UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For
the quarterly period ended
For the transition period from ___________ to ___________
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
Commission File Number |
(IRS Employee Identification No.) |
(Address of Principal Executive Offices)
(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: | ||
The
(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.
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).
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 ☐ | |
| 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 August 12, 2024 was .
GENELUX CORPORATION
FORM 10-Q
JUNE 30, 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 | 20 |
| Item 3 | Quantitative and Qualitative Disclosures About Market Risk | 30 |
| Item 4. | Control and Procedures | 30 |
| PART II— OTHER INFORMATION | 31 | |
| Item 1 | Legal Proceedings | 31 |
| Item 1A | Risk Factors | 31 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 113 |
| Item 3. | Defaults Upon Senior Securities | 113 |
| Item 4. | Mine Safety Disclosures | 113 |
| Item 5. | Other Information | 113 |
| Item 6. | Exhibits | 114 |
| SIGNATURES | 116 | |
| 2 |
PART I—FINANCIAL INFORMATION
Item 1: Financial Statements.
Genelux Corporation
Condensed Balance Sheets
(in thousands, except for share amounts and par value data)
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Short-term investments | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Right of use assets | ||||||||
| Long-term investments | ||||||||
| Other assets | ||||||||
| Total Other Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued payroll and payroll taxes | ||||||||
| Lease liabilities, current portion | ||||||||
| Total Current Liabilities | ||||||||
| Lease liabilities, long-term portion | ||||||||
| Total Liabilities | ||||||||
| Shareholders’ Equity | ||||||||
| Preferred stock, par value $, shares authorized; shares issued and outstanding, respectively; | ||||||||
| Common stock, par value $, shares authorized; and shares issued and outstanding, respectively | ||||||||
| Treasury stock, shares, at cost | ( | ) | ( | ) | ||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income (loss) | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Shareholders’ Equity | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
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)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expenses): | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ||||||||||||
| Debt discount amortization | ( | ) | ||||||||||||||
| Financing costs | ( | ) | ||||||||||||||
| Debt extinguishment costs | ( | ) | ( | ) | ||||||||||||
| Total other income (expenses), net | ( | ) | ( | ) | ||||||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| LOSS PER COMMON SHARE - BASIC AND DILUTED | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING - BASIC AND DILUTED | ||||||||||||||||
The accompanying notes are an integral part of these condensed financial statements.
| 4 |
Genelux Corporation
Condensed Statements of Comprehensive Loss
(in thousands)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive loss: | ||||||||||||||||
| Net unrealized loss on short and long-term investments | ( | ) | ( | ) | ||||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
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)
| Preferred Stock | Common Stock | Treasury Stock | Additional Paid-in | Accumulated Other Comprehensive | Accumulated | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Income(Loss) | Deficit | Total | |||||||||||||||||||||||||||||||
| Balance, March 31, 2024 (unaudited) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||
| Stock compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
| Unrealized loss on short and long-term investments | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Fair value of vested restricted stock units | - | - | - | |||||||||||||||||||||||||||||||||||||
| Issuance of common shares for cash and warrants, net of costs | - | - | ||||||||||||||||||||||||||||||||||||||
| Cost of stock option modifications and repricing | - | - | - | |||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with the Company’s equity award programs | - | - | ||||||||||||||||||||||||||||||||||||||
| Net loss during the three months ended June 30, 2024 | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance, June 30, 2024 (unaudited) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||
| Stock compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
| Unrealized loss on short and long-term investments | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Fair value of vested restricted stock units | - | - | ||||||||||||||||||||||||||||||||||||||
| Cost of stock option modifications and repricing | - | - | - | |||||||||||||||||||||||||||||||||||||
| Issuance of common shares for cash and warrants, net of costs | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with the Company’s equity award programs | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon exercise of stock warrants | - | - | ||||||||||||||||||||||||||||||||||||||
| Net loss during the six months ended June 30, 2024 | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance, June 30, 2024 (unaudited) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||
| 6 |
Genelux Corporation
Condensed Statements of Shareholders’ Equity (Unaudited)
(in thousands, except share amounts)
| Preferred Stock | Common Stock | Treasury Stock | Additional Paid-in | Accumulated Other Comprehensive | Accumulated | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Income(Loss) | Deficit | Total | |||||||||||||||||||||||||||||||
| Balance, March 31, 2023 (unaudited) | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||
| Stock compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon the closing of private financings, net of offering costs | - | - | ||||||||||||||||||||||||||||||||||||||
| Conversion of notes payable-shareholders and accrued interest | - | - | ||||||||||||||||||||||||||||||||||||||
| Fair value of vested restricted stock units | - | - | - | |||||||||||||||||||||||||||||||||||||
| Cost of stock option repricing | - | - | - | |||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon exercise of stock warrants | - | - | ||||||||||||||||||||||||||||||||||||||
| Net loss during the three months ended June 30, 2023 | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 (unaudited) | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||
| Stock compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon the closing of the initial public offering, net of offering costs | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon the closing of private financings, net of offering costs | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon conversion of preferred stock | ( | ) | ( | ) | - | |||||||||||||||||||||||||||||||||||
| Issuance of common shares upon conversion of convertible notes payable, accrued interest and loan fees | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon conversion of preferred stock dividends payable | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Fair value of vested restricted stock units | - | - | - | |||||||||||||||||||||||||||||||||||||
| Cost of stock option repricing | - | - | - | |||||||||||||||||||||||||||||||||||||
| Reclassification of warrant liabilities upon the closing of the initial public offering | - | - | - | |||||||||||||||||||||||||||||||||||||
| Fair value of warrants issued in connection with the the conversion of convertible notes payable | - | - | - | |||||||||||||||||||||||||||||||||||||
| Conversion of notes payable-shareholders and accrued interest | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of common shares upon exercise of stock warrants | - | - | ||||||||||||||||||||||||||||||||||||||
| Net loss during the six months ended June 30, 2023 | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 (unaudited) | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed financial statements.
| 7 |
Genelux Corporation
Condensed Statements of Cash Flows
(in thousands)
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation expense | ||||||||
| Net amortization of premiums and discounts on short-term investments | ( | ) | ||||||
| Right-of-use asset | ||||||||
| Amortization of debt discount | ||||||||
| Stock compensation | ||||||||
| Fair value of restricted stock units | ||||||||
| Cost of stock option modifications and repricing | ||||||||
| Debt extinguishment costs | ||||||||
| Fair value of warrants issued in connection with the conversion of convertible notes payable | ||||||||
| Changes in Assets and Liabilities | ||||||||
| (Increase) Decrease in: | ||||||||
| Prepaid expenses and other assets | ( | ) | ( | ) | ||||
| (Decrease) Increase in: | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Accrued payroll and payroll taxes | ( | ) | ( | ) | ||||
| Accrued interest payable | ||||||||
| Deferred revenue | ( | ) | ||||||
| Lease liability | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Purchase of short and long-term investments | ( | ) | ||||||
| Proceeds from sales and maturities of short-term investments | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from notes payable – shareholders | ||||||||
| Repayment of notes payable – shareholders | ( | ) | ||||||
| Repayment of convertible notes payable – shareholders | ||||||||
| Payment of deferred offering costs | ( | ) | ||||||
| Proceeds from common stock issued in connection with the Company’s equity award programs | ||||||||
| Proceeds from the exercise of stock warrants | ||||||||
| Proceeds from common stock issued for cash in connection with the closing of the IPO | ||||||||
| Proceeds from common stock issued for cash in connection with the closing of private financings | ||||||||
| Proceeds from common stock issued for cash in connection with the closing of a second offering | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash and cash equivalents at the beginning of period | ||||||||
| Cash and cash equivalents at the end of period | $ | $ | ||||||
| Supplemental cash flows disclosures: | ||||||||
| Interest paid | $ | $ | ||||||
| Taxes paid | $ | $ | ||||||
| Supplemental non-cash financing disclosures: | ||||||||
| Effect of the extension of right-of-use asset and operating lease | $ | $ | ||||||
| Reclassification of deferred offering costs to shareholders’ equity | $ | $ | ||||||
| Reclassification of warrant liabilities to shareholders’ equity | $ | $ | ||||||
| Conversion of convertible notes payable, accrued interest and loan fees to shareholders’ equity | $ | $ | ||||||
| Conversion of preferred stock to common stock | $ | $ | ||||||
| Conversion of dividends payable to shareholders’ equity | $ | $ | ||||||
| Conversion of notes payable-shareholders and accrued interest to shareholders’ equity | $ | $ | ||||||
| Unrealized loss on investments | $ | $ | ||||||
The accompanying notes are an integral part of these condensed financial statements.
| 8 |
GENELUX CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 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 six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.
Liquidity and Capital Resources
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.
During
the year ended December 31, 2023, the Company incurred a net loss of $
During
the year ended December 31, 2023, the Company closed its initial public offering (“IPO”) and two private placements and received
$
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.
| 9 |
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.
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 six months ended June 30, 2024 and 2023, the basic and diluted shares outstanding were the same, as potentially dilutive shares were considered anti-dilutive.
| June 30, 2024 | June 30, 2023 | |||||||
| Stock options | ||||||||
| Stock warrants | ||||||||
| Restricted stock units | ||||||||
| Stock warrants, issuable upon conversion of notes payable | ||||||||
| Total | ||||||||
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 six months ended June 30, 2024, the Company recognized revenue of $
| 10 |
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 June 30, 2024 and December 31, 2023. As of June 30, 2024 and December 31, 2023,
the amount of cash equivalents included in cash and cash equivalents totaled $
Short and Long-Term Investments
The Company’s short and long-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 six months ended June 30, 2024.
Bonds with maturity dates subsequent to June 30, 2025 are classified as long-term investments, while bonds with maturity dates on or before June 30, 2025 are classified as short-term investments.
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 six months ended June 30, 2024.
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. |
| 11 |
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.
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 six months ended June 30, 2024, comprehensive loss included $
| 12 |
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.
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 June 30, 2024, Using: | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Cash equivalents: | ||||||||||||||||
| Money market funds | $ | $ | $ | $ | ||||||||||||
| Short and long-term investments: | ||||||||||||||||
| US Government Agency bonds | ||||||||||||||||
| US Treasury bonds | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
The underlying securities in the money market funds held by the Company are all government backed securities.
Valuation of cash equivalents and short and long-term investments
Cash equivalents consisted of money market funds at June 30, 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 AND LONG-TERM INVESTMENTS
As of June 30, 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 | ||||||||||||||||
| US Government Agency bonds | $ | $ | $ | ( | ) | $ | $ | |||||||||||||
| US Treasury bonds | ( | ) | ||||||||||||||||||
| $ | $ | $ | ( | ) | $ | $ | ||||||||||||||
As
of June 30, 2024, $
| 13 |
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30, 2024 and December 31, 2023:
| June 30, 2024 | December 31, 2023 | |||||||
| Furniture and office equipment | $ | $ | ||||||
| Laboratory equipment | ||||||||
| Computer equipment | ||||||||
| Leasehold improvements | ||||||||
| Construction-in-progress | ||||||||
| Less: accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense for the six months ended June 30, 2024 and 2023 was $
During
the year ended December 31, 2023, the Company expended $
NOTE 6 – ACCRUED PAYROLL AND PAYROLL TAXES
As of
December 31, 2023, a total of $
NOTE 7 – LEASE LIABILITIES
Operating Leases
Operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Generally, the implicit rate of interest (“discount rate”) in arrangements is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The operating lease ROU asset includes any lease payments made and excludes lease incentives.
As
of June 30, 2024, the Company has four operating leases with average monthly payments of approximately $
During
the six months ended June 30, 2024 and 2023, the Company reflected combined amortization of the right of use assets of $
The
operating lease liability at December 31, 2023 was $
| 14 |
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 $
NOTE 8 - SHAREHOLDERS’ EQUITY
Preferred Stock
Upon the closing of the Company’s IPO on January 30, 2023, all of the Company’s outstanding shares of Series A through Series K preferred stock automatically converted into shares of common stock, of which shares were attributable to conversion price adjustments based on a weighted-average anti-dilution formula.
As
of January 30, 2023, earned but undeclared and unpaid Series H dividends were $
In January 2023, the Company’s Certificate of Incorporation with the state of Delaware was amended to change the number of authorized preferred shares from to .
Common Stock
Authorized shares
The Company’s Certificate of Incorporation authorizes the Company to issue up to 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 June 30, 2024 and December 31, 2023, there were and shares of common stock issued and outstanding, respectively.
In January 2023, the Company’s Certificate of Incorporation with the state of Delaware was amended to change the number of authorized common shares from to .
| 15 |
Shareholders’ Equity Transactions for the Six Months Ended June 30, 2023
On
January 30, 2023, the Company completed its underwritten IPO of its common stock, in which the Company issued and sold shares
of its common stock at a public offering price of $ per share. In February 2023, the Company sold an additional shares
of common stock at $ per share pursuant to the underwriters’ partial exercise of their option to purchase additional shares
of common stock. The total gross proceeds of the IPO were $
As
of December 31, 2022, the Company owed an aggregate of $
In May and June 2023, the Company entered into securities 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.
As of June 30, 2023, the Company sold shares of its common stock under the agreements resulting in net proceeds to
the Company of $
Certain investors who
were obligated under the securities purchase agreements to fund remaining committed investment amounts totaling $
Shareholders’ Equity Transactions for the Six Months Ended June 30, 2024
In
May 2024, the Company completed an underwritten public offering of its common stock and accompanying warrants, in which the Company issued
and sold shares of its common stock and accompanying warrants
to purchase
Each warrant will have an exercise price of $
Grant of Restricted Stock Units (RSU)
The following table summarizes restricted common stock activity during the six months ended June 30, 2024:
Number of Restricted Shares | Fair Value | Weighted Average Grant Date Fair Value | ||||||||||
| Non-vested, December 31, 2023 | $ | $ | ||||||||||
| Granted | ||||||||||||
| Vested | ( | ) | ( | ) | ||||||||
| Forfeited | ||||||||||||
| Non-vested, June 30, 2024 | $ | $ | ||||||||||
During the six months ended June 30, 2024, the Board approved the issuance of a combined total of 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 $ and was recorded during the six months ended June 30, 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 restricted shares, vested during the six months ended June 30, 2024.
During
the six months ended June 30, 2024, the Company recorded $
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 of the authorized shares of the Company’s common stock may be subject to, or issued pursuant to, the terms of the 2009 Plan. As of June 30, 2024, shares were available for grant under the 2009 Plan.
| 16 |
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 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 shares. The maximum number of shares of our common stock under our 2019 Plan that may be issued is shares. As of June 30, 2024, a total of 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 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 % 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 six months ended June 30, 2024, option shares were granted under the 2022 Plan. As of December 31, 2023, a total of 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 shares, as determined by the 2022 Plan, and shares were available for grant under the 2022 Plan as of June 30, 2024.
In September 2023, the Board approved the adoption of the Company’s 2023 Inducement Plan (the “Inducement Plan”) to reserve 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 six months ended June 30, 2024, awards were granted under the Inducement Plan. As of June 30, 2024, a total of 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 Options to employees, directors and consultants generally vest and become exercisable over a period not exceeding four years. Options typically expire ten years after the 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.
| 17 |
Stock Option Grants during the Six Months Ended June 30, 2024
During the six months ended June 30, 2024, under its 2022 Plan, the Board approved the granting of options to certain employees to purchase shares of its common stock with exercise prices of $ and $ per share. The options and had an aggregate fair value of $ at the date of grant. The Company valued the options using a Black-Scholes option pricing model..
| Exercise prices | $ | - | ||
| Expected dividends | ||||
| Expected volatility | % | |||
| Risk free interest rate | % - | % | ||
| Expected life of options |
Number of Option Shares | Exercise Price Range Per Share | Weighted Average Exercise Price | ||||||||||
| Balance, December 31, 2023 | – | |||||||||||
| Granted | – | |||||||||||
| Cancelled | ( | ) | – | |||||||||
| Exercised | ||||||||||||
| Expired | ( | ) | ||||||||||
| Balance, June 30, 2024 | $ | - | $ | |||||||||
| Vested and exercisable, June 30, 2024 | $ | - | $ | |||||||||
| Unvested, June 30, 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 | ||||||||||||||||||||
| $ | – | $ | $ | |||||||||||||||||||||||
| – | ||||||||||||||||||||||||||
| – | ||||||||||||||||||||||||||
| $ | - | $ | $ | |||||||||||||||||||||||
During
the six months ended June 30, 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 shares. The cost of the stock option modifications was $
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 $ and $ per share, would be adjusted to $
per share, the closing price of the Company’s initial public offering. The total cost of the repricing was $
| 18 |
During the six months ended June 30, 2024, the Company recorded $ of stock compensation for the value of all options vested during the period. As of June 30, 2024, unvested compensation of $ remained that will be amortized over the remaining vesting period, through May 2028. There was aggregate intrinsic value for option shares outstanding at June 30, 2024.
Stock Warrants
The table below summarizes the Company’s warrants activities for the six months ended June 30, 2024:
Number of Warrant Shares | Exercise Price Range Per Share | Weighted Average Exercise Price | ||||||||||
| Balance, December 31, 2023 | - | |||||||||||
| Issued | ||||||||||||
| Cancelled | ||||||||||||
| Exercised | ( | ) | ||||||||||
| Expired | ( | ) | ||||||||||
| Balance, June 30, 2024 | $ | - | $ | |||||||||
| Vested and exercisable, June 30, 2024 | $ | - | $ | |||||||||
The following table summarizes information concerning outstanding and exercisable warrants as of June 30, 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 | ||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||||||
| – | ||||||||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||||||
During the six months ended June 30, 2023, the Company issued warrants
to certain of its lenders to purchase up to
During
the six months ended June 30, 2024, the Company issued warrants to purchase
During
the six months ended June 30, 2024, warrant holders exercised
There was aggregate intrinsic value for warrant shares outstanding at June 30, 2024.
Employee Stock Purchase Plan
NOTE 9 - LEGAL MATTERS
To the Company’s knowledge, it is not currently the subject of any material legal proceeding. In the future, the Company may be involved in 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 June 30, 2024, the Company issued a total of restricted stock units to certain of its employees. The fair value of the shares at the date of grant was $. The restricted common stock was granted under the 2022 Plan. All of these shares were vested as of the grant date.
Subsequent to June 30, 2024, on August 1, 2024, in accordance with the Non-Employee Director Compensation Policy, a total of stock options and restricted stock units were granted to non-employee directors. These stock options and restricted stock unit awards will fully vest on the first anniversary of the date of grant, provided that the annual grants will in any case be fully vested on the date of Company’s next annual stockholder meeting, subject to the eligible director’s Continuous Service (as defined in the Plan) through such vesting date.
| 19 |
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.
Since inception, we have incurred significant operating losses. Our net losses were $14.4 million and $16.2 million for the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024, we had an accumulated deficit of $236.0 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.
| 20 |
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.
During the year ended December 31, 2023, we closed our initial public offering (“IPO”) and two Private Placements and received $37.8 million of net proceeds from these offerings. During the six months ended June 30, 2024, we closed a second public offering and received $27.7 million of net proceeds from that offering. Due to the funds received through these offerings, and the conversion of preferred stock and convertible notes payable upon the closing of the IPO, we have shareholders’ equity of $37.6 million at June 30, 2024. We now expect our cash and cash equivalents, and short and long-term investments, totaling $40.4 million at June 30, 2024, to last into the first quarter of 2026.
Recent Developments
Our 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 non-small cell lung cancer (“NSCLC”) is expected to report interim results in mid-2025. The Phase 2 clinical trial will be funded in its entirety by our partner in China, Newsoara BioPharma Co. Ltd. (“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 six months ended June 30, 2023, under our license agreement with Newsoara, we invoiced and collected $0.2 million relating to supplying product for Newsoara to use in its clinical trials. During the six months ended June 30, 2024, we recognized revenue of $0.01 million relating to the Company’s license agreement with ELIAS Animal Health, LLC.
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.
| 21 |
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. |
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.
| 22 |
Results of Operations
Comparison of the Three Months Ended June 30, 2024 and 2023
The following table summarizes our results of operations for the three months ended June 30, 2024 and 2023 (in thousands):
| June 30, | June 30, | |||||||
| 2024 | 2023 | |||||||
| Revenues | $ | - | $ | - | ||||
| Operating Expenses: | ||||||||
| Research and development | 4,417 | 2,943 | ||||||
| General and administrative | 2,475 | 2,452 | ||||||
| Total operating expenses | 6,892 | 5,395 | ||||||
| Loss from operations | (6,892 | ) | (5,395 | ) | ||||
| Other income (expenses): | ||||||||
| Interest income | 316 | — | ||||||
| Interest expense | — | (24 | ) | |||||
| Debt discount amortization | — | - | ||||||
| Debt extinguishment costs | — | (402 | ) | |||||
| Total other income (expenses), net | 316 | (426 | ) | |||||
| Net loss | $ | (6,576 | ) | $ | (5,821 | ) | ||
Research and Development Expenses
The table below summarizes our research and development expenses for the three months ended June 30, 2024 and 2023 (in thousands):
| June 30, | June 30, | |||||||
| Research and Development Expenses: | 2024 | 2023 | ||||||
| Employee compensation and related expenses | $ | 949 | $ | 621 | ||||
| Stock compensation, including the cost of stock options and restricted stock grants | 623 | 248 | ||||||
| Manufacturing and laboratory materials and other expenses | 98 | 207 | ||||||
| Outsourced manufacturing services | 631 | 238 | ||||||
| Clinical and regulatory expenses | 1,742 | 1,039 | ||||||
| Facility-related expenses, including depreciation | 321 | 395 | ||||||
| Consulting expenses and contract labor | 50 | 182 | ||||||
| Other expenses | 3 | 13 | ||||||
| Total research and development expenses | $ | 4,417 | $ | 2,943 | ||||
Research and development expenses were $4.4 million and $2.9 million for the three months ended June 30, 2024 and 2023, respectively, an increase of $1.5 million. Significant variations between periods are primarily a result of a $0.3 million increase in employee compensation and related expenses in 2024, primarily related to new employee hires after the second quarter of 2023; 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; a $0.4 million increase in outsourced manufacturing services in 2024, primarily related to increased costs of third party product testing and other manufacturing processes; and $0.7 million increase in clinical and regulatory expenses relating to increased clinical trial costs associated with our Phase 3 On Prime Registration trial in 2024.
General and Administrative Expenses
The table below summarizes our general and administrative expenses for the three months ended June 30, 2024 and 2023 (in thousands):
| June 30, | June 30, | |||||||
| General and Administrative Expenses: | 2024 | 2023 | ||||||
| Employee compensation and related expenses | $ | 608 | $ | 604 | ||||
| Stock compensation, including the cost of stock options and restricted stock grants | 818 | 459 | ||||||
| Professional services | 335 | 805 | ||||||
| Facility-related expenses | 111 | 89 | ||||||
| Insurance expenses | 244 | 269 | ||||||
| Consulting and contract labor expenses | 280 | 121 | ||||||
| Other expenses | 79 | 105 | ||||||
| Total general and administrative expenses | $ | 2,475 | $ | 2,452 | ||||
General and administrative expenses were $2.5 million for the three months ended June 30, 2024 and 2023. Significant variations between periods are primarily a result of a $0.4 million increase in stock compensation expense in 2024, due to the increase in the cost of stock options and restricted stock units in 2024 as compared to 2023; and offset by a $0.5 million decrease in professional service expenses in 2024, primarily resulting from decreased corporate legal costs.
| 23 |
Other Expenses, net
Other income (expenses), net, were $0.3 million and $(0.4) million for the three months ended June 30, 2024 and 2023, respectively. During the three months ended June 30, 2024, other income consisted of interest income of $0.3 million from the investment into money market funds and short and long-term investments, while during the same period in 2023, other expenses consisted of interest expense of $0.02 million and debt extinguishment costs of $0.4 million.
Comparison of the Six Months Ended June 30, 2024 and 2023
The following table summarizes our results of operations for the six months ended June 30, 2024 and 2023 (in thousands):
| June 30, | June 30, | |||||||
| 2024 | 2023 | |||||||
| Revenues | $ | 8 | $ | 170 | ||||
| Operating Expenses: | ||||||||
| Research and development | 8,427 | 5,788 | ||||||
| General and administrative | 6,588 | 6,239 | ||||||
| Total operating expenses | 15,015 | 12,027 | ||||||
| Loss from operations | (15,007 | ) | (11,857 | ) | ||||
| Other income (expenses): | ||||||||
| Interest income | 581 | — | ||||||
| Interest expense | — | (167 | ) | |||||
| Debt discount amortization | — | (649 | ) | |||||
| Financing costs | — | (3,110 | ) | |||||
| Debt extinguishment costs | — | (402 | ) | |||||
| Total other income (expenses), net | 581 | (4,328 | ) | |||||
| Net loss | $ | (14,426 | ) | $ | (16,185 | ) | ||
Research and Development Expenses
The table below summarizes our research and development expenses for the six months ended June 30, 2024 and 2023 (in thousands):
| June 30, | June 30, | |||||||
| Research and Development Expenses: | 2024 | 2023 | ||||||
| Employee compensation and related expenses | $ | 1,814 | $ | 1,014 | ||||
| Stock compensation, including the cost of stock options and restricted stock grants | 1,676 | 984 | ||||||
| Manufacturing and laboratory materials and other expenses | 358 | 300 | ||||||
| Outsourced manufacturing services | 1,019 | 518 | ||||||
| Clinical and regulatory expenses | 2,686 | 1,864 | ||||||
| Facility-related expenses, including depreciation | 737 | 696 | ||||||
| Consulting expenses and contract labor | 109 | 374 | ||||||
| Other expenses | 28 | 38 | ||||||
| Total research and development expenses | $ | 8,427 | $ | 5,788 | ||||
Research and development expenses were $8.4 million and $5.8 million for the six months ended June 30, 2024 and 2023, respectively, an increase of $2.6 million. Significant variations between periods are the result of a $0.8 million increase in employee compensation and related expenses in 2024, primarily due to new employee hires after the second quarter of 2023; a $0.7 million increase in stock-related compensation in 2024, relating to the increased cost of stock options and restricted stock units in 2024; a $0.5 million increase in outsourced manufacturing services in 2024, primarily related to increased costs of third party product testing and other manufacturing processes; and a $0.8 million increase in clinical and regulatory expenses in 2024, relating to increased clinical trial costs associated with our Phase 3 On Prime Registration trial in 2024.
| 24 |
General and Administrative Expenses
The table below summarizes our general and administrative expenses for the six months ended June 30, 2024 and 2023 (in thousands):
| June 30, | June 30, | |||||||
| General and Administrative Expenses: | 2024 | 2023 | ||||||
| Employee compensation and related expenses | $ | 1,206 | $ | 1,063 | ||||
| Stock compensation, including the cost of stock options and restricted stock grants | 2,557 | 2,753 | ||||||
| Professional services | 1,396 | 1,528 | ||||||
| Facility-related expenses | 237 | 169 | ||||||
| Insurance expenses | 487 | 477 | ||||||
| Consulting and contract labor expenses | 487 | 218 | ||||||
| Other expenses | 218 | 31 | ||||||
| Total general and administrative expenses | $ | 6,588 | $ | 6,239 | ||||
General and administrative expenses were $6.6 million and $6.2 million for the six months ended June 30, 2024 and 2023, respectively, an increase of $0.4 million. There were no significant variations between periods.
Other Income (Expenses), net
Other income (expenses), net, were $0.6 million and $(4.3) million for the six months ended June 30, 2024 and 2023, respectively. During the six months ended June 30, 2024, other income consisted of interest income of $0.6 million from the investment into money market funds and short and long-term investments, while during the same period in 2023, other expenses consisted of interest expense of $0.2 million, debt discount amortization of $0.6 million, financing costs of $3.1 million and debt extinguishment costs of $0.4 million.
Liquidity and Capital Resources
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. During the year ended December 31, 2023, we incurred a net loss of $28.3 million and used cash in operations of $20.3 million and had an accumulated deficit of $221.5 million as of December 31, 2023. During the six months ended June 30, 2024, we incurred a net loss of $14.4 million and used cash in operations of $11.2 million.
During the six months ended June 30, 2023, we closed our IPO and two Private Placements and received $37.8 million of net proceeds from the offerings. During the six months ended June 30, 2024, we closed our second public offering and received $27.7 million of net proceeds from that offering. Due to the funds received through these offerings, and the conversion of preferred stock and convertible notes payable upon the closing of the IPO, we had shareholders’ equity of $37.7 million at June 30, 2024. We expect our cash and cash equivalents, and short and long-term investments, totaling $40.4 million at June 30, 2024, to last into the first quarter of 2026.
The ability to continue as a going concern is dependent on our 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, or cause substantial dilution for our stockholders, in the case of equity financing, or grant unfavorable terms in licensing future licensing agreements.
Cash Flows
The table below summarizes our cash flow activities for the six months ended June 30, 2024 and 2023 (in thousands):
| June 30, | June 30, | |||||||
| Net cash provided by (used in): | 2024 | 2023 | ||||||
| Operating activities | $ | (11,178 | ) | $ | (10,008 | ) | ||
| Investing activities | (18,797 | ) | (505 | ) | ||||
| Financing activities | 28,415 | 37,256 | ||||||
| Net increase (decrease) in cash | $ | (1,560 | ) | $ | 26,743 | |||
Operating Activities
During the six months ended June 30, 2024, we used cash from operating activities of $11.2 million, compared to $10.0 million used during the six months ended June 30, 2023. During the six months ended June 30, 2024, we incurred a net loss of $14.4 million and had non-cash expenses of $4.4 million, compared to a net loss of $16.2 million and non-cash expenses of $8.4 million during the six months ended June 30, 2023. The primary non-cash expense during both periods was stock-related compensation totaling $4.2 million and $3.7 million during the six months ended June 30, 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 six months ended June 30, 2023. The net change in operating assets and liabilities during the six months ended June 30, 2024 used cash of $1.1 million, compared to $2.3 million used during the six months ended June 30, 2023. The primary source of cash during the six months ended June 30, 2024 was the increase in accounts payable and accrued expenses of $1.0 million and the primary use of cash was the decrease in accrued payroll and payroll taxes of $1.6 million. The primary use of cash during the six months ended June 30, 2023 was the decrease in accounts payable and accrued expenses of $1.7 million.
| 25 |
Investing Activities
Net cash used in investing activities for the six months ended June 30, 2024 was $18.8 million, consisting of the purchases net of sales of short and long-term investments of $18.5 million, and purchases of property and equipment primarily for construction-in-progress of $0.3 million. Net cash used in investing activities for the six months ended June 30, 2023 was $0.5 million, consisting of the purchase of property and equipment.
Financing Activities
During the six months ended June 30, 2024, we provided cash from operating activities of $28.4 million, compared to $37.3 million provided during the six months ended June 30, 2023. For the six months ended June 30, 2024, cash provided by financing activities consisted of proceeds from the sale of common stock of $27.7 million, proceeds from the exercise of stock warrants of $0.7 million and proceeds from our company equity awards programs of $0.05 million. For the six months ended June 30, 2023, cash provided by financing activities consisted of proceeds from the issuance of proceeds from notes payable-shareholders totaling $0.9 million, proceeds from the sale of common stock related to our IPO and private placements totaling $36.1 million, and the exercise of stock warrants of $1.2 million.
Net cash used in financing activities during the six months ended June 30, 2023 related to the repayment of notes payable-shareholders totaling $0.7 million and the payment of deferred offering costs of $0.3 million.