. Management'sManagement’s plans were updated to further finance operations throughevaluate different strategies to obtain the required funding of future operations. These plans may include, but are not limited to, additional equityfunding from current or debt financing arrangements, and/or third-party collaboration funding;new investors; however, if we are unable to raise additional funding to meet working capital needs, we will be forced to delay or reduce the scope of itsour research programs and/or limit or cease operations. The negative cash flows and lack of financial resources raised substantial doubt as to our ability to continue as a going concern, and that substantial doubt has not been alleviated. Therefore, this condition raises substantial doubt about the Company’s ability to continue as a going concern. See Note 1 to the Company’s Condensed Consolidated Financial Statements, “Going Concern” for further details.

The Company’s estimated cash and cash equivalents were $3,680,300 as of July 31, 2022. The Company is currently in discussions with financing sources in an attempt to secure short-term financing to continue operations and fund other liquidity needs through the end of the year. The Company has begun working with a financial advisor to assist it with its efforts to obtain financing. In the absence of such financing, management anticipates that existing cash resources will not be sufficient to meet operating and liquidity needs beyond September 2022. However, management is currently evaluating various cost reduction actions, including possible reductions in the Company’s workforce and suspending research and development expenditures on one or more product candidates, in order to reduce the Company’s expenditures and preserve cash. We are not able to predict whether any such cost reduction actions will be successful.

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As a result of the pending securities litigation and the Company’s current liquidity position, management can provide no assurance that the Company will be able to obtain financing on acceptable terms, if at all. If financing is available, it may not be on favorable terms and may have a significant dilutive effect on our existing stockholders. In the event we are unable to secure financing sufficient to allow us to meet our obligations as they become due, we may need to file a voluntary petition for relief under the United States Bankruptcy Code in order to implement a restructuring plan or liquidation. See Part II, Item 1A. “Risk Factors” for further details.

New Investigational Drug Application Resubmission AnnouncementClinical Update

On DecemberJune 30, 2022, we completed construction on our expanded cGMP manufacturing facility in Houston. Such expansion is one of the conditions required for the Company to begin the activation of its cell therapy clinical trial for the Deltacel product candidate by the end of 2022. The completion also addresses a key component in the clinical hold communication the Company received from the FDA in June 2021.

On June 21, 2022, we announced our revised pipeline to prioritize submission of IND #1, the Deltacel product candidate in combination with a standard antitumor modality. We believe that this action advances our non-viral, non-engineered product candidate while also reducing costs, and mitigating current supply chain headwinds associated with a virus-based approach. We also announced that we will also pursue new INDs for IND #2 and IND #3, which are our Procel and Isocel product candidates in combination with a standard antitumor modality in 2023. Clinical activation for IND #2 is expected to begin by the end of the second quarter of 2023. Clinical activation for IND #3 is targeted to begin by the end of the fourth quarter of 2023.

In the same press release, we announced our revised clinical timeline. Pursuant to the announcement, we plan to re-submit the IND for ALEXIS-PRO-1 in the first half of 2023, with clinical activation expected to begin by the end of second quarter 2023. Also, we plan to re-submit the IND for ALEXIS-ISO-1 in the second half of 2023, with clinical activation targeted to begin by the end of fourth quarter 2023. Our expectations on timing may change depending on the nature and amount of financing we are able to secure, and any cost reduction actions the Company takes in order to reduce the Company’s expenditures and preserve cash.

Results from our Internal Review

On or about August 17 2020, we filed two investigational new drug applicationsand 23, 2021, Tony Tontat, who at the time was the Chief Financial Officer and a member of the Board of Directors (“the Board”), submitted  substantially identical reports (the “Complaints”) through our complaint hotline.  These Complaints, alleged, among other topics, risks associated with our public disclosures in our securities filings and in statements made to the public, investors, and potential investors regarding (i) the anticipated timing of the U.S. Food and Drug AdministrationAdministration’s (“FDA”). The first application was for a Phase 1 authorization of our investigational new drug (“IND”) applications and (ii) the anticipated timing of human clinical trialtrials.  These Complaints were subsequently submitted to the Audit Committee of intravenously administered allogenic CAR-T for epithelial ovarian carcinoma (“EOC”) and malignant pleural mesothelioma (“MPM”). The second application was for a Phase 1 clinical trial of an intrapleural/intraperitoneal administered allogenic CAR-T for EOC and MPM.the Board.

Since filingAfter receiving the original applicationsComplaints, the Audit Committee recommended that the Board form, and the Board did in December 2020, we have had communications withturn form, a Special Committee comprised of three independent directors (the “Special Committee”) to review the FDA,Complaints and numerous consults with scientific board and clinical advisors regarding resubmission. On March 9, 2021, we announced that we plannedother related issues (the “Internal Review”). The Special Committee retained an independent counsel to resubmitassist it in conducting the two investigational new drug applications. The revised applications will be for first in-human dosing of our Off-the-Shelf, Allogenic Gamma-Delta T cell therapy for metastatic and progressive locally advanced solid malignancies.Internal Review.

In MayOn February 2, 2022, following the conclusion of the Internal Review, the Special Committee reported the results of its Internal Review to the Board.  The Board approved certain actions to address the fact that we had received communications from the FDA on June 16 and June 17, 2021 we resubmittedthat the two IND applications. The revisedFDA was placing our IND applications are for first in-human dosing of our Off-the-Shelf, Allogenic Gamma-Delta T cell therapy for metastaticthat we submitted to the FDA on May 14 and progressive locally advanced solid malignancies. On May 17, 2021 for the ALEXIS-PRO-1 and ALEXIS-ISO-1 product candidates, respectively, on clinical hold (the “June 16 and 17, 2021 FDA Communications”).  On July 13, 2021, we announcedreceived the FDA’s formal clinical hold letters, which asked us to address key components regarding the chemical, manufacturing, and control components of the IND applications.  On July 16, 2021, we issued a press release disclosing that it had received comments from the first IND applicationFDA on our two INDs, but did not use the term “clinical hold.”  On August 13, 2021, we issued a press release announcing that these INDs were placed on clinical hold. We did not disclose the June 16 and 17, 2021 FDA Communications in (i) our Registration Statement on Form S-1 (Registration No. 333-257427) that was filed on June 25, 2021 and declared effective

30

on June 29, 2021, nor the final prospectus contained therein dated June 29, 2021 (collectively, the “Registration Statement”); or (ii) our Form 10-Q for the fiscal quarter ended June 30, 2021 that was filed with the Securities and Exchange Commission on August 13, 2021.  We consummated a Phase I clinical trialpublic offering of $40 million of our ALEXIS-PRO-1 product candidate. On May 24, 2021, we announcedcommon stock pursuant to the Registration Statement on July 2, 2021.  

In the course of the Internal Review, the Special Committee also identified that Mr. Tontat submitted incorrect information regarding his educational background to us.  Specifically, although Mr. Tontat represented to us that he held a BA in Economics from Harvard University, it was determined that he had actually received an ALB, a degree conferred by the second IND application wasHarvard Extension School.  We have implemented changes to our vetting process for prospective director and officer candidates including the implementation of thorough background checks to verify background information provided by such candidates.

Remediation Actions resulting from the Internal Review

1.The Board approved the inclusion of certain Risk Factors for inclusion in its periodic reports. See Part II, Item 1A. Risk Factors in the Form 10-K for the year ended December 31, 2021 for further information.
2.On January 10, 2022, the Board approved the formation of a Disclosure Committee comprised of certain members of the management including (i) its Chief Executive Officer; (ii)  the executive in charge of overseeing submissions of any nature to the FDA; (iii) its Chief Financial Officer; (iv) its General Counsel, if any; (v) its Controller, if any; (vi) any other finance executive overseeing financial disclosures; (vii) the executive in charge of investor relations, if any; and (viii) such other employees as the Chief Financial Officer, who serves as chairman of the Disclosure Committee, may invite from time to time.  The Disclosure Committee shall be responsible for preparing and reviewing all corporate disclosures made by us to our security holders, the Securities and Exchange Commission and/or the broader investment community to ensure that such disclosures (i) shall be accurate and complete; (ii) shall fairly present, in all material respects, our financial condition, results of operations and cash flows; and (iii) shall be made on a timely basis in accordance with all applicable requirements of (A) the Securities Exchange Act of 1934, as amended and the rules and regulations promulgated thereunder, (B) the Securities Act of 1933, as amended and the rules and regulations promulgated thereunder (C) the Nasdaq Stock Market or such other stock exchange on which the our securities may be traded and (D) any other applicable laws or legal requirements.  The Board adopted and approved the Disclosure Committee Charter.

3.The Board terminated Maurizio Chiriva-Internati as Chief Executive Officer for cause on January 27, 2022, after the Special Committee’s Internal Review found evidence of conduct that the Board believed was inconsistent with the company policies. Under the terms of the Executive Employment Agreement between Dr. Chiriva and the Company effective as of July 1, 2020, as amended October 21, 2021, as the result of the termination of his employment, Dr. Chiriva also is deemed to have resigned as a Director on the Board effective as of January 27, 2022.

4.The Board named Pietro Bersani as Interim Chief Executive Officer, effective as of January 27, 2022.  A search for a permanent Chief Executive Officer will be commenced with the assistance of an executive recruiter.  Mr. Bersani has resigned from all Committees of the Board.

5.The Board named independent Director Michael Nagel as Chairperson of the Board, effective as of January 27, 2022.  

6.The Board approved the appointment of Frank Tirelli as a member of the Board to fill a vacancy, effective as of January 28, 2022. The Board has determined that Mr. Tirelli is “independent” as that term is defined under Nasdaq Listing Rule 5605(a)(2).  Mr. Tirelli has been named Chairperson of the Audit Committee effective January 28, 2022. He was also nominated and appointed as a member of the Nominating and Corporate Governance Committee effective March 1, 2022.  Mr. Tirelli was nominated by our Nominating and Corporate Governance Committee of the Board after a thorough review of all his background, relevant experience, and professional and personal reputations.

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7.On February 10, 2022, we and Dr. Scott Dahlbeck (“Dr. Dahlbeck”) entered into a Modification to Employment Agreement dated as of February 9, 2022 (the “Dahlbeck Agreement”). The Dahlbeck Agreement amends and supersedes certain terms of the Employment Agreement dated as of January 1, 2020, between the Company and Dr. Dahlbeck. Pursuant to the Dahlbeck Agreement, effective as of February 9, 2022, Dr. Dahlbeck’s title was changed to Chief of Staff, and he ceased to be our Chief Medical Officer and Head of Clinical.

8.On February 10, 2022, we and Mr. Gianluca Rotino (“Mr. Rotino”) entered into a Transition and Consulting Agreement dated as of February 9, 2022 (the “Rotino Agreement”). Pursuant to the terms of the Rotino Agreement, effective as of February 9, 2022, Mr. Rotino’s employment as our Chief Strategy and Innovation Officer terminated and the Company retained Mr. Rotino to provide consulting services to the Company for a period of nine months (or until November 9, 2022). Notwithstanding the foregoing, the Rotino Agreement may be terminated by either us or Mr. Rotino upon 30 days’ prior written notice, except no such prior notice shall be required in the event we terminate the Rotino Agreement for cause.

Under the terms of the Executive Employment Agreement between Mr. Rotino and the Company effective as of July 1, 2020, as amended October 21, 2020, as the result of the termination of Mr. Rotino’s employment, Mr. Rotino is deemed to have resigned as a Phase 1 clinical trialmember of our ALEXIS-ISO-1 product candidate.the Board effective as of February 9, 2022.

9.The Board approved the appointment of Karen Reeves as a member of the Board to fill a vacancy, effective as of February 14, 2022. The Board has determined that Dr. Reeves is “independent” as that term is defined under Nasdaq Listing Rule 5605(a)(2).  Dr. Reeves was nominated and appointed to be the Nominating and Corporate Governance Committee Chairperson and a member of the Compensation Committee effective March 1, 2022.  Dr. Reeves was nominated by our Nominating and Corporate Governance Committee of the Board after a thorough review of all her background, relevant experience, and professional and personal reputations.

Principal Factors Affecting Our Financial Performance

Our operating results are primarily affected by the following factors:

slow or delayed IND applications;
slow or delayed clinical trial enrollment;
patent reinforcement and prosecution; and
changes in laws or the regulatory environment affecting our company.

Emerging Growth Company

We qualify as an "emerging“emerging growth company"company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:

have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;

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comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor'sauditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);
submit certain executive compensation matters to stockholder advisory votes, such as "say-on-pay"“say-on-pay” and "say-on-frequency;"“say-on-frequency;” and

32

disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer'sofficer’s compensation to median employee compensation.

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

We will remain an emerging growth company for up to five years, or until the earliest of (i) the last day of the first fiscal year (a) following the fifth anniversary of our initial public offering, which was October 15, 2020, (b) the date in which our total annual gross revenues exceed $1.07 billion, (ii)or (c) the date thatin which we become a "large“large accelerated filer"filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii)(ii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

Components of Results of Operations

Revenue

To date, we have not generated any revenue from product sales and do not expect to generate any revenue from product sales in the foreseeable future. We will record revenue from collaboration agreements, including amounts related to upfront payments, annual fees for licenses of our intellectual property and research and development funding. However, none of those agreements have been executed as of the issuance date of this report.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts and the development of our product candidates. These include the following:

salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions;
expenses incurred under agreements with third parties, including contract research organizations and other third parties that conduct preclinical research and development activities and clinical trials on our behalf;
costs of developing and scaling our manufacturing process and manufacturing drug products for use in our preclinical studies and future clinical trials, including the costs of contract manufacturing organizations, that will manufacture our clinical trial material for use in our preclinical studies and potential future clinical trials;
costs of outside consultants, including their fees and related travel expenses;
costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials;
license payments made for intellectual property used in research and development activities; and

30

facility-related expenses, which include direct depreciation costs and expenses for rent and maintenance of facilities and other operating costs if specifically, identifiable to research activities.

Research and development activities are central to our business model. We expect that our research and development expenses will continue to increase substantially for the foreseeable future and will comprise a larger percentage of our total expenses as we initiate a Phase 1/2a1 clinical trialtrials for our IND #1,

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ALEXIS-PRO-1, IND #2, ALEXIS-ISO-1, and ALEXIS-ISO-1 productIND #3 trial candidates and continue to discover and develop additional candidates. However, management is currently evaluating various cost reduction actions, including suspending research and development expenditures on one or more product candidates.candidates, in order to reduce the Company’s expenditures and preserve cash. As of the date of this quarterly report, we are not able to predict on what product candidates and how much expenditures we plan to reduce. However, we expect that our research and development and general and administrative costs will increase over the long-term, even if we are able to successfully reduce our costs in the short-term in order to preserve cash in light of the Company’s current liquidity situation.

We cannot determine with certainty the duration and costs of future clinical trials of our ALEXIS-PRO-1Deltacel, Procel, and ALEXIS-ISO-1 Isocel product candidates, or any other product candidate we may develop or if, when or to what extent we will generate revenue from the commercialization and sale of any product candidate for which we obtain marketing approval. We may never succeed in obtaining marketing approval for any product candidate. The duration, costs and timing of clinical trials and development of our IND #1, ALEXIS-PRO-1, IND #2, ALEXIS-ISO-1, and ALEXIS-ISO-1 productIND #3 trial candidates and any other our producttrial candidate we may develop will depend on a variety of factors, including:

the scope, rate of progress, expense and results of clinical trials of our IND #1, ALEXIS-PRO-1, IND #2, ALEXIS-ISO-1, and ALEXIS-ISO-1 productIND #3 trial candidates, as well as of any future clinical trials of other product candidates and other research and development activities that we may conduct;
uncertainties in clinical trial design and patient enrollment rates;
the actual probability of success for our product candidates, including their safety and efficacy, early clinical data, competition, manufacturing capability and commercial viability;
significant and changing government regulation and regulatory guidance;
the timing and receipt of any marketing approvals; and
the expense of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.rights; and
our ability to effectively address the deficiencies elucidated in the FDA’s clinical hold letters for our IND applications related to key chemical manufacturing and control components.

A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in our clinical trials due to slower than expected patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation for personnel in our executive, finance, business development, operations and administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; travel expenses; and facility-related expenses, which include direct depreciation costs and expenses for rent and maintenance of facilities and other operating costs that are not specifically attributable to research activities.

We expect that our general and administrative expenses will increase in the future as we increase our personnel headcount to support our continued research activities, development, and developmentmanufacturing of product candidates. We also have incurred and expect to continue to incur increased expenses associated with being a public company, including

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costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with Nasdaq and SEC requirements; director and officer insurance costs; and investor and public relations costs.

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Results of Operations

Comparison of the Three Months Ended June 30, 20212022 and 20202021

The following table sets forth key components of our results of operations for the three months ended June 30, 20212022 and 2020.2021.

Three Months Ended

 

Three Months Ended

 

June 30,

Increase (Decrease)

 

June 30,

Increase (Decrease)

 

    

2021

    

2020

    

$

    

%

 

    

2022

    

2021

    

$

    

%

 

Operating expenses:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

  

Research and development

$

2,658,100

$

1,272,300

$

1,385,800

 

108.92

%

$

3,880,700

$

2,658,100

$

1,222,600

46.00

%

General and administrative

 

2,314,100

 

10,094,600

 

(7,780,500)

 

(77.08)

%

 

4,551,700

 

2,314,100

 

2,237,600

96.69

%

Total operating expenses

 

4,972,200

 

11,366,900

 

(6,394,700)

 

(56.26)

%

 

8,432,400

 

4,972,200

 

3,460,200

69.59

%

Loss from operations

 

(4,972,200)

 

(11,366,900)

 

(6,394,700)

 

(56.26)

%

 

(8,432,400)

 

(4,972,200)

 

3,460,200

69.59

%

Other expense

 

  

 

  

 

  

 

  

 

  

 

  

 

  

  

Interest expense

 

(2,100)

 

 

(2,100)

 

(100.00)

%

 

(2,700)

 

(2,100)

 

600

28.57

%

Total other expense

 

(2,100)

 

 

(2,100)

 

(100.00)

%

 

(2,700)

 

(2,100)

 

600

28.57

%

Net loss

$

(4,974,300)

$

(11,366,900)

$

(6,396,800)

 

(56.28)

%

$

(8,435,100)

$

(4,974,300)

$

3,459,600

69.55

%

Research and development expenses. Our research and development expenses increased by $1,385,800,$1,222,600, or 108.92%46.00%, to $3,880,700 for the three months ended June 30, 2022, from $2,658,100 for the three months ended June 30, 2021, from $1,272,300 for the three months ended June 30, 2020.2021. The following table summarizes our research and development expenses by product candidate or development program:

Three Months Ended

 

Three Months Ended

 

June 30,

Increase (Decrease)

 

June 30,

Increase (Decrease)

 

    

2021

    

2020

    

$

    

%

 

    

2022

    

2021

    

$

    

%

 

Direct research and development expenses by product candidate:

 

  

 

  

 

  

  

 

  

 

  

 

  

  

ALEXIS-PRO-1

$

7,900

$

21,500

$

(13,600)

(100.00)

%

$

207,500

$

7,900

$

199,600

2,526.58

%

ALEXIS-ISO-1

 

407,400

 

39,900

 

367,500

100.00

%

 

203,100

 

407,400

 

(204,300)

(50.15)

%

Platform development, early-stage research and unallocated expenses:

 

 

  

  

 

 

 

Employee-related costs

 

929,600

 

703,200

 

226,400

32.20

%

 

1,470,200

 

929,600

 

540,600

58.15

%

Laboratory supplies and services

 

239,000

 

58,900

 

180,100

305.77

%

 

581,200

 

239,000

 

342,200

143.18

%

Outsourced research and development

 

746,000

 

282,100

 

463,900

164.45

%

 

655,000

 

746,000

 

(91,000)

(12.20)

%

Laboratory equipment and maintenance

 

27,500

 

12,400

 

15,100

121.77

%

 

74,100

 

27,500

 

46,600

169.45

%

Facility-related costs

208,500

99,200

109,300

110.18

%

 

657,900

 

208,500

 

449,400

215.54

%

Intellectual Property

 

88,800

 

54,300

 

34,500

63.54

%

Intellectual property

26,400

88,800

(62,400)

(70.27)

%

Other research and development costs

 

3,400

 

800

 

2,600

325.00

%

 

5,300

 

3,400

 

1,900

55.88

%

Total research and development expenses

$

2,658,100

$

1,272,300

$

1,385,800

108.92

%

$

3,880,700

$

2,658,100

$

1,222,600

46.00

%

As illustrated above, the increase in research and development expenses primarily resulted from (i) a $367,500 increase in ALEXIS-ISO-1 direct research and development costs which primarily included a $289,100 increase in disposables and consumables, and a $44,200 increase in outsourced research and development fees, all of which attributed to Gamma Delta T-Cell manufacturing and in-vivo experimentation; (ii) a $226,400$540,600 increase in employee related costs, which primarily included a $365,200$780,900 increase in wages, benefits and payroll taxes, offset by reduced stock compensation expenses of $110,800$269,400 attributable to research and development employees; (iii)(ii) a $463,900 increase in outsourced research and development costs, which primarily included a $532,900 increase in regulatory consulting fees with the offsetting balance resulting from reduced research studies totaling $60,100, and stock compensation expenses attributed to non-employees compared to the prior period; (iv) a $109,300 increase in facility-related costs, primarily driven by $71,400 increase in allocated depreciation expenses, $5,200 increase in allocated rent expenses, and the remaining increase attributed to repairs, maintenance, and utilities; (v) a $180,100$342,200 increase in laboratory supplies inand services, which primarily included a $25,000$395,100 increase in suppliessupply fees, and offset by reduction of $174,000 in disposables purchases; (iii) a $159,200$449,400 increase in spending on disposablesfacility related costs, which was driven by increased in depreciation and consumables for experimentation, testing, validationfacility expenses due to increase in leased facility space, as well as completions of our other key value drivers, with the remaining offsetting balance driven byleasehold improvements attributing to increased depreciation; and (iv) a $199,600 increase in ALEXIS-PRO-1 direct

3235

reduced postage spending;research and (vi) a $34,500 increase in intellectual propertydevelopment costs, which consists ofwas mainly driven by increased legal expensesdisposables and intellectual property filing primarily attributed to DIAMONDconsumables for GDT manufacturing, in-vitro, and other technologies currently in development.in-vivo experimentation costs.

These cost increases were primarily incurred to support Gamma Delta T-CellGDT manufacturing as well as experimentation and validation ofpreparing our product candidates.candidates for IND resubmission.

1.

Augmented our research and development team: Inin the three months ended June 30, 20212022 and 2020,2021, our average headcount increased to 21.542 employees from seven22 employees allocable to research and development and clinical trials preparation.

2.

ALEXIS-ISO-1ALEXIS-PRO-1 Manufacturing and Experimentation: $367,500$199,600 increase in spending during the three months ended June 30, 20212022, from manufacturing expanded Gamma Delta T-CellsGDTs in the recently completedexpanded GMP facilities. In addition, in-vivo experimentation costs in the recently completed vivarium facilities contributed to the increase.

General and administrative expenses. Our general and administrative expenses decreasedincreased by $7,780,500,$2,237,600, or 77.08%96.69%, to $4,551,700 for the three months ended June 30, 2022, from $2,314,100 for the three months ended June 30, 2021 from $10,094,600 for the three months ended June 30, 2020.2021.

During the three months ended June 30, 2021,2022, the decreaseincrease primarily resulted from a decreasean increase in stock compensation expenses of $8,486,700. That decrease was offset by increased professional services of $130,300, wages and salaries$1,398,400, as well as an increase in employee related expenses of $351,700, and insurance of $142,400.$1,179,000.

The decreaseincrease in stock compensation expenseprofessional services was primarily driven by the June 2020 common stock issuancesan increase in legal expenses of 722,000 shares to our Chief Financial Officer,$1,123,400, and Chief Strategy and Innovation Officer which resulted$275,000 in $9,386,000 of non-recurring stock compensation expenses. That decrease was offset byprofessional services fees. We incurred significant legal expenses related to stock option grant modification totaling $890,700 incurred duringthe Internal Review. In the three months ended June 30, 2021.

.

The increase2022, the Company has incurred $994,100 in professional services expenses was primarily driven by an increase of $138,000 from consulting and corporate development fees incurred during the three months ended June 30, 2021 comparedrelated to the same period in the prior year.Internal Review and related matters.

Employee related expenses were impacted by increases to headcount, and employee salary rates.recruiting. During the threesix months June 30, 20212022 and 2020,2021, the headcount for employees allocated to general and administrative purposes increased to eight29 employees from four9 employees, respectively. In addition, the Chief Executive Officer's salarychanges in headcount generated $62,700 in increased recruiting fees.

These increases were offset by $799,900 decrease in stock compensation expenses related to an annual rate of $504,000 from $280,000 as of June 30, 2021general and 2020, respectively.

Finally, the increase in insurance costs is driven by our financing arrangement for the Director and Officer Insurance policy. We entered this policy in November of 2020. The total amount of expense incurred from that policy during the three months ended June 30, 2021 totaled $135,100.

administrative employees.

Interest expense. Interest expense was $2,100an expense of $2,700 and $0$2,100 for the three months ended June 30, 20212022 and 2020,2021, respectively. The increase is entirely driven by cash paid for interest attributed to the financing arrangement for our Director and Officer Insurance policy. In November 2020, the Company entered into a financing arrangement for its Director and Officer Insurance policy. The total amount financed was approximately $540,500 with an annual interest rate of 4.59%, to be paid over a period of nine months. As of June 30, 2021, the remaining payable balance on the financed amount was $91,600.

In November 2021, the Company entered into a financing arrangement to renew its Director and Officer Insurance policy. The total amount financed was approximately $665,900 with an annual interest rate of 4.59%, to be paid over a period of ten months. As of June 30, 2022, the remaining payable balance on the financed amount was $114,900.

Net loss.    As a result of the cumulative effect of the factors described above, our net loss decreasedincreased to $8,435,100 during the three months ended June 30, 2022, compared to $4,974,300 during the three months ended June 30, 2021 compared to $11,366,900 during the three months ended June 30, 2020.

2021.

3336

Comparison of the Six Months Ended June 30, 20212022 and 20202021

The following table sets forth key components of our results of operations for the six months ended June 30, 20212022 and 2020.2021.

Six Months Ended

 

Six Months Ended

 

June 30,

Increase (Decrease)

 

June 30,

Increase (Decrease)

 

    

2021

    

2020

    

$

    

%

 

    

2022

    

2021

    

$

    

%

 

Operating expenses:

 

  

 

  

 

  

  

 

  

 

  

 

  

  

Research and development

$

4,543,700

$

2,300,400

$

2,243,300

97.52

%

$

6,806,500

$

4,543,700

$

2,262,800

49.80

%

General and administrative

 

4,385,100

 

10,919,200

 

(6,534,100)

(59.84)

%

 

8,990,800

 

4,385,100

 

4,605,700

105.03

%

Total operating expenses

 

8,928,800

 

13,219,600

 

(4,290,800)

(32.46)

%

 

15,797,300

 

8,928,800

 

6,868,500

76.93

%

Loss from operations

 

(8,928,800)

 

(13,219,600)

 

(4,290,800)

(32.46)

%

 

(15,797,300)

 

(8,928,800)

 

6,868,500

76.93

%

Other income (expense)

 

  

 

  

 

  

  

 

  

 

  

 

  

  

Gain on loan extinguishment

105,800

105,800

100.00

%

105,800

(105,800)

(100.00)

%

Interest expense

 

(5,800)

 

 

(5,800)

(100.00)

%

 

(5,500)

 

(5,800)

 

(300)

(5.17)

%

Total other income (expense)

 

100,000

 

 

(22,400)

(100.00)

%

 

(5,500)

 

100,000

 

(106,100)

(106.10)

%

Net loss

$

(8,828,800)

$

(13,219,600)

$

(4,313,200)

(32.63)

%

$

(15,802,800)

$

(8,828,800)

$

6,974,600

79.00

%

Research and development expenses. Our research and development expenses increased by $2,243,300,$2,262,800, or 97.52%49.80%, to $6,806,500 for the six months ended June 30, 2022, from $4,543,700 for the six months ended June 30, 2021, from $2,300,400 for the six months ended June 30, 2020.2021. The following table summarizes our research and development expenses by product candidate or development program:

Six Months Ended

 

Six Months Ended

 

June 30,

Increase (Decrease)

 

June 30,

Increase (Decrease)

 

    

2021

    

2020

    

$

    

%

 

    

2022

    

2021

    

$

    

%

 

Direct research and development expenses by product candidate:

 

  

 

  

 

  

  

 

  

 

  

 

  

  

ALEXIS-PRO-1

$

33,900

$

39,400

$

(5,500)

(13.96)

%

$

436,800

$

33,900

$

402,900

1,188.50

%

ALEXIS-ISO-1

 

892,100

 

54,600

 

837,500

100.00

%

 

270,800

 

892,100

 

(621,300)

(69.64)

%

Platform development, early-stage research and unallocated expenses:

 

 

 

 

 

  

  

Employee-related costs

 

1,785,500

 

1,127,100

 

658,400

58.42

%

 

2,773,800

 

1,785,500

 

988,300

55.35

%

Laboratory supplies and services

 

359,700

 

125,500

 

234,200

186.61

%

 

912,100

 

359,700

 

552,400

153.57

%

Outsourced research and development

 

896,000

 

678,100

 

217,900

32.13

%

 

1,060,400

 

896,000

 

164,400

18.35

%

Laboratory equipment and maintenance

 

59,900

 

26,800

 

33,100

123.51

%

 

230,900

 

59,900

 

171,000

285.48

%

Facility-related costs

 

364,300

 

177,900

 

186,400

104.78

%

988,400

364,300

624,100

171.31

%

Intellectual Property

148,800

69,000

79,800

115.65

%

Intellectual property

 

120,400

 

148,800

 

(28,400)

(19.09)

%

Other research and development costs

 

3,500

 

2,000

 

1,500

75.00

%

 

12,900

 

3,500

 

9,400

268.57

%

Total research and development expenses

$

4,543,700

$

2,300,400

$

2,243,300

97.52

%

$

6,806,500

$

4,543,700

$

2,262,800

49.80

%

As illustrated above, the increase in research and development expenses primarily resulted from (i) a $837,500 increase in ALEXIS-ISO-1 direct research and development costs which primarily included a $673,400 increase in disposables and consumables, a $44,400 increase in outsourced research and development fees, a $25,800 increase in non-capitalizable equipment and maintenance, and a $57,500 increase in supplies, all of which attributed to Gamma Delta T-Cell manufacturing and in-vivo experimentation; (ii) a $658,400$988,300 increase in employee related costs, which primarily included a $654,000$1,489,800 increase in wages, benefits and payroll taxes; (iii)taxes offset by a $217,900 increasereduction in outsourced research and development costs, which primarily includedstock based compensation cost of $527,800, (ii) a $564,100 increase in regulatory consulting fees with the offsetting balance resulting from reduced stock compensation expenses attributed to non-employees compared to the prior period; (iv) a $186,400 increase in facility-related costs, primarily driven by $132,700 increase in allocated depreciation expenses, $13,500 increase in allocated rent expenses with the remaining amount attributed to repairs, maintenance, and utilities; (v) a $234,200$552,400 increase in laboratory supplies inand services, which primarily included a $65,600$503,500 increase in supplies and supply fees, (iii) a $166,800$624,100 increase in spending on disposables and consumables for experimentation, testing, validation of our other key value drivers, with the remaining balancefacility related costs, which was driven by postage spending;increases in depreciation and (vi) a $79,800 increasefacility expenses due to more leased facility space than same period in

34

intellectual property which consists of increased legal expenses and intellectual property filing primarily attributed to DIAMOND and other technologies currently in development;

These cost increases were primarily incurred to support Gamma Delta T-CellGDT manufacturing as well as experimentation and validation ofpreparing our product candidates.candidates for IND resubmission.

1.

Augmented our research and development team: Inin the six months ended June 30, 20212022 and 2020,2021, our average headcount increased to 18.536 employees from 619 employees allocable to research and development and clinical trials preparation.

37

2.

ALEXIS-ISO-1ALEXIS-PRO-1 Manufacturing and Experimentation: $837,500$402,900 increase in spending during the six months ended June 30, 20212022, from manufacturing expanded Gamma Delta T-CellsGDTs in the recently completedexpanded GMP facilities. In addition, in-vivo experimentation costs in the recently completed vivarium facilities contributed to the increase.

General and administrative expenses. Our general and administrative expenses decreasedincreased by $6,534,100,$4,605,700, or 59.54%105.03%, to $8,990,800 for the six months ended June 30, 2022, from $4,385,100 for the six months ended June 30, 2021 from $10,919,200 for the six months ended June 30, 2020.2021.

During the six months ended June 30, 2021,2022, the decreaseincrease primarily resulted from a decreasean increase in stock compensation expenses of $7,859,200. That decrease was offset by increased professional services of $641,700, wages and salaries$2,931,900, an increase in employee related expenses of $550,300, and insurance$669,000, as well as increase of $284,700.$853,100 in miscellaneous expenses.

The decreaseincrease in stock compensation expenseprofessional services was primarily driven by the June 2020 common stock issuancesan increase in legal expenses of 722,000 shares to our Chief Financial Officer,$2,616,300, and Chief Strategy and Innovation Officer which resulted$315,600 in $9,386,000 of non-recurring stock compensation expenses. That decrease was offset by expenses related to stock option grant modification totaling $1,178,300 incurredprofessional services fees during the six months ended June 30, 2021. The remaining offsetting balance is mainly driven by increased stock compensation expense during the six months ended June 30, 2021 from amortized expense of executive performance-based restricted stock unit grants.

The increase in professional services expenses was driven by an increase of $361,900 from accounting and audit fees and an increase of $279,900 of other consulting and corporate development fees incurred during the six months ended June 30, 20212022, compared to the same period in the prior year. We incurred significant legal expenses related to the Internal Review. Between October 1 2021 and June 30, 2022, we incurred $5,083,700 in legal fees and other professional fees directly related to the Internal Review and related matters.

Employee related expenses were impacted by increases to headcount, and employee salary rates.recruiting. During the six months June 30, 20212022 and 2020,2021, the headcount for employees allocated to general and administrative purposes increased to 817 employees from 3.58 employees, respectively. In addition, the Chief Executive Officer's salarychanges in headcount generated $209,100 in increased to an annual rate of $504,000 from $280,000 as of June 30, 2021recruiting fees.

Finally, we also incurred the following increase in costs; $204,100 in corporate finance and 2020, respectively.

Finally,development costs, $100,900 in information technology related costs, $161,400 in rent and utilities, and $177,600 in other costs. All the above costs are correlated to the increase in insurance costs is driven by our financing arrangement for the Director and Officer Insurance policy. We entered this policy in November of 2020. The total amount of expense incurred from that policy during the six months endedheadcount between June 30, 2021 totaled $270,200.2022 and June 30, 2021.

Gain on loan extinguishmentInterest expense. Gain on loan extinguishmentInterest expense was $105,800an expense of $5,500 and $0$5,800 for the six months ended June 30, 2022 and 2021, respectively. The increase is entirely driven by cash paid for interest attributed to the financing arrangement for our Director and Officer Insurance policy. In November 2020, the Company entered into a financing arrangement for its Director and Officer Insurance policy. The total amount financed was approximately $540,500 with an annual interest rate of 4.59%, to be paid over a period of nine months. As of June 30, 2021, the remaining payable balance on the financed amount was $91,600.

In November 2021, the Company entered into a financing arrangement to renew its Director and Officer Insurance policy. The total amount financed was approximately $665,900 with an annual interest rate of 4.59%, to be paid over a period of ten months. As of June 30, 2022, the remaining payable balance on the financed amount was $114,900.

Gain on loan extinguishment.Gain on loan extinguishment was $0 and $105,800 for the six months ended June 30, 2022 and 2021, respectively. During the year ended December 31, 2020, we applied for forgiveness of the SBA Loan in accordance with the terms of the CARES Act. On February 16, 2021 the SBA granted forgiveness of the SBA Loan and all applicable interest. On the date of forgiveness, the principal and accrued interest totaled $105,800.

35

Interest expense.     Interest expense was $5,800 and $0 for the six months ended June 30, 2021 and 2020, respectively. The increase is entirely driven by cash paid for interest attributed to the financing arrangement for our Director and Officer Insurance policy. The total amount financed was $540,500 with an annual interest rate of 4.59%, to be paid over a period of nine months. As of June 30, 2021, the remaining payable balance on the financed amount was $91,600.

Net loss. As a result of the cumulative effect of the factors described above, our net loss decreasedincreased to $15,802,800 during the six months ended June 30, 2022, compared to $8,828,800 during the six months ended June 30, 2021 compared to $13,219,600 during the six months ended June 30, 2020.2021.

Liquidity and Capital Resources

As of June 30, 2021,2022, we had cash and cash equivalents of $3,070,400.$6,510,600. As of DecemberJuly 31, 20202022, we had cash and cash equivalents of $10,150,500.$3,680,300. We do not currently have any approved products and have never generated any revenue from product sales. To date, we have financed our operations primarily with proceeds from the sale of our convertible promissory notes, preferred stock, and common stock from the initial public offering and follow-on offering.

Based on

We have known material contractual obligations which will require cash to meet their requirements. These applicable obligations include our forecasted expenditures relatedfacility lease agreement, our employment contracts, and our financing arrangement for our Director and Officer Insurance Policy. We also plan to our ongoing clinical trials anddeploy cash for other research and development efforts followingand general and administrative operating expenses. Our ability to continue meeting these contractual obligations will be reliant upon our ability to secure significant additional capital funding.

38

As described above under Going Concern and Liquidity, in the completionabsence of our public offering on July 2, 2021, we determinedfinancing, management anticipates that we haveexisting cash resources will not be sufficient cash on hand and available liquidity to meet operating and liquidity needs beyond September 2022. Management is currently evaluating various cost reduction actions, including possible reductions in the Companys workforce and suspending research and development expenditures on one or more product candidates, in order to reduce the Companys expenditures and preserve cash. We are limited in our obligations throughability to reduce expenditures for known contractual obligations. As a result, we are not able to predict whether any cost reduction actions will be successful or how much longer any such actions will allow the twelvemonths following the date the condensed consolidated financial statements are issued. After taking into account our cash flow projections, we do not believe we will have sufficient cash on hand or available liquidityCompany to meet our obligations through the twelve months from the date of issuance of the condensed consolidated financial statements for the three months ending September 30, 2021. Wecontinue to operate without financing.

As previously disclosed, we have incurred significant operating losses since inception, and we expect to incur significant expenses and operating losses for the foreseeable future as we advance the preclinical and clinical development of our product candidates. We expect that our research and development and general and administrative costs will increase.increase over the long-term, even if we are able to successfully reduce our costs in the short-term in order to preserve cash in light of the Companys current liquidity situation. These costs include conducting preclinical studies and clinical trials for our product candidates, contracting with clinical research organizations and building out internal capacity to have product candidates manufactured to support preclinical studies and clinical trials, expanding our intellectual property portfolio and providing general and administrative support for our operations. As a result, substantial doubt exists regarding the going concern assumption on our condensed consolidated financial statements. Therefore, these condition raises substantial doubt about our ability to continue as a going concern.

We

As described above, our recent planned underwritten public offering was not successful and we are currently seeking short-term financing to be able to continue our operations past September 2022. If we are successful in obtaining short-term financing to fund our operations through the end of the year, we intend to seek significant additional capital funding to develop our platform, additional hiring of scientific professionals, hiring other general and administrative employees, and clinical trials. However, there can be no assurance that such efforts will be successful or that, in the event that they are successful, the terms and conditions of any such financingfinancings will be favorable. Further, the results of our Internal Review demonstrated that we had ineffective disclosure controls and procedures during the first quarter of 2022 and earlier periods, which resulted in our failure to disclose certain information, which has resulted in litigation which has adversely affected our ability to raise capital. Further, there are other factors which may make financing our operations more difficult, including potential governmental investigation, continued elevated legal and accounting professional fees associated with the Internal Review and securities litigation, and other risk factors listed in Item 1A. of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021. In consideration of our plans, substantial doubt is not alleviated.

Summary of Cash Flow

The following table sets forth a summary of our cash flows for the periods presented:

Six Months Ended June 30,

Six Months Ended June 30,

    

2021

    

2020

    

2022

    

2021

Net cash used in operating activities

$

(6,344,100)

$

(2,603,800)

$

(13,548,000)

$

(6,344,100)

Net cash used in investing activities

 

(590,600)

 

(762,300)

 

(4,955,700)

 

(590,600)

Net cash (used for) provided by financing activities

 

(145,400)

 

3,120,500

Net decrease in cash and cash equivalents

 

(7,080,100)

 

(245,600)

Net cash provided by financing activities

 

(339,600)

 

(145,400)

Net increase in cash and cash equivalents

 

(18,843,300)

 

(7,080,100)

Cash and cash equivalents at beginning of the period

 

10,150,500

 

1,929,100

 

25,353,900

 

10,150,500

Cash and cash equivalents at end of the period

 

3,070,400

 

1,683,500

$

6,510,600

$

3,070,400

Cash flows from operating activities

Net cash used in operating activities was $6,344,100$13,548,000 for the six months ended June 30, 2021,2022, as compared to $2,603,800$6,344,100 for six months ended June 30, 2020.2021. In the six months ended June 30, 2021,2022, the primary cash outflows were from the net loss of $15,802,800 compared to $8,828,800 during the six months ended June 30, 2021. Net cash used in operating activities increased by a total of $7,203,900 period-over-period. In addition, stock compensation expense was $264,300 and outflows from$2,213,800 during the six months ended June 30, 2022 and 2021, respectively. We primarily used cash to augment our headcount, develop our ALEXIS-PRO-1 product candidate, and pay for legal and professional fees. See Results of Operations above for further details.

3639

the gain on loan extinguishment of $105,800. These cash outflows were offset by stock compensation expenses from stock options and restricted stock units of $2,213,800, prepaid expenses and other current assets of $151,500, and depreciation of $202,400. Net cash used in operating activities decreased by a total of $3,470,300 period-over-period. The main driver for the decrease is the $8,817,200 decrease in stock compensation expenses, offset by the decrease in net loss of $4,390,800. We primarily used cash to augment our headcount, develop our ALEXIS-ISO-1 product candidate, and pay for other corporate development costs. See "Results of Operations" above for further details.

Cash flows from investing activities

Net cash used for in investing activities was $4,955,700 for the six months ended June 30, 2022, as compared to $590,600 for the six months ended June 30, 2021, as compared to $762,300 for the six months ended June 30, 2020.2021. Our net cash used in investing activities consisted entirely of purchases of property and equipment. This decreaseincrease was primarily driven by reduced cash outflows from equipment and leasehold improvements attributed to our Clean Room and Vivarium current good manufacturing practices facilities located in our Houston office.

Cash flows from financing activities

Cash outflows from financing activities was $145,400 during the six months ended June 30, 2021. Net cash provided by financing activities during the six months ended June 30, 2020 totaled $3,120,500.

During the six months ended June 30, 2022 and 2021, we paid $339,600 and $270,800 towards our financing arrangement for our Director and Officer Insurance policy. This outflow was offset by exercised stock options resulting in proceeds of $125,400.policy, respectively.  During the six months ended June 30, 2020, the net cash provided by financing activities consisted of proceeds from the Series B Preferred Stock round of financing totaling $3,000,000 and proceeds from a loan payable of $115,600.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements for any of the periods presented.

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Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with United States generally accepted accounting principles (U.S. GAAP) requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management'smanagements difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management'smanagements current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements:statements.

Fair Value MeasurementsThe carrying value of our cash and cash equivalents, prepaid expenses and other assets, accounts payable, accrued expenses and other current liabilities approximate their fair value due to their short-term nature.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In estimating the fair value of an asset or a liability, we take into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.

We account for financial instruments in accordance with Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures. ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (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 1Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2Quoted 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.

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Level 3Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

There were no changes in the fair value hierarchy leveling during the three and six months ended June 30, 20212022 and 2020.2021.

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Stock-Based Compensation We record stock compensation expense related to our 2017 Equity Incentive Plan and 2021 Equity Incentive Plan in accordance with ASC718, CompensationCompensation—Stock Compensation. We measure and recognize stock compensation expense for all stock-based awards, including stock options and restricted stock units (RSUs(“RSUs”).

Stock compensation expense for RSUs is based on estimated fair values recognized using the straight-line method over the requisite service period, as long as the performance obligations in the RSU agreement are deemed probable by management. Stock compensation expense for stock options is based on estimated fair values recognized using the straight-line method over the requisite service period. The fair value of stock options is estimated on the grant date using the Black-Scholes option-valuation model. The calculation of stock-based compensation expense requires that we make assumptions and judgments about the variables used in the Black- Scholes option-valuation model, including the fair value of our common stock, expected term, expected volatility of the underlying common stock, and risk-free interest rate. Forfeitures are accounted for when they occur.

We estimate the grant-date fair value of stock options using the Black-Scholes option-valuation model. During the three and six months ended June 30, 20212022 and 2020,2021, all stock option equity grants under the 2017 Equity Incentive Plan and 2021 Equity Incentive Plan contained assumptions used to value such stock options, and were determined as follows:

Expected Term.The expected term represents the period that our stock options are expected to be outstanding. We have used the SAB No.110, simplified method to calculate the expected term, which is the average of the contractual term and vesting period. We do not plan to continue to use the SAB110 simplified method after we have sufficient trading history as a publicly traded company.

Risk-Free Interest Rate.    We base the risk-free interest rate used in the Black-Scholes option-valuation model on the implied yield available on US Treasury zero-coupon issues with a term equivalent to that of the expected term of the stock options for each stock option group.

Volatility.    We determine the price volatility based on the historical volatilities of industry peers as we have limited trading history for our common stock price. We intend to continue to consistently apply this process using the same or a similar peer group of public companies, until a sufficient amount of historical information regarding the volatility of our own common stock price becomes available, or unless circumstances change such that the identified peer companies are no longer similar, in which case other suitable peer companies whose common stock prices are publicly available would be utilized in the calculation.

Dividend Yield.    The expected dividend assumption is based on our current expectations about our anticipated dividend policy. To date, we have not declared any dividends and, therefore, we used an expected dividend yield of zero.

Common Stock Valuations. During the three and six months ended June 30, 2022 and 2021, we used our listed Nasdaq Capital Market closing price on the grant date to determine common stock valuation.

During the six months ended June 30, 2020, the fair value of the common stock underlying our stock-based compensation grants was determined by our board of directors, with input from management and third-party valuations. We believe that the board of directors had the relevant experience and expertise to determine the fair value of our common stock. Given the absence of a public trading market of our common stock, and in accordance with the American Institute of Certified Public Accountants Practice Aid,Valuation of Privately- Held Company Equity Securities Issued as Compensation, the board of directors exercised reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of the fair value of our common stock at each grant date. These factors include:

valuations of the common stock performed by third-party specialists;
the prices, rights, preferences, and privileges of our SeriesA-1 Preferred Stock and SeriesB Preferred Stock relative to those of our common stock;
lack of marketability of the common stock;

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current business conditions and projections;
hiring of key personnel and the experience of management;
our stage of development;
likelihood of achieving a liquidity event, a merger or acquisition of our company given prevailing market conditions, or other liquidation event;
the market performance of comparable publicly traded companies; and
the U.S. and global capital market conditions.

In valuing our common stock, the board of directors determined the equity value of our business using various valuation methods including combinations of income and market approaches. The income approach estimates value based on the expectation of future cash flows that a company will generate. These future cash flows are discounted to their present values using a discount rate derived from an analysis of the cost of capital of comparable publicly traded companies in our industry or similar business operations as of each valuation date and is adjusted to reflect the risks inherent in our cash flows. The market approach references actual transactions involving (i)the subject being valued, or (ii)similar assets and/or enterprises.

For each valuation, the equity value determined by the income and market approaches was then allocated to the common stock using either the option pricing method, or OPM, or probabilityweighted expected return model, or PWERM.

The option pricing method is based on the Black Scholes option valuation model, which allows for the identification of a range of possible future outcomes, each with an associated probability. The OPM is appropriate to use when the range of possible future outcomes is difficult to predict and thus creates highly speculative forecasts. In general, while simple in its application, management did not use the OPM approach when considering allocation techniques for the valuation of equity interests in early stage, privately held life science companies. Management determined that applying the OPM would violate the major assumptions of the Black Scholes option valuation model approach. Additionally, the simulation approach can generally be reasonably approximated by a scenario-based approach like the PWERM as described below.

PWERM involves a forward-looking analysis of the possible future outcomes of the enterprise. This method is particularly useful when discrete future outcomes can be predicted at a relatively high confidence level with a probability distribution. Discrete future outcomes considered under the PWERM include an initial public offering, as well as non- initial public offering market-based outcomes. Determining the fair value of the enterprise using the PWERM requires us to develop assumptions and estimates for both the probability of an initial public offering liquidity event and stay private outcomes, as well as the values we expect those outcomes could yield. Since in February 2018, we have valued our common stock based on a PWERM.

Application of our approach involves the use of estimates, judgment, and assumptions that are highly complex and subjective, such as those regarding expected future revenue, expenses, and future cash flows, discount rates, market multiples, the selection of comparable companies, and the probability of possible future events. Changes in any or all of these estimates and assumptions or the relationships between those assumptions impact valuations as of each valuation date and may have a material impact on the valuation of our common stock.

For valuations after the completion of an initial public offering, the board of directors will determine the fair value of each share of underlying common stock based on the closing price of the common stock as reported on the date of grant. Future expense amounts for any particular period could be affected by changes in assumptions or market conditions.

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Warrants Underlying Shares of IPOEquity Offering Common Stock We record warrants to purchase shares of common stock underlying our shares of IPO common stock and July 2021 offering common stock (“the equity offerings”) in accordance with ASC470,Debt with conversion and other options. The fair value of the warrants was estimated on the IPOeach equity offering date using the Black-Scholes option- valuation model. The calculation of warrants requires that we make assumptions and judgments about the variables used in the Black-Scholes option-valuation model, including the fair value of our common stock, expected term, expected volatility of the underlying common stock, risk-free interest rate, and exercise price.

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We estimate the fair value of warrants using the Black-Scholes option-valuation model and the assumptions used to value such warrants are determined as follows:

Expected Term.    The expected term represents the period that our warrants are expected to be outstanding. The expected term was calculated by taking the average of the vesting period and contract period.

Risk-Free Interest Rate.    We base the risk-free interest rate used in the Black-Scholes option-valuation model on the implied yield available on US Treasury zero-coupon issues with a term equivalent to that of the expected term of the warrants.

Volatility.    We determine the price volatility based on the historical volatilities of industry peers as we had one day of trading history as of the initial public offering date. We intend to continue to consistently apply this process using the same or a similar peer group of public companies, until a sufficient amount of historical information regarding the volatility of our own common stock price becomes available, or unless circumstances change such that the identified peer companies are no longer similar, in which case other suitable peer companies whose common stock prices are publicly available would be utilized in the calculation.

Dividend Yield.    The expected dividend assumption is based on our current expectations about our anticipated dividend policy. To date, we have not declared any dividends and, therefore, we used an expected dividend yield of zero.

Common Stock Valuations.    The fair value of our common stock when the initial public offering warrants were issued is equal to the IPOinitial public offering common stock issuance price of $12.00 per share. The fair value of our common stock when the July 2, 2021 warrants were issued is equal to the offering price of $5.00 per share.

Exercise Price.The representative warrants’ exercise price to purchase common stock is $15.00 and $6.25 per share.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position, results of operations, or cash flows upon adoption.

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which requires lessees to recognize the following for all leases (with the exception of short-term leases) at the commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. In July 2018, the FASB issued ASU 2018-11 to amend certain aspects of Topic 842. These amendments provide entities with an additional (and optional) transition method to adopt Topic 842. Under this transition method, an entity initially applies the transition requirements in Topic 842 at that Topic’s effective date with the effects of initially applying Topic 842 recognized as a cumulative effect adjustment to the opening balance of retained earnings (or other components of equity or net assets, as appropriate) in the period of adoption. On April 8, 2020, the FASB changed the effective date of this standard applicable to the Company as an emerging growth company to January 1, 2022. The Company is currently evaluating the potential impact of this standard on its financial position, results of operations, and cash flows.

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

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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 April 8, 2020, 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.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information under this item.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2021.2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’sCompany’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Under the supervision, and with the participation, of our current management, including our Chief Executive OfficerCEO and Chief Financial Officer,CFO, we evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act, of 1934, as amended (the “Exchange Act”), as of June 30, 2021.2022. Based on this evaluation of our disclosure controls and procedures, our management, including our CEO and CFO, have concluded that our disclosure controls and procedures were not effective as of June 30, 20212022 because of the material weaknesses in our internal control over financial reporting described below.

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Material WeaknessesChanges in Internal Control over Financial Reporting

In connection with the audit ofAs disclosed under Item 9A., Controls and Procedures in our financial statementsAnnual Report on Form 10-K for the year ended December 31, 2020,2021, we identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. The material weaknesses are because we (i) do not have a formal process for period end financial closing and reporting, and also becausereporting; (ii) we have insufficient resources to conduct an effective monitoring and oversight function independent from our operations.operations; and (iii) we did not have a control to appropriately communicate relevant information from the FDA to appropriate parties on a timely basis. These material weaknesses resultresulted in an increased risk of material misstatement in the financial statements.statements, and in our failure to timely disclose the June 16 and 17, 2021 FDA Communications.

We believe that we are addressing thesethe material weaknesses identified in connection with the audit of our financial statements for the year ended December 31, 2021 and prior periods through measures including:

-implementation of additional internal control processes and procedures regarding the financial close and reporting process, procure to pay process, and human resources and payroll process;

-designing those controls with the appropriate segregation of dutiesduties; and

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-Thethe recruitment ofof a full timefull-time accounting and finance personnel, including, but not limited to, personnel focused upon enhanced scrutiny of accounting entries in the areas where we have observed material weaknesses in our internal control over financial reporting.

As a remedial measure to address the Company’s material weakness in internal control over financial reporting as a result of the Internal Review, on January 10, 2022, the Board approved the formation of a Disclosure Committee comprised of certain members of the Company’s management including (i) its Chief Executive Officer; (ii) the executive in charge of overseeing submissions of any nature to the FDA; (iii) its Chief Financial Officer; (iv) its General Counsel, if any; (v) its Controller; (vi) any other finance executive overseeing financial disclosures; (vii) the executive in charge of investor relations, if any; and (viii) such other employees as the Chief Financial Officer, who serves as chairman of the Disclosure Committee, may invite from time to time. The Disclosure Committee is responsible for preparing and reviewing all corporate disclosures made by the Company to its security holders, the Securities and Exchange Commission and/or the broader investment community to ensure that such disclosures (i) shall be accurate and complete; (ii) shall fairly present, in all material respects, the Company’s financial condition, results of operations and cash flows; and (iii) shall be made on a timely basis in accordance with all applicable requirements of (A) the Exchange Act and the rules and regulations promulgated thereunder, (B) the Securities Act of 1933, as amended and the rules and regulations promulgated thereunder (C) the Nasdaq Stock Market or such other stock exchange on which the Company’s securities may be traded and (D) any other applicable laws or legal requirements.

Our management is monitoring these material weaknesses and will continue to evaluate whether the remedial actions being takeninitiated by the Company havewill remediate these material weaknesses. However, our management concluded that these material weaknesses still existed as of June 30, 2022. In order to consider these material weaknesses to be fully remediated, these weaknesses when it completes its evaluationwe believe additional time is needed to demonstrate effectiveness of the Company’s internal control over financial reporting for the year ending December 31, 2021.remediation.

Changes in Internal Control over Financial Reporting

There wereExcept as disclosed above, there have been no other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) duringfor the quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.2022.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time in the future, we may become involved in litigation or other legal proceedings that arise in the ordinary course of business.  A complaint was filed on

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Dr. Terrell Claim

On March 22, 2021, Jason Terrell (“Terrell”), a former consultant for and director of the Company, commenced an action against us in the Court of Chancery of the State of Delaware, C.A. No. 2021-0248-MTZ (the “Action”). In the Action, Terrell seeks a declaratory judgment that we are obligated to issue him (i) options to purchase 500,000 shares of our 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 our 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 our operative certificate of incorporation, he is entitled to indemnification from us for attorneys’ fees and costs he incurs in connection with the Action because the Action arises in connection with his position as a former director.

We dispute Terrell’s claims and allegations in the Action and intend to vigorously defend against usthem. On May 21, 2021, we filed a motion to dismiss Terrell’s claims in the actions with prejudice, arguing that (i) Terrell’s options-related claims fail because his 2014 and January 2017 agreements were explicitly superseded by a later options agreement, under which Terrell relinquished his prior options; and (ii) Terrell is not entitled to indemnification because the Action relates to contracts between the Company and Terrell in his personal capacity, and not in connection with any activities or duties of Terrell in his official capacity as former consultantdirector.  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 our 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 our 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, and director. Theon July 21, 2022, the Compensation Committee determined that (i) the Compensation Committee has sole authority under the SOA to resolve the parties’ contract interpretation dispute, and (ii) Terrell’s most recent options agreement superseded and nullified any option rights Terrell may have had under his prior agreements. On August 2, 2022, the Vice Chancellor issued an order dismissing the Action for lack of subject matter jurisdiction. No further proceedings are taking place.

Sabby and Empery Claim

Sabby Volatility Warrant Master Fund Ltd., et al. v. Kiromic BioPharma, Inc. et al., Case No. 22-cv-1927 (SDNY). On March 7, 2022, entities related to Sabby Management LLC (the “Sabby Entities”) and Empery Asset Management, LP (the “Empery Entities”) filed a complaint alleges,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 Kiromic BioPharma, Inc. 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 Kiromic 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, 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 plaintiffSabby 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 entitledobligated to additional stock optionsindemnify

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the defendants in this action, including ThinkEquity, for their reasonable costs incurred in connection with this action and he is seeking declaratory judgmentthose costs could be substantial.

Karp Class Action

Ronald H. Karp, et al. v. Kiromic BioPharma, Inc. et al., Case No. 22-6690 (SDNY). 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 specific performance. We believe that allEmpery Entities’ claims discussed above and asserting claims against the Company and certain current and former officers and directors of the Company for alleged violations of Sections 11, 12, and 15 of the Securities Act of 1933 in connection with the purchase of common stock through the Company’s public offering that closed on July 2, 2021 and Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 promulgated thereunder in connection with the certain statements and acts made by the defendants between June 25, 2021 and August 13, 2021. The Company has evaluated the Karp class claims in the complaint are without merit and wehas determined that it is not possible to estimate a potential range of loss at this time.

We intend to defend ourselves vigorously against them.this securities litigation and any similar claims, but are unable to predict the outcome of any such litigation.  Even if we are successful, securities litigation is costly to defend and diverts management’s attention away from the business. These legal proceedings have already had a material adverse impact on us as it has caused the underwriter in our recently planned public offering to suspend the offering and it is making it more difficult to obtain financing.

We are not currently party to any other legal proceedings and we are not aware of any other pending or threatened litigation against us that we believe could have a material adverse effect on our business, operating results or financial condition. To

ITEM 1A. RISK FACTORS.

An investment in our securities involves a high degree of risk. Before making an investment decision, you should carefully consider the extentrisks described below and the risk factors previously disclosed in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on April 8, 2022. Our business, prospects, financial condition, or operating results could be harmed by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial. The trading price of our securities could decline due to any of these risks, and, as a result, you may lose all or part of your investment.

We may not be able to continue as a going concern and holders of our common stock could suffer a total loss of their investment.

We do not have sufficient cash on hand and available liquidity to meet our obligations through the twelve months following the date the condensed consolidated financial statements are issued. The Company’s estimated cash and cash equivalents were $3,680,300 as of July 31, 2022. We will need to obtain financing in order to fund our operations past September 2022. Any failure or delay to secure such financing could force us to delay, limit or terminate our operations, make reductions in our workforce, liquidate all or a portion of our assets and/or seek protection (“Bankruptcy Protection”) under Chapters 7 or 11 of the United States Bankruptcy Code.

In the event we pursue Bankruptcy Protection, we will be subject to the risks and uncertainties associated with such proceedings.

In the event we file for relief under the United States Bankruptcy Code, our operations, our ability to develop and execute our business plan and our continuation as a legal proceeding,going concern will be subject to the risks and uncertainties associated with bankruptcy proceedings, including, among others: our ability to execute, confirm and consummate a plan of reorganization; the additional, significant costs of bankruptcy proceedings and related fees; our ability to obtain sufficient financing to allow us to emerge from bankruptcy and execute our business plan post-emergence, and our ability to comply with terms and conditions of that financing; our ability to continue our operations in the ordinary course; our ability to maintain our relationships with our consumers, business partners, counterparties, employees and other third parties; our ability to obtain, maintain or renew contracts that are critical to our operations on reasonably

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acceptable terms and conditions; our ability to attract, motivate and retain key employees; the ability of third parties to use certain limited safe harbor provisions of the United States Bankruptcy Code to terminate contracts without first seeking Bankruptcy Court approval; the ability of third parties to force us to into Chapter 7 proceedings rather than Chapter 11 proceedings and the actions and decisions of our stakeholders and other third parties who have interests in our bankruptcy proceedings that may be inconsistent with our operational and strategic plans. Any delays in our bankruptcy proceedings would increase the risks of our being unable to reorganize our business and emerge from bankruptcy proceedings and may increase our costs associated with the bankruptcy process or result in prolonged operational disruption for the Company. Also, we would need the prior approval of the bankruptcy court for transactions outside the ordinary course of business during the course of any bankruptcy proceedings, which may limit our ability to respond timely to certain events or take advantage of certain opportunities. Because of the risks and uncertainties associated with any bankruptcy proceedings, we cannot accurately predict or quantify the ultimate impact of events that could occur during any such proceedings. There can be no guarantees that if we seek Bankruptcy Protection we will emerge from Bankruptcy Protection as a going concern or that holders of our common stock will receive any recovery from any bankruptcy proceedings.

In the event we are unable to pursue Bankruptcy Protection under Chapter 11 of the United States Bankruptcy Code, or, if pursued, successfully emerge from such proceedings, it could havemay be necessary to pursue Bankruptcy Protection under Chapter 7 of the United States Bankruptcy Code for all or a material adverse impact onpart of our businesses.

In the event we are unable to pursue Bankruptcy Protection under Chapter 11 of the United States Bankruptcy Code, or, if pursued, successfully emerge from such proceedings, it may be necessary for us to pursue Bankruptcy Protection under Chapter 7 of the United States Bankruptcy Code for all or a part of our businesses. In such event, a Chapter 7 trustee would be appointed or elected to liquidate our assets for distribution in accordance with the priorities established by the United States Bankruptcy Code. We believe that liquidation under Chapter 7 would result in significantly smaller distributions being made to our stakeholders than those we might obtain under Chapter 11 primarily because of litigation coststhe likelihood that the assets would have to be sold or otherwise disposed of in a distressed fashion over a short period of time rather than in a controlled manner and diversion of management resources.as a going concern.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

None.

ITEM 5. OTHER INFORMATION.

None

ITEM 6. EXHIBITS.

See Exhibit Index.

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EXHIBIT INDEX

Exhibit No.

Description of Exhibit

2.13.1

Membership Interest Purchase Agreement dated asFourth Amended and Restated Certificate of June 14, 2021 amongIncorporation of Kiromic BioPharma, Inc., In Silico Solution, LLC and Michael Ryan (incorporated by reference to Exhibit 2.13.1 to the Current Report on Form 8-K filed on October 21, 2020)

3.2

Second Amended and Restated Bylaws of Kiromic BioPharma, Inc. (incorporated by reference to Exhibit 3.5 to the Company’s Registration Statement on Form S-1/A filed on October 6, 2020)

10.1

First Amendment to Executive Employment Agreement by and between Kiromic Bio Pharma, Inc. and Pietro Bersani, effective as of May 10, 2022 (incorporated by reference to Exhibit 10.1 to Form 8-K filed on June 17, 2021)May 11, 2022)

10.110.2

First Amendment to Executive Employment Agreement by and between Kiromic BioPharma, Inc. and Daniel Clark, effective as of May 11, 2022 (incorporated by reference to Exhibit 10.2 to Form 8-K filed on May 11, 2022)

10.3

Executive Employment Agreement by and between the CompanyKiromic BioPharma, Inc. and Mr. Ignacio Nunez,Dr. Leonardo Mirandola, effective as of June 7, 2021 (incorporatedJuly 11, 2022 (incorporated by reference to Exhibit 10.1 to Form 8-K filed on June 7, 2021)July 12, 2022)

10.2

Executive Employment Agreement by and between the Company and Dr. Michael Ryan, effective as of July 1, 2021 (incorporated by reference to Exhibit 10.1 to Form 8-K filed on July 8, 2021)

31.1

Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.132.1#

 

Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.232.2#

Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.1

Disclosure Committee Charter (incorporated by reference to Exhibit 99.1 to Form 8-K filed on February 2, 2022)

101.INS

 

Inline XBRL Instance Document

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

#

In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Exchange Act or deemed to be incorporated by reference into any filing under the Exchange Act or the Securities Act of 1933 except to the extent that the Company specifically incorporates it by reference.

4547

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

5

Date: August 13, 202112, 2022

KIROMIC BIOPHARMA, INC.

/s/ Maurizio Chiriva-InternatiPietro Bersani

Name: Maurizio Chiriva-InternatiPietro Bersani

Title: Chief Executive Officer

(Principal Executive Officer)

/s/ Tony TontatDaniel Clark

Name: Tony TontatDaniel Clark

Title: Chief Financial Officer

(Principal Financial and Accounting Officer)

4648