false --12-31 Q1 0001231457 0001231457 2024-01-01 2024-03-31 0001231457 2024-05-05 0001231457 2024-03-31 0001231457 2023-12-31 0001231457 2023-01-01 2023-03-31 0001231457 us-gaap:PreferredStockMember 2022-12-31 0001231457 us-gaap:CommonStockMember 2022-12-31 0001231457 us-gaap:TreasuryStockCommonMember 2022-12-31 0001231457 us-gaap:AdditionalPaidInCapitalMember 2022-12-31 0001231457 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-12-31 0001231457 us-gaap:RetainedEarningsMember 2022-12-31 0001231457 2022-12-31 0001231457 us-gaap:PreferredStockMember 2023-12-31 0001231457 us-gaap:CommonStockMember 2023-12-31 0001231457 us-gaap:TreasuryStockCommonMember 2023-12-31 0001231457 us-gaap:AdditionalPaidInCapitalMember 2023-12-31 0001231457 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-12-31 0001231457 us-gaap:RetainedEarningsMember 2023-12-31 0001231457 us-gaap:PreferredStockMember 2023-01-01 2023-03-31 0001231457 us-gaap:CommonStockMember 2023-01-01 2023-03-31 0001231457 us-gaap:TreasuryStockCommonMember 2023-01-01 2023-03-31 0001231457 us-gaap:AdditionalPaidInCapitalMember 2023-01-01 2023-03-31 0001231457 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-01-01 2023-03-31 0001231457 us-gaap:RetainedEarningsMember 2023-01-01 2023-03-31 0001231457 us-gaap:PreferredStockMember 2024-01-01 2024-03-31 0001231457 us-gaap:CommonStockMember 2024-01-01 2024-03-31 0001231457 us-gaap:TreasuryStockCommonMember 2024-01-01 2024-03-31 0001231457 us-gaap:AdditionalPaidInCapitalMember 2024-01-01 2024-03-31 0001231457 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2024-01-01 2024-03-31 0001231457 us-gaap:RetainedEarningsMember 2024-01-01 2024-03-31 0001231457 us-gaap:PreferredStockMember 2023-03-31 0001231457 us-gaap:CommonStockMember 2023-03-31 0001231457 us-gaap:TreasuryStockCommonMember 2023-03-31 0001231457 us-gaap:AdditionalPaidInCapitalMember 2023-03-31 0001231457 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2023-03-31 0001231457 us-gaap:RetainedEarningsMember 2023-03-31 0001231457 2023-03-31 0001231457 us-gaap:PreferredStockMember 2024-03-31 0001231457 us-gaap:CommonStockMember 2024-03-31 0001231457 us-gaap:TreasuryStockCommonMember 2024-03-31 0001231457 us-gaap:AdditionalPaidInCapitalMember 2024-03-31 0001231457 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2024-03-31 0001231457 us-gaap:RetainedEarningsMember 2024-03-31 0001231457 us-gaap:EmployeeStockOptionMember 2024-01-01 2024-03-31 0001231457 us-gaap:EmployeeStockOptionMember 2023-01-01 2023-03-31 0001231457 us-gaap:WarrantMember 2024-01-01 2024-03-31 0001231457 us-gaap:WarrantMember 2023-01-01 2023-03-31 0001231457 us-gaap:RestrictedStockUnitsRSUMember 2024-01-01 2024-03-31 0001231457 us-gaap:RestrictedStockUnitsRSUMember 2023-01-01 2023-03-31 0001231457 GNLX:StockWarrantsIssuableUponConversionOfNotesPayableMember 2024-01-01 2024-03-31 0001231457 GNLX:StockWarrantsIssuableUponConversionOfNotesPayableMember 2023-01-01 2023-03-31 0001231457 GNLX:LicenseAgreementMember 2024-01-01 2024-03-31 0001231457 us-gaap:MoneyMarketFundsMember 2024-03-31 0001231457 us-gaap:MoneyMarketFundsMember 2023-12-31 0001231457 us-gaap:FairValueInputsLevel1Member us-gaap:MoneyMarketFundsMember 2024-03-31 0001231457 us-gaap:FairValueInputsLevel2Member us-gaap:MoneyMarketFundsMember 2024-03-31 0001231457 us-gaap:FairValueInputsLevel3Member us-gaap:MoneyMarketFundsMember 2024-03-31 0001231457 us-gaap:FairValueInputsLevel1Member us-gaap:USGovernmentAgenciesDebtSecuritiesMember 2024-03-31 0001231457 us-gaap:FairValueInputsLevel2Member us-gaap:USGovernmentAgenciesDebtSecuritiesMember 2024-03-31 0001231457 us-gaap:FairValueInputsLevel3Member us-gaap:USGovernmentAgenciesDebtSecuritiesMember 2024-03-31 0001231457 us-gaap:USGovernmentAgenciesDebtSecuritiesMember 2024-03-31 0001231457 us-gaap:FairValueInputsLevel1Member us-gaap:USTreasurySecuritiesMember 2024-03-31 0001231457 us-gaap:FairValueInputsLevel2Member us-gaap:USTreasurySecuritiesMember 2024-03-31 0001231457 us-gaap:FairValueInputsLevel3Member us-gaap:USTreasurySecuritiesMember 2024-03-31 0001231457 us-gaap:USTreasurySecuritiesMember 2024-03-31 0001231457 us-gaap:FairValueInputsLevel1Member 2024-03-31 0001231457 us-gaap:FairValueInputsLevel2Member 2024-03-31 0001231457 us-gaap:FairValueInputsLevel3Member 2024-03-31 0001231457 us-gaap:USGovernmentAgenciesDebtSecuritiesMember 2024-01-01 2024-03-31 0001231457 us-gaap:USTreasurySecuritiesMember 2024-01-01 2024-03-31 0001231457 GNLX:FurnitureAndOfficeEquipmentMember 2024-03-31 0001231457 GNLX:FurnitureAndOfficeEquipmentMember 2023-12-31 0001231457 GNLX:LaboratoryEquipmentMember 2024-03-31 0001231457 GNLX:LaboratoryEquipmentMember 2023-12-31 0001231457 us-gaap:ComputerEquipmentMember 2024-03-31 0001231457 us-gaap:ComputerEquipmentMember 2023-12-31 0001231457 us-gaap:LeaseholdImprovementsMember 2024-03-31 0001231457 us-gaap:LeaseholdImprovementsMember 2023-12-31 0001231457 us-gaap:ConstructionInProgressMember 2024-03-31 0001231457 us-gaap:ConstructionInProgressMember 2023-12-31 0001231457 GNLX:EmployeeMember us-gaap:SubsequentEventMember 2024-05-15 0001231457 2018-07-01 2018-07-31 0001231457 us-gaap:AccountingStandardsUpdate201602Member 2018-07-31 0001231457 2018-07-31 0001231457 2022-04-01 2022-04-30 0001231457 2022-04-30 0001231457 2023-07-31 2023-07-31 0001231457 2023-07-31 0001231457 2020-12-01 2020-12-31 0001231457 us-gaap:AccountingStandardsUpdate201602Member 2020-12-31 0001231457 2020-12-31 0001231457 2023-02-01 2023-02-28 0001231457 2023-02-28 0001231457 2021-07-01 2021-07-31 0001231457 2021-07-31 0001231457 2023-11-01 2023-11-30 0001231457 2023-11-30 0001231457 GNLX:MarchThirtyOneTwoThousandTwentyFourMember 2023-11-30 0001231457 us-gaap:PrivatePlacementMember 2023-11-30 0001231457 srt:DirectorMember 2024-01-01 2024-03-31 0001231457 srt:DirectorMember 2024-01-01 2024-12-31 0001231457 us-gaap:RestrictedStockMember 2024-01-01 2024-03-31 0001231457 GNLX:TwoThousandNineEquityIncentivePlanMember 2009-08-31 0001231457 GNLX:TwoThousandNineteenEquityIncentivePlanMember 2018-09-01 2018-09-30 0001231457 GNLX:TwoThousandNineEquityIncentivePlanMember 2018-09-30 2018-09-30 0001231457 GNLX:TwoThousandNineteenEquityIncentivePlanMember srt:MaximumMember 2018-09-01 2018-09-30 0001231457 GNLX:TwoThousandNineteenEquityIncentivePlanMember 2024-03-31 0001231457 GNLX:TwoThousandTwentyTwoPlanMember 2022-06-30 0001231457 GNLX:TwoThousandTwentyTwoPlanMember 2022-06-01 2022-06-30 0001231457 GNLX:TwoThousandTwentyTwoPlanMember us-gaap:CommonStockMember 2024-01-01 2024-03-31 0001231457 GNLX:TwoThousandTwentyTwoPlanMember us-gaap:CommonStockMember 2023-12-31 0001231457 GNLX:TwoThousandTwentyTwoPlanMember 2024-01-31 0001231457 GNLX:TwoThousandTwentyTwoPlanMember us-gaap:CommonStockMember 2024-01-31 0001231457 GNLX:TwoThousandTwentyThreeInducementPlanMember 2023-09-30 0001231457 GNLX:TwoThousandTwentyThreeInducementPlanMember us-gaap:CommonStockMember 2024-01-01 2024-03-31 0001231457 GNLX:TwoThousandTwentyThreeInducementPlanMember us-gaap:CommonStockMember 2024-03-31 0001231457 GNLX:TwoOptionHoldersMember 2024-01-01 2024-03-31 0001231457 srt:MinimumMember 2024-01-01 2024-03-31 0001231457 srt:MaximumMember 2024-01-01 2024-03-31 0001231457 GNLX:ExercisePriceRangeOneMember 2024-01-01 2024-03-31 0001231457 2023-01-01 2023-12-31 0001231457 srt:MinimumMember 2023-12-31 0001231457 srt:MaximumMember 2023-12-31 0001231457 srt:MinimumMember 2024-03-31 0001231457 srt:MaximumMember 2024-03-31 0001231457 GNLX:ExercisePriceRangeOneMember 2024-03-31 0001231457 GNLX:ExercisePriceRangeTwoMember 2024-01-01 2024-03-31 0001231457 GNLX:ExercisePriceRangeTwoMember 2024-03-31 0001231457 GNLX:ExercisePriceRangeThreeMember 2024-01-01 2024-03-31 0001231457 GNLX:ExercisePriceRangeThreeMember 2024-03-31 0001231457 GNLX:ExercisePriceRangeFourMember 2024-01-01 2024-03-31 0001231457 GNLX:ExercisePriceRangeFourMember 2024-03-31 iso4217:USD xbrli:shares iso4217:USD xbrli:shares xbrli:pure

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended March 31, 2024

 

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

 

For the transition period from ___________ to ___________

 

GENELUX CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware   001-41599   77-0583529

(State or other jurisdiction of

incorporation or organization)

 

Commission

File Number

 

(IRS Employee

Identification No.)

 

2625 Townsgate Road, Suite 230, Westlake Village, California 91361

(Address of Principal Executive Offices)

 

(805) 267-9889

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

Title of each class registered:   Trading symbol:   Name of each exchange on which registered:
Common Stock, par value $0.001 per share   GNLX  

The Nasdaq Stock Market LLC

(Nasdaq Capital Market)

 

Securities registered under Section 12(g) of the Exchange Act: None

 

Indicate by check mark whether the issuer (1) 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or smaller reporting company filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

 

Large Accelerated Filer ☐ Non-Accelerated Filer
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

 

The number of shares issued and outstanding of each of the issuer’s classes of common equity as of May 5, 2024 was 26,996,740.

 

 

 

 

 

 

GENELUX CORPORATION

FORM 10-Q

MARCH 31, 2024

TABLE OF CONTENTS

 

PART I— FINANCIAL INFORMATION 3
     
Item 1. Condensed Financial Statements 3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 18
Item 3 Quantitative and Qualitative Disclosures About Market Risk 28
Item 4. Control and Procedures 28
     
PART II— OTHER INFORMATION 29
     
Item 1 Legal Proceedings 29
Item 1A Risk Factors 29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 99
Item 3. Defaults Upon Senior Securities 99
Item 4. Mine Safety Disclosures 99
Item 5. Other Information 99
Item 6. Exhibits 100
     
SIGNATURES 102

 

2
 

 

PART I—FINANCIAL INFORMATION

 

Item 1: Financial Statements.

 

Genelux Corporation

Condensed Balance Sheets

(in thousands, except for share amounts and par value data)

 

   March 31, 2024   December 31, 2023 
   (Unaudited)      
ASSETS          
Current Assets          
Cash and cash equivalents  $4,061   $9,418 
Short-term investments   15,566    13,773 
Prepaid expenses and other current assets   1,577    1,012 
Total Current Assets   21,204    24,203 
           
Property and equipment, net   1,116    1,170 
Right of use assets   2,264    2,428 
Other assets   92    92 
Total Other Assets   3,472    3,690 
           
TOTAL ASSETS  $24,676   $27,893 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Current Liabilities          
Accounts payable and accrued expenses  $5,313   $3,784 
Accrued payroll and payroll taxes   1,908    2,117 
Lease liabilities, current portion   584    653 
Total Current Liabilities   7,805    6,554 
           
Lease liabilities, long-term portion   1,787    1,866 
Total Liabilities   9,592    8,420 
           
Shareholders’ Equity          
Preferred stock, par value $0.001, 10,000,000 shares authorized; no shares issued and outstanding, respectively;   -    - 
Common stock, par value $0.001, 200,000,000 shares authorized; 26,996,740 and 26,788,986 shares issued and outstanding, respectively   27    27 
Treasury stock, 433,333 shares, at cost   (433)   (433)
Additional paid-in capital   244,869    241,389 
Accumulated other comprehensive income (loss)   (5)   14 
Accumulated deficit   (229,374)   (221,524)
Total Shareholders’ Equity   15,084    19,473 
           
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY  $24,676   $27,893 

 

The accompanying notes are an integral part of these condensed financial statements.

 

3
 

 

Genelux Corporation

Condensed Statements of Operations

(in thousands, except for share amounts and per share data)

 

   2024   2023 
   Three Months Ended March 31, 
   2024   2023 
   (Unaudited) 
         
Revenues  $8   $170 
           
Operating expenses:          
Research and development   4,010    2,845 
General and administrative   4,113    3,787 
Total operating expenses   8,123    6,632 
           
Loss from operations   (8,115)   (6,462)
           
Other income (expenses):          
Interest income   265    - 
Interest expense   -    (143)
Debt discount amortization   -    (649)
Financing costs   -    (3,110)
Total other income (expenses), net   265    (3,902)
           
NET LOSS  $(7,850)  $(10,364)
           
LOSS PER COMMON SHARE - BASIC AND DILUTED  $(0.29)  $(0.53)
           
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING - BASIC AND DILUTED   26,849,737    19,575,631 

 

The accompanying notes are an integral part of these condensed financial statements.

 

4
 

 

Genelux Corporation

Condensed Statements of Comprehensive Loss

(in thousands)

 

   2024   2023 
   Three Months Ended March 31, 
   2024   2023 
   (Unaudited) 
         
Net loss  $(7,850)  $(10,364)
           
Other comprehensive loss:          
Net unrealized loss on short-term investments   (19)   - 
Comprehensive loss  $(7,869)  $(10,364)

 

The accompanying notes are an integral part of these condensed financial statements.

 

5
 

 

Genelux Corporation

Condensed Statements of Shareholders’ Equity (Unaudited)

(in thousands, except share amounts)

 

   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Income   Deficit   Total 
                               Accumulated         
                          Additional   Other         
   Preferred Stock   Common Stock   Treasury Stock   Paid-in   Comprehensive   Accumulated     
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Income (Loss)   Deficit   Total 
                                         
Balance, December 31, 2022   22,094,889   $22    9,126,726   $9    (433,333)  $(433)  $154,401   $2   $(189,784)  $(35,783)
                                                   
Stock compensation   -    -    -    -    -    -    227    -    -    227 
                                                   
Issuance of common shares upon the closing of the initial public offering, net of offering costs   -    -    2,653,000    3    -    -    12,629    -    -    12,632 
                                                   
Issuance of common shares upon conversion of preferred stock   (22,094,889)   (22)   8,355,610    8    -    -    14    -    -    - 
                                                   
Issuance of common shares upon conversion of convertible notes payable, accrued interest and loan fees   -    -    4,134,367    5    -    -    29,891    -    -    29,896 
                                                   
Issuance of common shares upon conversion of preferred stock dividends payable   -         272,101    -    -    -    3,443    -    (3,443)   - 
                                                   
Fair value of vested restricted stock units   -    -    -    -    -    -    198    -    -    198 
                                                   
Cost of stock option repricing   -    -    -    -    -    -    2,606    -    -    2,606 
                                                   
Reclassification of warrant liabilities upon the closing of the initial public offering   -    -    -    -    -    -    169    -    -    169 
                                                   
Fair value of warrants issued in connection with the the conversion of convertible notes payable   -    -    -    -    -    -    3,110    -    -    3,110 
                                                   
Shares issued upon cashless exercise of stock warrant   -    -    11,666    -    -    -    -    -    -    - 
                                                   
Net loss during the three months ended March 31, 2023   -    -    -    -    -    -    -    -    (10,364)   (10,364)
                                                   
Balance, March 31, 2023 (unaudited)   -   $-    24,553,470   $25    (433,333)  $(433)  $206,688   $2   $(203,591)  $2,691 
                                                   
Balance, December 31, 2023   -   $-    26,788,986   $27    (433,333)  $(433)  $241,389   $14   $(221,524)  $19,473 
                                                   
Stock compensation   -    -    -    -    -    -    1,489    -    -    1,489 
                                                   
Unrealized loss on short-term investments   -    -    -    -    -    -    -    (19)   -    (19)
                                                   
Fair value of vested restricted stock units   -    -    131,267    -    -    -    989    -    -    989 
                                                   
Cost of stock option modifications and repricing   -    -    -    -    -    -    314    -    -    314 
                                                   
Issuance of common shares upon exercise of stock warrants   -    -    76,487    -    -    -    688    -    -    688 
                                                   
Net loss during the three months ended March 31, 2024   -    -    -    -    -    -    -    -    (7,850)   (7,850)
                                                   
Balance, March 31, 2024 (unaudited)   -   $-    26,996,740   $27    (433,333)  $(433)  $244,869   $(5)  $(229,374)  $15,084 

 

The accompanying notes are an integral part of these condensed financial statements.

 

6
 

 

Genelux Corporation

Condensed Statements of Cash Flows

(in thousands)

 

   2024   2023 
   Three Months Ended March 31, 
   2024   2023 
   (Unaudited) 
Cash Flows from Operating Activities          
Net loss  $(7,850)  $(10,364)
           
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation expense   84    136 
Net amortization of premiums and discounts on short-term investments   (151)   - 
Right-of-use assets   164    118 
Amortization of debt discount   -    649 
Stock compensation   1,489    227 
Fair value of restricted stock units   989    198 
Cost of stock option modifications and repricing   314    2,606 
Fair value of warrants issued in connection with the conversion of convertible notes payable   -    3,110 
Changes in Assets and Liabilities          
(Increase) Decrease in:          
Prepaid expenses and other assets   (565)   (223)
(Decrease) Increase in:          
Accounts payable and accrued expenses   1,529    (913)
Accrued payroll and payroll taxes   (209)   58 
Accrued interest payable   -    92 
Deferred revenue   -    (170)
Lease liability   (148)   (114)
Net cash used in operating activities   (4,354)   (4,590)
           
Cash Flows from Investing Activities          
Purchases of property and equipment   (30)   (109)
Purchase of short-term investments   (3,161)   - 
Proceeds from sales and maturities of short-term investments   1,500    - 
Net cash used in investing activities   (1,691)   (109)
           
Cash Flows from Financing Activities          
Proceeds from notes payable - shareholders   -    900 
Repayment of notes payable - shareholders   -    (460)
Payment of deferred offering costs   -    (303)
Proceeds from the exercise of stock warrants   688    - 
Proceeds from common stock issued for cash in connection with the closing of the IPO   -    14,503 
Net cash provided by financing activities   688    14,640 
           
Net increase (decrease) in cash and cash equivalents   (5,357)   9,941 
           
Cash and cash equivalents at beginning of period   9,418    397 
Cash and cash equivalents at end of period  $4,061   $10,338 
           
Supplemental cash flows disclosures:          
Interest paid  $-   $50 
Taxes paid  $-   $- 
           
Supplemental non-cash financing disclosures:          
Effect of the extension of right-of-use assets and operating leases  $-   $649 
Reclassification of deferred offering costs to shareholders’ equity  $-   $1,871 
Reclassification of warrant liabilities to shareholders’ equity  $-   $169 
Conversion of convertible notes payable, accrued interest and loan fees to shareholders’ equity  $-   $29,896 
Conversion of preferred stock to common stock  $-   $22 
Conversion of dividends payable to shareholders’ equity  $-   $3,443 
Conversion of notes payable-shareholders and accrued interest to shareholders’ equity  $-   $- 

 

The accompanying notes are an integral part of these condensed financial statements.

 

7
 

 

GENELUX CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2024 and 2023

(in thousands, except for share amounts and per share data)

 

NOTE 1 – BASIS OF PRESENTATION

 

Organization and Operations

 

Genelux Corporation (“Genelux” or the “Company”), a Delaware Corporation, incorporated on September 4, 2001, is a late clinical-stage biopharmaceutical company located in Westlake Village, California. The Company is engaged in the research and development of diagnostic and therapeutic solutions for cancer for which there is no effective treatment today. The Company is focused on developing a pipeline of next-generation oncolytic viral immunotherapies for patients suffering from aggressive and/or difficult-to-treat solid tumor types.

 

Basis of Presentation of Unaudited Financial Information

 

The accompanying unaudited condensed financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.

 

Going Concern

 

The accompanying condensed financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements, the Company has experienced recurring losses from operations since inception and incurred a net loss of $7,850 and used cash in operations of $4,354 during the three months ended March 31, 2024, and had an accumulated deficit of $229,374 as of March 31, 2024. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds and implement its strategies. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

At March 31, 2024, the Company had cash and cash equivalents, and short-term investments, in the amount of $19,627. The ability to continue as a going concern is dependent on the Company attaining and maintaining profitable operations in the future and raising additional capital to meet its obligations and repay its liabilities arising from normal business operations when they come due. Since inception, the Company has funded its operations primarily through equity and debt financings, and licensing income, and it expects to continue to rely on these sources of capital in the future.

 

No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in case of equity financing, or grant unfavorable terms in future licensing agreements.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

 

The preparation of the financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. Significant estimates are used in the valuation of accruals for potential liabilities, valuations of stock-based compensation, and realization of deferred tax assets, among others. Actual results could differ from these estimates.

 

8
 

 

Income (Loss) Per Share

 

Basic loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of outstanding common shares during the period. Diluted loss per share is computed by dividing the net loss applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued.

 

For the three months ended March 31, 2024 and 2023, the basic and diluted shares outstanding were the same, as potentially dilutive shares were considered anti-dilutive.

 

The potentially dilutive securities consisted of the following:

 

   March 31,
2024
   March 31,
2023
 
Stock options   5,118,920    4,201,019 
Stock warrants   397,975    1,034,979 
Restricted stock units   57,323    113,500 
Stock warrants, issuable upon conversion of notes payable   -    69,893 
Total   5,574,218    5,419,391 

 

Revenue Recognition

 

The Company records revenue under the guidance of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (Topic 606) which requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services.

 

The Company determines revenue recognition through the following steps:

 

  Identification of the contract, or contracts, with a customer
     
   Identification of the performance obligations in the contract
     
   Determination of the transaction price
     
   Allocation of the transaction price to the performance obligations in the contract
     
   Recognition of revenue when, or as, the Company satisfies a performance obligation.

 

Under certain of the Company’s licensing, supply and collaboration agreements, it is entitled to receive payment upon the achievement of contingent milestone events or the performance of obligations. The Company recognizes revenue based on guidance in ASC 606. In evaluating revenue recognition under a license agreement, the Company uses a two-step process for determining whether a promised good or service (including a license of intellectual property) is distinct and, therefore, is a performance obligation: (1) consideration of the individual good or service (i.e., whether the good or service is capable of being distinct); and (2) consideration of whether the good or service is separately identifiable from other promises in the contract (i.e., whether the promise to transfer the good or service is distinct in the context of the contract). Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue on the Company’s balance sheet. Amounts expected to be recognized as revenue in the next 12 months following the balance sheet date are classified as current liabilities.

 

During the three months ended March 31, 2024, the Company recognized revenue of $8 relating to its license agreement with ELIAS Animal Health, LLC.

 

9
 

 

Cash Equivalents

 

The Company considers all highly liquid investments with original maturities of three months or less at date of purchase to be cash equivalents. Cash equivalents consisted of money market funds as of March 31, 2024 and December 31, 2023. As of March 31, 2024 and December 31, 2023, the amount of cash equivalents included in cash and cash equivalents totaled $2,988 and $7,924, respectively.

 

Short-Term Investments

 

The Company’s short-term debt security investments are classified as available-for-sale and are carried at fair value, with the unrealized gains and non-credit related losses reported as a component of accumulated other comprehensive loss and included in stockholders’ equity. Realized gains and losses and declines in value determined to be other than temporary are based on the specific identification method and are included as a component of total other income (expense), net in the Statements of Operations. There were no realized gains or losses during the three months ended March 31, 2024.

 

For available-for-sale securities in an unrealized loss position, the Company first assesses whether it intends to sell, or if it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through a charge to interest income. For available-for-sale securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers such factors as, among other things, the severity of the impairment, any changes in interest rates, how long the market value of the investment has been less than its original cost, the Company’s ability and intent to retain the short-term debt security investment for a period of time sufficient to allow for any anticipated recovery in fair value and market conditions in general. The credit-related portion of unrealized losses, and any subsequent improvements, are recorded in interest income through an allowance account. Any impairment that has not been recorded through an allowance for credit losses is included in other comprehensive loss on the statements of operations and comprehensive loss.

 

No credit-related losses or impairments have been recognized on the Company’s investments in available-for-sale securities during the three months ended March 31, 2024.

 

All of the Company’s short-term investments as of March 31, 2024 had maturities of less than one year.

 

Fair Value of Financial Instruments

 

The Company determines the fair value of its assets and liabilities based on the exchange price in U.S. dollars that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company uses a fair value hierarchy with three levels of inputs, of which the first two are considered observable and the last unobservable, to measure fair value:

 

  Level 1 — Quoted prices in active markets for identical assets or liabilities.
     
   Level 2 — Inputs, other than Level 1, that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
     
   Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

The Company’s short-term investments and cash equivalents are carried at fair value, determined according to the fair value hierarchy described in Note 3 below. The carrying amounts of financial instruments such as cash, short-term investments, and accounts payable and accrued liabilities, approximate the related fair values due to the short-term maturities of these instruments.

 

10
 

 

Stock-Based Compensation

 

The Company measures all stock options and other stock-based awards granted based on the fair value of the award on the date of the grant and recognizes compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award. The Company has elected to recognize forfeitures as they occur. The reversal of compensation cost previously recognized for an award that is forfeited because of a failure to satisfy a service or performance condition is recognized in the period of the forfeiture. Generally, the Company issues stock options with only service-based vesting conditions and records the expense for these awards using the straight-line method over the requisite service period.

 

The Company classifies stock-based compensation expense in its statements of operations in the same manner in which the award recipient’s payroll costs are classified or in which the award recipients’ service payments are classified.

 

The Company was a private company until the completion of its IPO on January 30, 2023. In 2022 and prior, the Company estimated the fair value of common stock using an appropriate valuation methodology, in accordance with the framework of the American Institute of Certified Public Accountants’ Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation. Each valuation methodology includes estimates and assumptions that require the Company’s judgment. These estimates and assumptions include a number of objective and subjective factors, including external market conditions, guideline public company information, the prices at which the Company sold its common stock to third parties in arms’ length transactions, the rights and preferences of securities senior to the Company’s common stock at the time, and the likelihood of achieving a liquidity event such as an initial public offering or sale. Significant changes to the assumptions used in the valuations could result in different fair values of stock options at each valuation date, as applicable.

 

The fair value of each stock option grant is estimated using the Black-Scholes option-pricing model. The Company was a private company and lacked company-specific historical and implied volatility information. Therefore, it estimated its expected stock volatility based on the historical volatility of a publicly traded set of peer companies within the biotechnology industry with characteristics similar to the Company. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The expected term of stock options granted to non-employees is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is zero, based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

 

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 shareholders. For the three months ended March 31, 2024, comprehensive loss included $19 of unrealized losses on short-term investments, net of tax.

 

Recent Accounting Pronouncements

 

In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure, which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expense categories that are regularly provided to the chief operating decision maker and included in each reported measure of a segment’s profit or loss. The update also requires all annual disclosures about a reportable segment’s profit or loss and assets to be provided in interim periods and for entities with a single reportable segment to provide all the disclosures required by ASC 280, Segment Reporting, including the significant segment expense disclosures. The Company adopted ASU 2023-07 beginning January 1, 2024. The Company does not believe the impact of the new guidance and related codification improvements had a material impact to its financial position, results of operations and cash flows.

 

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.

 

11
 

 

NOTE 3 - FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

 

The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis:

 

   Fair Value Measurements as of March 31, 2024, Using: 
   Level 1   Level 2   Level 3   Total 
Cash equivalents:                    
Money market funds  $2,988   $   $   $2,988 
Short-term investments:                    
U.S. Government Agency bonds       7,936        7,936 
U.S. Treasury bonds       7,630        7,630 
Total Cash equivalents and Short-term investments  $

2,988

   $15,566   $   $18,554 

 

The underlying securities in the money market funds held by the Company are all government backed securities.

 

Valuation of cash equivalents and short-term investments

 

Cash equivalents consisted of money market funds at March 31, 2024. Money market funds were valued by the Company using quoted prices in active markets for identical securities, which represent a Level 1 measurement within the fair value hierarchy. U.S. Government Agency bonds and U.S. Treasury bonds are government backed securities representing a Level 2 measurement within the fair value hierarchy.

 

NOTE 4 - SHORT-TERM INVESTMENTS

 

As of March 31, 2024, the Company’s available-for-sale investments by type, consisted of the following:

 

   Amortized Cost   Gross Unrealized Gains   Gross Unrealized Losses   Credit Losses   Fair Value 
U.S. Government Agency bonds  $7,940   $   $(4)  $   $7,936 
U.S. Treasury bonds   7,633        (3)       7,630 
Total  $15,573   $   $(7)  $   $15,566 

 

As of March 31, 2024, all available-for-sale securities consisted of investments that mature within one year.

 

NOTE 5 - PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following at March 31, 2024 and December 31, 2023:

 

   March 31,
2024
   December 31, 2023 
Furniture and office equipment  $148   $148 
Laboratory equipment   2,819    2,792 
Computer equipment   127    127 
Leasehold improvements   557    557 
Construction-in-progress   998    995 
Property and equipment, gross   4,649    4,619 
Less: accumulated depreciation and amortization   (3,533)   (3,449)
Property and equipment, net  $1,116   $1,170 

 

Depreciation expense for the three months ended March 31, 2024 and 2023 was $84 and $136, respectively.

 

During the year ended December 31, 2023, the Company expended $995 on facility design services relating to future planned construction on its manufacturing facility. During the three months ended March 31, 2024, the Company expended an additional $3 on design services. The Company has accounted for the expenditures as construction-in-progress as of March 31, 2024 and December 31, 2023, and no depreciation will be recorded on these expenditures until the facility has been placed in service. The Company’s plan to complete the design phase and begin construction on the facility will be based on available financial resources.

 

12
 

 

NOTE 6 – ACCRUED PAYROLL AND PAYROLL TAXES

 

As of December 31, 2023, a total of $2,117 was owed to the Company’s Chief Executive Officer and another employee for past due balances that had accrued over a several year period, and for current accrued payroll and payroll taxes, and other compensation related benefits, including payroll tax liabilities of $321 relating to stock option exercises and restricted stock unit vesting. During the three months ended March 31, 2024, the Company did not repay any of the past due accrued amounts owed to the employees, but did repay the $321 owed for payroll tax liabilities. As of March 31, 2024, a total of $1,908 was owed to employees for these past due balances, and for current accrued payroll and payroll taxes, and other compensation related benefits. Subsequent to March 31, 2024, the Company repaid $1,024 of the past due accrued amounts owed to employees.

 

NOTE 7 – LEASE LIABILITIES

 

Operating Leases

 

The Company accounts for leases in accordance with ASC 842, which requires a lessee to record a right-of-use asset and a corresponding lease liability at the inception of the lease initially measured at the present value of the lease payments. In July 2018, the Company entered into a long-term non-cancellable lease agreement for its manufacturing facility that requires aggregate average monthly payments of $10 beginning October 2018. The lease terminated in September 2023, with a Company option to extend for an additional five years. The Company classified the lease as an operating lease and determined that the value of the right of use asset and lease liability at the adoption date was $518 and $519, respectively, using a discount rate of 4.00%. Effective April 2022, the Company extended the lease for the additional five-year period, through September 2028, with no changes to any of the other terms of the lease and has the option to extend the lease for an additional five years. Prior to the extension, the remaining lease liability amounted to $174. On the date of the extension, the Company determined that the value of the new right of use asset and lease liability was $860, respectively, using a discount rate of 4.00%. As such, the Company recorded an increase in lease liability of $686 as a result of the lease extension. Effective July 2023, the Company extended the lease for an additional two-year period, through October 2030, with no changes to any of the other terms of the lease and has the option to extend the lease for an additional five years. Prior to the extension through October 2030, the remaining lease liability amounted to $701. On the date of the extension, the Company determined that the value of the new right of use asset and lease liability was $909, respectively, using a discount rate of 7.00%. As such, the Company recorded an increase in the lease liability of $208 as a result of the lease extension.

 

In December 2020, the Company entered into a long-term non-cancellable lease agreement for a laboratory facility that requires aggregate average monthly payments of $18 beginning January 2021. The Company classified the lease as an operating lease and determined that the value of the right of use asset and lease liability at the adoption date was $439, respectively, using a discount rate of 4.00%. Effective February 2023, the Company extended the lease through December 2024, with no changes to any of the other terms of the lease.

 

The average monthly rent payment on the extended lease is approximately $30 per month. Prior to the extension, the remaining lease liability amounted to $12. On the date of the extension, the Company determined that the value of the new right of use asset and lease liability was $649, respectively, using a discount rate of 5.5%. As such, the Company recorded an increase in the lease liability of $637 as a result of the lease extension.

 

In July 2021, the Company entered into a long-term non-cancellable lease agreement for its new corporate headquarters that requires aggregate average monthly payments of $10 beginning August 2021. The lease terminates in July 2027. The Company classified the lease as an operating lease and determined that the value of the right of use asset and lease liability at the adoption date was $656, respectively, using a discount rate of 4.00%.

 

13
 

 

In November 2023, the Company entered into a long-term non-cancellable lease agreement for a second manufacturing facility that requires aggregate average monthly payments of $12 beginning November 2023. The lease terminates in October 2030, with a Company option to extend for an additional five years. The Company classified the lease as an operating lease and determined that the value of the right of use asset and lease liability at the adoption date was $803, respectively, using a discount rate of 7.00%.

 

During the three months ended March 31, 2024 and 2023, the Company made combined aggregate payments of $148 and $114, respectively, towards the lease liabilities. As of March 31, 2024 and December 31, 2023, the combined lease liability amounted to $2,371 and $2,519, respectively.

 

ASC 842 requires recognition in the statement of operations of a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. During the three months ended March 31, 2024 and 2023, the Company reflected combined amortization of the right of use assets of $164 and $118, respectively, related to the leases, resulting in a combined net asset balance of $2,264 and $2,428 as of March 31, 2024 and December 31, 2023, respectively.

 

Other Leases

 

In November 2019, the Company entered into a short-term lease agreement for one of its office facilities, which was subsequently extended until December 2022 and is currently on a month-to-month basis. Rent expense was $9 during the three months ended March 31, 2024 and 2023, respectively.

 

NOTE 8 - SHAREHOLDERS’ EQUITY

 

Common Stock

 

Authorized shares

 

The Company’s Certificate of Incorporation authorizes the Company to issue up to 200,000,000 of its common shares. Holders of shares of common stock have full voting rights, one vote for each share held of record. Shareholders are entitled to receive dividends as may be declared by the Company’s board of directors (the “Board”) out of funds legally available therefore and share pro rata in any distributions to shareholders upon liquidation. Shareholders have no conversion, pre-emptive or subscription rights. All outstanding shares of common stock are fully paid and non-assessable. As of March 31, 2024 and December 31, 2023, there were 26,996,740 and 26,788,986 shares of common stock issued and outstanding, respectively.

 

Common Stock Issued for Cash Upon Closing of the Company’s Private Placements

 

In May and June 2023, the Company entered into securities purchase agreements (the “Purchase Agreements”) with certain investors pursuant to which the Company agreed to sell and issue shares of its common stock in two private placement transactions. The Company agreed to extend certain commitments under the Purchase Agreement totaling $24,000 past their initial due dates.

 

In November 2023, the Company agreed to extend the funding deadline for $2,000 of the remaining aggregate investment amounts to March 31, 2024. The investor who was obligated to fund $22,000 of the remaining committed investment amounts has not made such payments and has indicated that he does not intend to comply with his investment commitments under the Purchase Agreements. The Company is currently evaluating its potential remedies with respect to this investor’s non-compliance with his contractual obligations to the Company.

 

14
 

 

Grant of Restricted Stock Units (RSU)

 

The following table summarizes restricted common stock activity during the three months ended March 31, 2024:

 

   Number of
Restricted Shares
   Fair Value   Weighted
Average Grant
Date Fair Value
 
Non-vested, December 31, 2023   57,900   $1,103   $22.40 
Granted   130,690    852    6.52 
Vested   (131,267)   (989)   7.53 
Forfeited            
Non-vested, March 31, 2024   57,323   $966   $16.85 

 

During the three months ended March 31, 2024, the Board approved the issuance of a combined total of 130,690 restricted shares of the Company’s common stock to certain of its employees. The fair value of the shares on the date of grant was $852 and was recorded during the three months ended March 31, 2024. The restricted common stock was granted under the Company’s 2022 Equity Incentive Plan (“the 2022 Plan”). All of these shares, plus an additional 577 restricted shares, vested during the three months ended March 31, 2024.

 

During the three months ended March 31, 2024, the Company recorded $989 of stock compensation for the fair value vesting of restricted common stock. As of March 31, 2024, $966 of unamortized compensation remained.

 

Stock Options

 

In August 2009, the Board approved the adoption of the 2009 Equity Incentive Plan (“the 2009 Plan”). The 2009 Plan was initiated to encourage and enable employees, directors and consultants of the Company to acquire and retain a proprietary interest in the Company by ownership of its common stock. A total of 6,166,666 of the authorized shares of the Company’s common stock may be subject to, or issued pursuant to, the terms of the plan. As of March 31, 2024, no shares were available for grant under the 2009 plan.

 

In September 2018, the Board approved the adoption of the 2019 Equity Incentive Plan (“the 2019 Plan”). The 2019 Plan was initiated to encourage and enable employees, directors and consultants of the Company to acquire and retain a proprietary interest in the Company by ownership of its common stock. The 2019 Plan allows for the following types of awards: (i) incentive stock options (“ISOs”); (ii) nonstatutory stock options (“NSOs”); (iii) stock appreciation rights; (iv) restricted stock awards; (v) restricted stock unit awards (“RSUs”); (vi) other stock awards. The maximum number of shares of our common stock that may be issued under our 2019 Plan is 2,059,073 shares. Outstanding stock awards granted under the 2009 Plan that (i) expire or terminate for any reason prior to exercise or settlement; (ii) are forfeited because of failure to meet a contingency or condition required to vest such shares or otherwise return to us; or (iii) are required or withheld (or not issued) to satisfy a tax withholding obligation in connection with an award or to satisfy the purchase price or exercise price of a stock award can be added to the authorized shares as returning shares, not to exceed 3,774,260 shares. The maximum number of shares of our common stock under our 2019 Plan that may be issued is 5,833,333 shares. As of March 31, 2024, a total of 1,632,314 shares were available for grant under the 2019 plan.

 

In June 2022, the Board approved the adoption of the 2022 Plan. The 2022 Plan provides for the grant of ISOs to employees, including employees of any parent or subsidiary, and for the grant of NSOs, stock appreciation rights, restricted stock awards, RSUs, performance awards and other forms of stock awards to employees, directors, and consultants, including employees and consultants of our affiliates. The 2022 Plan is a successor to the 2019 Plan. No further grants will be made under the 2019 Plan. The maximum number of shares of the Company’s common stock under the 2022 Plan that may be issued is 2,800,000 shares. In addition, the number of shares of the Company’s common stock reserved for issuance under the 2022 Plan will automatically increase on January 1 of each calendar year, starting on January 1, 2024 and continuing through and including January 1, 2032, in an amount equal to 5% of the total number of shares of our common stock outstanding on the last day of the calendar month before the date of each automatic increase, or a lesser number of shares determined by the Board. During the three months ended March 31, 2024, no option shares were granted under the 2022 Plan. As of December 31, 2023, a total of 1,922,212 shares were available for grant under the 2022 plan. In January 2024, the number of shares available to be issued under the 2022 Plan automatically increased by 1,339,449 shares, as determined by the Plan, and 3,261,661 shares were available for grant under the 2022 Plan as of March 31, 2024.

 

15
 

 

In September 2023, the Board approved the adoption of the Company’s 2023 Inducement Plan (the “Inducement Plan”) to reserve 1,000,000 shares of the Company’s common stock to be used exclusively for grants of awards to individuals that were not previously employees or directors of the Company as an inducement material to the individual’s entry into employment with the Company. The Inducement Plan provides for the grant of NSOs, stock appreciation rights, restricted stock awards, RSUs, performance-based cash and stock awards, and other stock-based awards. In addition, forms of (i) Stock Option Grant Notice, Stock Option Agreement and Notice of Exercise and (ii) Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement, for both (a) executive officers and (b) employees at or below the vice president level, were adopted and approved for use with the Inducement Plan. The terms and conditions of the Inducement Plan are substantially similar to the Company’s stockholder-approved 2022 Plan. During the three months ended March 31, 2024, no awards were granted under the Inducement Plan. As of March 31, 2024, a total of 555,700 shares were available for grant under the Inducement plan.

 

Option exercise prices are set forth in the grant notice, without commission or other charge, provided however, that the price per share of the shares subject to the option shall not be less than the greater of (i) 100% of the fair market value of a share of stock on the grant date, or (ii) 110% of the fair market value of a share of stock on the grant date in the case of a Participant then owning more than 10% of the total combined voting power of all classes of stock of the Company or any “subsidiary corporation” of the Company or any “parent corporation” of the Company. Options to employees, directors and consultants generally vest and become exercisable over a period not exceeding four years. Options typically expire ten years after date of grant.

 

The Company’s policy is to recognize compensation cost for awards with only service conditions on a straight- line basis over the requisite service period for the entire award. Additionally, the Company’s policy is to issue new shares of common stock to satisfy stock option exercises. The Company applied fair value accounting for all share-based payments awards. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model.

 

The table below summarizes the Company’s stock option activities for the three months ended March 31, 2024:

 

   Number of Option Shares   Exercise Price Range Per Share   Weighted Average Exercise Price 
Balance, December 31, 2023   5,118,920   $6.00 - 24.75   $9.76 
Granted            
Cancelled            
Exercised            
Expired            
Balance, March 31, 2024   5,118,920   $6.00 - 24.75   $9.76 
Vested and exercisable, March 31, 2024   3,855,160   $6.00 - 10.50   $6.09 
Unvested, March 31, 2024   1,263,760   $6.00 24.75   $20.91 

 

The following table summarizes information concerning outstanding and exercisable options as of March 31, 2024:

 

      Options Outstanding     Options Exercisable  
Range of Exercise Prices     Number Outstanding     Average Remaining Contractual Life (in years)     Weighted Average Exercise Price     Number Exercisable    

Average

Remaining

Contractual

Life (in years)

    Weighted Average Exercise Price  
$ 6.00       3,878,133       4.30     $ 6.00       3,763,653       4.20     $ 6.00  
  6.0110.50       90,099       1.78       9.52       90,099       1.78       9.52  
  10.51 24.75       1,150,688       9.45       22.26       1,408       9.44       22.40  
$ 6.00 - 24.75       5,118,920       5.43     $ 9.76       3,855,160       4.14     $ 6.09  

 

16
 

 

During the three months ended March 31, 2024, the Company extended the option term for two option holders for an additional year through December 31, 2024. The total number of shares that were extended was 51,581 shares. The cost of the stock option modifications was $303 and was recorded during the three months ended March 31, 2024. In September 2022, the Board approved a stock option repricing whereby the exercise price of previously granted and unexercised options held by certain employees, directors and key advisers with exercise prices between $9.00 and $10.50 per share, would be adjusted to $6.00 per share, the closing price of the Company’s initial public offering. The total cost of the repricing was $2,733, of which $2,689 was recorded as of December 31, 2023, and $11 was recorded during the three months ended March 31, 2024. The remainder of the cost will be recorded over the future vesting periods of the options.

 

During the three months ended March 31, 2024, the Company recorded $1,489 of stock compensation for the value of all options vesting during the period. As of March 31, 2024, unvested compensation of $18,090 remained that will be amortized over the remaining vesting period, through September 2027. The aggregate intrinsic value for option shares outstanding at March 31, 2024 was $1,645.

 

At the time of the issuances of stock options, the Company believed the Company’s estimates of the fair value for financial reporting purposes of the Company’s common stock were reasonable and consistent with the Company’s understanding of how similarly situated companies in the industry were valued.

 

Stock Warrants

 

The table below summarizes the Company’s warrants activities for the three months ended March 31, 2024:

 

  

Number of

Warrant Shares

  

Exercise

Price Range

Per Share

  

Weighted Average

Exercise Price

 
Balance, December 31, 2023   512,759   $3.00 - 10.50   $7.14 
Granted            
Cancelled            
Exercised   (76,487)   9.00    9.00 
Expired   (38,297)   9.00 - 10.50    9.15 
Balance, March 31, 2024   397,975   $3.00 - 9.00   $6.59 
Vested and exercisable, March 31, 2024   397,975   $3.00 - 9.00   $6.59 

 

The following table summarizes information concerning outstanding and exercisable warrants as of March 31, 2024:

 

      Warrants Outstanding     Warrants Exercisable  
Range of Exercise Prices     Number Outstanding     Average Remaining Contractual Life (in years)     Weighted Average Exercise Price     Number Exercisable     Average Remaining Contractual Life (in years)     Weighted Average Exercise Price  
$ 3.00       133,333       2.92     $ 3.00       133,333       2.92     $ 3.00  
  3.019.00       264,642       2.89       8.40       264,642       2.89       8.40  
                                                     
$ 3.009.00       397,975       2.90     $ 6.59       397,975       2.90     $ 6.59  

 

During the three months ended March 31, 2024, warrant holders exercised 76,487 warrant shares at an exercise price of $9.00 per share for proceeds of $688.

 

The aggregate intrinsic value for warrant shares outstanding at March 31, 2024 was $457.

 

NOTE 9 - LEGAL MATTERS

 

As of December 31, 2023, the Company was the defendant in one pending litigation. On November 6, 2023, the Los Angeles County Superior Court granted the Company’s motion for summary judgment and issued an order and final judgment dismissing all claims against the Company with prejudice. Although the plaintiff filed a notice of appeal of the dismissal order with the California Court of Appeal, the plaintiff subsequently filed a request for dismissal of his appeal, which was dismissed by the appellate court on February 23, 2024. Accordingly, the order and final judgment dismissing all claims against the Company with prejudice is now final.

 

In the future, the Company may be involved in additional actual and/or threatened legal proceedings, claims, investigations and government inquiries arising in the ordinary course of our business, including legal proceedings, claims, investigations and government inquiries involving intellectual property, data privacy and security, other torts, illegal or objectionable content, consumer protection, securities, employment, contractual rights, civil rights infringement, false or misleading advertising, or other legal claims relating to our business.

 

NOTE 10 - SUBSEQUENT EVENTS

 

Subsequent to March 31, 2024, the Company repaid $1,024 of past due accrued payroll related amounts owed to an employee (see Note 6).

 

17
 

 

Item 2. Management’s discussion and analysis of financial condition and results of operations.

 

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited consolidated financial statements and related notes appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q (this “Quarterly Report”), and with our audited financial statements and notes thereto for the year ended December 31, 2023, included in our Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 2023.

 

Special Note Regarding Forward-Looking Statements

 

In addition to historical information, some of the statements contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We have based these forward-looking statements on our current expectations and any projections about future events. The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report, particularly including those risks identified in Part II, Item 1A “Risk Factors” and in our other filings with the Securities Exchange Commission (the “SEC”).

 

We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report. Statements made herein are as of the date of the filing of this Quarterly Report with the SEC and should not be relied upon as of any subsequent date. Even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report, they may not be predictive of results or developments in future periods. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

 

Overview

 

Genelux is a late clinical-stage biopharmaceutical company focused on developing a pipeline of next-generation oncolytic viral immunotherapies for patients suffering from aggressive and/or difficult-to-treat solid tumor types. Our clinical and preclinical product candidates are intended to selectively kill tumor cells and induce a robust immune response against a patient’s tumor neoantigens. Importantly, our oncolytic immunotherapy product candidates are “off-the-shelf” personalized immunotherapies. In other words, while we administer the same virus product to different patients, the cellular immune response generated is expected to be specific to the unique neoantigens in that patient. Our product candidate, Olvi-Vec (olvimulogene nanivacirepvec), is a proprietary, modified strain of the vaccinia virus (VACV), a stable DNA virus with a large engineering capacity.

 

Employing our proprietary selection technology and discovery and development platform (CHOICE), we have developed an extensive library of isolated and engineered oncolytic VACV immunotherapeutic product candidates. These provide potential utility in multiple tumor types in both the monotherapy and combination therapy settings, via physician-preferred administration techniques, including regional (e.g., intraperitoneal), local and systemic (e.g., intravenous) delivery routes. Informed by our CHOICE platform and supported by extensive clinical and preclinical data, we believe we have the capacity to develop a pipeline of treatment options to address high unmet medical needs for those patients with insignificant or unsatisfactory responses to standard-of-care therapies, including chemotherapies.

 

Since inception, our operations have focused on organizing and staffing our company, business planning, raising capital, acquiring and developing our technology, establishing our intellectual property portfolio, identifying potential product candidates and undertaking preclinical and clinical studies and manufacturing. We do not have any products approved for sale and have not generated any revenue from product sales.

 

18
 

 

Since inception, we have incurred significant operating losses. Our net losses were $7.9 million and $10.4 million for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, we had an accumulated deficit of $229.4 million. We expect to continue to incur significant and increasing expenses and operating losses for the foreseeable future, as we advance our current and future product candidates through preclinical and clinical development, manufacture drug product and drug supply, seek regulatory approval for our current and future product candidates, maintain and expand our intellectual property portfolio, hire additional research and development and business personnel and operate as a public company.

 

We will not generate revenue from commercially approved product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. In addition, if we obtain regulatory approval for our product candidates and do not enter into a third-party commercialization partnership, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing, and distribution activities.

 

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity offerings and debt financings or other sources, such as potential collaboration agreements, strategic alliances and licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on acceptable terms, or at all. Our failure to raise capital or enter into such agreements as, and when needed, could have a material adverse effect on our business, results of operations and financial condition.

 

At March 31, 2024, we had cash and cash equivalents, and short-term investments, on hand in the amount of $19.6 million. During the year ended December 31, 2023, we closed our initial public offering (IPO) and two private placements (Private Placements) and received $37.8 million of aggregate net proceeds from these offerings. We also received commitments through the Private Placements for the funding of an additional $24.0 million that were due by November 15, 2023. In November 2023, we agreed to extend the funding deadline for $2.0 million of the remaining committed investment amounts to March 31, 2024. The investor who was obligated to fund $22.0 million of the remaining committed investment amounts has not made such payments and has indicated that he does not intend to comply with his investment commitments through the Private Placements. We are currently evaluating our potential remedies with respect to this investor’s non-compliance with his contractual obligations to us. We expect our existing cash and cash equivalents, and short-term investments, will last for at least the next 12 months.

 

Recent Developments

 

The Company currently is engaged in regulatory study start-up activities of a Phase 2, open-label, randomized, and controlled clinical trial designed to evaluate the efficacy and safety of intravenously delivered Olvi-Vec oncolytic VACV for patients with recurrent NSCLC in the United States. In accordance with our licensing agreement, the Phase 2 clinical trial will be funded in its entirety by our partner in China, Newsoara. In November 2023, we agreed with Newsoara that Genelux would directly engage a contract research organization on mutually agreeable terms to conduct certain startup activities for the NSCLC trial in the U.S. only, with Newsoara reimbursing Genelux for the costs and expenses of such agreed-upon startup activities. Newsoara is permitted to defer such reimbursement payments until the completion of its next round of financing, which Newsoara expects to occur in 2024.

 

Components of Results of Operations

 

Net Sales

 

During the three months ended March 31, 2023, under our license agreement with Newsoara BioPharma Co. Ltd. (“Newsoara”), we invoiced and collected $0.2 million relating to supplying product for Newsoara to use in its clinical trials. During the three months ended March 31, 2024, we recognized revenue of $0.01 million relating to the Company’s license agreement with ELIAS Animal Health, LLC.

 

19
 

 

Operating Expenses

 

Our operating expenses consist of (i) research and development expenses and (ii) general and administrative expenses.

 

Research and Development Expenses

 

Research and development expenses consist primarily of costs incurred for our research and development activities, including our product candidate discovery efforts and preclinical and clinical studies under our research programs, which include:

 

employee-related expenses, including salaries, benefits and stock-based compensation expense for our research and development personnel;
   
costs of funding research performed by third parties that conduct research and development and preclinical and clinical activities on our behalf;
   
costs of manufacturing drug product and drug supply related to our current or future product candidates;
   
costs of conducting preclinical studies and clinical trials of our product candidates;
   
consulting and professional fees related to research and development activities, including equity-based compensation to non-employees;
   
costs of maintaining our laboratory, including purchasing laboratory supplies and non-capital equipment used in our preclinical studies;
   
costs related to compliance with clinical regulatory requirements; and
   
facility costs and other allocated expenses, which include expenses for rent and maintenance of facilities, insurance, depreciation and other supplies.

 

Research and development costs are expensed as incurred. Costs for certain activities are recognized based on an evaluation of the progress to completion of specific tasks using data such as information provided to us by our vendors and analyzing the progress of our preclinical and clinical studies or other services performed. Significant judgment and estimates are made in determining the accrued expense balances at the end of any reporting period.

 

The successful development of our product candidates is highly uncertain. We cannot reasonably estimate or know the nature, timing, and estimated costs of the efforts that will be necessary to complete development of our current or future product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from the sale of our product candidates, if they are approved. This is due to the numerous risks and uncertainties associated with developing product candidates, including the uncertainty of:

 

the scope, rate of progress, and expenses of our ongoing research activities as well as any preclinical studies and clinical trials and other research and development activities;
   
establishing an appropriate safety profile;
   
successful enrollment in and completion of clinical trials;
   
whether our product candidates show safety and efficacy in our clinical trials;
   
receipt of marketing approvals from applicable regulatory authorities;
   
establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
   
obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;
   
commercializing product candidates, if and when approved, whether alone or in collaboration with others; and
   
continued acceptable safety profile of the products following any regulatory approval.

 

20
 

 

A change in the outcome of any of these variables with respect to the development of our current and future product candidates would significantly change the costs and timing associated with the development of those product candidates.

 

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect research and development costs to increase significantly for the foreseeable future as we commence clinical trials and continue the development of our current and future product candidates. However, we do not believe that it is possible at this time to accurately project expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development programs and plans.

 

General and Administrative Expenses

 

General and administrative expenses include salaries and other compensation-related costs, including stock-based compensation, for personnel in executive, finance and accounting, business development, operations and administrative roles. Other significant costs include professional service and consulting fees, including legal fees relating to intellectual property and corporate matters, accounting fees, recruiting costs and costs for consultants who we utilize to supplement our personnel, insurance costs, travel costs, facility and office-related costs not included in research and development expenses.

 

We anticipate that our general and administrative expenses will increase in the future as our business expands to support expected growth in research and development activities, including our future clinical programs. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside service providers, among other expenses. We also anticipate increased expenses associated with being a public company, including costs for audit, legal, regulatory and tax-related services related to compliance with the rules and regulations of the SEC, and listing standards applicable to companies listed on a national securities exchange, director and officer insurance premiums, and investor relations costs. In addition, if we obtain regulatory approval for any of our product candidates and do not enter into a third-party commercialization collaboration, we expect to incur significant expenses related to building a sales and marketing team to support product sales, marketing and distribution activities.

 

Results of Operations

 

Comparison of the Three Months Ended March 31, 2024 and 2023

 

The following table summarizes our results of operations for the three months ended March 31, 2024 and 2023 (in thousands):

 

   March 31,   March 31, 
   2024   2023 
Revenues  $8   $170 
           
Operating Expenses:          
Research and development   4,010    2,845 
General and administrative   4,113    3,787 
Total operating expenses   8,123    6,632 
Loss from operations   (8,115)   (6,462)
Other income (expenses):          
Interest income   265     
Interest expense       (143)
Debt discount amortization       (649)
Financing costs       (3,110)
Total other income (expenses), net   265    (3,902)
           
Net loss  $(7,850)  $(10,364)

 

21
 

 

Research and Development Expenses

 

The table below summarizes our research and development expenses for the three months ended March 31, 2024 and 2023 (in thousands):

 

   March 31,   March 31, 
Research and Development Expenses:  2024   2023 
Employee compensation and related expenses  $865   $393 
Stock compensation, including the cost of stock options and restricted stock grants   1,053    736 
Manufacturing and laboratory materials and other expenses   257    93 
Outsourced manufacturing services   389    280 
Clinical and regulatory expenses   944    826 
Facility-related expenses, including depreciation   419    300 
Consulting expenses and contract labor   60    208 
Other expenses   23    9 
Total research and development expenses  $4,010   $2,845 

 

Research and development expenses were $4.0 million and $2.8 million for the three months ended March 31, 2024 and 2023, respectively, an increase of $1.2 million. Significant variations between periods are primarily a result of a $0.4 million increase in employee compensation and related expenses in 2024, primarily related to new employee hires after the first quarter of 2023; and a $0.3 million increase in stock-related compensation in 2024, relating to the increased cost of stock options and restricted stock units in 2024.

 

General and Administrative Expenses

 

The table below summarizes our general and administrative expenses for the three months ended March 31, 2024 and 2023 (in thousands):

 

   March 31,   March 31, 
General and Administrative Expenses:  2024   2023 
Employee compensation and related expenses  $599   $459 
Stock compensation, including the cost of stock options and restricted stock grants   1,739    2,295 
Professional services   1,061    674 
Facility-related expenses   126    80 
Insurance expenses   236    208 
Consulting and contract labor expenses   206    36 
Other expenses   146    35 
Total general and administrative expenses  $4,113   $3,787 

 

General and administrative expenses were $4.1 million and $3.8 million for the three months ended March 31, 2024 and 2023, respectively, an increase of $0.3 million. Significant variations between periods are primarily a result of a $0.6 million decrease in stock compensation expense in 2024, due to the decrease in the cost of stock options and restricted stock units in 2024 compared to 2023; and a $0.4 million increase in professional service expenses in 2024, primarily resulting from increased corporate legal costs and other professional services related to being a newly publicly traded company.

 

Other Expenses, net

 

Other income (expenses), net, were $0.3 million and $(3.9) million for the three months ended March 31, 2024 and 2023, respectively. During the three months ended March 31, 2024, other income consisted of interest income of $0.3 million from the investment into money market funds and short-term investments, while during the same period in 2023, other expenses consisted of interest expense of $0.1 million, debt discount amortization of $0.6 million and financing costs of $3.1 million.

 

22
 

 

Liquidity and Capital Resources

 

Going Concern

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements, we experienced recurring losses from operations since inception and incurred a net loss of $6.8 million and used cash in operations of $4.4 million during the three months ended March 31, 2024. These factors raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to raise additional funds and implement our strategies. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

 

At March 31, 2024, we had cash and cash equivalents, and short-term investments, in the amount of $19.6 million. The ability to continue as a going concern is dependent on us attaining and maintaining profitable operations in the future and raising additional capital to meet our obligations and repay our liabilities arising from normal business operations when they come due. Since inception, we have funded our operations primarily through equity and debt financings and licensing income, and we expect to continue to rely on these sources of capital in the future.

 

No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, cause substantial dilution to our stockholders, in the case of equity financing, or grant unfavorable terms in future licensing agreements.

 

Cash Flows

 

The table below summarizes our cash flow activities for the three months ended March 31, 2024 and 2023 (in thousands):

 

   March 31,   March 31, 
Net cash provided by (used in):  2024   2023 
Operating activities  $(4,354)  $(4,590)
Investing activities   (1,691)   (109)
Financing activities   688    14,640 
Net increase (decrease) in cash  $(5,357)  $9,941 

 

Operating Activities

 

During the three months ended March 31, 2024, we used cash from operating activities of $4.4 million, compared to $4.6 million used during the three months ended March 31, 2023. During the three months ended March 31, 2024, we incurred a net loss of $7.9 million and had non-cash expenses of $2.9 million, compared to a net loss of $10.4 million and non-cash expenses of $7.0 million during the three months ended March 31, 2023. The primary non-cash expense during both periods was stock-related compensation totaling $2.8 million and $3.0 million during the three months ended March 31, 2024 and 2023, respectively; and the fair value of warrants issued in connection with the conversion of convertible notes of $3.1 million during the three months ended March 31, 2023. The net change in operating assets and liabilities during the three months ended March 31, 2024 provided cash of $0.6 million, compared to $1.3 million used during the three months ended March 31, 2023. The primary source of cash during the three months ended March 31, 2024 was the increase in accounts payable and accrued expenses of $1.5 million. The primary use of cash during the three months ended March 31, 2023 was the decrease in accounts payable and accrued expenses of $0.9 million.

 

23
 

 

Investing Activities

 

Net cash used in investing activities for the three months ended March 31, 2024 was $1.7 million, consisting of the net purchases of short-term investments of $1.7 million, and purchases of property and equipment for construction-in-progress of $0.003 million. Net cash used in investing activities for the three months ended March 31, 2023 was $0.1 million, consisting of the purchase of property and equipment.

 

Financing Activities

 

During the three months ended March 31, 2024, we provided cash from operating activities of $0.7 million, compared to $14.6 million provided during the three months ended March 31, 2023. For the three months ended March 31, 2024, cash provided by financing activities consisted of proceeds from the exercise of stock warrants of $0.7 million. For the three months ended March 31, 2023, cash provided by financing activities consisted of proceeds from the issuance of proceeds from notes payable - shareholders totaling $0.9 million and proceeds from the sale of common stock related to our IPO totaling $14.5 million, excluding offering costs paid by us.

 

Net cash used in financing activities during the three months ended March 31, 2023 related to the repayment of notes payable - shareholders totaling $0.5 million and the payment of deferred offering costs of $0.3 million.

 

Equity Financings

 

Common Stock Issued for Cash Upon Closing of the Company’s Private Placements

 

In May and June 2023, we entered into securities purchase agreements (the “Purchase Agreements”) with certain investors pursuant to which we agreed to sell and issue shares of our common stock in two private placement transactions. Under the Purchase Agreements, we agreed to extend commitments totaling $24.0 million past their initial due dates.

 

In November 2023, we agreed to extend the funding deadline for $2.0 million of the remaining aggregate investment amounts to March 31, 2024. The investor who was obligated to fund $22.0 million of the remaining committed investment amounts has not made such payments and has indicated that he does not intend to comply with his investment commitments under the Purchase Agreements. We are currently evaluating our potential remedies with respect to this investor’s non-compliance with his contractual obligations to us.

 

Funding Requirements

 

We expect our expenses to increase in connection with our ongoing activities, particularly as we continue our research and development, initiate and conduct preclinical studies and clinical trials, and seek marketing approval for our current and any of our future product candidates. In addition, if we obtain marketing approval for any of our current or our future product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution, which costs we may seek to offset through entry into collaboration agreements with third parties. Furthermore, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.

 

We believe that our existing cash, cash equivalents and short-term investments will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months from the date of filing of this Quarterly Report. We have based this estimate on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Our future capital requirements will depend on a number of factors, including:

 

the costs of conducting preclinical studies and clinical trials;
   
the costs of manufacturing;

 

24
 

 

the scope, progress, results and costs of discovery, preclinical development, laboratory testing, and clinical trials for product candidates we may develop, if any;
   
the costs, timing, and outcome of regulatory review of our product candidates;
   
our ability to establish and maintain collaborations on favorable terms, if at all;
   
the achievement of milestones or occurrence of other developments that trigger payments under any license or collaboration agreements we might have at such time;
   
the costs and timing of future commercialization activities, including product sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;
   
the amount of revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval;
   
the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining and enforcing our intellectual property rights, and defending intellectual property-related claims;
   
our headcount growth and associated costs as we expand our business operations and research and development activities;
   

the costs of operating as a public company; and

 

the impact of geopolitical and macroeconomic events, including future bank failures, increased geopolitical tensions between the U.S. and China, the Russia/Ukraine conflict, the Israel-Hamas war and global pandemics on U.S. and global economic conditions that may affect our ability to access capital on acceptable terms, if at all.

 

We anticipate needing to obtain further funding to achieve our business objectives beyond such date.

 

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through public or private equity offerings and debt financings or other sources, such as potential collaboration agreements, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our common stockholders’ ownership interests may be diluted, and the terms of these securities may include liquidation or other preferences that could adversely affect the rights of our common stockholders. Additional debt financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business.

 

If we raise funds through potential collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or to grant licenses on terms that may not be favorable to us. Our ability to raise additional funds also may be adversely impacted by potential worsening global economic conditions and disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from geopolitical and macroeconomic events such as actual or anticipated changes in interest rates and economic inflation, current and future bank failures, global pandemics, geopolitical tensions between the United States. and China and the impact of the Russia/Ukraine conflict and the conflicts in the Middle East. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

 

25
 

 

Critical Accounting Policies and Significant Judgments and Estimates

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the balance sheets and the reported amounts of expenses during the reporting periods. In accordance with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances at the time such estimates are made. Actual results may differ materially from our estimates and judgments under different assumptions or conditions. We periodically review our estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates are reflected in our financial statements prospectively from the date of the change in estimate.

 

We define our critical accounting policies as those accounting principles that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles. While our significant accounting policies are more fully described in Note 2 to our financial statements appearing elsewhere in this Quarterly Report, we believe the following are the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments.

 

Prepaid Research and Development Expenses

 

As part of the process of preparing our financial statements, we are required to estimate our accrued expenses as of each balance sheet date. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our research and development expenses as of each balance sheet date based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary.

 

The significant estimates in our prepaid research and development expenses include the costs incurred for services performed by our vendors in connection with research and development activities for which we have not yet been invoiced. We base our expenses related to research and development activities on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors that conduct research and development on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense.

 

In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid balance accordingly. Non-refundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.

 

Although we do not expect our estimates to be materially different from amounts incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period.

 

Stock-Based Compensation

 

We measure stock options and other stock-based awards granted to employees and directors based on the fair value of the award on the date of the grant and recognize compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award. We recognize forfeitures as they occur. The reversal of compensation cost previously recognized for an award that is forfeited because of a failure to satisfy a service or performance condition is recognized in the period of the forfeiture. Generally, we issue stock options with only service-based vesting conditions and record the expense for these awards using the straight-line method over the requisite service period.

 

26
 

 

We classify equity-based compensation expense in our statements of operations in the same manner in which the award recipient’s salary and related costs are classified or in which the award recipient’s service payments are classified. In future periods, we expect equity-based compensation expense to increase, due in part to our existing unrecognized stock-based compensation expense and as we grant additional stock-based awards to continue to attract and retain employees.

 

Determination of the Fair Value of Equity-Based Awards

 

We estimate the fair value of stock option awards granted using the Black-Scholes option-pricing model, which uses as inputs the fair value of our common stock and subjective assumptions we make, including expected stock price volatility, the expected term of the award, the risk-free interest rate, and expected dividends. Due to the lack of sufficient company-specific historical and implied volatility data, we base the estimate of expected stock price volatility on the historical volatility of a representative group of publicly traded companies for which historical information is available. The historical volatility is generally calculated based on a period of time commensurate with the expected term assumption. We use the simplified method to calculate the expected term for options granted to employees and directors. We utilize this method as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. For options granted to non-employees, we utilize the contractual term. The risk- free interest rate is based on a U.S. treasury instrument whose term is consistent with the expected term of the stock options. The expected dividend yield is assumed to be zero, as we have never paid dividends and do not have current plans to pay any dividends on our common stock. We determine the fair value of restricted common stock awards based on the fair value of our common stock on the date of grant.

 

Commitments and Contingencies

 

From time to time, we may have certain contingent liabilities that arise in the ordinary course of business. We evaluate the likelihood of an unfavorable outcome in legal or regulatory proceedings to which we are a party and record a loss contingency on an undiscounted basis when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These judgments are subjective and based on the status of such legal proceedings, the merits of our defenses, and consultation with legal counsel. Actual outcomes of these legal proceedings may differ materially from our estimates. We estimate accruals for legal expenses when incurred as of each balance sheet date based on the facts and circumstances known to us at that time.

 

Off-Balance Sheet Arrangements

 

During the three months ended March 31, 2024 and 2023, we did not have, and we do not currently have, any off-balance sheet arrangements (as defined under SEC rules).

 

Recent Accounting Pronouncements

 

For a description of recently issued accounting standards that may have a material impact on our financial statements or will otherwise apply to our operations, please see Note 2 to our audited financial statements appearing elsewhere in this Quarterly Report.

 

Emerging Growth Company Status

 

As an “emerging growth company,” the Jumpstart Our Business Startups Act of 2012 permits us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have irrevocably elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies.

 

27
 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risks.

 

Not applicable.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, refers to controls and procedures 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 such information is accumulated and communicated to a company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of March 31, 2024. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2024.

 

In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and not be detected.

 

Management’s Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, our Principal Executive Officer and Principal Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

 

Under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria set forth in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this assessment, our management concluded that our internal control over financial reporting was effective at a reasonable assurance level as of March 31, 2024.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the first quarter of 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

28
 

 

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

As of December 31, 2023, the Company was the defendant in one pending litigation. On November 6, 2023, the Los Angeles County Superior Court granted the Company’s motion for summary judgment and issued an order and final judgment dismissing all claims against the Company with prejudice. Although the plaintiff filed a notice of appeal of the dismissal order with the California Court of Appeal, the plaintiff subsequently filed a request for dismissal of his appeal, which was dismissed by the appellate court on February 23, 2024. Accordingly, the order and final judgment dismissing all claims against the Company with prejudice is now final.

 

In the future, the Company may be involved in additional actual and/or threatened legal proceedings, claims, investigations and government inquiries arising in the ordinary course of our business, including legal proceedings, claims, investigations and government inquiries involving intellectual property, data privacy and security, other torts, illegal or objectionable content, consumer protection, securities, employment, contractual rights, civil rights infringement, false or misleading advertising, or other legal claims relating to our business.

 

Item 1A. Risk Factors

 

Risk Factor Summary

 

We face many risks and uncertainties, as more fully described in this section under the heading “Risk Factors.” Some of these risks and uncertainties are summarized below. The summary below does not contain all of the information that may be important to you, and you should read this summary together with the more detailed discussion of these risks and uncertainties contained in “Risk Factors.” Some of the material risks associated with our business include the following:

 

  We have incurred significant losses since our inception and anticipate that we will incur significant and increasing losses for the foreseeable future and we may never achieve or maintain profitability.
  We will require substantial additional financing to advance the development of our product candidates, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital could force us to delay, limit, reduce or terminate our product development programs, potential commercialization efforts or other operations.
  Our product candidates are in preclinical and clinical stages of development, are not approved for commercial sale and might never receive regulatory approval or become commercially viable.
  Our product candidates are based on a novel approach to the treatment of cancer, which makes it difficult to predict the time and cost of product candidate development.
  We currently have only one product candidate, Olvi-Vec, in clinical development. A failure of this product candidate in clinical development would adversely affect our business and may require us to discontinue development of other product candidates based on the same therapeutic approach.
  Preclinical and clinical development involve a lengthy and expensive process with an uncertain outcome and stringent regulations, and delays can occur for a variety of reasons.
  Changes in product candidate manufacturing or formulation may result in additional costs or delay.
  If we are unable to manufacture and release any product candidates in the volumes that we require on a timely basis, or fail to comply with stringent regulations applicable to biopharmaceutical manufacturers, we may face delays in the development and commercialization of, or be unable to meet demand for, any product candidates and may lose potential revenues.
  If we fail to comply with federal and state healthcare laws, including fraud and abuse laws, we could face substantial penalties and our business, financial condition, results of operations, stock price and prospects will be materially harmed.
  We are subject to stringent and evolving U.S. and foreign laws, regulations, rules, contractual obligations, policies and other obligations related to data privacy and security. Our actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions; litigation; fines and penalties; disruptions of our business operations; reputational harm; loss of revenue or profits; loss of customers or sales; and other adverse business consequences.
  If we are unable to obtain, maintain and protect our intellectual property rights for our technology and product candidates, or if our intellectual property rights are inadequate, our competitive position could be harmed.
  We are highly dependent on our key personnel, including our President, Chief Executive Officer and Chairman. If we are not successful in attracting, motivating and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.
  Unfavorable market and economic conditions may have serious adverse consequences on our business, financial condition, results of operations, stock price and prospects.
  Public health crises such as pandemics could materially and adversely affect our preclinical studies and clinical trials, business, financial condition and results of operations.
  The market price of our common stock has been extremely volatile and may continue to be volatile due to numerous circumstances beyond our control, which could result in substantial losses for our stockholders.

 

29
 

 

Risk Factors

 

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Quarterly Report on Form 10-Q (this “Quarterly Report”), including our financial statements and the related notes and “Management’s Discussion and Analysis of Results of Operations and Financial Condition,” before deciding whether to purchase, hold or sell shares of our common stock. If any of the following risks are realized, our business, financial condition, results of operations, stock price and prospects could be materially and adversely affected. In that event, the price of our common stock could decline, and you could lose part or all of your investment. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. The risk factors set forth below that are marked with an asterisk (*) contain changes to the similarly titled risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2023.

 

Risks Related to our Financial Position and Need for Additional Capital

 

We have incurred significant losses since our inception and anticipate that we will incur significant and increasing losses for the foreseeable future and we may never achieve or maintain profitability.*

 

We are a clinical stage biopharmaceutical company, and our operations to date have been focused substantially on organizing and staffing our company, business planning, raising capital, creating, assessing, and developing our technology, establishing our intellectual property portfolio, identifying potential product candidates, undertaking preclinical studies, commencing clinical trials and manufacturing. Additionally, as an organization, we have not yet demonstrated an ability to successfully complete clinical development, obtain regulatory approvals, manufacture a commercial-scale product, or conduct sales and marketing activities necessary for successful commercialization. We have never generated any revenue from commercially approved product sales and have incurred significant operating losses. Our net losses were $7.9 million and $10.4 million for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, we had an accumulated deficit of $229.4 million. We expect to continue to incur significant and increasing operating losses for the foreseeable future. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ deficit and working capital.

 

We expect that it will be several years, if ever, before we have a commercialized product. The net losses we incur may fluctuate significantly from quarter to quarter and year to year. We anticipate that our expenses will increase substantially if, and as, we:

 

advance the Phase 3 registration clinical trial for our lead product candidate, Olvi-Vec, in platinum resistant/refractory ovarian cancer (“PRROC”);
   
initiate planned and future clinical trials of Olvi-Vec in other cancer indications;

 

30
 

 

discover and develop new product candidates, and conduct research and development activities, preclinical studies and clinical trials;
   
manufacture preclinical, clinical and commercial supplies of our product candidates;
   
broaden and strengthen our internal manufacturing capabilities, including the expansion and upgrade of our in-house manufacturing facility;
   
seek regulatory approvals for any product candidates that successfully complete clinical trials;
   
maintain, expand and protect our intellectual property portfolio;
   
hire additional research and development, clinical, scientific and management personnel;
   
add operational, financial and management information systems and personnel;
   
establish a sales, marketing and distribution infrastructure to commercialize any product candidate for which we may obtain regulatory approval and we commercialize on our own or in collaboration with others; and
   
incur additional legal, accounting and other expenses operating as a public company.

 

To become and remain profitable, we must succeed in developing and eventually commercializing products that generate significant revenue. This will require us to be successful in a range of challenging activities, including completing preclinical studies and clinical trials, obtaining regulatory approval for product candidates and manufacturing, marketing and selling products for which we may obtain marketing approval and satisfying any post-marketing requirements. We are only in the development stages of most of these activities. We may never succeed in these activities and, even if we do, may never generate revenue that is significant enough to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts or even continue our operations. A decline in the value of our company could also cause stockholders to lose all or part of their investment.

 

We will require substantial additional financing to advance the development of Olvi-Vec and any of our future product candidates, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital could force us to delay, limit, reduce or terminate our product development programs, potential commercialization efforts or other operations.*

 

The development of biopharmaceutical product candidates is capital-intensive. Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial amounts to continue the preclinical and clinical development of, and seek regulatory approval for, our current and future product candidates. If we are able to gain marketing approval of any product candidate that we develop, including Olvi-Vec, we will require significant additional amounts of cash in order to launch and commercialize such product either alone or in collaboration with others. Because the design and outcome of our ongoing, anticipated and any future clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of any product candidate we develop.

 

Our future capital requirements depend on many factors, including:

 

the scope, progress, results and costs of researching and developing Olvi-Vec and our other product candidates and programs, and of conducting preclinical studies and clinical trials;
   
the timing of, and the costs involved in, obtaining marketing approvals for Olvi-Vec and future product candidates we develop if clinical trials are successful;
   
the success of any future collaborations;

 

31
 

 

the cost of commercialization activities for any approved product, including marketing, sales and distribution costs;
   
the cost and timing of establishing, equipping, and operating our current and planned manufacturing activities;
   
the cost of manufacturing Olvi-Vec and future product candidates for clinical trials in preparation for marketing approval and commercialization;
   
our ability to establish and maintain strategic licensing or other arrangements and the financial terms of such agreements;
   
the cost, timing and outcome of seeking U.S. Food and Drug Administration (“FDA”) and any other regulatory approvals for any future product candidates;
   
the costs involved in preparing, filing, prosecuting, maintaining, expanding, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;
   
our ability to establish and maintain healthcare coverage and adequate reimbursement for our future products, if any;
   
the timing, receipt, and amount of sales of, or royalties on, our future products, if any;
   
the emergence of competing cancer therapies and other adverse market developments;
   
our efforts to enhance operational systems and our ability to attract, hire and retain qualified personnel, including personnel to support the development of our product candidates;
   
the costs associated with being a public company;
   
our need and ability to retain key management and hire scientific, technical, medical and business personnel;
   
the costs associated with expanding our facilities or building out our laboratory space; and
   
the impact of geopolitical and macroeconomic events, including future bank failures, increased geopolitical tensions between the United States and China, the Russia/Ukraine conflict, the conflicts in the Middle East and global pandemics on U.S. and global economic conditions.

 

Two investors from our private placements (the “Private Placements”) were contractually obligated to fund $30.0 million on or before November 15, 2023, of which we have received $6.0 million to date. In November 2023, we agreed to extend the funding deadline for $2.0 million of the remaining aggregate investment amounts to March 31, 2024. The investor who was obligated to fund $22.0 million of the remaining committed investment amounts has not made such payments and has indicated that he does not intend to comply with his investment commitments. We are currently evaluating our potential remedies with respect to this investor’s non-compliance with his contractual obligations to us. Besides the Private Placements and the obligations by Newsoara BioPharma Co. Ltd. (“Newsoara”) to provide clinical trial funding under our license agreement with Newsoara (the “Newsoara License Agreement”), we do not have any committed external source of funds or other support for our development efforts. Until we can generate sufficient product revenue to finance our cash requirements, which we may never do, we expect to finance our future cash needs through a combination of public or private equity offerings and debt financings, or other capital sources such as potential collaborations, strategic alliances, licensing arrangements and other arrangements. Based on our research and development plans, we expect that our existing cash balance will enable us to fund our planned operating expenses and capital expenditure requirements for at least the next 12 months from the date of filing of this Quarterly Report. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. In addition, because the design and outcome of our anticipated and any future clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of Olvi-Vec or any future product candidates. Our existing cash balance may not be sufficient to complete development of Olvi-Vec or any other product candidate. Additionally, although we have commitments from investors to fund the remaining aggregate investment amounts in connection with our Private Placements, we may not receive some or all of the committed proceeds, due to ongoing liquidity constraints or other factors. The failure to receive all or some of the committed proceeds would exhaust our available capital resources sooner than expected and will require us to obtain further funding to achieve our business objectives.

 

32
 

 

We have never generated any revenue from commercially approved product sales and may never become profitable.

 

Our ability to generate revenue from product sales and achieve profitability depends on our ability, alone or with future partners, to successfully complete the development of, and obtain the regulatory approvals necessary to commercialize, our development programs. We have no products approved for commercial sale, have not generated any revenue from commercially approved product sales, and do not anticipate generating any revenue from commercially approved product sales until after we have received marketing approval for the commercial sale of a product candidate, if ever. Our ability to generate revenue and achieve profitability depends heavily on our success in achieving a number of goals, including:

 

completing research regarding, and preclinical and clinical development of, product candidates and programs, including Olvi-Vec, and identifying and developing new product candidates;

 

obtaining marketing approvals for any product candidates for which we complete clinical trials;
   
obtaining regulatory approval to use and sell products generated by our existing or future manufacturing processes for Olvi-Vec and future product candidates, including at our existing manufacturing facility and/or by establishing and maintaining supply and manufacturing relationships with third parties;
   
launching and commercializing product candidates for which we obtain marketing approvals, either directly by establishing a sales force and marketing, medical affairs and distribution infrastructure or, alternatively, with a collaborator or distributor;
   
establishing and maintaining healthcare coverage and adequate reimbursement for our future products, if any;
   
obtaining market acceptance of product candidates that we develop as viable treatment options;
   
addressing any competing technological and market developments;
   
identifying, assessing, acquiring and developing new product candidates;
   
negotiating favorable terms in any collaboration, licensing, or other arrangements into which we may enter and performing our obligations in such collaborations;
   
maintaining, protecting, and expanding our portfolio of intellectual property rights, including patents, trade secrets, and know-how; and
   
attracting, hiring, and retaining qualified personnel.

 

Even if Olvi-Vec or any future product candidates that we develop are approved for commercial sale, we anticipate incurring significant costs associated with commercializing any such product candidate that we commercialize on our own or in collaboration with others. Our expenses could increase beyond expectations if we are required by the FDA or comparable foreign regulatory authorities, to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate.

 

If we are successful in obtaining regulatory approvals to market Olvi-Vec or any future product candidates, our revenue will be dependent, in part, upon the size of the markets in the territories for which we gain marketing approval, the accepted price for the product, the ability to get reimbursement at any price, and whether we own the commercial rights for that territory. If the number of our addressable patients is not as significant as we estimate, the indications approved by regulatory authorities are narrower than we expect, the labels for our product candidates contain significant safety warnings, regulatory authorities impose burdensome or restrictive distribution requirements, or the reasonably accepted patient populations for treatment are narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue from sales of such products, even if approved. If we are not able to generate revenue from the sale of any approved products, we could be prevented from or significantly delayed in achieving profitability.

 

33
 

 

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

 

To the extent that we raise additional capital through the sale of common stock or securities convertible or exchangeable into common stock, our stockholders’ ownership interest may be diluted. Any future debt financings we undertake, if available, are likely to involve restrictive covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through licensing or collaboration arrangements with third parties, we may have to relinquish valuable rights to our product candidates, or grant licenses on terms that are not favorable to us. We also could be required to seek collaborators for product candidates at an earlier stage than otherwise would be desirable or relinquish our rights to product candidates or technologies that we otherwise would seek to develop or commercialize ourselves.

 

Failure to obtain capital when needed on acceptable terms may force us to delay, limit or terminate our product development and commercialization of our current or future product candidates, which could have a material and adverse effect on our business, financial condition, results of operations, stock price and prospects. Securing additional financing could also require a substantial amount of time from our management and may divert a disproportionate amount of their attention away from daily activities, which may adversely affect our management’s ability to oversee the development of Olvi-Vec or any future product candidates.

 

The report of our independent registered public accounting firm included a “going concern” explanatory paragraph.

 

The report of our independent registered public accounting firm on our financial statements as of and for the years ended December 31, 2023 and 2022 included an explanatory paragraph indicating that there was substantial doubt about our ability to continue as a going concern. If we are unable to raise additional capital as and when needed, our business, financial condition and results of operations will be materially and adversely affected, and we may be forced to delay our development efforts, limit our activities and reduce research and development costs. If we are unable to continue as a going concern, we may have to liquidate our assets, and the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements. The inclusion of a going concern explanatory paragraph by our independent registered public accounting firm, our lack of cash resources and our potential inability to continue as a going concern may materially adversely affect our share price and our ability to raise new capital, enter into licensing and collaboration arrangements or other contractual relationships with third parties and otherwise execute our development strategy.

 

Risks Related to Product Discovery, Development and Regulatory Approval

 

Our development of product candidates based on our technology platform is limited, and we do not know whether we will be able to develop any products of commercial value.*

 

The success of our business depends primarily upon our ability to identify novel product candidates based on our CHOICE platform and to successfully develop and commercialize those product candidates. While we have had promising preclinical study and clinical trial results for Olvi-Vec, to date, it remains our only product candidate that has moved into clinical trials. We have not yet succeeded and may not succeed in demonstrating efficacy and safety in commercializing Olvi-Vec. We also may be unsuccessful in identifying additional product candidates beyond Olvi-Vec using our CHOICE platform, and any of our product candidates may be shown to have harmful side effects or may have other characteristics that may necessitate additional clinical testing, or make the product candidates unmarketable or unlikely to receive marketing approval. In particular, because all of our product candidates have been derived from our CHOICE platform, the failure of any one of our development programs could create a perception that our other programs are less likely to succeed or that our discovery platform is not viable. Similarly, adverse developments with respect to other companies that attempt to use a similar approach to our approach may adversely impact the actual or perceived value and potential of our discovery platform and resulting product candidates.

 

34
 

 

If any of these events occur, our ability to successfully discover, develop and commercialize any product candidates may be impaired and the value of our company could decline significantly.

 

Our product candidates are in preclinical and clinical stages of development, are not approved for commercial sale and might never receive regulatory approval or become commercially viable.*

 

All of our product candidates are in research, preclinical or clinical development. We have not completed the development of any product candidates, we currently generate no revenue, and we may never be able to develop a marketable product. Enrollment of our Phase 2 clinical trial, an open-label, single-arm study, of our lead product candidate, Olvi-Vec, in patients with PRROC, was completed in September 2019, and we reported multiple data readouts in 2020, 2021, 2022 and 2023 for our Phase 2 PRROC clinical trial. We expect the final readout, reported on May 25, 2023 and published in JAMA Oncology in May 2023, to remain essentially unchanged in the final study report. Our Phase 3 registration trial of Olvi-Vec in PRROC initiated enrollment in the third quarter of 2022. We continue to enroll patients in this Phase 3 trial with topline results anticipated in the second half of 2025.

 

We began regulatory study startup of a Phase 2, open-label, randomized, and controlled clinical trial designed to evaluate the efficacy and safety of intravenously delivered Olvi-Vec oncolytic vaccinia virus (“VACV”) for patients with recurrent non-small cell lung cancer (“NSCLC”) in the United States in the first half of 2023. Newsoara is generally obligated under the Newsoara License Agreement to fund this trial. In November 2023, we agreed with Newsoara that we would directly engage a contract research organization (“CRO”) on mutually agreeable terms to conduct certain startup activities for the NSCLC trial in the United States only, with Newsoara reimbursing us for the costs and expenses of such agreed-upon startup activities. Newsoara is permitted to defer such reimbursement payments until the completion of its next round of financing, which Newsoara expects to occur in 2024. We plan to conduct this Phase 2 trial under our current open investigational new drug application (“IND”) and to initiate the trial in the United States in the first half of 2024. Subject to regulatory authorization in China, the Company expects Newsoara eventually to add sites in China and for the parties to conduct this study as a multi-regional clinical trial.

 

We and Newsoara co-sponsor a Phase 1/2 clinical trial of Olvi-Vec in patients with recurrent SCLC in China, which Newsoara is conducting and initiated the Phase 1 portion in the first half of 2023. We expect to report interim results from the SCLC trial in the second half of 2024. In addition to expecting Newsoara to join our Phase 2 NSCLC trial, as discussed above, we anticipate they will initiate a trial in recurrent ovarian cancer in China.

 

Additionally, we have a portfolio of oncolytic VACV constructs that are in early-to-mid stages of discovery and preclinical development that may never advance to clinical-stage development or marketing approval. Our ability to generate product revenues, which we do not expect will occur for several years, if ever, will depend on obtaining marketing approvals for, and successfully commercializing our product candidates, either alone or in collaboration with others, and we cannot guarantee that we will ever obtain marketing approval for any of our product candidates. Before obtaining marketing approval for the commercial distribution of our product candidates, we, or a future collaborator, must conduct extensive preclinical studies and clinical trials to demonstrate the safety and efficacy in humans of our product candidates.

 

The success of our current and future product candidates will depend on several factors, including the following:

 

successful completion of preclinical studies and clinical trials;

 

sufficiency of our financial and other resources to complete the necessary preclinical studies and clinical trials;
   
acceptance of INDs or IND amendments for our planned clinical trials or future clinical trials;
   
successful enrollment and completion of clinical trials;
   
successful data from our clinical trials that support FDA conclusion of an acceptable risk-benefit profile of our product candidates in the intended populations;
   
receipt of regulatory and marketing approvals from applicable regulatory authorities;
   
obtaining and maintaining patent and trade secret protection or regulatory exclusivity for our product candidates;

 

35
 

 

obtaining regulatory approval to use our existing or future manufacturing processes for the clinical and commercial manufacture of our product candidates at our existing or future manufacturing facilities or at the facilities of one or more third-party manufacturers with whom we would need to establish supply arrangements;
   
successfully launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others;
   
acceptance of any products we develop and their benefits and uses, if and when approved, by patients, the medical community and third-party payors;
   
effectively competing with other therapies;
   
obtaining and maintaining healthcare coverage and adequate reimbursement from third-party payors; and
   
maintaining a continued acceptable safety profile of the products following approval.

 

If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our product candidates, which would materially harm our business.

 

We currently have only one product candidate, Olvi-Vec, in clinical development. A failure of this product candidate in clinical development would adversely affect our business and may require us to discontinue development of other product candidates based on the same therapeutic approach.*

 

We have invested a significant portion of our efforts and financial resources in our oncolytic VACV platform and, in particular, in the development of our lead product candidate, Olvi-Vec. We have completed enrollment for only one Phase 2 clinical trial, an open-label single-arm study, of Olvi-Vec in patients with PRROC in September 2019. Our Phase 3 registration trial of Olvi-Vec in PRROC initiated enrollment in the third quarter of 2022. Our co-sponsored Phase 1/2 clinical trial in SCLC continues to enroll patients in China. We also intend to initiate a Phase 2 clinical trial in patients with NSCLC in the first half of 2024 Olvi-Vec, as well as our other product candidates, are susceptible to the risks of failure inherent at any stage of product development, including the occurrence of unexpected or unacceptable adverse events or the failure to demonstrate efficacy in clinical trials. We will need to successfully complete such trials before submitting a marketing application to the FDA.

 

We have submitted an IND application with respect to only one product candidate, Olvi-Vec. V2ACT LLC, a joint venture between TVAX Biomedical, Inc. (“TVAX”) and us, has also filed its own IND for V2ACT Immunotherapy, a combination of Olvi-Vec and vaccine-enhanced adoptive cell therapy for the treatment of newly diagnosed, surgically-resectable pancreatic cancer patients. For V2ACT Immunotherapy, no clinical trial is yet scheduled to be initiated. We have not previously submitted a biologics license application (“BLA”) to the FDA, or similar regulatory approval filings to comparable foreign authorities, for any product candidate, and we cannot be certain that our product candidates will be successful in clinical trials or receive regulatory approval. Further, our product candidates may not receive regulatory approval even if they are successful in clinical trials.

 

Since Olvi-Vec is based on our oncolytic VACV platform, if Olvi-Vec fails in development as a result of any underlying problem with our oncolytic VACV platform, then we may be required to discontinue development of all product candidates that are based on this therapeutic approach. If we were required to discontinue development of Olvi-Vec or our other future product candidates, or if any of them were to fail to receive regulatory approval or achieve sufficient market acceptance, we could be prevented from or significantly delayed in achieving profitability. We can provide no assurance that we would be successful at developing other product candidates based on an alternative therapeutic approach.

 

36
 

 

Our product candidates are based on a novel approach to the treatment of cancer, which makes it difficult to predict the time and cost of product candidate development.

 

We have concentrated all of our research and development efforts on product candidates based on our oncolytic VACV platform, which is novel. We only have conducted clinical development of Olvi-Vec in human cancer patients. Our future success depends on the successful development of our oncolytic VACV platform. Any development problems we experience in the future may cause significant delays or unanticipated costs, and we may not be able to solve any such development problems. Should we encounter development problems, including unfavorable preclinical study or clinical trial results, the FDA or foreign regulatory authorities may place all, or part, of our clinical development on hold or refuse to approve our product candidates, or may require additional information, tests, or trials, which could significantly delay product development and significantly increase our development costs. Moreover, even if we are able to provide the requested information or trials to the FDA, there would be no guarantee that the FDA would accept them or approve our product candidates. We may also experience delays in developing and obtaining regulatory approval for a sustainable, reproducible and scalable manufacturing process, or developing or qualifying and validating product release assays, other testing and manufacturing methods, and our equipment and facilities in a timely manner, which may prevent us from completing our clinical trials or commercializing our product candidates on a timely or profitable basis, if at all.

 

In addition, the clinical trial requirements of the FDA and comparable foreign regulatory authorities and the criteria these regulators use to determine the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of the potential products. The FDA and comparable foreign regulatory authorities have limited experience with the approval of viral immunotherapies. To date, there is only one FDA-approved viral immunotherapy-talimogene laherparepvec (“IMLYGIC”). Any viral immunotherapies that are approved may be subject to extensive post-approval regulatory requirements, including post-approval studies as well as requirements pertaining to manufacturing, distribution and promotion. We may need to devote significant time and resources to compliance with these requirements.

 

Preclinical and clinical development involve a lengthy and expensive process with an uncertain outcome and stringent regulations, and delays can occur for a variety of reasons.*

 

In order to obtain FDA approval to market a new biological product, we must demonstrate proof of safety as well as purity and potency (i.e., efficacy) in humans. To meet these requirements, we will have to conduct adequate and well-controlled clinical trials. Before we can commence clinical trials for a product candidate, we must complete extensive preclinical testing and studies that support our planned INDs in the United States. We only have one product candidate currently being evaluated in human clinical development, Olvi-Vec. In addition, the FDA has granted permission to proceed with a clinical trial under the IND for V2ACT Immunotherapy, but no clinical trial has been initiated or is currently scheduled to initiate. The rest of our product candidates are in preclinical development, have not yet been evaluated in IND-enabling studies and their risk of failure is high. We cannot be certain of the timely completion or outcome of our preclinical testing and studies or clinical trials and cannot predict if the FDA will accept our proposed clinical programs or if the outcome of our preclinical testing and studies or clinical trials will ultimately support the further development of our programs. As a result, we cannot be sure that we will be able to submit INDs or similar applications for our preclinical programs on the timelines we expect, if at all. Additionally, we cannot be sure that submission of INDs or similar applications will result in the FDA or other regulatory authorities allowing clinical trials to begin, and we cannot be sure that our planned clinical trials will begin on time or that our ongoing clinical trials will be completed on schedule.

 

Conducting preclinical testing and clinical development is a lengthy, time-consuming and expensive process. The length of time may vary substantially according to the type, complexity and novelty of the program, and often can be several years or more per program. Delays associated with programs for which we are directly conducting preclinical testing and studies may cause us to incur additional operating expenses. Moreover, we may be affected by delays associated with the preclinical testing and studies of certain programs that are the responsibility of any potential future partners over which we have no control. The commencement and rate of completion of preclinical studies and clinical trials for a product candidate may be delayed by many factors, including, for example: