UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2021March 31, 2022
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-32954
STATERA BIOPHARMA, INC.
(Exact name of registrant as specified in its charter)
Delaware | 20-0077155 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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(Address of principal executive offices) | (Zip Code) |
(888) 613-8802
(Registrant’s telephone number, including area code)
Cytocom, Inc.
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒☐ No ☐☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒☐ No ☐☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
Emerging Growth Company | ☐ |
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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 ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common stock, par value $0.005 | STAB | NASDAQ Capital Market |
As of November 11, 2021,September 26, 2022, there were 32,095,52050,744,653 shares outstanding of the registrant’s common stock, par value $0.005 per share.
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ITEM 1. |
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| Condensed Consolidated Statement of Stockholders’ | |
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ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
ITEM 3. | ||
ITEM 4. | ||
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ITEM 1. | ||
ITEM 1A. | ||
ITEM 2. | ||
ITEM 3. | ||
ITEM 4. | ||
ITEM 5. | ||
ITEM 6. | ||
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STATERA BIOPHARMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, 2021 | December 31, 2020 | March 31, 2022 | December 31, 2021 | |||||||||||||
UNAUDITED | ||||||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 9,216,349 | $ | 593,869 | $ | 152,183 | $ | 1,844,732 | ||||||||
Short-term investments | 233,642 | 0 | 178,391 | 134,603 | ||||||||||||
Accounts receivable | 144,244 | 0 | 201,297 | 216,183 | ||||||||||||
Due from subsidiary | 0 | 329,330 | ||||||||||||||
Prepaid expenses | 2,688,472 | 0 | 499,791 | 981,895 | ||||||||||||
Contract asset | 82,324 | 132,572 | ||||||||||||||
Other current assets | 1,045,332 | 2,547 | 324,505 | 837,358 | ||||||||||||
Total current assets | 13,328,039 | 925,746 | 1,438,491 | 4,147,343 | ||||||||||||
Non-current assets: | ||||||||||||||||
Operating lease right-of-use assets | 840,590 | 101,048 | 1,126,828 | 964,331 | ||||||||||||
Restricted cash | 5,000,000 | 0 | — | 5,000,000 | ||||||||||||
Goodwill | 76,972,668 | 0 | 9,267,007 | 9,267,007 | ||||||||||||
Intangible assets, net | 1,575,278 | 0 | 1,467,271 | 1,580,980 | ||||||||||||
Property and equipment, net | 119,133 | 8,690 | 201,969 | 201,901 | ||||||||||||
Contract asset | 192,222 | 0 | ||||||||||||||
Total non-current assets | 84,699,891 | 109,738 | 12,063,075 | 17,014,219 | ||||||||||||
Assets of discontinued operation | 8,123 | 0 | 8,123 | 8,123 | ||||||||||||
Total assets | $ | 98,036,053 | $ | 1,035,484 | $ | 13,509,689 | $ | 21,169,685 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable and accrued expenses | $ | 5,928,805 | $ | 2,687,847 | $ | 8,291,805 | $ | 5,715,956 | ||||||||
Current portion of operating lease liabilities | 198,302 | 30,758 | 353,439 | 254,998 | ||||||||||||
Deferred revenue | 506,032 | 0 | 205,825 | 373,468 | ||||||||||||
Stock issuances due | 470,828 | 0 | 325,828 | 325,828 | ||||||||||||
Notes payable | 2,883,333 | 1,902,237 | 5,896,486 | 4,575,000 | ||||||||||||
Advances from related party | 200,000 | 0 | ||||||||||||||
Total current liabilities | 10,187,300 | 4,620,842 | 15,073,383 | 11,245,250 | ||||||||||||
Operating lease liabilities, net of current portion | 737,403 | 70,380 | 871,297 | 806,140 | ||||||||||||
Long-term debt | 12,916,667 | 0 | - | 10,625,000 | ||||||||||||
Total long-term liabilities | 13,654,070 | 70,380 | 871,297 | 11,431,140 | ||||||||||||
Liabilities of discontinued operation | 63 | 0 | 63 | 63 | ||||||||||||
Total liabilities | 23,841,433 | 4,691,222 | 15,944,743 | 22,676,453 | ||||||||||||
Stockholders’ equity (deficit): | ||||||||||||||||
Preferred stock, $.005 par value; 1,000,000 shares authorized as of September 30, 2021 and December 31, 2020; 0 shares issued and outstanding as of September 30, 2021 and December 31, 2020 | 0 | 0 | ||||||||||||||
Common stock, $.005 par value; 150,000,000 shares authorized as of September 30, 2021 and 25,000,000 shares authorized as of December 31, 2020; 32,095,520 shares issued and outstanding as of September 30, 2021 and 13,376,062 shares issued and outstanding as of December 31, 2020 | 160,478 | 160,478 | ||||||||||||||
Stockholders’ deficit: | ||||||||||||||||
Preferred stock, $.005 par value; 1,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 0 shares issued and outstanding as of March 31, 2022 and December 31, 2021 | — | — | ||||||||||||||
Common stock, $.005 par value; 150,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 49,979,531 shares issued and outstanding as of March 31, 2022 and 35,484,106 shares issued and outstanding as of December 31, 2021 | 249,898 | 177,421 | ||||||||||||||
Additional paid-in capital | 126,220,319 | 23,946,747 | 134,528,590 | 127,743,333 | ||||||||||||
Accumulated other comprehensive loss | (2,014 | ) | 0 | (24,252 | ) | (6,651 | ) | |||||||||
Accumulated deficit | (52,256,361 | ) | (27,762,963 | ) | (137,239,351 | ) | (129,482,141 | ) | ||||||||
Total Statera Biopharma, Inc. stockholders’ equity (deficit) | 74,122,422 | (3,655,738 | ) | |||||||||||||
Total Statera Biopharma, Inc. stockholders’ deficit | (2,485,115 | ) | (1,568,038 | ) | ||||||||||||
Noncontrolling interest in stockholders’ equity | 72,198 | 0 | 50,061 | 61,270 | ||||||||||||
Total stockholders’ equity (deficit) | 74,194,620 | (3,655,738 | ) | |||||||||||||
Total liabilities and stockholders’ equity | $ | 98,036,053 | $ | 1,035,484 | ||||||||||||
Total stockholders’ deficit | (2,435,054 | ) | (1,506,768 | ) | ||||||||||||
Total liabilities and stockholders’ deficit | $ | 13,509,689 | $ | 21,169,685 |
See Notes to Condensed Consolidated Financial Statements
December 31, 2020 capital structure is not retroactively restated for the recapitalization as a result of the merger
STATERA BIOPHARMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended | For the Nine Months Ended | For the Three Months Ended | |||||||||||||||||||||
September 30, | September 30, | March 31, | |||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2022 | 2021 | ||||||||||||||||||
Revenues: | |||||||||||||||||||||||
Grants and contracts | $ | 236,519 | $ | 0 | $ | 236,519 | $ | 0 | $ | 997,839 | $ | - | |||||||||||
Cost of Revenue: | |||||||||||||||||||||||
Cost of goods sold | 115,927 | 0 | 115,927 | 0 | 353,671 | - | |||||||||||||||||
Gross Profit | 120,592 | 0 | 120,592 | 0 | 644,168 | - | |||||||||||||||||
Operating expenses: | |||||||||||||||||||||||
Research and development | 3,434,977 | 4,383,325 | 6,274,936 | 4,509,890 | 3,242,328 | 1,024,344 | |||||||||||||||||
Sales and marketing expense | 23,242 | 0 | 26,037 | 0 | 37,036 | 2,796 | |||||||||||||||||
General and administrative | 6,306,323 | 1,787,333 | 14,981,086 | 2,284,577 | 3,978,349 | 4,166,889 | |||||||||||||||||
Total operating expenses | 9,764,542 | 6,170,658 | 21,282,059 | 6,794,467 | 7,257,713 | 5,194,029 | |||||||||||||||||
Loss from operations | (9,643,950 | ) | (6,170,658 | ) | (21,161,467 | ) | (6,794,467 | ) | (6,613,545 | ) | (5,194,029 | ) | |||||||||||
Other income (expense): | |||||||||||||||||||||||
Interest and other income (expense) | (3,089,301 | ) | 491,817 | (3,463,572 | ) | (1,069,403 | ) | ||||||||||||||||
Total other income (expense) | (3,089,301 | ) | 491,817 | (3,463,572 | ) | (1,069,403 | ) | ||||||||||||||||
Other expense: | |||||||||||||||||||||||
Interest and other expense | (1,146,388 | ) | (92,617 | ) | |||||||||||||||||||
Total other expense | (1,146,388 | ) | (92,617 | ) | |||||||||||||||||||
Income from discontinued operations, net of income taxes | (1 | ) | 0 | (1 | ) | 0 | - | - | |||||||||||||||
Net loss | (12,733,250 | ) | (5,678,841 | ) | (24,625,038 | ) | (7,863,870 | ) | (7,759,933 | ) | (5,286,646 | ) | |||||||||||
Net loss attributable to noncontrolling interests | 13,419 | 0 | 13,419 | 0 | 2,723 | - | |||||||||||||||||
Net loss attributable to Statera Biopharma, Inc. | $ | (12,719,831 | ) | $ | (5,678,841 | ) | $ | (24,611,619 | ) | $ | (7,863,870 | ) | $ | (7,757,210 | ) | $ | (5,286,646 | ) | |||||
Net loss attributable to common stockholders per share of common stock, basic and diluted | $ | (0.47 | ) | $ | (1.84 | ) | $ | (0.86 | ) | $ | (1.13 | ) | $ | (0.20 | ) | $ | (0.22 | ) | |||||
Weighted average number of shares used in calculating net loss per share, basic and diluted | 27,036,583 | 3,081,294 | 28,671,422 | 6,957,095 | 38,255,406 | 24,423,700 |
See Notes to Condensed Consolidated Financial Statements
STATERA BIOPHARMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
For the Three Months Ended | For the Nine Months Ended | For the Three Months Ended | |||||||||||||||||||||
September 30, | September 30, | March 31, | |||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2022 | 2021 | ||||||||||||||||||
Net loss including noncontrolling interests | $ | (12,733,250 | ) | $ | (5,678,841 | ) | $ | (24,625,038 | ) | $ | (7,863,870 | ) | $ | (7,759,933 | ) | $ | (5,286,646 | ) | |||||
Other comprehensive loss: | |||||||||||||||||||||||
Foreign currency translation adjustment | (2,014 | ) | 0 | (2,014 | ) | 0 | (26,087 | ) | — | ||||||||||||||
Comprehensive loss including noncontrolling interests | (12,735,264 | ) | (5,678,841 | ) | (24,627,052 | ) | (7,863,870 | ) | (7,786,020 | ) | (5,286,646 | ) | |||||||||||
Comprehensive loss attributable to noncontrolling interests | 13,419 | 0 | 13,419 | 0 | 11,209 | — | |||||||||||||||||
Comprehensive loss attributable to Statera Biopharma, Inc. | $ | (12,721,845 | ) | $ | (5,678,841 | ) | $ | (24,613,633 | ) | $ | (7,863,870 | ) | $ | (7,774,811 | ) | $ | (5,286,646 | ) |
See Notes to Condensed Consolidated Financial Statements
STATERA BIOPHARMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITYDEFICIT
(UNAUDITED)
Additional | ||||||||||||
Common Stock | Paid-In | |||||||||||
Shares | Amount | Capital | ||||||||||
Balance at December 31, 2019 | 20,346,999 | $ | 20,347 | $ | 11,307,253 | |||||||
Retroactive application of recapitalization | (9,048,760 | ) | 36,144 | 151,854,270 | ||||||||
Adjusted balance, beginning of period | 11,298,239 | 56,491 | 163,161,523 | |||||||||
Issuance of common stock | 1,515,878 | 7,579 | 2,775,846 | |||||||||
Issuance of common stock | 6,000 | 30 | 13,470 | |||||||||
Exercise of warrants | 105,000 | 525 | 504,381 | |||||||||
Exercise of warrants | 8,871 | 44 | 61,219 | |||||||||
Exercise of warrants | 82,399 | 412 | 248,138 | |||||||||
Foreign currency translation | — | 0 | 0 | |||||||||
Net loss | — | 0 | 0 | |||||||||
Balance at September 30, 2020 | 13,016,387 | $ | 65,081 | $ | 166,764,577 | |||||||
Balance at December 31, 2020 | 13,376,062 | $ | 66,876 | $ | 166,762,778 | |||||||
Exercise of warrants | 92,883 | 464 | (464 | ) | ||||||||
Issuance of common stock | 2,000,000 | 10,000 | 12,713,074 | |||||||||
Statera merger & recapitalization | 16,626,575 | 83,138 | (58,924,898 | ) | ||||||||
Shares to be issued for services | — | 0 | 464,703 | |||||||||
Shares to be issued for stock based compensation | — | 0 | 234,000 | |||||||||
Restricted stock | — | 0 | 4,957,707 | |||||||||
Panacela net loss | — | 0 | 13,419 | |||||||||
Net loss | — | 0 | 0 | |||||||||
Balance at September 30, 2021 | 32,095,520 | $ | 160,478 | $ | 126,220,319 |
Additional | ||||||||||||
Common Stock | Paid-In | |||||||||||
Shares | Amount | Capital | ||||||||||
Balance at December 31, 2020 | 13,376,062 | $ | 66,880 | $ | 166,762,778 | |||||||
Exercise of warrants | 92,883 | 466 | (466 | ) | ||||||||
Issuance of common stock, net of offering costs | 2,000,000 | 10,000 | 12,713,074 | |||||||||
Net loss | — | — | — | |||||||||
Balance at March 31, 2021 | 15,468,945 | $ | 77,346 | $ | 179,475,386 | |||||||
Balance at December 31, 2021 | 35,484,106 | $ | 177,421 | $ | 127,743,333 | |||||||
Issuance of common stock and warrants | 14,555,555 | 72,778 | 6,383,727 | |||||||||
Common stock repurchase | (160,130 | ) | (801 | ) | (50,507 | ) | ||||||
Shares issued for stock based compensation | 100,000 | 500 | (500 | ) | ||||||||
Stock based compensation | — | — | 452,537 | |||||||||
Foreign currency translation | — | — | — | |||||||||
Net loss | — | — | — | |||||||||
Balance at March 31, 2022 | 49,979,531 | $ | 249,898 | $ | 134,528,590 |
Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Noncontrolling Interests | Total | |||||||||||||
Balance at December 31, 2019 | $ | 0 | $ | (15,537,460 | ) | $ | 0 | $ | (4,209,860 | ) | ||||||
Retroactive application of recapitalization | (568,030 | ) | 0 | 5,039,878 | 156,362,262 | |||||||||||
Adjusted balance, beginning of period | (568,030 | ) | (15,537,460 | ) | 5,039,878 | 152,152,402 | ||||||||||
Issuance of common stock | 0 | 0 | 0 | 2,783,425 | ||||||||||||
Issuance of common stock | 0 — | 0 — | 0 — | 13,500 | ||||||||||||
Exercise of warrants | 0 | 0 | 0 | 504,906 | ||||||||||||
Exercise of warrants | 0 | 0 | 0 | 61,263 | ||||||||||||
Exercise of warrants | 0 | 0 | 0 | 248,550 | ||||||||||||
Foreign currency translation | (76,992 | ) | 0 | (69,565 | ) | (146,557 | ) | |||||||||
Net loss | 0 | (7,863,870 | ) | 0 | (7,863,870 | ) | ||||||||||
Balance at September 30, 2020 | $ | (645,022 | ) | $ | (23,401,330 | ) | $ | 4,970,313 | $ | 147,753,619 | ||||||
Balance at December 31, 2020 | $ | (685,680 | ) | $ | (27,631,323 | ) | $ | 4,973,465 | $ | 143,486,116 | ||||||
Exercise of warrants | 0 | 0 | 0 | 0 | ||||||||||||
Issuance of common stock | 0 | 0 | 0 | 12,723,074 | ||||||||||||
Statera merger & recapitalization | 683,666 | 0 | (4,887,848 | ) | (63,045,942 | ) | ||||||||||
Shares to be issued for services | 0 | 0 | 0 | 464,703 | ||||||||||||
Shares to be issued for stock based compensation | 0 | 0 | 0 | 234,000 | ||||||||||||
Restricted stock | 0 | 0 | 0 | 4,957,707 | ||||||||||||
Panacela net loss | — | (13,419 | ) | — | - | |||||||||||
Net loss | — | (24,611,619 | ) | (13,419 | ) | (24,625,038 | ) | |||||||||
Balance at September 30, 2021 | $ | (2,014 | ) | $ | (52,256,361 | ) | $ | 72,198 | $ | 74,194,620 |
Accumulated Other Comprehensive Loss | Accumulated Deficit | Noncontrolling Interests | Total | |||||||||||||
Balance at December 31, 2020 | $ | (685,680 | ) | $ | (27,631,321 | ) | $ | 4,973,465 | $ | 143,486,118 | ||||||
Exercise of warrants | — | — | — | — | ||||||||||||
Issuance of common stock, net of offering costs | — | — | — | 12,723,074 | ||||||||||||
Net loss | — | (5,286,646 | ) | — | (5,286,646 | ) | ||||||||||
Balance at March 31, 2021 | $ | (685,680 | ) | $ | (32,917,967 | ) | $ | 4,973,465 | $ | 150,922,546 | ||||||
Balance at December 31, 2021 | $ | (6,651 | ) | $ | (129,482,141 | ) | $ | 61,270 | $ | (1,506,768 | ) | |||||
Issuance of common stock and warrants | — | — | — | 6,456,505 | ||||||||||||
Common stock repurchase | — | — | — | (51,308 | ) | |||||||||||
Shares issued for stock based compensation | — | — | — | — | ||||||||||||
Stock based compensation | — | — | — | 452,537 | ||||||||||||
Foreign currency translation | (17,601 | ) | — | (8,486 | ) | (26,087 | ) | |||||||||
Net loss | — | (7,757,210 | ) | (2,723 | ) | (7,759,933 | ) | |||||||||
Balance at March 31, 2022 | $ | (24,252 | ) | $ | (137,239,351 | ) | $ | 50,061 | $ | (2,435,054 | ) |
See Notes to Condensed Consolidated Financial Statements
As retroactively restated for the recapitalization as a result of the merger
STATERA BIOPHARMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended September 30, | ||||||||
2021 | 2020 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (24,625,038 | ) | $ | (7,863,870 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation expense | 8,309 | 0 | ||||||
Amortization expense | 134,022 | 0 | ||||||
Stock based compensation | 4,957,707 | (126,148 | ) | |||||
Noncash interest expense | 799,858 | 0 | ||||||
Noncash lease expense | 21,472 | 0 | ||||||
Services obtained for common shares | 298,701 | 0 | ||||||
Noncash equity expenses | 235,538 | 0 | ||||||
Changes in operating assets and liabilities: | ||||||||
Other current assets | (380,615 | ) | (339,442 | ) | ||||
Accounts receivable | 63,279 | 0 | ||||||
Short term investments | (233,642 | ) | 0 | |||||
Due from subsidiary | 329,330 | 0 | ||||||
Prepaid expenses | (2,688,472 | ) | 0 | |||||
Contract asset | (131,406 | ) | 0 | |||||
Contract liability | (130,829 | ) | 0 | |||||
Deferred revenue | 506,032 | 0 | ||||||
Stock issuances due | 470,828 | 0 | ||||||
Investment in subsidiary | 178,388 | 0 | ||||||
Liabilities of discontinued operations | (418,550 | ) | 0 | |||||
Accounts payable and accrued expenses | 540,826 | (33,559 | ) | |||||
Net cash used in operating activities | (20,064,262 | ) | (8,363,019 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchase of property and equipment | (86,057 | ) | (6,613 | ) | ||||
Cash acquired, ImQuest acquisition | 529,499 | 0 | ||||||
Cash acquired, CBLI merger | 13,116,459 | 0 | ||||||
Net cash provided by (used in) investing activities | 13,559,901 | (6,613 | ) | |||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of common stock | 0 | 4,415,103 | ||||||
Common stock issued for license agreement | 0 | 325,250 | ||||||
Proceeds from issuance of preferred shares | 0 | 2,745,000 | ||||||
Proceeds from issuance of common stock due | 5,685,112 | 1,105,000 | ||||||
Proceeds from advance from related party | 200,000 | 0 | ||||||
Repayments on notes payable | (97,737 | ) | 97,737 | |||||
Payment of debt issuance costs | (329,260 | ) | 0 | |||||
Proceeds from issuance of long-term debt | 14,670,740 | 0 | ||||||
Net cash provided by financing activities | 20,128,855 | 8,688,090 | ||||||
Effect of exchange rate change on cash and equivalents | (2,014 | ) | 0 | |||||
Increase in cash and cash equivalents | 13,622,480 | 318,458 | ||||||
Cash, cash equivalents, and restricted cash, beginning of year | 593,869 | 1,650 | ||||||
Cash, cash equivalents, and restricted cash, end of year | $ | 14,216,349 | $ | 320,108 | ||||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
Cash paid for interest | $ | 279,329 | $ | 0 | ||||
NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Right of use asset exchanged for lease liability | $ | 210,872 | $ | 0 | ||||
Shares to be issued for services | 464,703 | 0 | ||||||
Debt principal converted to equity | 1,804,500 | 0 | ||||||
Merger non-cash APIC | 6,742,760 | 0 | ||||||
Noncontrolling interest acquired | 72,198 | 0 | ||||||
Cleveland BioLabs merger, net of cash received | 13,116,459 | 0 | ||||||
Acquisition of ImQuest, net of cash received | 529,500 | 0 |
For the Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (7,759,933 | ) | $ | (5,286,646 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation expense | 6,522 | 792 | ||||||
Amortization expense | 113,709 | — | ||||||
Stock based compensation | 452,537 | 1,816,086 | ||||||
Noncash lease expense (income) | 1,099 | (787 | ) | |||||
Services obtained for common shares | — | 299,000 | ||||||
Changes in operating assets and liabilities: | ||||||||
Other current assets | 515,307 | (160,224 | ) | |||||
Accounts receivable | 14,886 | — | ||||||
Short term investments | (43,788 | ) | — | |||||
Prepaid expenses | 482,104 | — | ||||||
Contract asset | 50,248 | — | ||||||
Accounts payable and accrued expenses | 2,573,396 | 739,508 | ||||||
Deferred revenue | (167,643 | ) | — | |||||
Net cash used in operating activities | (3,761,556 | ) | (2,592,271 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchase of property and equipment | (6,454 | ) | (4,685 | ) | ||||
Net cash used in investing activities | (6,454 | ) | (4,685 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of common stock | 6,456,505 | — | ||||||
Proceeds from issuance of preferred stock | — | 2,155,000 | ||||||
Common stock repurchases | (51,308 | ) | — | |||||
Repayments on notes payable | (9,303,514 | ) | — | |||||
Net cash provided by (used in) financing activities | (2,898,452 | ) | 2,155,000 | |||||
Effect of exchange rate change on cash and equivalents | (26,087 | ) | — | |||||
Decrease in cash, cash equivalents, and restricted cash | (6,692,549 | ) | (441,956 | ) | ||||
Cash, cash equivalents, and restricted cash, beginning of year | 6,844,732 | 593,869 | ||||||
Cash, cash equivalents, and restricted cash end of year | $ | 152,183 | $ | 151,913 | ||||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
Cash paid for interest | $ | 539,842 | $ | - |
See Notes to Condensed Consolidated Financial Statements
STATERA BIOPHARMA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Description of Business
On July 27, 2021, Statera Biopharma, Inc., formerly known as Cleveland BioLabs, Inc. (the "Company" or "Statera"), High Street Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of the Company ("Merger Sub"), and Cytocom Inc., a Delaware corporation ("Old Cytocom"), completed their previously announced merger transaction. The merger transaction was completed pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), dated as of October 16, 2020, pursuant to which Merger Sub merged with and into Old Cytocom, with Old Cytocom continuing as a wholly owned subsidiary of the Company and the surviving corporation of the merger (the "Merger"). In connection with the closing of the Merger, Old Cytocom was renamed “Cytocom Subsidiary Inc.” and the Company was renamed “Cytocom, Inc.” Effective September 1, 2021, the Company changed its corporate name to "Statera Biopharma, Inc.", and the Company’s common stock began trading on The Nasdaq Capital Market with the symbol “STAB.”
The Company was incorporated in Delaware in June 2003 and is headquartered in Fort Collins, Colorado. Prior to the Merger, the Company conducted business in the United States ("U.S.") directly and in the Russian Federation ("Russia") through two subsidiaries: one wholly owned subsidiary, BioLab 612, LLC ("BioLab 612"), which began operations in 2012 and was dissolved in November 2020; and Panacela Labs, Inc. ("Panacela"), which was formed by us and Joint Stock Company "RUSNANO" ("RUSNANO"), our financial partner in the venture, in 2011. Unless otherwise noted, or the context otherwise requires, the terms "Statera Biopharma," the "Company," "we," "us," and "our" refer to Statera Biopharma, Inc., known as "ClevelandCleveland BioLabs, Inc." prior to the Merger, BioLab 612, and Panacela.
On June 24, 2021, Old Cytocom completed the acquisition of ImQuest Life Sciences, Inc. and its subsidiaries (“ImQuest”("ImQuest") in accordance with the Agreement and Plan of Merger by and among Old Cytocom and ImQuest dated as of July 17, 2020, and gained control of ImQuest. The purchase consideration due under this merger to the ex-shareholders of ImQuest consisted of 3,282,089 shares of common stock of Statera Biopharma. ImQuest is now a wholly-owned subsidiary of the Company.
In addition, the Company has an investment in Genome Protection, Inc. ("GPI") that is recorded under the equity method of accounting in the accompanying financial statements.accounting. The Company has not recorded its 50% share of the losses of GPI through September 30, 2021March 31, 2022 as the impact would have reduced the Company's equity method investment in GPI below zero, and there are no requirements to fund the Company's share of these losses or contribute additional capital as of the date of these statements.
Statera Biopharma is a clinical-stage biopharmaceutical company developing novel immunotherapies targeting autoimmune, neutropenia/anemia, emerging viruses and cancers based on a proprietary platform designed to rebalance the body’s immune system and restore homeostasis. Statera has one of the largest platforms of toll-like receptor (TLR)("TLR") agonists in the biopharmaceutical industry with TLR4 and TLR9 antagonists, and the TLR5 agonists, Entolimod and GP532. TLRs are a class of protein that play a key role in the innate immune system.
Statera Biopharma is developing therapies designed to directly elicit within patients a robust and durable response of antigen-specific killer T-cells and antibodies, thereby activating essential immune defenses against autoimmune, inflammatory, and infectious diseases and cancers. In the next 12 months, the Company expects to initiate clinical trials covering Crohn’s disease (STAT-201), hematology (Entolimod), pancreatic cancer (STAT-401) and COVID-19 (STAT-205).
Going Concern
At September 30, 2021,March 31, 2022, the Company had cash and cash equivalents of $9.2$0.15 million in the aggregate. The Company has incurred recurring losses from operations since inception, accumulating a deficit of approximately $52.3$137.2 million as of September 30, 2021.March 31, 2022. For the ninethree months ended September 30, 2021March 31, 2022 and 2020,2021, the Company incurred net losses of approximately $24,625,038$7.8 million and $7,863,870,$5.3 million, respectively. The Company may incur additional losses and negative operating cash flows in the future. Failure to generate sufficient revenues, reduce spending or raise additional capital could adversely affect its ability to achieve its intended business objectives. These matters, among others, raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these condensed financial statements.
Management intends to fund future operations through additional private or public debt or equity offerings and may seek additional capital through arrangements with strategic partners or from other sources. Based on the Company’s operating plan, existing working capital as of SeptemberMarch 31, 2022 30,2021was not sufficient to meet the cash requirements to fund planned operations for a period of one year after issuance of condensed financial statements without additional sources of cash. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern and do not include adjustments that might result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business.
The accompanying condensed consolidated financial statements for the nine months ended September 30, 2021 and 2020 have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. During the next 12 months from the issuance of these condensed financial statements, management intends to raise additional debt and/or equity financing to fund future operations and to provide additional working capital. However, there is no assurance that such financing will be consummated or obtained in sufficient amounts necessary to meet the Company’s needs.
2. Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
These unaudited interim condensed consolidated financial statements reflect the historical results of Old Cytocom prior to the completion of the Merger, and do not include the historical results of the Company prior to the completion of the Merger. All share and per share disclosures have been adjusted to reflect the exchange of shares in the Merger. Under U.S. generally accepted accounting principles ("GAAP"), the Merger is treated as a “reverse merger” under the purchase method of accounting. For accounting purposes, Old Cytocom is considered to have acquired Cleveland BioLabs, Inc. See Note 3, Merger with Old Cytocom, for further details on the Merger and the U.S. GAAP accounting treatment.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America pursuant to the requirements of the Securities and Exchange Commission (“SEC”("SEC") for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for the fair presentation of results for the periods presented, have been included. The results of operations of any interim period are not necessarily indicative of the results of operations for the full year or any other interim period. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 20202021, as filed with the SEC.
In the opinion of the Company’s management, any adjustments contained in the accompanying unaudited consolidated financial statements are of a normal recurring nature, and are necessary to fairly present the financial position of the Company as of September 30, 2021, along with its results of operations for the three and nine month periods ended September 30, 2021 and 2020 and cash flows for the nine-month periods ended September 30, 2021 and 2020. Interim results are not necessarily indicative of results that may be expected for any other interim period or for an entire year.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard-setting bodies that are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Other Comprehensive Income (Loss)
The Company applies the Accounting Standards Codification ("ASC") on comprehensive income (loss) that requires disclosure of all components of comprehensive income (loss) on an annual and interim basis. Other comprehensive income (loss) is defined as the change in equity of a business enterprise during a period arising from transactions and other events and circumstances from non-owner sources. The following table presents the changes in accumulated other comprehensive loss for the ninethree months ended September 30, 2021March 31, 2022.
Gains and losses on foreign exchange translations | Gains and losses on foreign exchange translations | |||||||
Beginning balance | $ | 0 | $ | (6,651 | ) | |||
Other comprehensive income (loss) before reclassifications | (2,014 | ) | (17,601 | ) | ||||
Amounts reclassified from accumulated other comprehensive loss | 0 | — | ||||||
Ending balance | $ | (2,014 | ) | $ | (24,252 | ) |
Accounting for Stock-Based Compensation
The Cleveland Biolabs, Inc. Equity Incentive Plan, adopted in 2018 (the "Plan"), authorizes the Company to grant (i) options to purchase common stock, (ii) stock appreciation rights, (iii) awards of restricted or unrestricted stock, (iv) restricted stock units, and (v) performance awards, so long as the exercise or grant price of each are at least equal to the fair market value of the stock on the date of grant. As of September 30, 2021March 31, 2022, an aggregate of 597,5573,597,557 shares of common stock were authorized for issuance under the Plan, of which a total of 536,0893,438,902 shares of common stock remained available for future awards. However, on November 9, 2021, This includes the Company’s stockholders approved amendments to the Plan that increased the number of shares of common stock authorized to be issued by 3,000,000 shares, removed the limit on the maximum number of shares covered by an award that may be issued in any calendar year to any single recipient, and renamed the Plan to the "Statera Biopharma Equity Incentive Plan." In addition, a total of 45,46842,655 shares of common stock reserved for issuance are subject to currently outstanding stock options granted under The Cleveland BioLabs, Inc. Equity Incentive Plan, as in effect prior to the 2018 amendment and restatement.Plan. Awards granted under the Plan have a contractual life of no more than 10 years. The terms and conditions of equity awards (such as price, vesting schedule, term, and number of shares) under the Plan are specified in an award document, and approved by the Company’s boardBoard of directorsDirectors or its management delegates.
The 2013 Employee Stock Purchase Plan (the "ESPP") provides a means by which eligible employees of the Company and certain designated related corporations may be given an opportunity to purchase shares of common stock. As of September 30, 2021March 31, 2022, there are 925,0001,025,000 shares of common stock reserved for purchase under the ESPP. The number of shares reserved for purchase under the ESPP increases on January 1 of each calendar year by the lesser of: (i) 10% of the total number of shares of common stock outstanding on December 31st of the preceding year, or (ii) 100,000 shares of common stock. The ESPP allows employees to use up to 15% of their compensation to purchase shares of common stock at an amount equal to 85% of the fair market value of the Company’s common stock on the offering date or the purchase date, whichever is less.
The Company utilizes the Black-Scholes valuation model for estimating the fair value of all stock options granted where the vesting period is based on length of service or performance, while a Monte Carlo simulation model is used for estimating the fair value of stock options with market-based vesting conditions. NaNNo options were granted during the ninethree months ended September 30, 2021March 31, 2022 and September 30, 20202021.
Income Taxes
NaNNo income tax expense was recorded for the three and ninemonths ended September 30, 2021March 31, 2022 and 20202021 as the Company does not expect to have taxable income for 20212022 and did not have taxable income in 20202021. A full valuation allowance has been recorded against the Company’s net deferred tax asset.
At September 30, 2021March 31, 2022, the Company had U.S. federal net operating loss carryforwards of approximately $193.9$197.8 million, of which $140.6 million begins to expire if not utilized by 2023, and $53.3$57.2 million which has no expiration, and approximately $4.3 million of tax credit carryforwards, which begin to expire if not utilized by 2024. The Company also has state net operating loss carryforwards of approximately $112.2 million, which begin to expire if not utilized by 2027, and state tax credit carryforwards of approximately $0.3 million, which begin to expire if not utilized by 2022. The purchase of 6,459,948 shares of common stock by David Davidovich on July 9, 2015 resulted in Mr. Davidovich owning 60.2% of the Company at that time. We therefore believe it highly likely that this transaction will be viewed by the U.S. Internal Revenue Service as a change of ownership as defined by Section 382 of the Internal Revenue Code. Consequently, our ability to utilize approximately $124.8 million of U.S. federal net operating loss carryforwards, $3.65 million of U.S. tax credit carryforwards, approximately $73.4 million of state net operating loss carryforwards, and $0.3 million of state tax credit carryforwards, all of which occurred prior to July 9, 2015, are limited. As such, a significant portion of these carryforwards will likely expire before they can be utilized, even if the Company is able to generate taxable income that, except for the foregoing transaction, would have been sufficient to fully utilize these carryforwards.
Earnings (Loss) per Share
Basic net loss per share of common stock excludes dilution for potential common stock issuances and is computed by dividing net loss by the weighted average number of shares outstanding for the period. Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Diluted net loss per share is identical to basic net loss per share as potentially dilutive securities have been excluded from the calculation of diluted net loss per common share because the inclusion of such securities would be antidilutive.
The Company has excluded the following securities from the calculation of diluted net loss per share because all such securities were antidilutive for the periods presented. Additionally, there were no dilutive securities outstanding as of September 30, 2021March 31, 2022.
As of September 30, |
| |||||||||||||||
Common Equivalent Securities | 2021 | 2020 | March 31, 2022 | December 31, 2021 | ||||||||||||
Warrants | 3,171,859 | 0 | 33,208,944 | 2,431,168 | ||||||||||||
Restricted Stock Units | 1,567,368 | 0 | 1,347,996 | 1,567,368 | ||||||||||||
Options | 45,468 | 0 | 42,655 | 45,468 | ||||||||||||
Total | 4,784,695 | 0 | 34,599,595 | 4,044,004 |
Contingencies
From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business. The Company accrues for liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.
Revenue Recognition
Upon the integration of the newly acquired ImQuest, theThe Company has implemented the five steps to recognize revenue from contracts with customers under ASC 606, Revenue from Contracts with Customers (“("ASC 606”606"), which are:
• Step 1: Identify the contract(s) with a customer
• Step 2: Identify the performance obligations in the contract
• Step 3: Determine the transaction price
• Step 4: Allocate the transaction price to the performance obligations in the contract
• Step 5: Recognize revenue when (or as) a performance obligation is satisfied
In the ninethree months ended September 30, 2021,March 31, 2022, the Company generated revenue from its Clinical Research Organization services (“("CRO services”services") provided by ImQuest.
The Company provides preclinical CRO services to evaluate the potential of new and novel pharmaceutical products for the treatment and prevention of viruses, bacteria, cancer and inflammatory diseases. These preclinical research services include compound screening, efficacy analysis, drug target validations, mechanism of action research, and toxicity studies in multiple pharmaceutical areas.
The Company has concluded that each provision of its CRO services is a distinct and single performance obligation as the customer benefits from the services once they have the opportunity to question the findings and receive the final report which summarizes the research results. Management determined each promised good and service in the contract related to its CRO services should be bundled into a single performance obligation because even though the contract explicitly states individual promises such as consultation services combined with a range of tests that are carried out in order to conduct the preclinical research, the culmination of the individual promises is the CRO services which is a single performance obligation.
The amount the Company earns for its CRO services is typically a fixed fee per project. Revenue from the project is recognized at the point in time when the final report is delivered to the customer and thus the performance obligation is satisfied. At the time the final report is delivered: (a) the Company has the right to payment for the report, (b) the customer has legal title to the report, (c) physical transfer of the report has occurred and the customer has taken possession of the report, (d) the customer now has benefit and the risk of ownership of the report, and (e) the customer has accepted the report. Revenue collected in advance of delivery of the final report is classified as a contract liability onin the consolidated balance sheet
At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
Collaborative Arrangements
The company accounts for transactions under collaborative arrangements under the same method as described above under ASC 606.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents include bank demand deposits, marketable securities with maturities of three months or less at purchase, and money market funds that invest primarily in certificates of deposits, commercial paper and U.S. government and U.S. government agency obligations. Cash equivalents are reported at fair value. As of September 30, 2021March 31, 2022 and December 31, 20202021, there were 0no cash equivalents. Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”FDIC”) up to $250,000. At September 30, 2021March 31,2022and December 31, 2020,2021, the Company had $12,951,581$0 and $331,385 in excess of the FDIC insured limit, respectively.
Restricted Cash
The Company considers all cash held for specific reasons and not available for immediate, normal business use as restricted cash. As of September 30, 2021March 31, 2022 and December 31, 20202021 the Company had $5,000,000$0 and $0,$5,000,000, respectively, classified as restricted cash. The Company incurred $15,000,000 of long-term debt via the Avenue Capital loan. The loan's maturity date isIn May 1, 2024February 2022, and carries a 10.99% interest rate. The Company has 0 principal payments due for the first12 monthly periods, with the first payment due in June, 2022. As the restricted cash is currently held forwas used to repay a portion of the purpose of repayment of this long-term debt with no repayments due in the next 12 months, the cash is classified as a non-current asset.to Avenue.
Accounts Receivable
Accounts receivable are recorded net of an allowance for credit losses, which is recorded as an offset to accounts receivable and changes in such are classified as general and administrative expense in the consolidated statements of operations. The Company assesses collectability by reviewing accounts receivable on an individual basis when the Company identifies specific customers with known disputes or collectability issues. The Company assesses past due amounts by reviewing the payment terms of the contracts with the Company’s customers. In determining the amount of the allowance for credit losses, the Company makes judgments about the creditworthiness of customers based on ongoing credit evaluations. The Company writes off uncollectable accounts receivable against the allowance based on facts and circumstances for specific customers when management determines that collectability is remote. There is 0no allowance for doubtful account as of September 30, 2021March 31, 2022 and December 31, 2020.2021. During the ninethree months ended September 30, 2021March 31, 2022 and 2020,2021, the company did not writewrote off any$0.02 million and $0.0 million of accounts receivable.
Goodwill
We testThe Company tests goodwill for impairment in ourthe fourth quarter each year, or more frequently if indicators of an impairment exist, to determine whether it is more likely than not that the fair value of the reporting unit with goodwill is less than its carrying value. For reporting units for which this assessment concludes that it is more likely than not that the fair value is more than its carrying value, goodwill is considered not impaired and we are not required to perform the goodwill impairment test.impaired. Qualitative factors considered in this assessment include industry and market considerations, overall financial performance, and other relevant events and factors affecting the fair value of the reporting unit. For reporting units for which this assessment concludes that it is more likely than not that the fair value is below the carrying value, goodwill is tested for impairment by determining the fair value of each reporting unit and comparing it to the carrying value of the net assets assigned to the reporting unit. If the fair value of the reporting unit exceeds its carrying value, goodwill is considered not impaired. If the carrying value of the reporting unit exceeds its fair value, we would record an impairment loss up to the difference between the carrying value and implied fair value.
Intangible Assets
The Company has 2two identified finite-lived intangible assets, its customer base and tradenames and trademarks. The customer base and tradenames have a useful life of 20 years and 3 years, respectively. The intangible assets are amortized on a straight-line basis over their useful lives.
The Company reviews all finite lived intangible assets for impairment when circumstances indicate that their carrying values may not be recoverable. If the carrying value of an asset group is not recoverable, the Company recognizes an impairment loss for the excess carrying value over the fair value in its consolidated statements of operations. NaNNo impairment losses have been recorded in the ninethree months ended September 30, 2021March 31, 2022 and 2020.2021.
3. Merger with Old Cytocom
On July 27, 2021, the Company, formerly known as Cleveland BioLabs, Inc., Merger Sub, and Old Cytocom completed their previously announced merger transaction. The merger transaction was completed pursuant to the Merger Agreement, pursuant to which Merger Sub merged with and into Old Cytocom, with Old Cytocom continuing as a wholly owned subsidiary of the Company and the surviving corporation of the Merger. Immediately upon completion of the Merger, the former stockholders of Old Cytocom stockholders held a majority of the voting interest of the combined company.
Under the terms of the Merger, at the effective time of the Merger, the Company issued shares of its common stock to Old Cytocom stockholders (but excluding those Old Cytocom stockholders who had been holders of stock of ImQuest prior to the merger between Old Cytocom and ImQuest in June 2021), at an exchange ratio of 0.3384 shares of common stock (the “Exchange Ratio”), in exchange for each share of Old Cytocom common stock outstanding immediately prior to the Merger. The Company also set aside a number of shares of its common stock for issuance to the Old Cytocom stockholders who had been holders of stock of ImQuest prior to merger between Old Cytocom and ImQuest in June 2021, (the “ImQuest Merger”), in accordance with the terms of the Merger Agreement, which 3,282,089 shares were issued after the passage of 30 trading days following the Merger. Immediately following the closing of the Merger on July 27, 2021, the former Cleveland BioLabs, Inc. stockholders owned approximately 46% of the aggregate number of shares of common stock of the Company and the former Old Cytocom and former ImQuest stockholders owned approximately 54% of the shares of common stock of the Company.
At the effective time of the Merger, the Company also became party to a number of warrants that had been issued by Old Cytocom. At the time of the Company’s first draw under the Loan and Security Agreement, dated as of April 26, 2021, between Avenue Venture Opportunities Fund, L.P. (“Avenue”) and Old Cytocom, as supplemented by the Supplement to the Loan and Security Agreement, dated as of April 26, 2021, between Avenue and Old Cytocom (the “Avenue Facility”), which occurred July 30, 2021, the Company issued a warrant (the “Avenue Warrant”) to purchase an aggregate of 154,004 shares of the Company’s common stock at an exercise price of $0.01 per share. Avenue may exercise the Avenue Warrant at any time and from time to time until April 30, 2026. The terms of the Avenue Warrant provide that the exercise price of the Avenue Warrant, and the number of shares of Common Stockcommon stock for which the Avenue Warrant may be exercised, are subject to adjustment to account for increases or decreases in the number of outstanding shares of Common Stockcommon stock resulting from stock splits, reverse stock splits, consolidations, combinations and reclassifications.
In connection with the Company’s entry into the Amended and Restated Share Purchase Agreement, dated as of July 27, 2021, by and among GEM Global Yield LLC SCS, GEM Yield Bahamas Limited (such entities together, “GEM”) and the Company, as successor to Old Cytocom (the “GEM Agreement”), Old Cytocom issued a warrant (the “GEM Warrant”) to GEM. At the closing of the Merger, the GEM Warrant automatically became an obligation of the Company. The GEM Warrant is exercisable for an aggregate of 1,720,083 shares of Company common stock, or 4.99% of the Company’s outstanding stock as of immediately after the effective time of the Merger, at an exercise price of $5.01 per share. The exercise price will increase to $5.51 if on the one-year anniversary date of the effective time of the Merger, the warrant has not been exercised in full and the average closing price per share of the Company’s common stock for the 10 days preceding the anniversary date is less than 90% of the initial exercise price. GEM may exercise the GEM Warrant at any time and from time to time until July 28, 2024. The terms of the GEM Warrant provide that the exercise price of the GEM Warrant, and the number of shares of Common Stockcommon stock for which the GEM Warrant may be exercised, are subject to adjustment to account for increases or decreases in the number of outstanding shares of Common Stockcommon stock resulting from stock splits, reverse stock splits, consolidations, combinations and reclassifications. Additionally, the GEM Warrant contains weighted average anti-dilution provisions that provide that if the Company issues shares of common stock, or securities convertible into or exercisable or exchange for, shares of common stock at a price per share that is less than the volume-weighted average price of the common stock prior to that issuance, then the exercise price of the GEM Warrant will be proportionally reduced by application of a formula provided for in the GEM Warrant that takes into account such new issuance price in light of the number of shares issued and to be issued. The exercise price has been adjusted to $4.86 due to the Company's equity raises in March 2022.
Immediately after the closing of the Merger, the Company issued warrants (the “2021 Warrants”) to the purchasers of Old Cytocom’s Series A-3 Preferred Stock and Series A-4 Preferred Stock, each of which were converted immediately prior to the closing of the Merger, exercisable for up to an aggregate of 952,000 shares of Company common stock. The 2021 Warrants arewere exercisable for an aggregate of 952,000 shares of Company common stock at an exercise price of $5.00 per share. The holders of the 2021 Warrants may were able to exercise the 2021 Warrants at any time and from time to time until December 10, 2021. Upon exercise and payment of the applicable exercise price to the Company by a holder, the Company willwould issue to such holder (i) the underlying shares of Common Stockcommon stock for which the exercise price is paid and (ii) a new warrant, in substantially the same form as the 2021 Warrants, that expires on December 10, 2022. The terms of the 2021 Warrants provide that the exercise price of the 2021 Warrants, and the number of shares of Common Stock for which the 2021 Warrants may be exercised, are subject to adjustment to account for increases or decreases in the number of outstanding shares of Common Stockcommon stock resulting from stock splits, reverse stock splits, consolidations, combinations and reclassifications.
As of March 31, 2021, an aggregate of 425,000 of the 2021 Warrants remain exercisable.
The Company’s management has evaluated all the terms of the warrant agreements and determined that the warrants shall be accounted for as equity instruments as no conditions exist under ASC 480 to account for these as liabilities.
All Old Cytocom vested restricted stock units outstanding prior to the effective time of the Merger were exchanged for shares of the Company’s common stock in accordance with the Exchange Ratio. Each unvested Old Cytocom restricted stock unit was converted into a number of restricted stock units of the Company, as determined in accordance with the exchange ratio formula described above. The terms (including, without limitation, the vesting terms) of each such substitute restricted stock unit are substantially equivalent to those of the Old Cytocom restricted stock unit being replaced.
Cleveland BioLabs, Inc. equity awards issued and outstanding at the time of the Merger remained issued and outstanding and were not impacted by the Merger. As of July 27, 2021, Cleveland BioLabs, Inc. had outstanding stock options to purchase 45,706 shares of common stock, of which stock options to purchase 45,706 shares were vested and exercisable at a weighted average exercise price of $14.46 per share.
Allocation of Purchase Consideration
Pursuant to business combination accounting, the Company applied the acquisition method, which requires the assets acquired and liabilities assumed be recorded at fair value with limited exceptions.
The purchase price for Cleveland BioLabs, Inc. on July 27, 2021, the closing date of the Merger, was as follows:
July 27, 2021 | July 27, 2021 | |||||||
Number of shares of the combined company owned by Cleveland BioLabs, Inc. stockholders | 15,478,945 | (1 | ) | 15,478,945 | (1) | |||
Multiplied by the price per share of Cleveland BioLabs, Inc. common stock | $ | 4.99 | (2 | ) | $ | 4.99 | (2) | |
Total purchase price | $ | 77,239,936 | $ | 77,239,936 |
1. | Represents the number of shares of common stock of the combined company that Cleveland BioLabs, Inc. stockholders owned as of the closing of the Merger pursuant to the Merger Agreement. |
2. | The fair value of Cleveland BioLabs, Inc. common stock used in determining the purchase price was $4.99. |
Under the acquisition method of accounting, the total purchase price was allocated to tangible and identifiable intangible assets acquired and liabilities assumed of Cleveland BioLabs, Inc. on the basis of their estimated fair values as of the transaction closing date on July 27, 2021.
The following table summarizes the allocation of the purchase consideration to the assets acquired and liabilities assumed based on their fair values as of July 27, 2021:
July 27, 2021 | ||||
Tangible Assets Acquired | ||||
Cash and cash equivalents | $ | 13,116,460 | ||
Other receivables | 25,142 | |||
Other current assets | 44,507 | |||
Fixed assets - net | 4,954 | |||
Panacela (67.57% ownership) | 178,388 | |||
Total Tangible Assets | 13,369,451 | |||
Assumed Liabilities | ||||
Accounts payable | (426,570 | ) | ||
Accrued expenses | (41,755 | ) | ||
Total Liabilities | (468,325 | ) | ||
Net Tangible Assets/Liabilities | 12,901,126 | |||
Intangible Assets Acquired | ||||
In-process R&D | 0 | |||
Total Intangible Assets Acquired | 0 | |||
Goodwill | 64,338,810 | |||
Total Net Assets Acquired | $ | 77,239,936 |
The Company believes that the historical values of Cleveland BioLabs, Inc.’s current assets and current liabilities approximate fair value based on the short-term nature of such items. The final allocation of the purchase price is dependent on the finalization of the valuation of the fair value of assets acquired and liabilities assumed and may differ from the amounts included in these financial statements. The Company expects to complete the final allocation as soon as practical but no later than one year from the acquisition date.
The Accumulated Cost Method was used to value the Intellectual Property/Technology (in–process research & development) intangible assets based on historical costs.
July 27, 2021 | ||||
Tangible Assets Acquired | ||||
Cash and cash equivalents | $ | 13,116,460 | ||
Other receivables | 25,142 | |||
Other current assets | 44,507 | |||
Fixed assets - net | 4,954 | |||
Panacela (67.57% ownership) | 178,388 | |||
Total Tangible Assets | 13,369,451 | |||
Assumed Liabilities | ||||
Accounts payable | (426,570 | ) | ||
Accrued expenses | (41,755 | ) | ||
Total Liabilities | (468,325 | ) | ||
Net Tangible Assets/Liabilities | 12,901,126 | |||
Intangible Assets Acquired | ||||
Goodwill | 64,338,810 | |||
Total Net Assets Acquired | $ | 77,239,936 |
Goodwill
The excess of the purchase price over the assets acquired and liabilities assumed represents goodwill. The goodwill is primarily attributable to the synergies expected to arise after the acquisition and is not expected to be deductible for tax purposes.
Transaction Costs
Transaction costs associated with the Merger of approximately $0.8 million and $0.3 million are included in general and administrative expense for nine-months ended September 30, 2021 and twelve-months ended December 31, 2021, respectively.
Pro Forma Results in connection with the Merger
The Company’s operating results include $0.2 million of operating expenses attributable to the former Cleveland BioLabs, Inc. business activities for the period of July 27, 2021 to September 30, 2021.
The unaudited financial information in the following table summarizes the combined results of operations of the Company and Cleveland BioLabs, Inc., on a pro forma basis, as if the Merger occurred at the beginning of the periods presented.
Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||
2020 | 2021 | 2021 | 2022 | |||||||||||||
Revenue | $ | 2,214,344 | $ | 1,665,992 | $ | 836,686 | $ | 997,839 | ||||||||
Net loss | $ | (9,501,191 | ) | $ | (24,612,658 | ) | $ | (5,965,956 | ) | $ | (7,757,210 | ) |
The above unaudited pro forma information was determined based on historical GAAP results of Old Cytocom, ImQuest and Cleveland BioLabs, Inc. The unaudited pro forma combined results do not necessarily reflect what the Company’s combined results of operations would have been, if the acquisition was completed on January 1, 2020.2021. The unaudited pro forma combined net loss includes pro forma adjustments primarily related to the following non-recurring items directly attributable to the business combinations:combinations.
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4.Other Current Assets
Other current assets consist of the following:
September 30, 2021 | December 31, 2020 | ||||||
Vendor escrow | $ | 300,000 | 0 | ||||
Deferred debt issuance costs | 677,488 | 0 | |||||
Security deposits | 33,577 | 0 | |||||
Other current assets | 34,267 | 2,547 | |||||
$ | 1,045,332 | $ | 2,547 |
5.Prepaid Expenses
Prepaid expenses consist of the following:
| | September 30, 2021 | December 31, 2020 | |||||||
Insurance | | | $ | 722,825 | 0 | |||||
Dues and subscriptions | 468,804 | 0 | ||||||||
Clinical research costs | 1,566,753 | 0 | ||||||||
Consultants and contractors | 330,090 | 0 | ||||||||
$ | 2,688,472 | $ | 0 |
6. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
September, 2021 | December 31, 2020 | ||||||
Accounts payable | $ | 3,188,759 | $ | 1,134,893 | |||
Accrued warrant liability | 945,736 | 0 | |||||
Accrued payroll | 135,075 | 217,319 | |||||
Accrued interest and fees | 921,527 | 647,393 | |||||
Accrued legal settlement fee | 275,000 | 0 | |||||
Other accrued expenses | 462,708 | 688,242 | |||||
$ | 5,928,805 | $ | 2,687,847 |
March 31, 2022 | December 31, 2021 | |||||||
Accounts payable | $ | 6,744,176 | $ | 3,964,962 | ||||
Accrued payroll | 136,903 | 195,470 | ||||||
Accrued interest and fees | 69,393 | 51,195 | ||||||
Other accrued expenses | 1,341,253 | 1,504,329 | ||||||
$ | 8,291,805 | $ | 5,715,956 |
7.5. Notes Payable and Advances from Related Party
Notes payable consist of the following:
September 30, 2021 | December 31, 2020 | ||||||
Short-term portion of Avenue Ventures note payable | $ | 2,083,333 | $ | 0 | |||
Short-term notes payable | 800,000 | 1,902,237 | |||||
$ | 2,883,333 | $ | 1,902,237 |
As of September 30, 2021 and December 31, 2020, Statera had accrued $921,527 and $647,393, respectively, in unpaid interest on notes payable. Included in this amount $870,332 was unpaid accrued interest related to the Decathlon note. During the nine months ended September 30, 2021, Statera made payments against previously unpaid interest in the amount of $906,212. The full settlement of the remaining principal amount of $800,000 and remaining unpaid accrued interest balance of $870,332 will take place when the Company issues shares in accordance with the payoff and release of security agreement between Decathlon and the Company dated September 16, 2021.
Advances from related party consist of the following:
| September 30, 2021 | December 31, 2020 | ||||||
Advance from Noreen Griffin | $ | 200,000 | $ | 0 | ||||
$ | 200,000 | $ | 0 |
Refer to Note 16 for further information regarding the advance received from Noreen Griffin.
March 31, 2022 | December 31, 2021 | |||||||
Short-term portion of Avenue Ventures note payable | $ | 5,696,486 | $ | 4,375,000 | ||||
Short-term notes payable | 200,000 | 200,000 | ||||||
$ | 5,896,486 | $ | 4,575,000 |
8.6. Long-term debtDebt
Long-term debt consists of the following:
September 30, 2021 | December 31, 2020 | |||||||
Long-term portion of Avenue Ventures note payable | $ | 12,916,667 | $ | 0 | ||||
$ | 12,916,667 | $ | 0 |
March 31, 2022 | December 31, 2021 | |||||||
Long-term portion of Avenue Ventures note payable | $ | - | $ | 10,625,000 | ||||
$ | - | $ | 10,625,000 |
In February 2022, Avenue withdrew $5.0 million of the Company's restricted cash to repay a portion of the debt to Avenue. On March 31, 2022, the Company received a letter (the “Letter”) from Avenue regarding alleged events of default with respect to the Loan and Security Agreement, dated as of April 26, 2021, between the Company and Avenue (the “Loan Agreement”). In the Letter, Avenue alleges that certain events of default under the Loan Agreement have occurred and continue to exist. Specifically, Avenue alleged that the Company was in violation of certain provisions of the Loan Agreement as a result of which, Avenue purported to exercise its rights to suspend further loans or advances to the Company under the Loan Agreement and to accelerate the amount due under the Loan Agreement. Avenue further states in the Letter that interest will continue to accrue on the outstanding amounts at the default rate of 5.0%. In furtherance of the allegations set forth in the Letter, Avenue foreclosed on approximately $4.8 million of the Company’s cash. Subsequently, Avenue returned $0.5 million of the amount foreclosed on. Approximately $3.8 million was applied to principal after application of prepayment fees, accrued interest, and miscellaneous expenses. Due to the accelerated payment schedule, the entire amount due on the Avenue note payable has been reclassed to short term notes payable.
9.7. Leases
The Company’s leases do not provide an implicit rate that can be readily determined. Therefore, the Company uses discount rates based on the incremental borrowing rate of its current external debt of 3%, 10%, and 17%, depending on the entity and timing of the lease implementation.
The Company’s weighted-average remaining lease term relating to its operating leases is 5.224 years, with a weighted-average discount rate of the 13.13%14.99%.
The Company incurred lease expense for its operating leases of $103,959$67,346 and $3,347,$10,040, which was included in general and administrative expenses, and $80,317 and $0, which was included in research and development expenses in the condensed consolidated statements of operationoperations for the periods ended September 2021March 2022 and 2020,2021, respectively. During the nine months ended September 30, 2021 and 2020, the Company made cash lease payments in the amount of $82,487 and $3,256, respectively.
The following table presents information about the future maturity of the lease liability under the Company’s operating leases as of September 30, 2021.March 31, 2022:
Maturity of Lease Liability | Total | Total | ||||||
2021 | $ | 72,796 | ||||||
2022 | 299,888 | $ | 387,527 | |||||
2023 | 260,600 | 475,556 | ||||||
2024 | 165,375 | 264,955 | ||||||
2025 | 173,644 | 173,644 | ||||||
2026 | 182,326 | |||||||
Thereafter | 405,930 | 223,605 | ||||||
Total undiscounted lease payments | 1,378,233 | 1,707,613 | ||||||
Less: Imputed interest | 442,528 | 482,877 | ||||||
Present value of lease liabilities | $ | 935,705 | $ | 1,224,736 | ||||
Remaining lease term (years) | 5.14 |
10.Equipment
Equipment, net as of September 30, 2021 and December 31, 2020, consists of the following:
September 30, 2021 | December 31, 2020 | |||||||
Computer equipment | $ | 78,322 | $ | 9,637 | ||||
Furniture and Fixtures | 45,987 | 0 | ||||||
Laboratory Equipment | 34,393 | 0 | ||||||
Accumulated depreciation | (39,569 | ) | (947 | ) | ||||
Net carrying value | $ | 119,133 | $ | 8,690 |
During the nine months ended September 30, 2021 and 2020, the Company recorded total depreciation expense of $8,309 and $0, respectively.
11.Business Combination – ImQuest Acquisition
On June 24, 2021, Old Cytocom closed its acquisition and gained control of ImQuest Life Sciences and its subsidiaries (“ImQuest”). Old Cytocom acquired a 100% interest in ImQuest, which will therefore be a wholly owned subsidiary. As of June 30, 2021, consideration had not yet been paid to ImQuest for the purchase, and as such was reflected as a liability under the preferred stock payable line item on the Old Cytocom consolidated balance sheet.
At close, as consideration for the acquisition Old Cytocom was required to issue up to a maximum of 3 million shares of Old Cytocom Series A preferred stock, in accordance with the Agreement and Plan of Merger dated July 17, 2020. The value of the stock to be issued was not to exceed $12,000,000. As such, the Company issued 3,282,089 shares of common stock on September 30, 2021 as consideration for the ImQuest acquisition. The number of shares issued was based on the 30-day volume weighted average price of $3.656 and the value of the shares issued was $12,000,000.
The Company recorded Goodwill in the amount of $12,633,858 as a result of the acquisition. As of September 30, 2021 management does not note any indicators of potential impairment as of September 30, 2021 as there were no material changes in the acquired business since acquisition and there was no deterioration in the business and no key employees left or plan to leave. The Company plans to quantitatively test the Goodwill for impairment prior to its fiscal year end at December 31, 2021. The purchase price allocation accounting for the acquisition is preliminary, as the Company is still undergoing fair value studies. Any purchase price accounting may be adjusted in future accounting periods once consideration is paid and actual amounts are known.
12.8. Intangible assets
Intangible assets net as of September 30, 2021 and December 31, 2020, consistsconsist of the following:
September 30, 2021 | December 31, 2020 | |||||||
Customer base | $ | 1,575,000 | $ | 0 | ||||
Trade-names/marks | 134,300 | 0 | ||||||
Accumulated amortization | (134,022 | ) | 0 | |||||
Net carrying value | $ | 1,575,278 | $ | 0 |
The purchase price allocation accounting for the Imquest acquisition is preliminary, as the Company is still undergoing fair value studies. Any purchase price accounting may be adjusted in future accounting periods once consideration is paid and actual amounts are known.
March 31, 2022 | December 31, 2021 | |||||||
Customer base | $ | 1,312,000 | $ | 1,312,000 | ||||
Trade-names/marks | 502,100 | 502,100 | ||||||
Accumulated amortization | (346,829 | ) | (233,120 | ) | ||||
Net carrying value | $ | 1,467,271 | $ | 1,580,980 |
During the ninethree months ended September 30, 2021March 31, 2022 and 2020,2021, the Company recorded total amortization expense of $134,022$113,709 and $0, respectively.
13.9. Fair Value of Financial InstrumentsStockholders’ Deficit
The Company has measuredgranted options to employees and recorded short-term investments and certain warrants as liabilities at fair value inBoard members to purchase shares of common stock. The following is a summary of option award activity during the accompanying financial statements. Fair value is defined as the exchange price 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 must maximize the use of observable inputs and minimize the use of unobservable inputs. The three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value, includes:
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Short-term investments primarily include certificates of deposit at commercial banking institutions, with maturities of three months or more at timeended March 31, 2022:
Total Stock Options Outstanding | Weighted Average Exercise Price per Share | |||||||
December 31, 2021 | 45,468 | $ | 14.28 | |||||
Granted | — | — | ||||||
Vested | — | — | ||||||
Forfeited, Canceled | (2,813 | ) | 67.00 | |||||
March 31, 2022 | 42,655 | $ | 10.81 |
The following is a summary of purchase. Certificatesoutstanding stock options as of depositMarch 31, 2022:
As of March 31, 2022 | ||||||||
Stock Options Outstanding | Vested Stock Options | |||||||
Quantity | 42,655 | 42,655 | ||||||
Weighted Average Exercise Price | $ | 10.81 | $ | 10.81 | ||||
Weighted Average Remaining Contractual Term (in Years) | 2.50 | 2.50 | ||||||
Intrinsic Value | $ | — | $ | — |
As of March 31, 2022, there was no total compensation cost not yet recognized related to unvested stock options.
As of March 31, 2022, there are carried at amortized cost,1,347,996 restricted stock units outstanding to employees from the old Cytocom plan.
10. Warrants
In connection with previous sales of the Company’s common stock and the issuance of debt instruments, warrants were issued which approximates fair valuepresently have exercise prices ranging from $0.01 to $5.00. The warrants expire between one and five years from the date of grant, and are includedsubject to the terms applicable in each agreement. These terms include for certain warrants the right to receive cash settlement upon the occurrence of a fundamental transaction. The Merger meets the definition of a fundamental transaction per the terms of these warrant agreements. The Company’s management has evaluated all the terms of the warrant agreements and determined that the warrants shall be accounted for as a Levelequity instruments as 2no measurement inconditions exist under ASC 480 to account for the table below.
There were 0 assets and liabilities measured at fair valuewarrants as of December 31, 2020. As of September 30, 2021, the following items were measured at fair value: liabilities.
As of September 30, 2021 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Cash and cash equivalents | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
Short-term investments | 0 — | 233,642 | 0 — | 233,642 | ||||||||||||
Total assets | $ | 0 | $ | 233,642 | $ | 0 | $ | 233,642 | ||||||||
Liabilities: | ||||||||||||||||
Accrued warrant liability | $ | 0 | $ | 0 | $ | (945,736 | ) | $ | (945,736 | ) |
The following table sets forthsummarizes the outstanding warrant activity during the three months ended March 31, 2022:
Number of Warrants | Weighted Average Exercise Price | |||||||
December 31, 2021 | 2,431,168 | $ | 4.48 | |||||
Granted | 30,777,776 | 0.46 | ||||||
Exercised | — | — | ||||||
Forfeited, Canceled | — | — | ||||||
March 31, 2022 | 33,208,944 | $ | 0.76 |
During the three months ended March 31, 2022, 2,000,000 warrants were issued in connection with the registered direct offering in February for the sale of 2,000,000 shares of common stock with an exercise price of $0.51, and 28,777,776 warrants were issued in connection with the confidentially marketed public offering in March of 12,555,555 shares of common stock with a summaryweighted average exercise price of changes$0.46.
11.Commitments and Contingencies
On March 24, 2021, a complaint, captioned Bednar v. Cleveland BioLabs, Inc. et al., Case 1:21-cv-02546, was filed in the fair valueU.S. District Court for the Southern District of New York in connection with the Merger (the "Bednar Action"). The Bednar Action names as defendants Cleveland BioLabs and each director on the Cleveland BioLabs board of directors. The complaint in the Bednar Action alleges that Cleveland BioLabs and the Cleveland BioLabs board of directors omitted and/or provided misleading information in the registration statement on Form S-4 filed with the SEC in connection with the Merger in violation of their fiduciary duties and the Exchange Act and related SEC regulations. The Bednar Action seeks, among other things, an injunction preventing the closing of the Company’s Level Merger, rescission of the Merger if it is consummated, the dissemination by the Company of a revised registration statement on Form S-34 fair value measurementsand an award of plaintiffs’ attorneys’ and experts’ fees. On October 13, 2021, Plaintiff Bednar filed a notice of dismissal. On October 20, 2021, the Southern District entered an order dismissing the case. On December 23, 2021, Plaintiff Bednar filed a new action in the Delaware Court of Chancery, asserting a cause of action for an equitable assessment of attorneys’ fees and expenses incurred in connection with the first lawsuit. The new Delaware action names the same defendants as the first Bednar Action. The Defendants in the new Delaware action have filed an answer to Plaintiff’s Delaware complaint.
On August 16, 2022, certain former employees of the Company and certain third party vendors of the Company (collectively, "Petitioning Creditors") filed an involuntary petition in the United States Bankruptcy Court for the periods indicated:
Three Months Ended | Three Months Ended | |||||||
September 30, 2021 | September 30, 2020 | |||||||
Accrued Warrant Liability | Accrued Warrant Liability | |||||||
Beginning Balance | $ | (945,736 | ) | $ | 0 | |||
Total (gains) or losses, realized and unrealized, included in earnings (1) | 0 | 0 | ||||||
Issuances | 0 | 0 | ||||||
Settlements | 0 | 0 | ||||||
Ending Balance | $ | (945,736 | ) | $ | 0 |
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The accrued warrant liabilityDistrict of $0.95 million represented onColorado (No.22-13051-JGR) against the Company’s balance sheet forCompany seeking relief under Chapter 11 of the period ending September 30, 2021 are amounts due to satisfy cash payments in accordance with change in control provisions specified in warrant agreements with the placement agent. The Company has received notice of intent to receive cash payment by the placement agent in accordance with the change in control provision.United States Bankruptcy Code. The Company believes the involuntary petition is improper and wrongfully filed and is seeking dismissal of the petition. The outcome of this lawsuit is uncertain. The Company believes that the claims asserted are without merit.
12.Subsequent Events
Management evaluated all events or transactions that occurred after March 31, 2022 through the date these condenses consolidated financial statements were filed.
On April 18, 2022, Avenue and the Company entered into a Forbearance and Second Amendment to Loan Documents, (“Forbearance Agreement”) regarding the Loan Agreement, whereby the parties agreed to the following terms: On March 25, 2022, Avenue exercised certain of its remedies under the Loan Agreement with respect to the Existing Defaults (as defined below), by sweeping cash payment from the Company’s accounts, totaling Four Million Eight Hundred Twenty-Seven Thousand Two Hundred Ninety Dollars ($4,827,290), which Avenue applied to the then-outstanding obligations under the Loan Agreement. The principal balance outstanding under the Loan Agreement, before giving effect to the Forbearance Agreement, was Five Million Seven Hundred Eleven Thousand Forty-Nine Dollars ($5,711,049), plus accrued and unpaid interest, fees (including a prepayment fee) and expenses (including but not limited to legal fees and costs). Subject to the terms of the Forbearance Agreement, Avenue agreed that, from the effective date of the Agreement until May 31, 2022 (the “Forbearance Period”), it would refrain and forbear from exercising certain remedies arising out of the Existing Defaults or any other present or future Event of Default under the Loan Agreement or related supplement. Under the Forbearance Agreement, Avenue shall not seize, sweep, or by any means take control of, directly or indirectly, any funds from any of the Company’s bank accounts; and (ii) during the Forbearance Period, the Loans may be prepaid in whole or in part at any time, subject to the repayment and prepayment terms of the Loan Documents
On April 19, 2022, the Company received a letter from the Listing Qualifications Department of The Nasdaq Stock Market (“NASDAQ”) stating that, because the Company has not yet filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “Form 10-K”) with the SEC, the Company is not in compliance with NASDAQ Listing Rule 5250(c)(1) for continued listing. Pursuant to the NASDAQ letter, the Company was required to submit a plan to regain compliance by June 20, 2022. If the plan is accepted by NASDAQ, the Company must implement the plan to regain compliance by the date that is 180 days after the due date of the Form 10-K, or October 17, 2022. The Company submitted the plan to NASDAQ to regain compliance on May 27, 2022 and is currently awaiting NASDAQ acceptance. Subsequently, on May 18, 2022, the Company received an additional letter from NASDAQ stating that because the Company remains delinquent in filing its Form 10-K, and subsequently has failed to timely file its Quarterly Report on Form 10-Q for the period ended March 31, 2022 (the “Form 10-Q”), the Company does not comply with NASDAQ Listing Rules for continued listing. NASDAQ reiterated that the Company had until June 20, 2022 to submit a plan to regain compliance with respect to the delinquent Form 10-K and Form 10-Q. Please note that any Staff exception to allow the Company to regain compliance, if granted, will be limited to a maximum of 180 calendar days from the due date of the Form 10-K, or October 17, 2022. As noted above, the Company submitted the plan to NASDAQ to regain compliance on May 27, 2022 and is currently awaiting NASDAQ acceptance.
On April 21, 2022, the Company accepted the resignation of Cozette M. McAvoy, Chief Legal Officer effective as of April 30, 2022.
On April 30, 2022, due to satisfycorporate restructuring, approximately 14 employees were terminated, including our Chief Operating Officer Taunia Markvicka and Chief Medical Officer Clifford Selsky.
On May 27, 2022, Peter Aronstam resigned as Chief Financial Officer of the Company, effective as of 2020May 27, 2022. The Board of Directors of the Company has commenced a search for a new Chief Financial Officer. In the meantime, beginning on May 27, 2022, Christopher Zosh was appointed to act as interim principal financial officer and interim principal accounting officer.
On June 13, 2022, the Board of Directors of the Company approved the engagement of BF Borgers CPA, PC ("BF Borgers") as the Company’s independent registered public accounting firm effective as of June 13, 2022. During the Company’s two warrant agreements are approximately $0.45 million most recent fiscal years ended December 31, 2020 and the cash payment due to satisfy the 2021 warrant agreementsand from January 1, 2022 through June 13, 2022, neither the Company nor anyone on its behalf consulted BF Borgers regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, and no written report or oral advice was provided to the Company that BF Borgers concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was the subject of a disagreement or reportable event as defined in Regulation S-K, Item 304(a)(1)(iv) and Item 304(a)(1)(v).
On June 17, 2022, the Board of Directors of the Company ratified the appointments of Dr. Uday Saxena and Dr. Blake Hawley as directors of the Company, to fill the vacancies created by Mr.Saluck and Ms. Verny resignations. Dr. Saxena and Dr. Hawley will serve in such position until the earlier of their deaths, resignations or removal from office. Dr. Saxena and Dr. Hawley will serve as members of the Board’s audit committee, compensation committee, and nominating and corporate governance committee. The Board has affirmatively determined that Dr. Saxena and Dr. Hawley are approximately $0.5 million. While“independent” within the amount paidmeaning of the listing standards of NASDAQ. In addition, Dr. Saxena and Dr. Hawley are independent under NASDAQ'S heightened independence standards applicable to audit committee and compensation committee members.
On mayAugust 16, 2022, differ fromcertain former employees of the accrualCompany and certain third-party vendors of the Company (collectively, "Petitioning Creditors") filed an involuntary petition in the United States Bankruptcy Court for the District of Colorado (No.22-13051-JGR) against the Company seeking relief under Chapter 11 of the United States Bankruptcy Code. The Company believes the accrual fairly representsinvoluntary petition is improper and wrongfully filed and is seeking dismissal of the amountspetition.
On August 22, 2022, the Company issued 1.5 million shares of restricted common stock pursuant to a newly executed contract to provide investors relations services to the Company.
On September 1, 2022, the Company was notified by the Listing Qualifications Staff (the "Staff") of NASDAQ that the Company’s common stock would be subject to delisting due to the placement agent.Company’s non-compliance with the filing requirement set forth in Nasdaq Listing Rule 5250(c)(1) unless the Company timely requested a hearing before the Nasdaq Hearings Panel (the "Panel"). The Company had not yet filed the Form 10-K for the fiscal year ended December 31, 2021 or the Forms 10-Q for the quarterly periods ended March 31, 2022 and June 30, 2022 (collectively, "Form 10-Qs") with the SEC. The Company intends to timely request a hearing before the Panel, which request will stay any further action by NASDAQ at least pending the issuance of a decision by the Panel and the expiration of any extension the Panel may grant to the Company following the hearing.
On September 2, 2022, the Company entered a Binding Letter of Intent ("LOI") with Lay Sciences, Inc. ("Lay"), pursuant to which the Company will manufacture, and test IgY polyclonal antibody products created by Lay. The LOI provides for an exclusivity period of ninety (90) days (the "Exclusivity Period") for negotiating and finalizing a definitive agreement (the "Definitive Agreement"). During the Exclusivity Period, which begins from the date of the LOI, Lay will not engage in activities with any third party in relation to the acquisition of the Company. Pursuant to the LOI, (i) Lay shall complete technology transfer to the Company; and (ii) the Company shall (A) assist Lay in testing its current and future products for activity and purity, In consideration of the manufacturing right granted to the Company by Lay, the Company shall (i) issue 500,000 shares of preferred stock of the Company to Lay and (ii) pay up to $500,000 to Lay within 30 days of the execution of the LOI. As of the date of this filing the Company hasn't issued any shares of preferred stock or paid any cash consideration.
On September 30, 20212, 2022, the Board of Directors of the Company appointed John Kallassy as a director of the Company, effective September 2, 2022, to fill the vacancy created by the resignation of the chair of the audit committee. Mr. Kallassy will serve in such position until his successor is elected and qualified or until his earlier death, resignation, or removal. Mr. Kallassy will serve as a member of the Board’s audit committee, compensation committee, and nominating and corporate governance committee. The Board has affirmatively determined that Mr. Kallassy is "independent" within the meaning of the listing standards of NASDAQ. In addition, Mr. Kallassy is independent under NASDAQ heightened independence standards applicable to audit committee and compensation committee members. The Board also appointed Mr. Kallassy as an "audit committee financial expert” as defined in Item December 31, 2020407, (d)(5) of Regulation S-K and Chairperson of the Audit Committee of the Board.
On October 6, 2022, the Company had 0 assetsa hearing before the Panel, the Company presented its plan to evidence full compliance with NASDAQ'S filing requirement and all other applicable requirements for continued listing on NASDAQ and request an extension of time to do so. The Company is taking definitive steps to evidence compliance with the NASDAQ listing criteria as soon as possible; however, there can be no assurance that the Panel will grant the Company’s request for continued listing or liabilities that were measured at fair value on a nonrecurring basis.the Company will satisfy the NASDAQ listing criteria within any extension period that may be provided to the Company by the Panel. The Company plans to update the market promptly following receipt of the Panel’s determination after the hearing.
The carrying amountsOn October 11, 2022, the Company was notified by the Staff of NASDAQ that the Company’s common stock would be subject to delisting due to the Company’s non-compliance with the minimum Stockholders' Equity requirement set forth in Nasdaq Listing Rule 5550(b)(1) and non-compliance with Listing Rule 5250(e)(2)(D) regarding notifying Nasdaq of the Company's intention to issue additional shares. Each of these matters serve as an additional and separate basis for delisting the Company’s short-term financial instruments, which include cash and cash equivalents, accounts receivable and accounts payable, approximatesecurities from NASDAQ. The Panel will consider these matters in their fair values duedecision regarding the Company’s continued listing on NASDAQ. The Company intends to their short maturities.present its views with respect to these additional deficiencies to the Panel in writing no later than October 18, 2022.
14. Stockholders’ EquityItem 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This management’s discussion and analysis of financial condition and results of operations and other portions of this quarterly report on Form 10-Q contain forward-looking statements that involve risks and uncertainties. All statements other than statements of current or historical fact contained in this quarterly report, including statements regarding our future financial position, business strategy, new products, budgets, liquidity, cash flows, projected costs, regulatory approvals, or the impact of any laws or regulations applicable to us and plans and objectives of management for future operations are forward-looking statements. The words "anticipate," "believe," "continue," "should," "estimate," "expect," "intend," "may," "plan," "project," "will," and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements on our current expectations about future events. While we believe these expectations are reasonable, such forward-looking statements are inherently subject to risks and uncertainties, many of which are beyond our control. Our actual future results may differ materially from those discussed here for various reasons. We discuss many of these risks in Item 1A under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021. Factors that may cause such differences include, but are not limited to, the substantial doubt expressed about our ability to continue as a going concern, the outcome of any legal proceedings that have been or may be instituted against the Company related to the merger agreement or the Merger; unexpected costs, charges or expenses resulting from the Merger; our need for additional financing to meet our business objectives; our history of operating losses; our ability to successfully develop, obtain regulatory approval for, and commercialize our products in a timely manner; our plans to research, develop and commercialize our product candidates; our ability to attract collaborators with development, regulatory and commercialization expertise; our plans and expectations with respect to future clinical trials and commercial scale-up activities; our reliance on third-party manufacturers of our product candidates; the size and growth potential of the markets for our product candidates, and our ability to serve those markets; the rate and degree of market acceptance of our product candidates; regulatory requirements and developments in the United States, the European Union and foreign countries; the performance of our third-party suppliers and manufacturers; the success of competing therapies that are or may become available; our ability to attract and retain key scientific or management personnel; our historical reliance on government funding for a significant portion of our operating costs and expenses; government contracting processes and requirements; the exercise of significant influence over our company by our largest individual stockholder; the impact of the novel coronavirus ("COVID-19") pandemic on our business, operations and clinical development;the geopolitical relationship between the United States and the Russian Federation as well as general business, legal, financial and other conditions within the Russian Federation; our ability to obtain and maintain intellectual property protection for our product candidates; our potential vulnerability to cybersecurity breaches; and other factors discussed below and in our other SEC filings, including our Annual Report on Form 10-K for the year ended December 31, 2021.
Given these uncertainties, you should not place undue reliance on these forward-looking statements. The forward-looking statements included in this quarterly report are made only as of the date hereof. We do not undertake any obligation to update any such statements or to publicly announce the results of any revisions to any of such statements to reflect future events or developments. This management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our financial statements and the related notes included elsewhere in this filing and with our historical consolidated financial statements and the related notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2021.
OVERVIEW
We are a clinical-stage biopharmaceutical company developing multiple product candidates to address unmet medical needs. Prior to the closing of the Merger, we focused exclusively on developing novel approaches to activate the immune system. Our proprietary platform of Toll-like immune receptor activators has applications in mitigation of radiation injury and radiation oncology. We combine our proven scientific expertise and our depth of knowledge about our products’ mechanisms of action into a passion for developing drugs to save lives. Our most advanced product candidate in this field is entolimod, an immune-stimulatory agent, which we are developing as a radiation countermeasure and other indications in radiation oncology.
Following the closing of the Merger, as a result of the integration of Cytocom’s business, we are also now developing novel immunotherapies targeting autoimmune, inflammatory, infectious diseases and cancers based on a proprietary, multi receptor platform, or the AIMS platform, designed to rebalance the body’s immune system and restore homeostasis. These therapies are designed to elicit directly within patients a robust and durable response of antigen-specific killer T cells and antibodies, thereby activating essential immune defenses against autoimmune, inflammatory, infectious diseases, and cancers. We believe that our technologies can meaningfully leverage the human immune system for prophylactic and therapeutic purposes by eliciting killer T-cell response levels not achieved by other published immunotherapy approaches. Our immunomodulatory technology restores the balance between the cellular (Th1) and the humoral (Th2) immune systems. Immune balance is regulated through T-helper cells that produce cytokines. The Th1 lymphocytes help fight pathogens within cells like cancer and viruses through interferon-gamma and macrophages. The Th2 lymphocytes target external pathogens like cytotoxic parasites, allergens, toxins through the activation of B-cells and antibody production to effect to dendritic cells, which are natural activators of killer T cells, also known as cytotoxic T -cells, or CD8+ T cells. Furthermore, the Cytocom technology antagonizes the toll-like receptors to inhibit proinflammatory cytokines.
Prior to the closing of the Merger, we conducted business in the U.S. directly and in Russia through two subsidiaries, one of which is wholly owned, BioLab 612 (which was dissolved in November 2020), and one of which is owned in collaboration with a financial partner, Panacela. As of the closing of the Merger, we also now conduct business through Old Cytocom and its subsidiaries, ImQuest Life Sciences Inc, ImQuest BioSciences Inc., ImQuest Pharmaceuticals, Inc., and Lubrinovation Inc. In addition, we conduct business with a former subsidiary, Incuron, which will pay us a 2% royalty on future commercialization, licensing, or sale of certain technology we sold to Incuron. We also partner in a joint venture, GPI, with Everon Biosciences, Inc ("Everon").
The Company is developing therapies designed to directly elicit within patients a robust and durable response of antigen-specific killer T-cells and antibodies, thereby activating essential immune defenses against autoimmune, inflammatory, infectious diseases, and cancers. Statera has clinical or preclinical programs for Crohn’s disease (STAT-201), hematology (Entolimod), pancreatic cancer (STAT-401) and COVID-19 (STAT-205).
In the next 12 months, the Company expects to initiate several clinical trials, including a pivotal Phase 3 trial for its lead drug candidate, STAT-201, in pediatric Crohn’s disease, as well as studies of STAT-205 in ‘long haul’ COVID-19, STAT-401 in pancreatic cancer, and the TLR5 agonist entolimod as a treatment for anemia and neutropenia in cancer patients.
Recent Developments
Default under Loan Agreement
On March 25, 2022, we received a letter (the "Default Letter") from Avenue Venture Opportunities Fund, L.P. ("Avenue") regarding alleged events of default with respect to the Loan and Security Agreement, dated as of April 26, 2021, between the Company and Avenue (the "Avenue Facility"). In the Default Letter, Avenue alleges that certain events of default under the Avenue Facility have occurred and continue to exist. Specifically, Avenue alleges that the Company is in violation of certain provisions of the Avenue Facility as a result of the Company’s failure to:
● | timely deliver monthly financial statements for certain periods; |
● | obtain Avenue’s consent to repurchase certain securities from stockholders; |
● | pay principal and interest when due, including on March 1, 2022; and |
● | maintain unrestricted cash and cash equivalents in one or more accounts subject to control agreements in favor of Avenue in amount of at least $5 million. |
In the Default Letter, Avenue purported to exercise its rights to suspend further loans or advances to the Company under the Avenue Facility and to accelerate the amount due under the Avenue Facility, which it asserts to be approximately $11.2 million, inclusive of fees of penalties. Avenue further states in the Default Letter that interest will continue to accrue on the outstanding amounts at the default rate of 5.0%. In furtherance of the allegations set forth in the Default Letter, Avenue foreclosed on approximately $4.8 million of the Company’s cash.
Nasdaq Noncompliance
On March 23, 2022, we received written notice from the Listing Qualifications staff of the Nasdaq Stock Market LLC ("NASDAQ") indicating that because the minimum bid price of the Company’s common stock has closed below $1.00 per share for the last 30 consecutive business days, the Company no longer meets the requirements of Listing Rule 5550(a)(2), which requires the Company to maintain a minimum bid price of $1.00 per share (the "Bid Price Rule"). The NASDAQ Listing Rules provide the Company with a compliance period of 180 calendar days in which to regain compliance with the Bid Price Rule. Accordingly, the Company will regain compliance if at any time during this 180-day period the closing bid price of the Company’s common stock is at least $1.00 for a minimum of ten consecutive business days.
On March 25, 2022, Randy Saluck and Lea Verny, each a member of the board of directors of the Company, resigned from their positions as members of board, effective immediately. At the time of their resignations, Mr. Saluck and Ms. Verny each served on the audit, nominating and corporate governance and compensation committees of the Board. As a result of these resignations, the Company is no longer in compliance with NASDAQ governance rules requiring that its board of directors be comprised of a majority of independent directors, requiring that the audit committee of the board of directors be comprised of at least three independent directors, and requiring that the compensation committee of the board of directors be comprised of at least two independent directors. In accordance with NASDAQ’s rules, the Company is granted a cure period to regain compliance with the rules pertaining to the composition of the board, the audit committee of the board and the compensation committee of the board, respectively, which cure period will expire upon the earlier of the Company’s next annual stockholders’ meeting or March 24, 2023; provided, however, that if the Company’s next annual stockholders’ meeting occurs no later than 180 days following the date of the resignations, then the cure period will expire 180 days following the date of such resignations. The Company intends to appoint new independent directors to fill the vacancies prior to the expiration of such cure period in order to regain compliance with such Nasdaq Listing Rules.
Underwritten Confidentially Marketed Public Offering
As previously disclosed, on March 24, 2022, the Company closed an underwritten confidentially marketed public offering (the "CMPO") in accordance with a final prospectus supplement and accompanying base prospectus relating to the securities offered in the offering filed with the SEC on March 23, 2022. The Company sold 12,555,555 units (the "Units"), at a price to the public of $0.45 per Unit for aggregate gross proceeds of approximately $5.7 million, prior to deducting underwriting discounts, commissions, and other offering expenses. Each Unit consisted of one share of Common Stock, one warrant with a one-year term that expires on March 23, 2023 to purchase one share of Common Stock at an exercise price of $0.45 per share (the "One-Year Warrants"), and one warrant with a five-year term that expires on March 23, 2027 to purchase one share of our Common Stock at an exercise price of $0.5625 per share (the "Five-Year Warrants"). The shares of Common Stock, the One-Year Warrants, and the Five-Year Warrants were immediately separable and were issued separately. In addition, the Company granted the underwriters a 45-day option to purchase up to an additional 1,883,333 shares of Common Stock at the public offering price of $0.43 per share less the underwriting discount per share, solely to cover over-allotments, if any (the "Overallotment Option"). In connection with the offering, the underwriters partially exercised the Overallotment Option to purchase an additional 1,883,333 One-Year Warrants and 1,883,333 Five-Year Warrants at the public offering price of $0.01 per One-Year Warrant and $0.01 per Five-Year Warrant, less the underwriting discount per warrant.
The securities were offered and sold by the Company under a prospectus supplement and accompanying prospectus filed with the SEC pursuant to an effective shelf registration statement on Form S-3, which was filed with the SEC on May 21, 2020 and subsequently declared effective on May 29, 2020 (File No. 333-238578). The net proceeds received by the Company were $4.81 million, all of which proceeds were foreclosed upon by Avenue in connection with Avenue’s assertion that the Company is in default under its obligations to Avenue.
EF Hutton, a division of Benchmark Investments, LLC ("EF Hutton"), acted as underwriter and sole book-running manager in connection with the CMPO. In connection with the CMPO, the Company entered into an underwriting agreement with EF Hutton under which the Company paid EF Hutton an aggregate cash fee equal to 9.0% of the aggregate gross proceeds of the CMPO, a non-accountable expense reimbursement of 1.0% of the aggregate gross proceeds of the CMPO, and $100,000 for the reimbursement of certain of EF Hutton’s accountable expenses.
Registered Direct Offering
As previously disclosed, on February 19, 2021, 6, 2022, the Company entered into a Securities Purchase Agreement (the "EF HuttonPurchase AgreementCommitments and Contingencies")
On March 24, 2021, a complaint, captioned Bednar v. Cleveland BioLabs, Inc. et al., Case 1:21-cv-02546, was filed in the U.S. District Court for the saleSouthern District of 2,000,000 sharesNew York in connection with the Merger (the "Registered Direct SharesBednar Action""). The Bednar Action names as defendants Cleveland BioLabs and each director on the Cleveland BioLabs board of common stock at a purchase pricedirectors. The complaint in the Bednar Action alleges that Cleveland BioLabs and the Cleveland BioLabs board of $7.00 per share,directors omitted and/or provided misleading information in a registered direct offering.the registration statement on Form S-4 filed with the SEC in connection with the Merger in violation of their fiduciary duties and the Exchange Act and related SEC regulations. The Bednar Action seeks, among other things, an injunction preventing the closing of the saleMerger, rescission of the Registered Direct SharesMerger if it is consummated, the dissemination by the Company of a revised registration statement on Form S-4 and an award of plaintiffs’ attorneys’ and experts’ fees. On October 13, 2021, Plaintiff Bednar filed a notice of dismissal. On October 20, 2021, the Southern District entered an order dismissing the case. On December 23, 2021, Plaintiff Bednar filed a new action in the Delaware Court of Chancery, asserting a cause of action for an equitable assessment of attorneys’ fees and expenses incurred in connection with the first lawsuit. The new Delaware action names the same defendants as the first Bednar Action. The Defendants in the new Delaware action have filed an answer to Plaintiff’s Delaware complaint.
On August 16, 2022, certain former employees of the Company and certain third party vendors of the Company (collectively, "Petitioning Creditors") filed an involuntary petition in the United States Bankruptcy Court for the District of Colorado (No.22-13051-JGR) against the Company seeking relief under Chapter 11 of the United States Bankruptcy Code. The Company believes the involuntary petition is improper and wrongfully filed and is seeking dismissal of the petition. The outcome of this lawsuit is uncertain. The Company believes that the claims asserted are without merit.
12.Subsequent Events
Management evaluated all events or transactions that occurred after March 31, 2022 through the date these condenses consolidated financial statements were filed.
On April 18, 2022, Avenue and the Company entered into a Forbearance and Second Amendment to Loan Documents, (“Forbearance Agreement”) regarding the Loan Agreement, whereby the parties agreed to the following terms: On March 25, 2022, Avenue exercised certain of its remedies under the PurchaseLoan Agreement occurredwith respect to the Existing Defaults (as defined below), by sweeping cash from the Company’s accounts, totaling Four Million Eight Hundred Twenty-Seven Thousand Two Hundred Ninety Dollars ($4,827,290), which Avenue applied to the then-outstanding obligations under the Loan Agreement. The principal balance outstanding under the Loan Agreement, before giving effect to the Forbearance Agreement, was Five Million Seven Hundred Eleven Thousand Forty-Nine Dollars ($5,711,049), plus accrued and unpaid interest, fees (including a prepayment fee) and expenses (including but not limited to legal fees and costs). Subject to the terms of the Forbearance Agreement, Avenue agreed that, from the effective date of the Agreement until May 31, 2022 (the “Forbearance Period”), it would refrain and forbear from exercising certain remedies arising out of the Existing Defaults or any other present or future Event of Default under the Loan Agreement or related supplement. Under the Forbearance Agreement, Avenue shall not seize, sweep, or by any means take control of, directly or indirectly, any funds from any of the Company’s bank accounts; and (ii) during the Forbearance Period, the Loans may be prepaid in whole or in part at any time, subject to the repayment and prepayment terms of the Loan Documents
On April 19, 2022, the Company received a letter from the Listing Qualifications Department of The Nasdaq Stock Market (“NASDAQ”) stating that, because the Company has not yet filed its Annual Report on Form February 23, 2021.10-K for the fiscal year ended December 31, 2021 (the “Form 10-K”) with the SEC, the Company is not in compliance with NASDAQ Listing Rule 5250(c)(1) for continued listing. Pursuant to the NASDAQ letter, the Company was required to submit a plan to regain compliance by June 20, 2022. If the plan is accepted by NASDAQ, the Company must implement the plan to regain compliance by the date that is 180 days after the due date of the Form 10-K, or October 17, 2022. The gross proceedsCompany submitted the plan to NASDAQ to regain compliance on May 27, 2022 and is currently awaiting NASDAQ acceptance. Subsequently, on May 18, 2022, the Company received an additional letter from NASDAQ stating that because the Company remains delinquent in filing its Form 10-K, and subsequently has failed to timely file its Quarterly Report on Form 10-Q for the period ended March 31, 2022 (the “Form 10-Q”), the Company does not comply with NASDAQ Listing Rules for continued listing. NASDAQ reiterated that the Company had until June 20, 2022 to submit a plan to regain compliance with respect to the delinquent Form 10-K and Form 10-Q. Please note that any Staff exception to allow the Company to regain compliance, if granted, will be limited to a maximum of 180 calendar days from the due date of the Form 10-K, or October 17, 2022. As noted above, the Company submitted the plan to NASDAQ to regain compliance on May 27, 2022 and is currently awaiting NASDAQ acceptance.
On April 21, 2022, the Company accepted the resignation of Cozette M. McAvoy, Chief Legal Officer effective as of April 30, 2022.
On April 30, 2022, due to corporate restructuring, approximately 14 employees were terminated, including our Chief Operating Officer Taunia Markvicka and Chief Medical Officer Clifford Selsky.
On May 27, 2022, Peter Aronstam resigned as Chief Financial Officer of the Company, effective as of May 27, 2022. The Board of Directors of the Company has commenced a search for a new Chief Financial Officer. In the meantime, beginning on May 27, 2022, Christopher Zosh was appointed to act as interim principal financial officer and interim principal accounting officer.
On June 13, 2022, the Board of Directors of the Company approved the engagement of BF Borgers CPA, PC ("BF Borgers") as the Company’s independent registered public accounting firm effective as of June 13, 2022. During the Company’s two most recent fiscal years ended December 31, 2020 and 2021 and from January 1, 2022 through June 13, 2022, neither the Company nor anyone on its behalf consulted BF Borgers regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, and no written report or oral advice was provided to the Company that BF Borgers concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was the subject of a disagreement or reportable event as defined in Regulation S-K, Item 304(a)(1)(iv) and Item 304(a)(1)(v).
On June 17, 2022, the Board of Directors of the Company ratified the appointments of Dr. Uday Saxena and Dr. Blake Hawley as directors of the Company, to fill the vacancies created by Mr.Saluck and Ms. Verny resignations. Dr. Saxena and Dr. Hawley will serve in such position until the earlier of their deaths, resignations or removal from office. Dr. Saxena and Dr. Hawley will serve as members of the transaction were $14Board’s audit committee, compensation committee, and nominating and corporate governance committee. The Board has affirmatively determined that Dr. Saxena and Dr. Hawley are “independent” within the meaning of the listing standards of NASDAQ. In addition, Dr. Saxena and Dr. Hawley are independent under NASDAQ'S heightened independence standards applicable to audit committee and compensation committee members.
On August 16, 2022, certain former employees of the Company and certain third-party vendors of the Company (collectively, "Petitioning Creditors") filed an involuntary petition in the United States Bankruptcy Court for the District of Colorado (No.22-13051-JGR) against the Company seeking relief under Chapter 11 of the United States Bankruptcy Code. The Company believes the involuntary petition is improper and wrongfully filed and is seeking dismissal of the petition.
On August 22, 2022, the Company issued 1.5 million before deductingshares of restricted common stock pursuant to a newly executed contract to provide investors relations services to the placement agent’s fees and other estimated offering expenses. UnderCompany.
On September 1, 2022, the Company was notified by the Listing Qualifications Staff (the "Staff") of NASDAQ that the Company’s engagement lettercommon stock would be subject to delisting due to the Company’s non-compliance with H.C. Wainwright & Co., LLCthe filing requirement set forth in Nasdaq Listing Rule 5250(c)(1) unless the Company timely requested a hearing before the Nasdaq Hearings Panel (the "Panel"). The Company had not yet filed the Form 10-K for the fiscal year ended December 31, 2021 or the Forms 10-Q for the quarterly periods ended March 31, 2022 and June 30, 2022 (collectively, "Form 10-Qs") with the SEC. The Company intends to timely request a hearing before the Panel, which request will stay any further action by NASDAQ at least pending the issuance of a decision by the Panel and the expiration of any extension the Panel may grant to the Company following the hearing.
On September 2, 2022, the Company entered a Binding Letter of Intent ("WainwrightLOI") with Lay Sciences, Inc. ("Lay"), pursuant to which Wainwright agreedthe Company will manufacture, and test IgY polyclonal antibody products created by Lay. The LOI provides for an exclusivity period of ninety (90) days (the "Exclusivity Period") for negotiating and finalizing a definitive agreement (the "Definitive Agreement"). During the Exclusivity Period, which begins from the date of the LOI, Lay will not engage in activities with any third party in relation to the acquisition of the Company. Pursuant to the LOI, (i) Lay shall complete technology transfer to the Company; and (ii) the Company shall (A) assist Lay in testing its current and future products for activity and purity, In consideration of the manufacturing right granted to the Company by Lay, the Company shall (i) issue 500,000 shares of preferred stock of the Company to Lay and (ii) pay up to $500,000 to Lay within 30 days of the execution of the LOI. As of the date of this filing the Company hasn't issued any shares of preferred stock or paid any cash consideration.
On September 2, 2022, the Board of Directors of the Company appointed John Kallassy as a director of the Company, effective September 2, 2022, to fill the vacancy created by the resignation of the chair of the audit committee. Mr. Kallassy will serve in such position until his successor is elected and qualified or until his earlier death, resignation, or removal. Mr. Kallassy will serve as a member of the Board’s audit committee, compensation committee, and nominating and corporate governance committee. The Board has affirmatively determined that Mr. Kallassy is "independent" within the meaning of the listing standards of NASDAQ. In addition, Mr. Kallassy is independent under NASDAQ heightened independence standards applicable to audit committee and compensation committee members. The Board also appointed Mr. Kallassy as an "audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K and Chairperson of the Audit Committee of the Board.
On October 6, 2022, the Company had a hearing before the Panel, the Company presented its plan to evidence full compliance with NASDAQ'S filing requirement and all other applicable requirements for continued listing on NASDAQ and request an extension of time to do so. The Company is taking definitive steps to evidence compliance with the NASDAQ listing criteria as soon as possible; however, there can be no assurance that the Panel will grant the Company’s request for continued listing or that the Company will satisfy the NASDAQ listing criteria within any extension period that may be provided to the Company by the Panel. The Company plans to update the market promptly following receipt of the Panel’s determination after the hearing.
On October 11, 2022, the Company was notified by the Staff of NASDAQ that the Company’s common stock would be subject to delisting due to the Company’s non-compliance with the minimum Stockholders' Equity requirement set forth in Nasdaq Listing Rule 5550(b)(1) and non-compliance with Listing Rule 5250(e)(2)(D) regarding notifying Nasdaq of the Company's intention to issue additional shares. Each of these matters serve as an additional and separate basis for delisting the Company’s securities from NASDAQ. The Panel will consider these matters in their decision regarding the Company’s continued listing on NASDAQ. The Company intends to present its views with respect to these additional deficiencies to the Panel in writing no later than October 18, 2022.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This management’s discussion and analysis of financial condition and results of operations and other portions of this quarterly report on Form 10-Q contain forward-looking statements that involve risks and uncertainties. All statements other than statements of current or historical fact contained in this quarterly report, including statements regarding our future financial position, business strategy, new products, budgets, liquidity, cash flows, projected costs, regulatory approvals, or the impact of any laws or regulations applicable to us and plans and objectives of management for future operations are forward-looking statements. The words "anticipate," "believe," "continue," "should," "estimate," "expect," "intend," "may," "plan," "project," "will," and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements on our current expectations about future events. While we believe these expectations are reasonable, such forward-looking statements are inherently subject to risks and uncertainties, many of which are beyond our control. Our actual future results may differ materially from those discussed here for various reasons. We discuss many of these risks in Item 1A under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021. Factors that may cause such differences include, but are not limited to, the substantial doubt expressed about our ability to continue as a going concern, the outcome of any legal proceedings that have been or may be instituted against the Company related to the merger agreement or the Merger; unexpected costs, charges or expenses resulting from the Merger; our need for additional financing to meet our business objectives; our history of operating losses; our ability to successfully develop, obtain regulatory approval for, and commercialize our products in a timely manner; our plans to research, develop and commercialize our product candidates; our ability to attract collaborators with development, regulatory and commercialization expertise; our plans and expectations with respect to future clinical trials and commercial scale-up activities; our reliance on third-party manufacturers of our product candidates; the size and growth potential of the markets for our product candidates, and our ability to serve those markets; the rate and degree of market acceptance of our product candidates; regulatory requirements and developments in the United States, the European Union and foreign countries; the performance of our third-party suppliers and manufacturers; the success of competing therapies that are or may become available; our ability to attract and retain key scientific or management personnel; our historical reliance on government funding for a significant portion of our operating costs and expenses; government contracting processes and requirements; the exercise of significant influence over our company by our largest individual stockholder; the impact of the novel coronavirus ("COVID-19") pandemic on our business, operations and clinical development;the geopolitical relationship between the United States and the Russian Federation as exclusive placement agentwell as general business, legal, financial and other conditions within the Russian Federation; our ability to obtain and maintain intellectual property protection for our product candidates; our potential vulnerability to cybersecurity breaches; and other factors discussed below and in our other SEC filings, including our Annual Report on Form 10-K for the issuance and saleyear ended December 31, 2021.
Given these uncertainties, you should not place undue reliance on these forward-looking statements. The forward-looking statements included in this quarterly report are made only as of the Registered Direct Shares,date hereof. We do not undertake any obligation to update any such statements or to publicly announce the Company also issuedresults of any revisions to designeesany of Wainwright warrantssuch statements to purchase upreflect future events or developments. This management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our financial statements and the related notes included elsewhere in this filing and with our historical consolidated financial statements and the related notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2021.
OVERVIEW
We are a clinical-stage biopharmaceutical company developing multiple product candidates to 150,000 shares of Common Stock (the "Placement Agent Warrants"). Subjectaddress unmet medical needs. Prior to certain ownership limitations, the Placement Agent Warrants are immediately exercisable at a price of $8.75 per share of Common Stock, subject to customary adjustments as provided under the termsclosing of the Placement Agent Warrants. The Placement Agent WarrantsMerger, we focused exclusively on developing novel approaches to activate the immune system. Our proprietary platform of Toll-like immune receptor activators has applications in mitigation of radiation injury and radiation oncology. We combine our proven scientific expertise and our depth of knowledge about our products’ mechanisms of action into a passion for developing drugs to save lives. Our most advanced product candidate in this field is entolimod, an immune-stimulatory agent, which we are exercisable for five years from the commencement of sales of the shares being offered.developing as a radiation countermeasure and other indications in radiation oncology.
Following the closing of the Merger, Wainwright notifiedas a result of the Companyintegration of its electionCytocom’s business, we are also now developing novel immunotherapies targeting autoimmune, inflammatory, infectious diseases and cancers based on a proprietary, multi receptor platform, or the AIMS platform, designed to causerebalance the Companybody’s immune system and restore homeostasis. These therapies are designed to repurchaseelicit directly within patients a robust and durable response of antigen-specific killer T cells and antibodies, thereby activating essential immune defenses against autoimmune, inflammatory, infectious diseases, and cancers. We believe that our technologies can meaningfully leverage the Placement Agent Warrants,human immune system for prophylactic and therapeutic purposes by eliciting killer T-cell response levels not achieved by other published immunotherapy approaches. Our immunomodulatory technology restores the balance between the cellular (Th1) and the humoral (Th2) immune systems. Immune balance is regulated through T-helper cells that produce cytokines. The Th1 lymphocytes help fight pathogens within cells like cancer and viruses through interferon-gamma and macrophages. The Th2 lymphocytes target external pathogens like cytotoxic parasites, allergens, toxins through the activation of B-cells and antibody production to effect to dendritic cells, which are natural activators of killer T cells, also known as well as another series of warrants issuedcytotoxic T -cells, or CD8+ T cells. Furthermore, the Cytocom technology antagonizes the toll-like receptors to Wainwright in 2020, for an amount of cash equalinhibit proinflammatory cytokines.
Prior to the Black Scholes Value, as determined under the termsclosing of the Placement Agent Warrants. The CompanyMerger, we conducted business in the U.S. directly and in Russia through two subsidiaries, one of which is wholly owned, BioLab 612 (which was dissolved in discussionsNovember 2020), and one of which is owned in collaboration with Wainwright about Wainwright’s purported exercisea financial partner, Panacela. As of the repurchase right.closing of the Merger, we also now conduct business through Old Cytocom and its subsidiaries, ImQuest Life Sciences Inc, ImQuest BioSciences Inc., ImQuest Pharmaceuticals, Inc., and Lubrinovation Inc. In addition, we conduct business with a former subsidiary, Incuron, which will pay us a 2% royalty on future commercialization, licensing, or sale of certain technology we sold to Incuron. We also partner in a joint venture, GPI, with Everon Biosciences, Inc ("Everon").
The Company is developing therapies designed to directly elicit within patients a robust and durable response of antigen-specific killer T-cells and antibodies, thereby activating essential immune defenses against autoimmune, inflammatory, infectious diseases, and cancers. Statera has granted options to employeesclinical or preclinical programs for Crohn’s disease (STAT-201), hematology (Entolimod), pancreatic cancer (STAT-401) and Board members to purchase shares of common stock. The following is a summary of option award activity during the nine months ended September 30, 2021:
Total Stock Options Outstanding | Weighted Average Exercise Price per Share | |||||||
December 31, 2020 | 76,064 | $ | 27.35 | |||||
Granted | — | — | ||||||
Vested | — | — | ||||||
Forfeited, Canceled | (30,596 | ) | 46.77 | |||||
September 30, 2021 | 45,468 | $ | 14.28 |
The following is a summary of outstanding stock options as of September 30, 2021:
As of September 30, 2021 | ||||||||
Stock Options Outstanding | Vested Stock Options | |||||||
Quantity | 45,468 | 45,468 | ||||||
Weighted Average Exercise Price | $ | 14.28 | $ | 14.28 | ||||
Weighted Average Remaining Contractual Term (in Years) | 2.76 | 2.76 | ||||||
Intrinsic Value | $ | 0 | $ | — |
For the nine months ended September 30, 2021 and 2020, the Company granted 0 stock options.
As of September 30, 2021, there was no total compensation cost not yet recognized related to unvested stock options.
As of September 30, 2021, there are 1,387,368 restricted stock units outstanding to employees from the old Cytocom plan.
15. WarrantsCOVID-19 (STAT-205).
In connection with previous salesthe next 12 months, the Company expects to initiate several clinical trials, including a pivotal Phase 3 trial for its lead drug candidate, STAT-201, in pediatric Crohn’s disease, as well as studies of the Company’s common stockSTAT-205 in ‘long haul’ COVID-19, STAT-401 in pancreatic cancer, and the issuance of debt instruments, warrants were issued which presently have exercise prices ranging from $0.01 to $8.75. The warrants expire between oneTLR5 agonist entolimod as a treatment for anemia and seven years from the date of grant, and are subject to the terms applicableneutropenia in each agreement. These terms include for certain warrants the right to receive cash settlement upon the occurrence of a fundamental transaction. The Merger meets the definition of a fundamental transaction per the terms of these warrant agreements. The Company’s management has evaluated all the terms of the warrant agreements and determined that the warrants shall be accounted for as equity instruments as no conditions exist under ASC 480 to account for these as liabilities with the exception of those warrants identified in Note 12.
The following table summarizes the outstanding warrant activity during the nine months ended September 30, 2021:
Number of Warrants | Weighted Average Exercise Price | |||||||
December 31, 2020 | 371,340 | $ | 7.28 | |||||
Granted | 3,022,340 | 4.94 | ||||||
Exercised | (92,883 | ) | 2.03 | |||||
Forfeited, Canceled | (128,938 | ) | 16.63 | |||||
September 30, 2021 | 3,171,859 | $ | 4.82 |
Of the 3,171,859 warrants outstanding as of September 30, 2021, 154,004 were issued in connection with Avenue Capital debt with an exercise price of $0.01, 1,720,083 were issued in connection with the GEM agreement, with an exercise price of $5.01, 902,000 were issued in connection with old Cytocom preferred shares with a weighted average exercise price of $5.23, and 96,263 were issued to Bridgeway Capital under old Cytocom with a weighted average exercise price of $2.94. The remaining 299,519 outstanding warrants were issued to various holders with a weighted average exercise price of $5.62.
16. Significant Alliances and Related Parties
Roswell Park Cancer Institute
The Company has entered into several agreements with Roswell Park Cancer Institute ("RPCI"), including: various sponsored research agreements, an exclusive license agreement and clinical trial agreements for the conduct of the Phase 1 entolimod oncology study and the Phase 1 Curaxin CBL0137 ("Curaxin") intravenous administration study. Additionally, the Company’s Global Head of R&D, Dr. Andrei Gudkov, is the Senior Vice President of Research Technology and Innovation at RPCI. The Company incurred $0 and $0 and $0 and $1,197 in research and development expense to RPCI for the three and nine months ended September 30, 2021 and 2020, respectively.
The Cleveland Clinic
The Company has entered into an exclusive license agreement with The Cleveland Clinic pursuant to which the Company was granted an exclusive license to The Cleveland Clinic’s research base underlying entolimod's therapeutic platform and certain product candidates licensed to Panacela. The Company has the primary responsibility to fund all newly developed patents. However, The Cleveland Clinic retains ownership of those patents covered by the agreement. The Company also agreed to use commercially diligent efforts to bring one or more products to market as soon as practical, consistent with sound and reasonable business practices and judgments. On August 6, 2018, the Company sublicensed the intellectual property underlying entolimod's composition that the Company licenses from The Cleveland Clinic to GPI. There were no milestone or royalty payments paid to The Cleveland Clinic during the nine months ended September 30, 2021 and 2020. The Company incurred 0 research and development expense to The Cleveland Clinic during the nine months ended September 30, 2021 and 2020.
Buffalo BioLabs and Incuron
Our Global Head of Research and Development, Dr. Andrei Gudkov, has business relationships with Buffalo BioLabs, LLC ("BBL"), where Dr. Gudkov was a founder and currently serves as its uncompensated Principal Scientific Advisor. The Company recognized 0 research and development expense to BBL for the three and nine months ended September 30, 2021 and 2020. The Company also recognized 0 sublease and other income from BBL for the three and nine months ended September 30, 2021 and September 30, 2020. Pursuant to our real estate sublease and equipment lease with BBL, the Company had gross accounts receivables of $0 and $6,285, and net accounts receivables of $0 and $0 from BBL at September 30, 2021 and 2020, respectively.
Dr. Gudkov is also an uncompensated member of the board of directors for Incuron. Pursuant to master service and development agreements we have with Incuron, the Company performs various research, business development, clinical advisory, and management services for Incuron. The Company recognized revenue of $0 and $0 and $0 and $49,357 for the three and nine months ended September 30, 2021 and 2020, respectively. In addition, the Company recognized 0 sublease and other income from Incuron for the three and nine months ended September 30, 2021 and 2020, respectively. Pursuant to these agreements, the Company had gross accounts receivables of $0 and $130,000, and net accounts receivables of $0 and $130,000 from Incuron at September 30, 2021 and 2020, respectively.
Genome Protection
GPI incurred $13,440 and $40,320 and $13,440 and $40,320 in consultant expenses with members of the Company's Board of Directors and management team during the three and nine months ended September 30, 2021 and 2020, respectively.
Noreen Griffin
Noreen Griffin served as Chief Executive Officer of Old Cytocom from the date of its incorporation until June 30, 2020, and as President of Old Cytocom from April 1,2020 until September 30,2020. As of September 30, 2021, Ms. Griffin also owned directly 1.0% of Statera’s common stock (1.2% as of June 30, 2020).
In April, 2021 the Company received an advance from Ms. Griffin in the amount of $200,000, which is outstanding as of September 30, 2021 and is classified as "advances from related party" on the Company’s consolidated balance sheet.cancer patients.
Recent Developments
Default under Loan Agreement
On March 25, 2022, we received a letter (the "Default Letter") from Avenue Venture Opportunities Fund, L.P. ("Avenue") regarding alleged events of default with respect to the Loan and Security Agreement, dated as of April 26, 2021, between the Company and Avenue (the "Avenue Facility"). In the Default Letter, Avenue alleges that certain events of default under the Avenue Facility have occurred and continue to exist. Specifically, Avenue alleges that the Company is in violation of certain provisions of the Avenue Facility as a result of the Company’s failure to:
● | timely deliver monthly financial statements for certain periods; |
● | obtain Avenue’s consent to repurchase certain securities from stockholders; |
● | pay principal and interest when due, including on March 1, 2022; and |
● | maintain unrestricted cash and cash equivalents in one or more accounts subject to control agreements in favor of Avenue in amount of at least $5 million. |
In the Default Letter, Avenue purported to exercise its rights to suspend further loans or advances to the Company under the Avenue Facility and to accelerate the amount due under the Avenue Facility, which it asserts to be approximately $11.2 million, inclusive of fees of penalties. Avenue further states in the Default Letter that interest will continue to accrue on the outstanding amounts at the default rate of 5.0%. In furtherance of the allegations set forth in the Default Letter, Avenue foreclosed on approximately $4.8 million of the Company’s cash.
Nasdaq Noncompliance
On March 23, 2022, we received written notice from the Listing Qualifications staff of the Nasdaq Stock Market LLC ("NASDAQ") indicating that because the minimum bid price of the Company’s common stock has closed below $1.00 per share for the last 30 consecutive business days, the Company no longer meets the requirements of Listing Rule 5550(a)(2), which requires the Company to maintain a minimum bid price of $1.00 per share (the "Bid Price Rule"). The NASDAQ Listing Rules provide the Company with a compliance period of 180 calendar days in which to regain compliance with the Bid Price Rule. Accordingly, the Company will regain compliance if at any time during this 180-day period the closing bid price of the Company’s common stock is at least $1.00 for a minimum of ten consecutive business days.
On March 25, 2022, Randy Saluck and Lea Verny, each a member of the board of directors of the Company, resigned from their positions as members of board, effective immediately. At the time of their resignations, Mr. Saluck and Ms. Verny each served on the audit, nominating and corporate governance and compensation committees of the Board. As a result of these resignations, the Company is no longer in compliance with NASDAQ governance rules requiring that its board of directors be comprised of a majority of independent directors, requiring that the audit committee of the board of directors be comprised of at least three independent directors, and requiring that the compensation committee of the board of directors be comprised of at least two independent directors. In accordance with NASDAQ’s rules, the Company is granted a cure period to regain compliance with the rules pertaining to the composition of the board, the audit committee of the board and the compensation committee of the board, respectively, which cure period will expire upon the earlier of the Company’s next annual stockholders’ meeting or March 24, 2023; provided, however, that if the Company’s next annual stockholders’ meeting occurs no later than 180 days following the date of the resignations, then the cure period will expire 180 days following the date of such resignations. The Company intends to appoint new independent directors to fill the vacancies prior to the expiration of such cure period in order to regain compliance with such Nasdaq Listing Rules.
Underwritten Confidentially Marketed Public Offering
As previously disclosed, on March 24, 2022, the Company closed an underwritten confidentially marketed public offering (the "CMPO") in accordance with a final prospectus supplement and accompanying base prospectus relating to the securities offered in the offering filed with the SEC on March 23, 2022. The Company sold 12,555,555 units (the "Units"), at a price to the public of $0.45 per Unit for aggregate gross proceeds of approximately $5.7 million, prior to deducting underwriting discounts, commissions, and other offering expenses. Each Unit consisted of one share of Common Stock, one warrant with a one-year term that expires on March 23, 2023 to purchase one share of Common Stock at an exercise price of $0.45 per share (the "One-Year Warrants"), and one warrant with a five-year term that expires on March 23, 2027 to purchase one share of our Common Stock at an exercise price of $0.5625 per share (the "Five-Year Warrants"). The shares of Common Stock, the One-Year Warrants, and the Five-Year Warrants were immediately separable and were issued separately. In addition, the Company granted the underwriters a 45-day option to purchase up to an additional 1,883,333 shares of Common Stock at the public offering price of $0.43 per share less the underwriting discount per share, solely to cover over-allotments, if any (the "Overallotment Option"). In connection with the offering, the underwriters partially exercised the Overallotment Option to purchase an additional 1,883,333 One-Year Warrants and 1,883,333 Five-Year Warrants at the public offering price of $0.01 per One-Year Warrant and $0.01 per Five-Year Warrant, less the underwriting discount per warrant.
The securities were offered and sold by the Company under a prospectus supplement and accompanying prospectus filed with the SEC pursuant to an effective shelf registration statement on Form S-3, which was filed with the SEC on May 21, 2020 and subsequently declared effective on May 29, 2020 (File No. 333-238578). The net proceeds received by the Company were $4.81 million, all of which proceeds were foreclosed upon by Avenue in connection with Avenue’s assertion that the Company is in default under its obligations to Avenue.
EF Hutton, a division of Benchmark Investments, LLC ("EF Hutton"), acted as underwriter and sole book-running manager in connection with the CMPO. In connection with the CMPO, the Company entered into an underwriting agreement with EF Hutton under which the Company paid EF Hutton an aggregate cash fee equal to 9.0% of the aggregate gross proceeds of the CMPO, a non-accountable expense reimbursement of 1.0% of the aggregate gross proceeds of the CMPO, and $100,000 for the reimbursement of certain of EF Hutton’s accountable expenses.
17.Registered Direct Offering
As previously disclosed, on February 6, 2022, the Company entered into a Securities Purchase Agreement (the "EF Hutton Commitments and Contingencies
On March 19,24, 2021, a putative class action complaint, captioned LitwinBednar v. Cleveland BioLabs, Inc. et al., Case 20211:21--cv-0242,02546, was filed in the DelawareU.S. District Court for the Southern District of ChanceryNew York in connection with the Merger (the “Litwin Action”"Bednar Action"). The LitwinBednar Action names as defendants Cleveland BioLabs and each director on the Cleveland BioLabs board of directors, and the Vice President of Finance of Cleveland BioLabs.directors. The complaint in the LitwinBednar Action alleges that DefendantsCleveland BioLabs and the Cleveland BioLabs board of directors omitted and/or provided misleading information in the registration statement on Form S-4 filed with the SEC in connection with the Merger of which this proxy statement/prospectus forms a part, in breachviolation of their fiduciary duties.duties and the Exchange Act and related SEC regulations. The LitwinBednar Action seeks, among other things, an injunction preventing the closing of the Merger, rescission of the mergerMerger if it is consummated, the dissemination by Cleveland BioLabsthe Company of a revised registration statement on Form S-4 and an award of plaintiffs’ attorneys’ and experts’ fees. On October 13, 2021, Plaintiff in the Litwin Action hasBednar filed a motion for expedited proceedings, which Defendants have opposed. Plaintiff’s motion for expedited proceedings was granted in part and denied in part by notice of dismissal. On October 20, 2021, the court onSouthern District entered an order dismissing the case. On April 30, 2021.December 23, 2021, Defendants have alsoPlaintiff Bednar filed a motion to dismiss the Litwin Action. On July 7, 2021, Plaintiff filed a stipulation and proposed order voluntarily dismissing the case but reserving the right to seek attorneys’ fees. On July 8, 2021, new action in the Delaware Court of Chancery, enteredasserting a cause of action for an order dismissingequitable assessment of attorneys’ fees and expenses incurred in connection with the case but reserving jurisdictionfirst lawsuit. The new Delaware action names the same defendants as the first Bednar Action. The Defendants in the new Delaware action have filed an answer to determine whether to award Plaintiff’s counsel any fees, should Plaintiff’s counsel file a motion for such.Delaware complaint.
AsOn August 16, 2022, certain former employees of the balance sheet date managementCompany and certain third party vendors of the Company (collectively, "Petitioning Creditors") filed an involuntary petition in the United States Bankruptcy Court for the District of Colorado (No.22-13051-JGR) against the Company seeking relief under Chapter 11 of the United States Bankruptcy Code. The Company believes the involuntary petition is improper and wrongfully filed and is seeking dismissal of the petition. The outcome of this lawsuit is uncertain. The Company believes that it is probable that a settlement will be reached. Management estimates the likely settlement amount to be $275,000, therefore we have accrued this amount in accounts payable and accrued expenses.claims asserted are without merit.
18.12. Subsequent Events
Management evaluated all events or transactions that occurred after September 30, 2021March 31, 2022 through the date thethese condenses consolidated financial statements were filed.
On November 9, 2021,April 18, 2022, atAvenue and the Company entered into a Forbearance and Second Amendment to Loan Documents, (“Forbearance Agreement”) regarding the Loan Agreement, whereby the parties agreed to the following terms: On March 25, 2022, Avenue exercised certain of its remedies under the Loan Agreement with respect to the Existing Defaults (as defined below), by sweeping cash from the Company’s annual meetingaccounts, totaling Four Million Eight Hundred Twenty-Seven Thousand Two Hundred Ninety Dollars ($4,827,290), which Avenue applied to the then-outstanding obligations under the Loan Agreement. The principal balance outstanding under the Loan Agreement, before giving effect to the Forbearance Agreement, was Five Million Seven Hundred Eleven Thousand Forty-Nine Dollars ($5,711,049), plus accrued and unpaid interest, fees (including a prepayment fee) and expenses (including but not limited to legal fees and costs). Subject to the terms of stockholders, amongthe Forbearance Agreement, Avenue agreed that, from the effective date of the Agreement until May 31, 2022 (the “Forbearance Period”), it would refrain and forbear from exercising certain remedies arising out of the Existing Defaults or any other routine matters,present or future Event of Default under the Loan Agreement or related supplement. Under the Forbearance Agreement, Avenue shall not seize, sweep, or by any means take control of, directly or indirectly, any funds from any of the Company’s stockholders votedbank accounts; and (ii) during the Forbearance Period, the Loans may be prepaid in whole or in part at any time, subject to amend the Planrepayment and prepayment terms of the Loan Documents
On April 19, 2022, the Company received a letter from the Listing Qualifications Department of The Nasdaq Stock Market (“NASDAQ”) stating that, because the Company has not yet filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “Form 10-K”) with the SEC, the Company is not in compliance with NASDAQ Listing Rule 5250(c)(1) for continued listing. Pursuant to increase the numberNASDAQ letter, the Company was required to submit a plan to regain compliance by June 20, 2022. If the plan is accepted by NASDAQ, the Company must implement the plan to regain compliance by the date that is 180 days after the due date of the Form 10-K, or October 17, 2022. The Company submitted the plan to NASDAQ to regain compliance on May 27, 2022 and is currently awaiting NASDAQ acceptance. Subsequently, on May 18, 2022, the Company received an additional letter from NASDAQ stating that because the Company remains delinquent in filing its Form 10-K, and subsequently has failed to timely file its Quarterly Report on Form 10-Q for the period ended March 31, 2022 (the “Form 10-Q”), the Company does not comply with NASDAQ Listing Rules for continued listing. NASDAQ reiterated that the Company had until June 20, 2022 to submit a plan to regain compliance with respect to the delinquent Form 10-K and Form 10-Q. Please note that any Staff exception to allow the Company to regain compliance, if granted, will be limited to a maximum of 180 calendar days from the due date of the Form 10-K, or October 17, 2022. As noted above, the Company submitted the plan to NASDAQ to regain compliance on May 27, 2022 and is currently awaiting NASDAQ acceptance.
On April 21, 2022, the Company accepted the resignation of Cozette M. McAvoy, Chief Legal Officer effective as of April 30, 2022.
On April 30, 2022, due to corporate restructuring, approximately 14 employees were terminated, including our Chief Operating Officer Taunia Markvicka and Chief Medical Officer Clifford Selsky.
On May 27, 2022, Peter Aronstam resigned as Chief Financial Officer of the Company, effective as of May 27, 2022. The Board of Directors of the Company has commenced a search for a new Chief Financial Officer. In the meantime, beginning on May 27, 2022, Christopher Zosh was appointed to act as interim principal financial officer and interim principal accounting officer.
On June 13, 2022, the Board of Directors of the Company approved the engagement of BF Borgers CPA, PC ("BF Borgers") as the Company’s independent registered public accounting firm effective as of June 13, 2022. During the Company’s two most recent fiscal years ended December 31, 2020 and 2021 and from January 1, 2022 through June 13, 2022, neither the Company nor anyone on its behalf consulted BF Borgers regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, and no written report or oral advice was provided to the Company that BF Borgers concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was the subject of a disagreement or reportable event as defined in Regulation S-K, Item 304(a)(1)(iv) and Item 304(a)(1)(v).
On June 17, 2022, the Board of Directors of the Company ratified the appointments of Dr. Uday Saxena and Dr. Blake Hawley as directors of the Company, to fill the vacancies created by Mr.Saluck and Ms. Verny resignations. Dr. Saxena and Dr. Hawley will serve in such position until the earlier of their deaths, resignations or removal from office. Dr. Saxena and Dr. Hawley will serve as members of the Board’s audit committee, compensation committee, and nominating and corporate governance committee. The Board has affirmatively determined that Dr. Saxena and Dr. Hawley are “independent” within the meaning of the listing standards of NASDAQ. In addition, Dr. Saxena and Dr. Hawley are independent under NASDAQ'S heightened independence standards applicable to audit committee and compensation committee members.
On August 16, 2022, certain former employees of the Company and certain third-party vendors of the Company (collectively, "Petitioning Creditors") filed an involuntary petition in the United States Bankruptcy Court for the District of Colorado (No.22-13051-JGR) against the Company seeking relief under Chapter 11 of the United States Bankruptcy Code. The Company believes the involuntary petition is improper and wrongfully filed and is seeking dismissal of the petition.
On August 22, 2022, the Company issued 1.5 million shares of Common Stock authorizedrestricted common stock pursuant to a newly executed contract to provide investors relations services to the Company.
On September 1, 2022, the Company was notified by the Listing Qualifications Staff (the "Staff") of NASDAQ that the Company’s common stock would be subject to delisting due to the Company’s non-compliance with the filing requirement set forth in Nasdaq Listing Rule 5250(c)(1) unless the Company timely requested a hearing before the Nasdaq Hearings Panel (the "Panel"). The Company had not yet filed the Form 10-K for the fiscal year ended December 31, 2021 or the Forms 10-Q for the quarterly periods ended March 31, 2022 and June 30, 2022 (collectively, "Form 10-Qs") with the SEC. The Company intends to timely request a hearing before the Panel, which request will stay any further action by NASDAQ at least pending the issuance of a decision by the Panel and the expiration of any extension the Panel may grant to the Company following the hearing.
On September 2, 2022, the Company entered a Binding Letter of Intent ("LOI") with Lay Sciences, Inc. ("Lay"), pursuant to which the Company will manufacture, and test IgY polyclonal antibody products created by Lay. The LOI provides for an exclusivity period of ninety (90) days (the "Exclusivity Period") for negotiating and finalizing a definitive agreement (the "Definitive Agreement"). During the Exclusivity Period, which begins from the date of the LOI, Lay will not engage in activities with any third party in relation to the acquisition of the Company. Pursuant to the LOI, (i) Lay shall complete technology transfer to the Company; and (ii) the Company shall (A) assist Lay in testing its current and future products for activity and purity, In consideration of the manufacturing right granted to the Company by Lay, the Company shall (i) issue 500,000 shares of preferred stock of the Company to Lay and (ii) pay up to $500,000 to Lay within 30 days of the execution of the LOI. As of the date of this filing the Company hasn't issued any shares of preferred stock or paid any cash consideration.
On September 2, 2022, the Board of Directors of the Company appointed John Kallassy as a director of the Company, effective September 2, 2022, to fill the vacancy created by 3,000,000 shares, remove the limitresignation of the chair of the audit committee. Mr. Kallassy will serve in such position until his successor is elected and qualified or until his earlier death, resignation, or removal. Mr. Kallassy will serve as a member of the Board’s audit committee, compensation committee, and nominating and corporate governance committee. The Board has affirmatively determined that Mr. Kallassy is "independent" within the meaning of the listing standards of NASDAQ. In addition, Mr. Kallassy is independent under NASDAQ heightened independence standards applicable to audit committee and compensation committee members. The Board also appointed Mr. Kallassy as an "audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K and Chairperson of the Audit Committee of the Board.
On October 6, 2022, the Company had a hearing before the Panel, the Company presented its plan to evidence full compliance with NASDAQ'S filing requirement and all other applicable requirements for continued listing on NASDAQ and request an extension of time to do so. The Company is taking definitive steps to evidence compliance with the maximum number of shares covered by an awardNASDAQ listing criteria as soon as possible; however, there can be no assurance that the Panel will grant the Company’s request for continued listing or that the Company will satisfy the NASDAQ listing criteria within any extension period that may be issued in any calendar yearprovided to any single recipient andthe Company by the Panel. The Company plans to make certain modifications to reflectupdate the Company’s name change.market promptly following receipt of the Panel’s determination after the hearing.
On November 9, 2021, and pursuant to a release dated November 8, 2021,October 11, 2022, the Company remitted cash paymentwas notified by the Staff of $2.1 millionNASDAQ that the Company’s common stock would be subject to a purchaserdelisting due to the Company’s non-compliance with the minimum Stockholders' Equity requirement set forth in Nasdaq Listing Rule 5550(b)(1) and non-compliance with Listing Rule 5250(e)(2)(D) regarding notifying Nasdaq of Old Cytocomthe Company's intention to issue additional shares. Each of these matters serve as an additional and separate basis for delisting the Company’s securities from NASDAQ. The Panel will consider these matters in their decision regarding the Company’s continued listing on NASDAQ. The Company intends to satisfy obligations pursuantpresent its views with respect to a preferred stock subscription agreement.these additional deficiencies to the Panel in writing no later than October 18, 2022.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This management’s discussion and analysis of financial condition and results of operations and other portions of this quarterly report on Form 10-Q contain forward-looking statements that involve risks and uncertainties. All statements other than statements of current or historical fact contained in this quarterly report, including statements regarding our future financial position, business strategy, new products, budgets, liquidity, cash flows, projected costs, regulatory approvals, or the impact of any laws or regulations applicable to us and plans and objectives of management for future operations are forward-looking statements. The words "anticipate," "believe," "continue," "should," "estimate," "expect," "intend," "may," "plan," "project," "will," and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements on our current expectations about future events. While we believe these expectations are reasonable, such forward-looking statements are inherently subject to risks and uncertainties, many of which are beyond our control. Our actual future results may differ materially from those discussed here for various reasons. We discuss many of these risks in Item 1A under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020.2021. Factors that may cause such differences include, but are not limited to, the substantial doubt expressed about our ability to continue as a going concern, the outcome of any legal proceedings that have been or may be instituted against the Company related to the merger agreement or the Merger; unexpected costs, charges or expenses resulting from the Merger; our need for additional financing to meet our business objectives; our history of operating losses; our ability to successfully develop, obtain regulatory approval for, and commercialize our products in a timely manner; our plans to research, develop and commercialize our product candidates; our ability to attract collaborators with development, regulatory and commercialization expertise; our plans and expectations with respect to future clinical trials and commercial scale-up activities; our reliance on third-party manufacturers of our product candidates; the size and growth potential of the markets for our product candidates, and our ability to serve those markets; the rate and degree of market acceptance of our product candidates; regulatory requirements and developments in the United States, the European Union and foreign countries; the performance of our third-party suppliers and manufacturers; the success of competing therapies that are or may become available; our ability to attract and retain key scientific or management personnel; our historical reliance on government funding for a significant portion of our operating costs and expenses; government contracting processes and requirements; the exercise of significant influence over our company by our largest individual stockholder; the impact of the novel coronavirus ("COVID-19") pandemic on our business, operations and clinical development; the geopolitical relationship between the United States and the Russian Federation as well as general business, legal, financial and other conditions within the Russian Federation; our ability to obtain and maintain intellectual property protection for our product candidates; our potential vulnerability to cybersecurity breaches; and other factors discussed below and in our other SEC filings, including our Annual Report on Form 10-K for the year ended December 31, 2020.2021.
Given these uncertainties, you should not place undue reliance on these forward-looking statements. The forward-looking statements included in this quarterly report are made only as of the date hereof. We do not undertake any obligation to update any such statements or to publicly announce the results of any revisions to any of such statements to reflect future events or developments. This management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our financial statements and the related notes included elsewhere in this filing and with our historical consolidated financial statements and the related notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2020.2021.
OVERVIEW
We are a clinical-stage biopharmaceutical company developing multiple product candidates to address unmet medical needs. Prior to the closing of the Merger, we focused exclusively on developing novel approaches to activate the immune system. Our proprietary platform of Toll-like immune receptor activators has applications in mitigation of radiation injury and radiation oncology. We combine our proven scientific expertise and our depth of knowledge about our products’ mechanisms of action into a passion for developing drugs to save lives. Our most advanced product candidate in this field is entolimod, an immune-stimulatory agent, which we are developing as a radiation countermeasure and other indications in radiation oncology.
Following the closing of the Merger, as a result of the integration of Cytocom’s business, we are also now developing novel immunotherapies targeting autoimmune, inflammatory, infectious diseases and cancers based on a proprietary, multi receptor platform, or the AIMS platform, designed to rebalance the body’s immune system and restore homeostasis. These therapies are designed to elicit directly within patients a robust and durable response of antigen-specific killer T cells and antibodies, thereby activating essential immune defenses against autoimmune, inflammatory, infectious diseases, and cancers. We believe that our technologies can meaningfully leverage the human immune system for prophylactic and therapeutic purposes by eliciting killer T-cell response levels not achieved by other published immunotherapy approaches. Our immunomodulatory technology restores the balance between the cellular (Th1) and the humoral (Th2) immune systems. Immune balance is regulated through T-helper cells that produce cytokines. The Th1 lymphocytes help fight pathogens within cells like cancer and viruses through interferon-gamma and macrophages. The Th2 lymphocytes target external pathogens like cytotoxic parasites, allergens, toxins through the activation of B-cells and antibody production to effect to dendritic cells, which are natural activators of killer T cells, also known as cytotoxic T -cells, or CD8+ T cells. Furthermore, the Cytocom technology antagonizes the toll-like receptors to inhibit proinflammatory cytokines.
Prior to the closing of the Merger, we conducted business in the U.S. directly and in Russia through two subsidiaries, one of which is wholly owned, BioLab 612 (which was dissolved in November 2020), and one of which is owned in collaboration with a financial partner, Panacela. As of the closing of the Merger, we also now conduct business through Old Cytocom and its subsidiaries, ImQuest Life Sciences Inc, ImQuest BioSciences Inc., ImQuest Pharmaceuticals, Inc., and Lubrinovation Inc. In addition, we conduct business with a former subsidiary, Incuron, which will pay us a 2% royalty on future commercialization, licensing, or sale of certain technology we sold to Incuron. We also partner in a joint venture, GPI, with Everon Biosciences, Inc ("Everon").
The Company is developing therapies designed to directly elicit within patients a robust and durable response of antigen-specific killer T-cells and antibodies, thereby activating essential immune defenses against autoimmune, inflammatory, infectious diseases, and cancers. Statera has clinical or preclinical programs for Crohn’s disease (STAT-201), hematology (Entolimod), pancreatic cancer (STAT-401) and COVID-19 (STAT-205).
In the next 12 months, the Company expects to initiate several clinical trials, including a pivotal Phase 3 trial for its lead drug candidate, STAT-201, in pediatric Crohn’s disease, as well as studies of STAT-205 in ‘long haul’ COVID-19, STAT-401 in pancreatic cancer, and the TLR5 agonist entolimod as a treatment for anemia and neutropenia in cancer patients.
Recent Developments
La Jolla Institute for ImmunologyDefault under Loan Agreement
On August 1,March 25, 2022, we received a letter (the "Default Letter") from Avenue Venture Opportunities Fund, L.P. ("Avenue") regarding alleged events of default with respect to the Loan and Security Agreement, dated as of April 26, 2021, between the Company and Avenue (the "Avenue Facility"). In the Default Letter, Avenue alleges that certain events of default under the Avenue Facility have occurred and continue to exist. Specifically, Avenue alleges that the Company is in violation of certain provisions of the Avenue Facility as a result of the Company’s failure to:
● | timely deliver monthly financial statements for certain periods; |
● | obtain Avenue’s consent to repurchase certain securities from stockholders; |
● | pay principal and interest when due, including on March 1, 2022; and |
● | maintain unrestricted cash and cash equivalents in one or more accounts subject to control agreements in favor of Avenue in amount of at least $5 million. |
In the Default Letter, Avenue purported to exercise its rights to suspend further loans or advances to the Company under the Avenue Facility and to accelerate the amount due under the Avenue Facility, which it asserts to be approximately $11.2 million, inclusive of fees of penalties. Avenue further states in the Default Letter that interest will continue to accrue on the outstanding amounts at the default rate of 5.0%. In furtherance of the allegations set forth in the Default Letter, Avenue foreclosed on approximately $4.8 million of the Company’s cash.
Nasdaq Noncompliance
On March 23, 2022, we received written notice from the Listing Qualifications staff of the Nasdaq Stock Market LLC ("NASDAQ") indicating that because the minimum bid price of the Company’s common stock has closed below $1.00 per share for the last 30 consecutive business days, the Company no longer meets the requirements of Listing Rule 5550(a)(2), which requires the Company to maintain a minimum bid price of $1.00 per share (the "Bid Price Rule"). The NASDAQ Listing Rules provide the Company with a compliance period of 180 calendar days in which to regain compliance with the Bid Price Rule. Accordingly, the Company will regain compliance if at any time during this 180-day period the closing bid price of the Company’s common stock is at least $1.00 for a minimum of ten consecutive business days.
On March 25, 2022, Randy Saluck and Lea Verny, each a member of the board of directors of the Company, resigned from their positions as members of board, effective immediately. At the time of their resignations, Mr. Saluck and Ms. Verny each served on the audit, nominating and corporate governance and compensation committees of the Board. As a result of these resignations, the Company is no longer in compliance with NASDAQ governance rules requiring that its board of directors be comprised of a majority of independent directors, requiring that the audit committee of the board of directors be comprised of at least three independent directors, and requiring that the compensation committee of the board of directors be comprised of at least two independent directors. In accordance with NASDAQ’s rules, the Company is granted a cure period to regain compliance with the rules pertaining to the composition of the board, the audit committee of the board and the compensation committee of the board, respectively, which cure period will expire upon the earlier of the Company’s next annual stockholders’ meeting or March 24, 2023; provided, however, that if the Company’s next annual stockholders’ meeting occurs no later than 180 days following the date of the resignations, then the cure period will expire 180 days following the date of such resignations. The Company intends to appoint new independent directors to fill the vacancies prior to the expiration of such cure period in order to regain compliance with such Nasdaq Listing Rules.
Underwritten Confidentially Marketed Public Offering
As previously disclosed, on March 24, 2022, the Company closed an underwritten confidentially marketed public offering (the "CMPO") in accordance with a final prospectus supplement and accompanying base prospectus relating to the securities offered in the offering filed with the SEC on March 23, 2022. The Company sold 12,555,555 units (the "Units"), at a price to the public of $0.45 per Unit for aggregate gross proceeds of approximately $5.7 million, prior to deducting underwriting discounts, commissions, and other offering expenses. Each Unit consisted of one share of Common Stock, one warrant with a one-year term that expires on March 23, 2023 to purchase one share of Common Stock at an exercise price of $0.45 per share (the "One-Year Warrants"), and one warrant with a five-year term that expires on March 23, 2027 to purchase one share of our Common Stock at an exercise price of $0.5625 per share (the "Five-Year Warrants"). The shares of Common Stock, the One-Year Warrants, and the Five-Year Warrants were immediately separable and were issued separately. In addition, the Company granted the underwriters a 45-day option to purchase up to an additional 1,883,333 shares of Common Stock at the public offering price of $0.43 per share less the underwriting discount per share, solely to cover over-allotments, if any (the "Overallotment Option"). In connection with the offering, the underwriters partially exercised the Overallotment Option to purchase an additional 1,883,333 One-Year Warrants and 1,883,333 Five-Year Warrants at the public offering price of $0.01 per One-Year Warrant and $0.01 per Five-Year Warrant, less the underwriting discount per warrant.
The securities were offered and sold by the Company under a prospectus supplement and accompanying prospectus filed with the SEC pursuant to an effective shelf registration statement on Form S-3, which was filed with the SEC on May 21, 2020 and subsequently declared effective on May 29, 2020 (File No. 333-238578). The net proceeds received by the Company were $4.81 million, all of which proceeds were foreclosed upon by Avenue in connection with Avenue’s assertion that the Company is in default under its obligations to Avenue.
EF Hutton, a division of Benchmark Investments, LLC ("EF Hutton"), acted as underwriter and sole book-running manager in connection with the CMPO. In connection with the CMPO, the Company entered into an underwriting agreement with EF Hutton under which the Company paid EF Hutton an aggregate cash fee equal to 9.0% of the aggregate gross proceeds of the CMPO, a non-accountable expense reimbursement of 1.0% of the aggregate gross proceeds of the CMPO, and $100,000 for the reimbursement of certain of EF Hutton’s accountable expenses.
Registered Direct Offering
As previously disclosed, on February 6, 2022, the Company entered into a collaboration agreementSecurities Purchase Agreement (the "EF HuttonPurchase Agreement") with a certain institutional investor for the sale by the Company of 2,000,000 shares (the "RegisteredDirect Shares") of the Company’s common stock together with warrants to fund researchpurchase an aggregate of 2,000,000 shares of Common Stock (the "Registered Direct Warrants"), at a combined price of $1.00 per Registered Direct Share and laboratory facilitiesaccompanying warrant, in a registered direct offering. The closing of the sale of the securities under the Purchase Agreement occurred on February 9, 2022. The gross proceeds to the Company from the transaction were approximately $2 million, before deducting the placement agent’s fees and other estimated offering expenses, and excluding proceeds to the Company, if any, from the future exercise of the Registered Direct Warrants. The Shares were offered and sold by the Company under a prospectus supplement and accompanying prospectus filed with the SEC pursuant to an effective shelf registration statement on Form S-3, which was filed with the SEC on May 21, 2020 and subsequently declared effective on May 29, 2020 (File No. 333-238578). The net proceeds received by the Company were $1.67 million.
Each Registered Direct Warrant sold in the offering is exercisable for one share of Common Stock at an initial exercise price of $1.00 per share (the "Initial Exercise Price"). The Registered Direct Warrants may be exercised at any time until February 9, 2027. The Warrants are exercisable for cash, but they may be exercised on a cashless exercise basis if, at the La Jolla Institute for Immunology (LJI), a not-for-profit academic institution and a world leader in immunology research. The agreementtime of exercise, there is directed to research that will support the development of potential new immune-modulating agents targeting toll-like receptorsno effective registration statement registering, or no current prospectus available for, the treatmentissuance or resale of cancer, infectious, autoimmunethe shares of Common Stock issuable upon exercise of the Registered Direct Warrants. The exercise of the Registered Direct Warrants is subject to a beneficial ownership limitation, which will prohibit the exercise thereof, if upon such exercise the holder of the Registered Direct Warrants, its affiliates and chronic inflammatory diseases. The research will harness Statera’s proprietary drug discovery and development platform technology.any other persons or entities acting as a group together with the holder or any of the holder’s affiliates would hold 4.99% (or, upon election of a purchaser prior to the issuance of any shares, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of the Registered Direct Warrant held by the applicable holder, provided that the holders may increase or decrease the beneficial ownership limitation (up to a maximum of 9.99%) upon 60 days advance notice to the Company, which 60 day period cannot be waived.
EF Hutton acted as placement agent on a “reasonable best efforts” basis, in connection with the offering of the Registered Direct Shares and the Registered Direct Warrants. In connection with such offering, the Company entered into a Placement Agency Agreement, dated as of February 6, 2022, by and between the Company and EF Hutton pursuant to which EF Hutton received aggregate cash fee of 9.0% of the aggregate gross proceeds of the offering, a non-accountable expense reimbursement of 1.0% of the aggregate gross proceeds in the offering, and $75,000 for the reimbursement of certain of EF Hutton’s accountable expenses.
Forbearance Agreement
On March 25, 2022, the Company received the Letter from Avenue regarding alleged events of default with respect to the Loan Agreement. In the Letter, Avenue alleges that certain events of default under the Loan Agreement have occurred and continue to exist. Specifically, Avenue alleged that the Company was in violation of certain provisions of the Loan Agreement as a result of which, Avenue purported to exercise its rights to suspend further loans or advances to the Company under the Loan Agreement and to accelerate the amount due under the Loan Agreement, which it asserts to be approximately $11.2 million, inclusive of fees of penalties. Avenue further states in the letter that interest will continue to accrue on the outstanding amounts at the default rate of 5.0%. In furtherance of the allegations set forth in the Letter, Avenue foreclosed on approximately $4.8 million of the Company’s cash.
In response to the Letter, on April 18, 2022, Avenue and the Company entered into a Forbearance Agreement regarding the Loan Agreement. Pursuant to the Forbearance Agreement, the parties agreed that from the effective date of the Loan Agreement until May 31, 2022 (the “Forbearance Period”), it will refrain and forbear from exercising certain remedies arising out of the events of default or any other present or future event of default under the Loan Agreement or supplement. Under the Forbearance Agreement, Avenue shall not seize, sweep, or by any means take control of, directly or indirectly, any funds from any of the Company’s bank accounts; and (ii) during the Forbearance Period, the Loans may be prepaid in whole or in part at any time, subject to the repayment and prepayment terms of the Loan Agreement. In addition to the terms of the research agreement,Forbearance Agreement, certain terms of the La Jolla Institute may select upLoan Agreement were amended, including changing the Agreement Effective Date to four laboratoriesApril 18, 2022, and revisions to participate in research. Statera will provide research funding to these laboratories for projectscertain definitions of mutual interest or for research projects commissioned by Statera that explore immune modulation and the action of therapeutics on target toll-like receptors. Toll-like receptors are central to an immune response, connecting innate and adaptive immune compartments, and thus key to fighting disease as well as restoring immune homeostasis. In addition to the research funding for the selected projects, Statera will pay to the La Jolla Institute $350,000 per year for each selected laboratory, for a total annual discretionary funding contribution of up to $1.4 million, in addition to the research funding itself. Statera will also provide researchers at the La Jolla Institute with samples and materials. In return, Statera will have a first option to negotiate a license to new discoveries by the La Jolla Institute that arise from the research projects of common interest funded by Statera, however Statera will own any new discoveries that arise from research projects of interest to Statera that have been commissioned to the La Jolla Institute as “work for hire.”
Change in the Company’s Certifying AccountantAgreement terminology.
On September 28, 2021,March 25, 2022, Avenue exercised certain of its remedies under the Audit CommitteeLoan Agreement with respect to the events of default, by sweeping cash from Company’s accounts, totaling $4,827,290.22, which Avenue applied to the Boardthen-outstanding Obligations under the Loan Agreement. The principal balance outstanding under the Loan Agreement, before giving effect to the Forbearance Agreement, is $5,711,049.14, plus accrued and unpaid interest, fees and expenses.
On June 13, 2022, the board of Directorsdirectors of the Company approved the engagement of Turner, Stone & Company, LLP (“Turner Stone”BF Borgers CPA, PC ("BF Borgers") as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2021, subject to completioneffective as of Turner Stone’s standard client acceptance process and execution of an engagement letter, and dismissed Meaden & Moore (“M&M”) asJune 13, 2022. During the Company’s independent registered public accounting firm.
The report of M&M on the Company’s consolidated financial statements for thetwo most recent fiscal years ended December 31, 2020 did not contain an adverse opinion or a disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles. M&M's report on the Company's consolidated financial statements for the fiscal year ended December 31, 2019 did not contain an adverse opinion or a disclaimer of opinion but contained a modified opinion, as it included an explanatory paragraph describing the net capital deficiency that raised substantial doubt about its ability to continue as a going concern.
During the years ended December 31, 20202021 and 2019 and the subsequent interim periodfrom January 1, 2022 through September 28, 2021: (i) the Company had no disagreements (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) with M&M on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to M&M’s satisfaction, would have caused M&M to make reference thereto in its reports on the Company’s financial statements for such years, and (ii) there were no “reportable events,” as that term is defined in Item 304(a)(1)(v) of Regulation S-K, other than with respect to the Company’s previously reported determination that as of December 31, 2019, the Company’s internal control over financial reporting was not effective.
During the years ended December 31, 2020 and 2019 and the subsequent interim period through September 28, 2021,June 13, 2022, neither the Company nor anyone acting on the Company’sits behalf consulted Turner Stone regarding:BF Borgers regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, and neither ano written report noror oral advice was provided to the Company that Turner StoneBF Borgers concluded was an important factor considered by the Company in reaching a decision as to anythe accounting, auditing or financial reporting issue,issue; or (ii) any matter that was either the subject of a disagreement or reportable event as defined in Regulation S-K, Item 304(a)(1)(iv) of Regulation S-K and the related instructions or a “reportable event” described in Item 304(a)(1)(v) of Regulation S-K..
COVID-19 Pandemic
The COVID-19 pandemic has continued to affect most countries around the world, including the United States, where a national emergency was declared in 2020. The continued spread of COVID-19 in the United States and worldwide, as well as the government-ordered shutdowns and shelter-in-place orders imposed to counter the pandemic, led to severe disruptions to the global economy, especially foreconomy. We generally experienced few effects from the year ended December 31, 2020. In this connection, on March 20, 2020, the Governor of New York announced that 100% of the workforce of all businesses, excluding essential services, must stay home. During the effectiveness of this order, we implemented a work-from-home policy for all employees based in our Buffalo, New York, which was then our headquarters office. Under new applicable New York state orders, our offices may be occupied at their normal capacity if other safety precautions are taken; however, very few of our employees have returned to the office. None of our other offices, including our new headquarters in Ft. Collins, Colorado, has been required to shut down due to COVID-19.COVID-19 pandemic during 2021 and 2022.
We are continuing to monitor the situation and will take such further action as may be required by federal, state or local authorities, or that we determine are in the best interests of our employees. The extent to which COVID-19 may impact our business, research and development efforts, preclinical studies, clinical trials, prospects for regulatory approval of our drug candidates, and operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the effectiveness of vaccination efforts, ultimate geographic spread of the disease, the duration of the outbreak, the impact of any new variants of the virus, the extent and duration of travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. Furthermore, if we or any of the third parties with whom we engage were to experience renewed shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively impacted, which could have a material adverse effect on our business, financial condition and results of operations.
Business After the MergerContinuing Capital Needs
We are a clinical-stage company and we have generated insignificant revenue from product sales to date. Our ability to generate revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates. Since inception, we have incurred significant operating losses. For the three months ended September 30,March 31, 2022 and 2021, and 2020, we incurred net losses of $12.7$7.8 million and $5.7$5.3 million, respectively. As of September 30, 2021,March 31, 2022, we had an accumulated deficit of $52.3$137.2 million.
We expect to incur significant expenses and operating losses for the foreseeable future as we advance our lead candidates through clinical trials, progress our pipeline candidates from discovery through pre-clinical development, and seek regulatory approval and pursue commercialization of our candidates. In addition, if we obtain regulatory approval for any of our candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales, and distribution. In addition, we may incur expenses in connection with the in-license or acquisition of additional technology to augment or enable development of future candidates. Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that Old Cytocom, our predecessor for accounting purposes, did not incur as a private company prior to the Merger.
As a result, we will need additional financing to support our continuing operations. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity and debt financings or other sources, which may include collaborations with third parties. We do not expect that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements beyond the firstsecond quarter of 2022.
Adequate additional financing may not be available to us on acceptable terms, or at all. Our inability to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategy. We will need to generate significant revenue to achieve profitability, and we may never do so. For these reasons, our financial statements contain a paragraph in substantial doubt is expressed about our ability to continue as a going concern within one year of the date of financial statements.
Business After the Merger
We are a clinical-stage company and we have generated insignificant revenue from product sales to date. Our ability to generate revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates. Since inception, we have incurred significant operating losses. For the three months ended March 31, 2022 and 2021, we incurred net losses of $7.8 million and $5.3 million, respectively. As of March 31, 2022, we had an accumulated deficit of $137.2 million.
We expect to incur significant expenses and operating losses for the foreseeable future as we advance our lead candidates through clinical trials, progress our pipeline candidates from discovery through pre-clinical development, and seek regulatory approval and pursue commercialization of our candidates. In addition, if we obtain regulatory approval for any of our candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. In addition, we may incur expenses in connection with the in-license or acquisition of additional technology to augment or enable development of future candidates. Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that Old Cytocom, our predecessor for accounting purposes, did not incur as a private company prior to the Merger.
As a result, we will need additional financing to support our continuing operations. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity and debt financings or other sources, which may include collaborations with third parties. We do not expect that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements beyond the second quarter of 2022.
Adequate additional financing may not be available to us on acceptable terms, or at all. Our inability to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategy. We will need to generate significant revenue to achieve profitability, and we may never do so.
Financial Overview
Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect our reported amounts of assets, liabilities, revenues, and expenses.
On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses, income taxes, stock-based compensation, investments, and in-process research and development. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates.
Our revenue, operating results, and profitability have varied, and we expect that they will continue to vary on a quarterly basis, primarily due to the timing of work completed under new and existing grants, development contracts, and collaborative relationships. Additionally, we expect that as a result of the Merger, our business, financial condition, results of operations and cash flows will be materially different in future periods than in the past. Accordingly, our past results are not likely to be indicative of our future performance.
Revenue
The Company generates revenue from (i) its Clinical Research Organization services (“("CRO services”services") provided by its ImQuest subsidiary, and (ii) grant awards from the National Institutes of Health for multiple studies in research. We have no products approved for sale. Other than the sources of revenue described above, we do not expect to receive any revenue from any candidates that we develop until we obtain regulatory approval and commercializes such products, or until we potentially enter into collaborative agreements with third parties for the development and commercialization of such candidates.
At the inception of a contract for CRO services, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
There is no explicit guidance within ASC 606 to account for grant revenue, and since the Company is a for-profit entity, it must look to other Financial Accounting Standards Board guidance in order to account for funds received from grants. The Company has determined it is appropriate to apply ASC 450 - Contingencies.
Under ASC 450, the recognition of a gain contingency occurs at the earlier of when the gain has been realized or the gain is realizable. The gain is realized when the Company performs the research under the grant and submits the expense reimbursements to the NIH and is approved under the terms of the grant the funds are then received. The Company determined ASC 450 is appropriate because the realization of the gain is contingent on whether the Company meets the performance requirement. Once the Company performs the research, submits the financial report for approval, and the cash disbursement occurs, the contingency is thus resolved, and the recognition of grant revenue is realized.
Research and Development Expenses
Research and development ("R&D") costs are expensed as incurred. Advance payments are deferred and expensed as performance occurs. R&D costs include the cost of our personnel (which consists of salaries, benefits and incentive and stock-based compensation), out-of-pocket pre-clinical and clinical trial costs usually associated with contract research organizations, drug product manufacturing and formulation, and a pro-rata share of facilities expense and other overhead items.
Advertising and Marketing Costs
Advertising costs are expensed as incurred and included in operating expenses on the statements of operations. The Company incurred advertising and marketing expense for the nine months ended September 30, 2021 and 2020 of $26,037 and $0, respectively, and for the three months ended September 30,March 31, 2022 and 2021 of $37,036 and 2020 of $23,242 and $0,$2,796, respectively.
General and Administrative Expenses
General and administrative ("G&A") functions include executive management, finance and administration, government affairs and regulations, corporate development, human resources, and legal and compliance. The specific costs include the cost of our personnel consisting of salaries, incentive and stock-based compensation, out-of-pocket costs usually associated with attorneys (both corporate and intellectual property), bankers, accountants, and other advisors and a pro-rata share of facilities expense and other overhead items.
Other Income and Expenses
Other recurring income and expenses primarily consists of interest income on our investments, changes in the market value of our derivative financial instruments, and foreign currency transaction gains or losses.
Critical Accounting Estimates
The condensed consolidated financial statements include estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations. These significant accounting estimates include the inputs to level 3 valuation techniques for valuing the identified intangible assets in the ImQuest acquisition, valuation allowances associated with deferred tax assets, and revenue recognition in accordance with ASC 606.
Three Months Ended September 30, 2021March 31, 2022 Compared to Three Months Ended September 30, 2020March 31, 2021
Revenue
Revenue increased from $0 for the three months ended September 30, 2020March 31, 2021 to $236,519$1.0 million for the three months ended September 30, 2021.March 31, 2022. This increase is due entirely to the revenues recorded after July 1, 2021 from sales of CRO services by ImQuest BioSciences. There were no CRO services revenues in the corresponding period of 2020,2021, as the merger with ImQuest only took place in June 2021. No revenues were generated from awards from the National Institutes of Health for studies in research in the three months ended September 30, 2021 or 2020.
Cost of Revenues
Cost of revenue increased from $0 for the three months ended September 30, 2020March 31, 2021 to $115,927$0.35 million for the three months ended September 30, 2021.March 31, 2022. This increase is due entirely to the cost of revenues recorded after July 1, 2021 from sales to CROs by ImQuest BioSciences. There were no cost of revenues in the corresponding period of 2020,2021, as the ImQuest Merger only took place in June 2021.
Research and Development Expenses
R&D expenses decreasedincreased from $4.38$1.0 million for the three months ended September 30, 2020March 31, 2021 to $3.43$3.2 million for the three months ended September 30, 2021,March 31, 2022, representing a decreasean increase of $0.95$2.2 million, or 21.6%217.6%. Variances are noted in the table below. The net decreaseincrease is primarily attributable to one-time patent expenses totaling $3.8 million incurred for the three months ended September 30, 2020 related to the transfer of intellectual property to the Company by Immune Therapeutics, Inc., Old Cytocom’s former parent company, ($(0.1) million for the three months ended September 30, 2021), offset by increased spending on specific R&D programs for the three months ended September 30, 2021 ($3.4 million),March 31, 2022 of $1.3 million, compared to $0.5$0.3 million for the three months ended September 30, 2020.March 31, 2021 as well as increased other expenses for the three months ended March 31, 2022 of $1.9 million, compared to $0.7 million for the three months ended March 31, 2021 primarily due to increases in R&D employees.
Three Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||||||||||
2021 | 2020 | Variance | 2022 | 2021 | Variance | |||||||||||||||||||
STAT-201: Crohn's disease | $ | 1,642,041 | $ | 34,415 | $ | 1,607,626 | $ | 639,060 | $ | 58,624 | $ | 580,436 | ||||||||||||
STAT-205: Acute and post-acute Covid-19 | 419,596 | 379,872 | 39,724 | 396,833 | 191,882 | 204,951 | ||||||||||||||||||
STAT-401: Pancreatic cancer | 384,025 | — | 384,025 | 134,932 | — | 134,932 | ||||||||||||||||||
STAT-601: Entolimod for acute radiation | 49,022 | — | 49,022 | 109,013 | — | 109,013 | ||||||||||||||||||
Other expenses | 940,293 | 3,969,037 | (3,028,744 | ) | 1,895,930 | 773,838 | 1,122,092 |
| ||||||||||||||||
Total research & development expenses | $ | 3,434,977 | $ | 4,383,325 | $ | (948,348 | ) | $ | 3,242,328 | $ | 1,024,344 | $ | 2,151,424 |
|
General and Administrative Expenses
G&A expenses increaseddecreased from $1.8$4.2 million for the three months ended September 30, 2020March 31, 2021 to $6.3$4.0 million for the three months ended September 30, 2021,March 31, 2022, representing an increasea decrease of $4.5$0.2 million or 252.8%4.8%. Variances are noted in the table and discussed below.
Three Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||||||||||
2021 | 2020 | Variance | 2022 | 2021 | Variance | |||||||||||||||||||
Payroll (including benefits) | $ | 3,632,142 | $ | 1,079,978 | $ | 2,552,164 | $ | 2,246,573 | $ | 2,635,189 | $ | (388,616 | ) | |||||||||||
Stock listing expenses | 835,145 | 223,808 | 611,337 | 218,136 | 91,576 | 126,560 | ||||||||||||||||||
Professional fees | 554,159 | 366,940 | 187,219 | 543,867 | 718,925 | (175,059 | ) | |||||||||||||||||
Consultants and contractors | 427,551 | 43,667 | 383,884 | 294,832 | 471,289 | (176,457 | ) | |||||||||||||||||
Insurance | 149,267 | 13,403 | 135,864 | 220,199 | 117,238 | 102,961 | ||||||||||||||||||
Travel | 51,483 | 36,687 | 14,796 | 36,232 | 16,264 | 19,968 | ||||||||||||||||||
Other G&A expenses | 656,577 | 22,850 | 633,727 | 418,510 | 116,408 | 302,102 | ||||||||||||||||||
Total general & administrative expenses | $ | 6,306,323 | $ | 1,787,333 | $ | 4,518,990 | $ | 3,978,349 | $ | 4,166,889 | $ | (188,540 | ) |
Payroll (including benefits) incudes salaries, health benefits and related payroll costs. The increasedecrease in payroll expense was primarily attributable to the increase in the numbera reduction of employees whose costs are accounted for as G&A expenses, plus an additional cost of $1,923,565$1.4 million for stock-based compensation incurred in the thirdfirst quarter of 20212022 over the comparative cost in the same period in 2020. Employee headcount for G&A purposes at September 30, 2020 and 2021, was 13 and 22, respectively.partially offset by the increase in costs related to the increased employee headcount. Growth in headcount for G&A purposes between 20202021 and 20212022 reflects (i) the addition of four employees in 2021 as result of the Merger and the ImQuest Merger, and (ii) the addition of seven new employees in total, several of whom were hired in senior executive roles to complete the Company’s leadership team plus the addition of staff in finance, human resources, information technology and investor relations, offset by the transfer of two employees to R&D.
Stock listing expenses are made up of fees paid to maintain the listing of the Company’s common stock on The NASDAQ, ($141,865 and $0 for the three months ended September 30, 2021 and 2020, respectively), the costs of an investor relations program using outside consultants and databases, ($182,617 and $42,307 for the three months ended September 30, 2021 and 2020, respectively), costs incurred with advisors to raise new debt and equity required by the Company, ($487,500 and $179,650 for the three months ended September 30, 2021 and 2020, respectively), and the costs charged by stock transfer agents to maintain the Company’s share registers ($23,162 and $1,850 forregisters. The increased costs in the three months ended September 30,March 31, 2022 compared to the three months ended March 31, 2021 and 2020, respectively). reflect increased public company costs following the Merger.
Professional fees comprise fees paid for services to lawyers (other than lawyers who are engaged for services related to R&D), accountants, and the Company’s firm of auditors. Fees paid to lawyers in the three months ended September 30,March 31, 2022 and 2021 totaled $0.4 million and 2020 totaled $420,704 and $344,440,$0.6 million, respectively. The higherdecrease in fees 2021 arose primarily from costsincreased services in the three months ended March 31, 2021 related to close the Merger and the ImQuest Merger, and legal fees incurred in 2021 to defend lawsuits related to the Merger.
Fees paid to accountants in the three months ended September 30,March 31, 2022 and 2021 totaled $0.1 million and 2020 totaled $92,055 and $22,500,$0.04 million, respectively. The higher in fees 20212022 arose primarily from the use of outside accounting consultants to assist with the compilation of reports and filings required under securities laws to complete the Merger and the ImQuest Merger.laws.
Fees paid to the audit firms engaged by the Company in the three months ended September 30,March 31, 2022 and 2021 totaled $0.1 million and 2020 totaled $41,400 and $0,$0.1 million, respectively. The audit services were required filings required under securities laws to complete the Merger and the ImQuest Merger. Audit services only commenced in the fourth quarter of 2020.
Consultants and contractors are individuals and firms hired by the Company to provide certain investment banking and advisory services, to assist the Company with the implementation of a new enterprise resource planning (“ERP”) system, to provide valuation reports required to complete the accounting for the Merger and to assist with other general matters. Fees paid to consultants and contractors in the three months ended September 30,March 31, 2022 and 2021 totaled $0.3 million and 2020 totaled $427,551 and $43,667,$0.5 million, respectively. The increasedecrease in costs was attributable primarily to increased services requiredin the three months ended March 31, 2021 to complete the Merger in 2021.Merger.
Insurance expenses comprise fees and premiums paid to insurance companies from which the Company purchased policies to protect against loss or damage to its assets and intellectual property, to protect itself against claims for damage caused to third parties by its clinical trials or products used in trials or sold to customers, coverage for workers’ compensation payable for injuries suffered by its employees, and losses incurred by its directors and officers in certain circumstances in the performance of their duties. Insurance premiums and costs in the three months ended September 30,March 31, 2022 and 2021 totaled $0.2 million and 2020 totaled $149,267 and $13,403,$0.1 million, respectively. The increase was attributable primarily to additional insurance added in 2021 to protect the Company against claims for damage caused to third parties by its clinical trials or products used in trials or sold to customers, and losses incurred by its directors and officers in certain circumstances in the performance of their duties.
Travel. The Company maintains offices in a number of locations in the United States. As a result of the Merger, new offices were added in 2021 in Colorado, California, Maryland, and New York, requiring an increase in travel between locations. Travel expenses increased accordingly between the three months ended September 30, 2020 and 2021 from $36,687 to $51,483, respectively.
Other G&A expenses comprise costs to operate and lease office space, non-capital expenditures incurred for office furniture and equipment, telecommunication and internet expenses, postage and courier costs, and bank charges. Other G&A expenses increased year over year primarily as a result of the addition of new office locations and employees in 2021 in Colorado, California, Maryland, and New York.
Other Income and Expenses
Interest and other income of $491,817 in the three months ended September 30, 2020 was made up of a $1,034,000 gain on reversal of accruals for prior period payrolls owed, resulting from the waiver by certain employees of their past-due payroll accruals in exchange for new employment contracts with the Company, plus a gain of $38,500 from the extinguishment of certain notes payable, offset by interest and other share-related expenses of $580,683.
Interest and other expense of ($3,089,301) in the three months ended September 30, 2021 was made up of an accrual for legal settlement costs of $2,065,835 and by interest and other share-related expenses of $1,023,466.
Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
Revenue
Revenue increased from $0 for the nine months ended September 30, 2020 to $236,519 for the nine months ended September 30, 2021. This increase is due entirely to the revenues recorded after July 1, 2021 from sales of CRO services by ImQuest BioSciences. There were no CRO services revenues in the corresponding period of 2020, as the ImQuest Merger only took place in June 2021. No revenues were generated from awards from the National Institutes of Health for multiple studies in research in the nine months ended September 30, 2021 or 2020.
Cost of Revenues
Cost of revenue increased from $0 for the nine months ended September 30, 2020 to $115,927 for the nine months ended September 30, 2021. This increase is due entirely to the cost of revenues recorded after July 1, 2021 from sales to CROs by ImQuest BioSciences. There were no cost of revenues in the corresponding period of 2020, as the ImQuest Merger only took place in June 2021.
Research and Development Expenses
R&D expenses increased from $4.51 million for the nine months ended September 30, 2020 to $6.28 million for the nine months ended September 30, 2021, representing an increase of $1.77 million, or 39.1%. Variances are noted in the table below. The net increase is primarily attributable to (i) an increase in payroll and benefits costs, which rose from $293,815 for the nine months ended September 30, 2020 to $2,198,390 for the nine months ended September 30,March 31, 2021 and (ii) the cost of contractors hired for clinical trials, which rose2022 from $0$0.02 million to $3,461,855 for the nine months ended September 30, 2020 and 2021, respectively, offset by a decrease of one-time patent expenses related to the transfer of intellectual property to the Company by Immune Therapeutics, Inc., which fell from $3,838,130 for the nine months ended September 30, 2020 to $146,730 for the nine months ended September 30, 2021. The increase in payroll costs was attributable to (i) an increase in R&D-related headcount, which grew from three employees at September 30, 2020 to 19 at September 30, 2021, and (ii) the cost of $581,198 for stock-based compensation incurred for the nine months ended September 30, 2021 ($0 for corresponding period in 2020).
Nine months Ended September 30, | ||||||||||||
2021 | 2020 | Variance | ||||||||||
STAT-201: Crohn's disease | $ | 2,260,325 | $ | 44,327 | $ | 2,215,998 | ||||||
STAT-205: Acute and post-acute Covid-19 | 2,041,271 | 457,348 | 1,583,923 | |||||||||
STAT-401: Pancreatic cancer | 690,957 | - | 690,957 | |||||||||
STAT-601: Entolimod for acute radiation | 49,022 | - | 49,022 | |||||||||
Other expenses | 1,233,361 | 4,008,215 | (2,774,854 | ) | ||||||||
Total research & development expenses | $ | 6,274,936 | $ | 4,509,890 | $ | 1,765,046 |
General and Administrative Expenses
G&A expenses increased from $2.3$0.04 million, for the nine months ended September 30, 2020 to $15.0 million for the nine months ended September 30, 2021, representing an increase of $12.7 million or 555.8%. Variances are noted in the table and discussed below.
Nine months Ended September 30, | ||||||||||||
2021 | 2020 | Variance | ||||||||||
Payroll (including benefits) | $ | 9,265,652 | $ | 1,372,278 | $ | 7,893,374 | ||||||
Stock listing expenses | 1,220,052 | 238,722 | 981,330 | |||||||||
Professional fees | 2,036,307 | 393,641 | 1,642,666 | |||||||||
Consultants and contractors | 1,238,114 | 195,017 | 1,043,097 | |||||||||
Insurance | 409,637 | 13,403 | 396,234 | |||||||||
Travel | 97,758 | 37,886 | 59,872 | |||||||||
Other G&A expenses | 713,566 | 33,630 | 679,936 | |||||||||
Total general & administrative expenses | $ | 14,981,086 | $ | 2,284,577 | $ | 12,696,509 |
Payroll (including benefits) incudes salaries, health benefits and related payroll costs. The increase in payroll expense was primarily attributable to the the number of employees whose costs are accounted for as G&A expense, plus the cost of $5,266,385 for stock-based compensation incurred in the nine months ended September 30, 2021 ($0 in the corresponding period in 2020). Employee headcount for G&A purposes at September 30, 2020 and 2021 was 13 and 22, respectively. Growth in headcount for G&A purposes between 2020 and 2021 reflects (i) the addition of four G&A employees in 2021 as result of the Merger and the ImQuest Merger, and (ii) the addition of seven new employees in total, several of whom were hired in senior executive roles to complete the Company’s leadership team plus the addition of staff in finance, human resources, information technology and investor relations, offset by the transfer of two employees to R&D.
Stock listing expenses are made up of fees paid to maintain the listing the Company’s stock on The NASDAQ ($159,463 and $0 for the nine months ended September 30, 2021 and 2020, respectively), the costs of an investor relations program using outside consultants and databases ($270,899 and $55,022 for the nine months ended September 30, 2021 and 2020, respectively), costs incurred with advisors to raise new debt and equity required by the Company ($759,753 and $179,650 for the nine months ended September 30, 2021 and 2020, respectively), and the costs charged by stock transfer agents to maintain the Company’s share registers ($29,938 and $4,050 for the nine months ended September 30, 2021 and 2020, respectively).
Professional fees comprise fees paid for services to lawyers (other than lawyers who are engaged for services related to R&D), accountants, and the Company’s firm of auditors. Fees paid to lawyers in the nine months ended September 30, 2021 and 2020 totaled $1,707,353 and $363,641, respectively. The higher in fees 2021 arose primarily from costs to close the Merger and the ImQuest Merger, and legal fees incurred in 2021 to defend lawsuits related to the Merger.
Fees paid to accountants in the nine months ended September 30, 2021 and 2020 totaled $131,101 and $30,000, respectively. The higher in fees 2021 arose primarily from the use of outside accounting consultants to assist with the compilation of reports and filings required under securities laws to complete the Merger and the ImQuest Merger, and to prepare the Company’s income tax filings in 2021.
Fees paid to the audit firms engaged by the Company in the nine months ended September 30, 2021 and 2020 totaled $197,853 and $0, respectively. The audit services were required filings required under securities laws to complete the Merger and ImQuest Merger. Audit services only commenced in the fourth quarter of 2020.
Consultants and contractors are individuals and firms hired by the Company to provide certain investment banking and advisory services, to assist the Company with the implementation of a new ERP system, to provide valuation reports required to complete the accounting for the Merger and to assist with other general matters. Fees paid to consultants and contractors in the nine months ended September 30, 2021 and 2020 totaled $1,238,114 and $195,017, respectively. The increase was attributable primarily to services required to complete the Merger in 2021.
Insurance expenses comprise fees and premiums paid to insurance companies from which the Company purchased policies to protect against loss or damage to its assets and intellectual property, to protect itself against claims for damage caused to third parties by its clinical trials or products used in trials or sold to customers, coverage for workers’ compensation payable for injuries suffered by its employees, and losses incurred by its directors and officers in certain circumstances in the performance of their duties. Insurance premiums and costs in the nine months ended September 30, 2021 and 2020 totaled $409,637 and $13,403, respectively. The increase was attributable primarily to additional insurance added in 2021 to protect the Company against claims for damage caused to third parties by its clinical trials or products used in trials or sold to customers, and losses incurred by its directors and officers in certain circumstances in the performance of their duties.
Travel. The Company maintains offices in a number of locations in the United States. As a result of the Merger, new offices were added in 2021 in Colorado, California, Maryland and New York, requiring an increase in travel between locations. Travel expenses increased accordingly between the nine months ended September 30, 2020 and 2021 from $37,886 to $97,758, respectively.
Other G&A expenses comprise costs to operate and lease office space, non-capital expenditures incurred for office furniture and equipment, telecommunication and internet expenses, postage and courier costs, and bank charges. Other G&A expenses increased year over year primarily as a result of the addition of new office locations and employees in 2021 in Colorado, California, Maryland, and New York.
Other Income and Expenses
Interest and other expense of ($1,069,403)$1.15 million in the ninethree months ended September 30, 2020March 31, 2022 was made up of a $1,034,000 gain on reversal$0.9 million of accruals for prior period payrolls owed, resulting from the waiver by certain employees of their past-due payroll accruals in exchange for new employment contracts with the Company, offset by loan origination fees of $1,000,000, interest expense and $0.25 of $133,903, a loss on extinguishment of debt of $461,500, and other share-related expenses of $508,000.prepayment fees.
Interest and other expense of ($3,463,572)$0.1 million in the ninethree months ended September 30,March 31, 2021 was made up of an accrual for legal settlement costs of $2,065,835,relate to interest expense of $1,115,578, and other share-related expenses of $282,158. The year-over-year increase in interest expense was caused by a $15 million increase in notes payable in April 2021 and the interest incurred on the Decathlon note payable acquired through the merger with ImQuest.expense.
Liquidity and Capital Resources
At September 30, 2021,March 31, 2022, we had cash and cash equivalents of $9.2$0.15 million, which represents an increasea decrease of $8.6$1.7 million since the end of our last fiscal year. This increasedecrease was caused by our capital raise in the first quarter of 2021 together with cash contributed through the process of the Merger,2022, offset by our net cash used in operations of $20.1$3.8 million during the ninethree months ended September 30, 2021.March 31, 2022 and repayment of debt. As discussed above, we are a clinical-stage company, have generated only insignificant revenues to date, and have incurred cumulative net losses and expect to incur significant expenses and operating losses for the foreseeable future as we advance our lead candidates through clinical trials, progress our pipeline candidates from discovery through pre-clinical development, and seek regulatory approval and pursue commercialization of our candidates. We do not have commercial products other than CRO services, we have limited capital resources, and our contracts and grants with the Department of Defense were completed in 2020, meaning that we are currently generating limited revenues and cash from operations. We do not expect our cash and cash equivalents will be sufficient to fund our projected operating requirements or allow us to fund our operating plan, in each case, beyond the firstsecond quarter of 2022. As a result, we will need additional financing to support our continuing operations. Historically, we have funded our operations through the sale of equity and debt securities, as well as the receipt of funded grants. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity and debt financings or other sources, which may include collaborations with third parties, the sale or license of drug candidates, the sale of certain of our tangible and/or intangible assets, the sale of interests in our subsidiaries or joint ventures, obtaining additional government research funding, or entering into other strategic transactions. However, we can provide no assurance that we will be able to raise cash in sufficient amounts, when needed or at acceptable terms. We do not expect that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements beyond the firstsecond quarter of 2022. If we are unable to raise adequate capital and/or achieve profitable operations, future operations might need to be scaled back or discontinued. The financial statements included elsewhere in this Quarterly Report on Form 10-Q do not include any adjustments relating to the recoverability of the carrying amount of recorded assets and liabilities that might result from the outcome of these uncertainties.
Since the end of the fiscal quarter ended June 30, 2021, as a result of the Merger, we have become party to several new financing arrangements, including a credit facility and equity line-of-credit agreement, that have provided us with additional cash in the aggregate amount of approximately $10 million (see “ – Sources of Liquidity”). We have the capacity to make further borrowings and drawings under these facilities, which can provide us with additional working capital.
Cash Flows
The following table provides information regarding our cash flows for the ninethree months ended September 30, 2021March 31, 2022 and 2020:2021:
For the Nine Months Ended September 30, | For the Three Months Ended March 31, | |||||||||||||||||||||||
2021 | 2020 | Variance | 2022 | 2021 | Variance | |||||||||||||||||||
Cash flows used in operating activities | $ | (20,064,262 | ) | $ | (8,363,019 | ) | $ | (11,701,243 | ) | $ | (3,761,556 | ) | $ | (2,592,271 | ) | $ | (1,169,285 | ) | ||||||
Cash flows provided by (used in) investing activities | 13,559,901 | (6,613 | ) | 13,566,514 | ||||||||||||||||||||
Cash flows provided by financing activities | 20,128,855 | 8,688,090 | 11,440,765 | |||||||||||||||||||||
Cash flows used in investing activities | (6,454 | ) | (4,685 | ) | (1,769) | |||||||||||||||||||
Cash flows provided by (used in) financing activities | (2,898,452 | ) | 2,155,000 | (5,053,452 | ) | |||||||||||||||||||
Effect of exchange rate on cash and cash equivalents | (2,014 | ) | - | (2,014 | ) | (26,087 | ) | - | (26,087 | ) | ||||||||||||||
Increase in cash and cash equivalents | 13,622,480 | 318,458 | 13,304,022 | |||||||||||||||||||||
Decrease in cash and cash equivalents | (6,692,549 | ) | (441,956 | ) | (6,250,593 | ) | ||||||||||||||||||
Cash and cash equivalents at beginning of period | 593,869 | 1,650 | 592,219 | 6,844,732 | 593,869 | 6,250,863 | ||||||||||||||||||
Cash, restricted cash and cash equivalents at end of period | $ | 14,216,349 | $ | 320,108 | $ | 13,896,241 | $ | 152,183 | $ | 151,913 | $ | 270 |
Operating Activities
Net cash used in operating activities increased by $11.7$1.2 million to $20.1$3.8 million for the three months ended March 31, 2022 from $2.6 million for the nine months ended September 30, 2021 from $8.4 million for the nine months ended September 30, 2020.March 31, 2021. Net cash used in operating activities for the period ending September 30, 2021March 31, 2022 consisted of a reported net loss of $24.6$7.8 million, which was further increaseddecreased by $1.9$3.4 million of changes in operating assets and liabilities partiallyand decreased by $6.45$0.6 million of net non-cash operating activities. The $1.9$3.4 million of changes in operating assets and liabilities was due primarily to an increase in prepaid expenses, liabilities of discontinued operations, other current assets, and contract assets, partially offset by increases in deferred revenues, stock issuances due, and accounts payable and accrued expenses.expenses and decreases in prepaid expenses and other current assets.
Net cash used in operating activities for the ninethree months ended September 30, 2020March 31, 2021 of $8.4$2.6 million consisted of a reported net loss of $7.9$5.3 million, which was further increaseddecreased by $0.12.1 million of net non-cash operating activities and $0.4$0.6 million of changes in operating assets and liabilities. The $0.4$0.6 million of changes in operating assets and liabilities was due primarily to a decreasechanges in other current assets.working capital items.
Investing Activities
Net cash provided byused in investing activities increased to $13.56$0.06 million for the ninethree months ended September 30, 2021March 31, 2022 from $(0.01)$0.05 million of net cash used in investing activities for the ninethree months ended September 30, 2020, reflectingMarch 31, 2021, primarily due to the $13.65 million acquisition of net assets primarily through the Merger, partially offset by the purchase of $0.1 million of property and equipment.
Financing Activities
Net cash used in financing activities increased to $2.9 million for the three months ended March 31, 2022 from $2.2 million of net cash provided by financing activities increased to $20.1 million for the ninethree months ended September 30,March 31, 2021 from $8.7 million for the nine months ended September 30, 2020 due to the issuancerepayment of $14.7$9.3 million of long-term notes payable, and $5.7partially offset by $6.4 million due to the issuance of common stock partially offset by note repayments and payment of deferred debt issuance costs totaling $0.4 million during the ninethree months ended September 30,March 31, 2022. Net cash provided by financing activities of $2.2 million was due to the issuance of preferred stock during the three months ended March 31, 2021.
Impact of Exchange Rate Fluctuations
Our reported financial results are affected by changes in foreign currency exchange rates between the U.S. dollar and the Russian ruble. Between the closing date of the Merger on July 27, 2021 and September 30, 2021, this rate fluctuated by 1.4%. For calendar year 2020, our results were not affected by any such fluctuations. Translation gains or losses result primarily from the impact of exchange rate fluctuations on the reported U.S. dollar equivalent of ruble-denominated cash and cash equivalents, and short-term investments. Variances in the exchange rate for these items have not been realized; as such the resulting gains or losses (a loss of $0.02$0.03 million for the ninethree months ended September 30, 2021)March 31, 2022 are recorded as other comprehensive income or loss in the equity section of the balance sheet.
Sources of Liquidity
Avenue Facility
Under the terms of the Avenue Facility, Avenue agreed to make a term loan to Old Cytocom in the aggregate principal amount of $15,000,000. The loan bears interest at a variable rate of interest equal to the sum of (i) the greater of (A) the Prime Rate and (B) 3.25% plus (ii) 7.74%. Repayment of the loan owed under the Avenue Facility is secured by a security interest in substantially all of Old Cytocom’s assets, including equipment, fixtures, inventory, deposit accounts and personal property, as well as the securities it holds in its wholly owned subsidiaries.
The $15 million aggregate loan amount was deposited by Avenue into a controlled account in May 2021. Old Cytocom transferred $10 million into its general operating account, which was assigned to the Company at the time of the closing of the Merger, and accordingly, the Company’s assets are subject to a security interest in favor of Avenue. The Company will be able to transfer the $5 million in the controlled account into its general operating account upon the Company raising at least $20 million in additional capital in the form of subordinated indebtedness or equity from a follow-on transaction entered into after the Merger. As of September 30, 2021, the Company had used approximately $8.3 million of the Avenue Facility. The Company is required to make only monthly interest payments, calculated as described above, until April 2022 (which may be extended to April 2023 upon the Company’s raising of an additional $20 million in capital). Thereafter, the Company will be required to make monthly payments of principal in equal installments until the maturity date of May 1, 2024.
The Avenue Facility documents contain customary representations and warranties of Old Cytocom, as well as various affirmative and negative covenants. Among such covenants are requirements that the Company:
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The Avenue Facility documents also grant certain additional rights to Avenue. Under the Avenue Facility, Avenue has a preemptive right to purchase up to $1 million of Company equity securities on the same terms, conditions and prices offered by the Company to any investor in connection with any equity or debt financing until October 16, 2022. Additionally, Avenue has the right to convert up to $3 million of outstanding principal into shares of Company common stock. The number of shares issuable upon conversion will be determined by dividing the amount of indebtedness being converted by 120% of the 5-day volume weighted average price (VWAP) of Company common stock prior to the date of the issuance of the Avenue Warrant.
As of March 31, 2022, there was $6.2 million in outstanding principal and interest under the Avenue Facility, and no unused further borrowing capacity. We paid an aggregate of $9.6 million in interest, principal, and other fees to Avenue during the three months ended March 31, 2022.
As discussed above under " – Recent Developments," on March 25, 2022, we received the Default Letter from Avenue regarding alleged events of default with respect to the Avenue Facility. In the Default Letter, Avenue alleges that certain events of default under the Avenue Facility have occurred and continue to exist. Specifically, Avenue alleges that the Company is in violation of certain provisions of the Avenue Facility as a result of the Company’s failure to:
● | timely deliver monthly financial statements for certain periods; |
● | obtain Avenue’s consent to repurchase certain securities from stockholders; |
● | pay principal and interest when due, including on March 1, 2022; and |
● | maintain unrestricted cash and cash equivalents in one or more accounts subject to control agreements in favor of Avenue in amount of at least $5 million. |
In the Default Letter, Avenue purported to exercise its rights to suspend further loans or advances to the Company under the Avenue Facility and to declare accelerate the amount due under the Avenue Facility, which it asserts to be approximately $11.2 million, inclusive of fees of penalties. Avenue further states in the Default Letter that interest will continue to accrue on the outstanding amounts at the default rate of 5.0%. In furtherance of the allegations set forth in the Default Letter, Avenue foreclosed on approximately $4.8 million of the Company’s cash.
As mentioned above, the Company entered into a Forbearance Agreement on April 18, 2022 regarding the Avenue Facility with Avenue. Pursuant to the Forbearance Agreement, the parties agreed that they will refrain and forbear from exercising certain remedies arising out of the events of default or any other present or future event of default under the Loan Agreement or supplement during the Forbearance Period. Additionally, the parties agreed that Avenue shall not seize, sweep, or by any means take control of, directly or indirectly, any funds from any of the Company’s bank accounts; and (ii) during the Forbearance Period, the Loans may be prepaid in whole or in part at any time, subject to the repayment and prepayment terms of the Loan Agreement. In addition to the terms of the Forbearance Agreement, certain terms of the Loan Agreement were amended, including changing the Agreement Effective Date to April 18, 2022, and revisions to certain definitions of Agreement terminology.
GEM Agreement
Under the terms of the GEM Agreement, the agreement became immediately binding upon the Company at the effective time of the Merger. Under the GEM Agreement, the Company may elect to issue and sell to GEM up to $75 million of its common stock. Upon the election of the Company to make such a sale, it will deliver a draw-down notice to GEM, and, if all applicable conditions are satisfied, GEM will purchase newly issued shares for the amount specified in the draw-down notice. The purchase price of the shares to be sold is set at 90% of the recent average daily closing price of the Company’s common stock on the Nasdaq Capital Market or other market on which the stock may be listed. The Company is not permitted to make a draw-down request in an amount that exceeds 400% of the average daily trading volume of the Company’s stock for the 30 trading days preceding the draw-down date. Each draw down is subject to certain closing conditions, including (i) the continued accuracy of the representations and warranties made in the GEM Agreement, (ii) a registration statement registering the resale of the shares sold under the GEM Agreement having been declared effective by the SEC, (ii) the absence of any law, order, ruling or injunction prohibiting the consummation of the transactions contemplated by the GEM Agreement, (iii) the Company’s common stock not being suspended from trading by the Nasdaq Capital Market or other market on which the shares are then listed, (iv) the absence of any litigation commenced, or governmental investigation commenced or threated, against the Company in connection with the GEM Agreement transactions and (v) with respect to the first draw down only, the delivery by the Company’s counsel of a negative assurance letter and delivery by the Company’s independent auditors of a comfort letter. However, the Company will be permitted to make a draw-down request for the sale of up to $15 million of shares in the period immediately following the effective time of the Merger without having to have an effective resale registration statement in effect. The resale of the shares sold pursuant to this initial drawdown request will not be required to be registered immediately. Upon the Company’s issuance of shares in connection with any draw-down purchase made by GEM, the Company will be required to pay GEM, in cash or additional shares of stock, a commitment fee in an amount equal to 2% of the amount purchased in such drawdown.
The GEM Agreement terminates on the earliest to occur of (i) three years from the effective time of the Merger, (ii) May 21, 2026 or (iii) the date on which GEM has purchased $75 million in the aggregate of Company stock. Upon payment of $1.5 million to GEM, the Company may terminate the GEM Agreement following the settlement in full of the issuance of the shares made for the first $15 million draw-down purchase.
TheAs of March 31, 2022, the Company has issued 2.99 million shares of common stock of which 1.84 million shares of common stock were sold for total net proceeds of $3.7 million after commission and expenses of approximately $0.075 million, and 1.15 million shares remained available for sale under the GEM Agreement contains customary representations and warranties
Material Cash Requirements
The Company’s material cash requirements include the following contractual obligations:
As of March 31, 2022, the Company as well as various affirmativehad $5.9 million of debt outstanding. This balance is composed of a $5.7 million short-term note payable to Avenue and negative covenants. Among such covenants are requirements that$0.2 million in additional short-term debt. See Note 5, "Note Payable" & Note 6, "Note Payable, net of current portion" to the Company:Consolidated Financial Statements for additional information. Avenue has declared us in default under the Avenue Facility and purported to accelerate the balance due under the facility.
As of March 31, 2022, the Company had $1.7 million of future lease commitments. See Note 7 "Leases" to the Consolidated Financial Statements for additional detail on future lease commitments. |
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Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting company filers.
Item 4. Controls and Procedures
Effectiveness of Disclosure
Our management, with the participation of our Chief Executive Officer and ChiefInterim Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of September 30, 2021.March 31, 2022. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2021,March 31, 2022, our Chief Executive Officer and ChiefInterim Principal Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to our management, including our Chief Executive Officer and ChiefInterim Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) during the fiscal quarter ended September 30, 2021March 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
In the ordinary course of business, we may periodically become subject to legal proceedings and claims arising in connection with ongoing business activities. The results of litigation and claims cannot be predicted with certainty, and unfavorable resolutions are possible and could materially affect our results of operations, cash flows, or financial position. In addition, regardless of the outcome, litigation could have an adverse impact on us because of defense costs, diversion of management resources, and other factors.
While the outcome of these proceedings and claims cannot be predicted with certainty, there are no matters, other than those set forth below, as of September 30, 2021,March 31, 2022, that, in the opinion of management, might have a material adverse effect on our financial position, results of operations or cash flows, or that are required to be disclosed under the rules of the SEC.
On March 12, 2021, a complaint, captioned Teo v. Cleveland BioLabs, Inc. et al., Case 1:21-cv-02187, was filed in the U.S. District Court for the Southern District of New York in connection with the Merger (the "Teo Action"). The Teo Action names as defendants Cleveland BioLabs, each director on the Cleveland BioLabs board of directors, Merger Sub and Cytocom. The complaint in the Teo Action alleges that (i) the Cleveland BioLabs board of directors breached its fiduciary duties to the plaintiff stockholder in entering into the Merger Agreement and (ii) Cleveland BioLabs and the Cleveland BioLabs board of directors omitted and/or provided misleading information in the registration statement on Form S-4 filed with the SEC in connection with the Merger, of which this proxy statement/prospectus forms a part, in violation of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and related SEC regulations. On July 14, 2021, Plaintiff Teo filed a notice of dismissal. On July 16, 2021, the Southern District entered an order dismissing the case.
On March 17, 2021, a complaint, captioned Steudte v. Cleveland BioLabs, Inc. et al., Case 1:21-cv-02314, was filed in the U.S. District Court for the Southern District of New York in connection with the Merger (the "Steudte Action"). The Steudte Action names as defendants Cleveland BioLabs and each director on the Cleveland BioLabs board of directors. The complaint in the Steudte Action alleges that Cleveland BioLabs and the Cleveland BioLabs board of directors omitted and/or provided misleading information in the registration statement on Form S-4 filed with the SEC in connection with the Merger, of which this proxy statement/prospectus forms a part, in violation of their fiduciary duties and the Exchange Act and related SEC regulations. The Steudte Action seeks, among other things, an injunction preventing the closing of the merger, rescission of the merger if it is consummated, the dissemination by the Company of a revised registration statement on Form S-4 and an award of plaintiffs’ attorneys’ and experts’ fees. Defendants have filed a letter seeking permission to file a motion to dismiss. On October 13, 2021, Plaintiff Steudte filed a notice of dismissal. On October 20, 2021,the Southern District entered an order dismissing the case..
On March 19, 2021, a putative class action complaint, captioned Litwin v. Cleveland BioLabs, Inc. et al., Case 2021-0242, was filed in the Delaware Court of Chancery in connection with the Merger (the “Litwin Action”). The Litwin Action names as defendants Cleveland BioLabs, each director on the Cleveland BioLabs board of directors, and the Vice President of Finance of Cleveland BioLabs. The complaint in the Litwin Action alleges that Defendants omitted and/or provided misleading information in the registration statement on Form S-4 filed with the SEC in connection with the Merger, of which this proxy statement/prospectus forms a part, in breach of their fiduciary duties. The Litwin Action seeks, among other things, an injunction preventing the closing of the Merger, rescission of the merger if it is consummated, the dissemination by Cleveland BioLabs of a revised registration statement on Form S-4 and an award of plaintiffs’ attorneys’ and experts’ fees. Plaintiff in the Litwin Action has filed a motion for expedited proceedings, which Defendants have opposed. Plaintiff’s motion for expedited proceedings was granted in part and denied in part by the court on April 30, 2021. Defendants have also filed a motion to dismiss the Litwin Action. On July 7, 2021, Plaintiff filed a stipulation and proposed order voluntarily dismissing the case, but reserving the right to seek attorneys’ fees. On July 8, 2021, the Delaware Court of Chancery entered an order dismissing the case, but reserving jurisdiction to determine whether to award Plaintiff’s counsel any fees, should Plaintiff’s counsel file a motion for such. On November 4, 2021, the parties reached an agreement in principle to resolve the case, the details of which are still being finalized. As described in Note 17 the Company has established an accrual of $275,000 for potential costs to settle.
On March 18, 2021, a complaint, captioned Wang v. Cleveland BioLabs, Inc. et al., Case 1:21-cv-02395, was filed in the U.S. District Court for the Southern District of New York in connection with the Merger (the "Wang Action"). The Wang Action names as defendants the Company, each director on the Company’s board of directors, Merger Sub and Cytocom. The complaint in the Wang Action alleges that the Company and the Company’s board of directors omitted and/or provided misleading information in the registration statement on Form S-4 filed with the SEC in connection with the Merger, of which this proxy statement/prospectus forms a part, in violation of the Exchange Act and related SEC regulations. The Wang Action seeks, among other things, an injunction preventing the closing of the Merger, rescission of the Merger if it is consummated, the dissemination by the Company of a revised registration statement on Form S-4 and an award of plaintiffs’ attorneys’ and experts’ fees. On July 29, 2021, Plaintiff Wang filed a notice of dismissal. On August 2, 2021, the Southern District entered an order dismissing the case.
On March 23, 2021, a complaint, captioned Morgan v. Cleveland BioLabs, Inc. et al., Case 1:21-cv-00418, was filed in the U.S. District Court for the District of Delaware in connection with the Merger (the "Morgan Action"). The Morgan Action names as defendants Cleveland BioLabs and each director on the Cleveland BioLabs board of directors. The complaint in the Morgan Action alleges that Cleveland BioLabs and the Cleveland BioLabs board of directors omitted and/or provided misleading information in the registration statement on Form S-4 filed with the SEC in connection with the Merger, of which this proxy statement/prospectus forms a part, in violation of the Exchange Act and related SEC regulations. The Morgan Action seeks, among other things, an injunction preventing the closing of the Merger, rescission of the Merger if it is consummated, the dissemination by Cleveland BioLabs of a revised registration statement on Form S-4 and an award of plaintiffs’ attorneys’ and experts’ fees. On September 22, 2021, Plaintiff Morgan filed a notice of dismissal. On September 22, 2021, the District of Delaware closed the case.
On March 24, 2021, a complaint, captioned Bednar v. Cleveland BioLabs, Inc. et al., Case 1:21-cv-02546, was filed in the U.S. District Court for the Southern District of New York in connection with the Merger (the "Bednar Action"). The Bednar Action names as defendants Cleveland BioLabs and each director on the Cleveland BioLabs board of directors. The complaint in the Bednar Action alleges that Cleveland BioLabs and the Cleveland BioLabs board of directors omitted and/or provided misleading information in the registration statement on Form S-4 filed with the SEC in connection with the Merger of which this proxy statement/prospectus forms a part, in violation of their fiduciary duties
and the Exchange Act and related SEC regulations. The Bednar Action seeks, among other things, an injunction preventing the closing of the Merger, rescission of the Merger if it is consummated, the dissemination by the Company of a revised registration statement on Form S-4 and an award of plaintiffs’ attorneys’ and experts’ fees. On October 13, 2021, Plaintiff Bednar filed a notice of dismissal. On October 20, 2021, the Southern District entered an order dismissing the case.
On MarchDecember 23, 2021, Plaintiff Bednar filed a complaint captioned Stickel v. Cleveland Biolabs, Inc., et al., Case 1:21-cv-02489, was filednew action in the U.S. DistrictDelaware Court of Chancery, asserting a cause of action for the Southern Districtan equitable assessment of New Yorkattorneys’ fees and
expenses incurred in connection with the Merger (the “Stickel Action”).first lawsuit. The Stickel Actionnew Delaware action names the same defendants as defendants Cleveland BioLabs and each director on the Cleveland BioLabs board of directors.first Bednar Action. The complaint alleges that Cleveland BioLabs and the Cleveland BioLabs board of director omitted and/or provided misleading informationDefendants in the registration statement on Form S-4new Delaware action have filed with the SEC in connection with the Merger, in violationan answer to Plaintiff’s Delaware complaint.
On August 16, 2022, certain former employees of the Exchange ActCompany and SEC regulations. Stickel seeks to enjoin the company from consummating the Merger, to forcecertain third party vendors of the Company to amend the registration statement, and to collect damages and attorneys’ fees. On July 15, 2021, Plaintiff(collectively, "Petitioning Creditors") filed a notice of dismissal. On July 16, 2021, the Southern District entered an order dismissing the case.
On April 1, 2021, a complaint, captioned Hoenecke v. Cleveland BioLabs, Inc., et al., Case 1:21-cv-1789, was filedinvoluntary petition in the U.S. DistrictUnited States Bankruptcy Court for the Eastern District of New York in connection withColorado (No. 22-13051-JGR) against the Merger (the “Hoenecke Action”). The Hoenecke Action names as defendants Cleveland BioLabs and each director on the Cleveland BioLabs board of directors. The complaint in the Hoenecke Action alleges that Cleveland BioLabs and the Cleveland BioLabs board of directors omitted and/or provided misleading information in the registration statement on Form S-4 filed with the SEC in connection with the Merger, of which this proxy statement/prospectus forms a part, in violationCompany seeking relief under Chapter 11 of the Exchange ActUnited States Bankruptcy Code. The Company believes the involuntary petition is improper and related SEC regulations. The Hoenecke Action seeks, among other things, an injunction preventing the closingwrongfully filed and is seeking dismissal of the Merger, rescission of the Merger if it is consummated, the dissemination by the Company of a revised registration statement on Form S-4 and an award of plaintiffs’ attorneys’ and experts’ fees. On June 29, 2021, Plaintiff filed a notice of dismissal. That same day, the Southern District entered an order dismissing the case.
petition.
The Company cannot predict the outcome of these lawsuits.
None.As a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act), we are not required to provide the information called for by this Item 1A.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Other than as set forth below or as previously disclosed in the Company’s prior filings with the SEC, Statera did not sell any equity securities during the three months ended September 30, 2021 in transactions that were not registered under the Securities Act. The issuance of securities in the transactions described below were each exempt from registration under Section 4(a)(2) of the Securities Act.None.
On October 24, 2021, the board of directors of the Company approved the offer and sale of:
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Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
None.
(a) | The following exhibits are included as part of this report: |
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| STATERA BIOPHARMA, INC. | |
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Dated: | By: | /s/ |
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| (Interim Principal Financial Officer) |
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