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~~June 30, ~~2020~~2023


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

For the transition period from to

Commission File Number: ~~001-39169~~001-39619

Kiromic BioPharma, Inc.

(Exact name of registrant as specified in its charter)


Delaware		46-4762913
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)


7707 Fannin Street, Suite ~~140~~200, Houston, TX		77054
(Address of Principal Executive Offices)		Zip Code

(832) 968-4888

(Registrant’s telephone number)

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


Title of Each Class	Trading symbol	Name of Exchange on which registered
Common ~~Shares,~~Stock, par value $0.001 per share	KRBP	The Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a ~~large accelerated~~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~~“large-accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


	Large Accelerated Filer ☐		Accelerated Filer ☐
	Non-accelerated Filer ☒		Smaller Reporting Company ☒
			Emerging Growth Company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~November 27, 2020,~~August 11, 2023, there were ~~7,332,999~~1,176,260 shares of the registrant’s ~~ordinary shares~~common stock outstanding.

Table of Contents

~~Kiromic BioPharma, Inc.~~

~~Quarterly Report on Form 10-Q~~

~~Period Ended September 30, 2020~~

TABLE OF CONTENTS


PART I
FINANCIAL INFORMATION

Item 1.	Financial Statements	45
	Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2020,~~2023 (Unaudited) and December 31, ~~2019 (Unaudited)~~	4
	~~Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020, and 2019 (Unaudited)~~2022	5
	Condensed Consolidated Statements of ~~Shareholders’ Equity~~Operations for the ~~three~~Three and ~~nine~~Six months ended ~~September~~June 30, ~~2020,~~2023 and ~~2019~~2022 (Unaudited)	6
	Condensed Consolidated Statements of ~~Cash Flows~~Stockholders’ Equity (Deficit) for the ~~nine~~Three and Six months ended ~~September~~June 30, ~~2020,~~2023 and ~~2019~~2022 (Unaudited)	87
	Condensed Consolidated Statements of Cash Flows for the Six months ended June 30, 2023 and 2022 (Unaudited)	9
	Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~	910
Item 2.2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2826
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4439
Item 4.	Controls and Procedures	4439

PART II
OTHER INFORMATION

Item 1.	Legal Proceedings	4541
Item 1A.	Risk Factors	4542
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
~~Item 3.~~	~~Defaults Upon Senior Securities~~	45
~~Item 4.~~	~~Mine Safety Disclosures~~	45
~~Item 5.~~	~~Other Information~~	4543
Item 6.	Exhibits	4543
Signatures		4744

Table of Contents

~~Kiromic Biopharma, Inc.~~Note Regarding Forward-Looking Statements

Various statements made in this Quarterly Report on Form 10-Q

~~For the quarterly period ended September 30, 2020~~

~~Cautionary Note on Forward-Looking Statements~~

~~This report contains~~ are forward-looking ~~statements that~~and involve ~~substantial~~ risks and uncertainties. ~~We make such~~All statements that address activities, events or developments that we intend, expect or believe may occur in the future are forward-looking statements ~~pursuant to~~within the ~~safe harbor provisions~~meaning of Section 27A of the ~~U.S. Private~~ Securities ~~Litigation Reform~~ Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as ~~amended,~~amended. Such statements give our current expectations or forecasts of future events and ~~other federal securities laws.~~ ~~All statements other than~~are not statements of historical facts are forward-looking statements. The forward-looking statements are contained principally in, but not limited to, the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations."or current facts. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Forward-lookinginclude, among others, statements ~~include, but are not limited to, statements~~ about:

●

our goals and strategies;

●

our future business development, financial condition and results of operations;

●

our expected timing of human clinical trials and other related milestones;

●

expected changes in our revenue, costs or expenditures;

●

our ability to obtain financing in amounts sufficient to fund our operations and continue as a going concern and avoid seeking protection under Chapters 7 or 11 of the United States Bankruptcy Code;

●

difficulties or delays in the product development process, including the results of preclinical studies or clinical trials;

●

difficulties or delays in the regulatory approval process;

●

manufacturing, sales, marketing and distribution of any of our products that may be successfully developed and approved for commercialization;

●

growth of and competition trends in our industry;

●

our expectations regarding demand for, and market acceptance of, our products;

●

our expectations regarding our relationships with investors, institutional funding partners and other parties we collaborate with;

●

fluctuations in general economic and business conditions in the markets in which we operate; including those fluctuations caused by COVID-19; ~~and~~

●

our ability to raise capital when needed;

●

relevant government policies and regulations relating to our ~~industry.~~industry; and

●

the outcome of any pending or threatened litigation.

~~In some cases, you can~~Forward-looking statements also include statements other than statements of current or historical fact, including, without limitation, all statements related to any expectations of revenues, expenses, cash flows, earnings or losses from operations, cash required to maintain current and planned operations, capital or other financial items; any statements of the plans, strategies and objectives of management for future operations; any plans or expectations with respect to product research, development and commercialization, including regulatory approvals; any other statements of expectations, plans, intentions or beliefs; and any statements of assumptions underlying any of the foregoing. We often, although not always, identify forward-looking statements by ~~terms~~using words or phrases such as “may,~~” “could,” “will,” “should,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “project”~~" "could," "will," "should," "would," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," "potential," "project" or ~~“continue” or the negative of these terms or other comparable terminology.~~ These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the heading “Risk Factors” included in our Registration Statement on Form S-1 (file no. 333-238153), originally filed with the Securities and Exchange Commission on May 11, 2020, as amended, and elsewhere in this report. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance."continue".

The forward-looking statements made in this report relate only to events or information as of the date on which the statements are made in this report. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.

Table of Contents

The following are some of the factors that could cause actual results to differ materially from the anticipated results or other expectations expressed, anticipated or implied in our forward-looking statements:

●

the effectiveness and timeliness of our preclinical studies and clinical trials, and the usefulness of the data;

●

our expectations regarding the timing and clinical development of our product candidates;

●

our ability to achieve profitable operations and access to needed capital;

●

fluctuations in our operating results;

●

the success of current and future license and collaboration agreements

●

our dependence on contract research organizations, vendors and investigators;

●

effects of competition and other developments affecting development of products;

●

market acceptance of our products;

●

protection of intellectual property and avoiding intellectual property infringement;

●

product liability; and

●

other factors described in our filings with the SEC.

We cannot guarantee that the results and other expectations expressed, anticipated or implied in any forward-looking statement will be realized. The risks set forth under Item 1A and our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and subsequent quarterly reports on Form 10-Q describe major risks to our business, and you should read and interpret any forward-looking statements together with these risks. A variety of factors, including these risks, could cause our actual results and other expectations to differ materially from the anticipated results or other expectations expressed, anticipated or implied in our forward-looking statements. Should known or unknown risks materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected in the forward-looking statements. You should bear this in mind as you consider any forward-looking statements.

Our forward-looking statements speak only as of the dates on which they are made. We do not undertake any obligation to publicly update or revise our forward-looking statements even if experience or future changes makes it clear that any projected results expressed or implied in such statements will not be realized, except as may be required by law.

Table of Contents

PART I —FINANCIAL INFORMATION

Item 1. Financial Statements

KIROMIC BIOPHARMA, INC.

Condensed Consolidated Balance Sheets

(Unaudited)


	September 30,		December 31,		June 30,		December 31,
	2020		2019		2023		2022
Assets
Current Assets:
Cash and cash equivalents	$	469,300	$	1,929,100	$	2,704,200	$	645,200
Inventories		22,200		22,200
Prepaid expenses and other current assets		1,051,900		89,100		2,009,000		1,043,700
Total current assets		1,543,400		2,040,400		4,713,200		1,688,900
Property and equipment, net		1,612,300		587,900		7,061,800		8,136,900
Operating lease right-of-use asset, net						1,840,400		2,117,300
Other assets		24,400		24,400		21,400		24,400

Total Assets	$	3,180,100	$	2,652,700	$	13,636,800	$	11,967,500

Liabilities and Stockholders’ Equity:
Liabilities and Stockholders’ Deficit:
Current Liabilities:
Senior secured convertible promissory note, net					$	8,035,300	$	3,809,900
Accounts payable	$	1,672,900	$	452,400		6,621,500		7,308,100
Accrued expenses and other current liabilities		473,000		221,300		2,314,800		881,600
Loan payable		105,600		—
Interest payable						891,900		142,100
Note payable						227,600		557,200
Operating lease liability - short term						608,800		584,400
Total current liabilities		2,251,500		673,700		18,699,900		13,283,300

Subordinated convertible promissory note						—		2,914,000
Operating lease liability - long term						1,231,700		1,544,900
Total Liabilities		2,251,500		673,700		19,931,600		17,742,200

Commitments and contingencies (Note 8)
Stockholders’ Equity:
Series A‑1 Preferred Stock, $0.0001 par value: 24,000,000 shares authorized as of September 30, 2020 and December 31, 2019; 21,822,301 shares issued and outstanding as of September 30, 2020 and December 31, 2019		9,134,700		9,134,700
Series B Preferred Stock, $0.0001 par value: 16,500,000 and 14,130,435 shares authorized as of September 30, 2020 and December 31, 2019, respectively; 16,391,397 and 9,869,659 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively		2,331,300		1,306,900
Preferred Stock, $0.0001 par value: 19,500,000 and 21,869,565 shares authorized as of September 30, 2020 and December 31, 2019, respectively; 0 shares issued and outstanding as of September 30, 2020 and December 31, 2019		—		—
Common stock: 300,000,000 shares authorized as of September 30, 2020 and December 31, 2019; 4,989,269 and 2,863,812 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively		—		—
Commitments and contingencies (Note 7)
Stockholders’ Deficit:
Preferred Stock, $0.0001 par value: 60,000,000 shares authorized, 8,000 and 0, issued and outstanding as of June 30, 2023 and December 31, 2022, respectively						1		—
Common stock, $0.001 par value: 300,000,000 shares authorized as of June 30, 2023 and December 31, 2022; 1,176,260 and 648,384 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively						1,176		648
Additional paid-in capital		27,525,500		13,965,000		107,716,223		96,172,152
Accumulated deficit		(38,062,900)		(22,427,600)		(114,012,200)		(101,947,500)
Total Stockholders’ Equity		928,600		1,979,000

Total Liabilities and Stockholders’ Equity	$	3,180,100	$	2,652,700
Total Stockholders’ Deficit						(6,294,800)		(5,774,700)
Total Liabilities and Stockholders’ Deficit					$	13,636,800	$	11,967,500

See accompanying notes to the condensed consolidated financial statements

Table of Contents

KIROMIC BIOPHARMA, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,


2020

2019

2020

2019
Operating expenses:








Research and development

$
1,225,700

$
272,100

$
3,526,100

$
601,500
General and administrative

1,190,000

607,400

12,109,200

934,300
Total operating expenses

2,415,700

879,500

15,635,300

1,535,800
Loss from operations

(2,415,700)

(879,500)

(15,635,300)

(1,535,800)
Other expense








Interest expense

—

(7,400)

—

(22,400)
Total other expense

—

(7,400)

—

(22,400)
Net loss

$
(2,415,700)

$
(886,900)

$
(15,635,300)

$
(1,558,200)
Net loss per share, basic and diluted

$
(0.65)

$
(0.32)

$
(4.39)

$
(0.55)
Weighted average common shares outstanding, basic and diluted

3,719,132

2,862,523

3,719,132

2,862,523


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Operating expenses:
Research and development	$	1,966,600	$	3,880,700	$	4,041,600	$	6,806,500
General and administrative		2,325,900		4,551,700		5,028,300		8,990,800
Total operating expenses		4,292,500		8,432,400		9,069,900		15,797,300
Loss from operations		(4,292,500)		(8,432,400)		(9,069,900)		(15,797,300)
Other expense:
Interest expense		(335,400)		(2,700)		(779,400)		(5,500)
Debt issuance amortization		(366,500)		—		(445,400)		—
Litigation settlement		(1,770,000)		—		(1,770,000)		—
Total other expense		(2,471,900)		(2,700)		(2,994,800)		(5,500)
Net loss	$	(6,764,400)	$	(8,435,100)	$	(12,064,700)	$	(15,802,800)
Net loss per preferred share, basic and diluted	$	(495.89)	$	—	$	(1,235.17)	$	—
Net loss per common share, basic and diluted	$	(3.22)	$	(16.25)	$	(8.07)	$	(30.64)
Weighted average preferred shares outstanding, basic and diluted		8,000		—		4,022		—
Weighted average common shares outstanding, basic and diluted		1,054,277		524,402		964,049		521,259

See accompanying notes to the condensed consolidated financial statements

Table of Contents

KIROMIC BIOPHARMA, INC.

Condensed Consolidated Statements of ~~Shareholders’ Equity~~Stockholders’ Deficit

(Unaudited)



	Preferred Stock			Common Stock
	Number of			Number of			Additional		Accumulated
	Shares	Amount		Shares	Amount		Paid-In Capital		Deficit		Total
Balance at December 31, 2022	—	$	—	648,384	$	648	$	96,172,152	$	(101,947,500)	$	(5,774,700)
Common stock discount amortization	—		—	—		—		85,000		—		85,000
Warrants underlying common stock issuance	—		—	—		—		(85,000)		—		(85,000)
Released restricted stock units	—		—	1,773		2		(2)		—		—
Conversion of subordinated convertible notes into shares of common stock	—		—	329,086		329		2,913,671		—		2,914,000
Stock compensation expense	—		—	—		—		20,700		—		20,700
Net loss	—		—	—		—		—		(5,300,300)		(5,300,300)
Balance at March 31, 2023	—	$	—	979,243	$	979	$	99,106,521	$	(107,247,800)	$	(8,140,300)
Common stock discount amortization	—		—	—		—		85,900		—		85,900
Warrants underlying common stock issuance	—		—	—		—		(85,900)		—		(85,900)
Issuance of preferred stock	8,000		1	—		—		7,999,999		—		8,000,000
Commitments shares issuance from standby equity purchase agreement	—		—	197,017		197		658,903		—		659,100
Stock issuance costs	—		—	—		—		(84,600)		—		(84,600)
Stock compensation expense	—		—	—		—		35,400		—		35,400
Net loss	—		—	—		—		—		(6,764,400)		(6,764,400)
Balance at June 30, 2023	8,000	$	1	1,176,260	$	1,176	$	107,716,223	$	(114,012,200)	$	(6,294,800)

See accompanying notes to the condensed consolidated financial statements

Table of Contents

KIROMIC BIOPHARMA, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

Three and Nine Months Ended September 30, 2020

Series A‑1

Series B

Preferred Stock

Preferred Stock

Common Stock

Additional Paid-

Number of

Number of

Number of

In

Accumulated


Shares

Amount

Shares

Amount

Shares

Amount

Capital

Deficit

Total
Balance at December 31, 2019

21,822,301

$
9,134,700

9,869,659

$
1,306,900

2,863,812

$
—

$
13,965,000

$
(22,427,600)

$
1,979,000
Issuance of Series B Preferred Stock

—

—

6,521,738

331,700

—

—

—

—

331,700
Series B Preferred Stock discount amortization

—

—

—

368,400

—

—

(368,400)

—

—
Warrants underlying Series B Preferred Stock issuance

—

—

—

—

—

—

2,668,300

—

2,668,300
Stock compensation expense

—

—

—

—

—

—

456,000

—

456,000
Net loss

—

—

—

—

—

—

—

(1,852,700)

(1,852,700)
Balance at March 31, 2020

21,822,301

9,134,700

16,391,397

$
2,007,000

2,863,812

$
—

$
16,720,900

$
(24,280,300)

$
3,582,300
Series B Preferred Stock discount amortization

—

—

—

324,300

—

—

(324,300)

—

—
Exercise of warrants

—

—

—

—

1,399,921

—

4,900

—

4,900
Common stock issuance to employees and non-employees

—

—

—

—

725,536

—

9,432,000

—

9,432,000
Stock compensation expense

—

—

—

—

—

—

443,000

—

443,000
Net loss

—

—

—

—

—

—

—

(11,366,900)

(11,366,900)
Balance at June 30, 2020

21,822,301

9,134,700

16,391,397

$
2,331,300

4,989,269

$
—

$
26,276,500

$
(35,647,200)

$
2,095,300
Stock compensation expense

—

—

—

—

—

—

1,249,000

—

1,249,000
Net loss

—

—

—

—

—

—

—

(2,415,700)

(2,415,700)
Balance at September 30, 2020

21,822,301

$
9,134,700

16,391,397

$
2,331,300

4,989,269

—

27,525,500

(38,062,900)

928,600



	Common Stock			Additional		Accumulated
	Shares	Amount		Paid-In Capital		Deficit		Total
Balance at December 31, 2021	516,284	$	516	$	94,535,784	$	(67,216,500)	$	27,319,800
Common stock discount amortization	—		—		85,100		—		85,100
Warrants underlying common stock issuance	—		—		(85,100)		—		(85,100)
Released restricted stock units	3,236		4		(4)		—		—
Stock compensation expense	—		—		80,100		—		80,100
Net loss	—		—		—		(7,367,700)		(7,367,700)
Balance at March 31, 2022	519,520	$	520	$	94,615,880	$	(74,584,200)	$	20,032,200
Common stock discount amortization	—		—		85,900		—		85,900
Warrants underlying common stock issuance	—		—		(85,900)		—		(85,900)
Released restricted stock units	8,451		8		(8)		—		—
Stock compensation expense	—		—		184,200		—		184,200
Net loss	—		—		—		(8,435,100)		(8,435,100)
Balance at June 30, 2022	527,971	$	528	$	94,800,072	$	(83,019,300)	$	11,781,300

See accompanying notes to the condensed consolidated financial statements

Table of Contents

KIROMIC BIOPHARMA, INC.

Condensed Consolidated Statements of ~~Shareholders’ Equity~~Cash Flows

(Unaudited)


	Three and Nine Months Ended September 30, 2019												Six Months Ended
	Series A‑1												June 30,
	Preferred Stock			Common Stock			Additional		Accumulated				2023		2022
Cash flows from operating activities:
Net loss													$	(12,064,700)	$	(15,802,800)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation														1,105,400		581,900
Operating lease non-cash expense														276,900		139,200
Stock compensation expense														56,100		264,300
Amortization of debt issuance costs														445,400		—
Changes in operating assets and liabilities:
Accounts receivable														—		16,200
Prepaid expenses and other current assets														(962,300)		176,800
Accounts payable														(1,339,900)		794,500
Interest payable														749,800		—
Accrued expenses and other current liabilities														1,433,300		413,600
Operating lease liability														(288,800)		(131,700)
Net cash used for operating activities														(10,588,800)		(13,548,000)
Cash flows from investing activities:
Purchases of property and equipment														—		(4,955,700)
Net cash used for investing activities														—		(4,955,700)
Cash flows from financing activities:
Proceeds from senior secured convertible note payable														12,400,000		—
Proceeds from issuance of common stock														659,100		—
Stock issuance costs														(81,700)		—
Repayments of note payable														(329,600)		(339,600)
Net cash provided by (used for) financing activities														12,647,800		(339,600)
Net change in cash and cash equivalents														2,059,000		(18,843,300)
Cash and cash equivalents:
Beginning of year														645,200		25,353,900
End of period													$	2,704,200	$	6,510,600
	Shares	Amount		Shares	Amount		Paid-In Capital		Deficit		Total
Balance at January 1, 2019	20,886,782	$	8,727,400	2,862,093	$	—	$	10,237,600	$	(18,699,700)	$	265,300

Stock compensation expense	—		—	—		—		104,000		—		104,000
Net loss	—		—	—		—		—		(390,900)		(390,900)
Balance at March 31, 2019	20,886,782	$	8,727,400	2,862,093	$	—	$	10,341,600	$	(19,090,600)	$	(21,600)
Stock compensation expense	—		—	—		—		105,000		—		105,000
Net loss	—		—	—		—		—		(280,400)		(280,400)
Balance at June 30, 2019	20,886,782	$	8,727,400	2,862,093		—		10,446,600		(19,371,000)		(197,000)
Conversion of convertible promissory notes and accrued interest into Series A‑1 Preferred Stock	935,519		407,300	—		—		—		—		407,300
Warrants underlying Series B Preferred Stock issuance	—		—	—		—		1,202,500		—		1,202,500
Series B Preferred Stock discount amortization	—		—			—		(16,400)		—		(16,400)
Exercised stock options	—		—	1,432		—		9,500		—		9,500
Stock compensation expense	—		—			—		160,000		—		160,000
Net loss	—		—			—		—		(886,900)		(886,900)
Balance at September 30, 2019	21,822,301	$	9,134,700	2,863,525		—		11,802,200		(20,257,900)		679,000
Supplemental disclosures of cash flow information:
Right-of-use asset/liability recognized from ASC 842 implementation													$	—	$	2,232,700
Conversion of 25% senior convertible promissory notes into preferred stock													$	8,000,000	$	—
Conversion of subordinated convertible promissory notes into common stock													$	2,914,000	$	—
Accruals for property and equipment purchases													$	—	$	1,154,900
Stock issuance costs in accounts payable													$	2,900	$	—
Cash paid for interest on note payable													$	34,900	$	5,500
Right-of-use asset/liability acquired through lease liability													$	—	$	204,800
Construction in progress in accounts payable													$	30,400	$	—
New debt issuance costs in accounts payable													$	620,000	$	—

See accompanying notes to the condensed consolidated financial statements

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~~KIROMIC BIOPHARMA, INC.~~

~~Condensed Consolidated Statements of Cash Flows~~

~~(Unaudited)~~

��

Nine Months Ended

September 30,


2020

2019
Cash flows from operating activities:




Net loss

$
(15,635,300)

$
(1,558,200)
Adjustments to reconcile net loss to net cash used for operating activities:




Depreciation

118,900

63,700
Stock compensation expense

11,580,000

369,000
Non-cash interest

—

20,500
Changes in operating assets and liabilities:




Unbilled receivables from granting agency

—

5,000
Inventories

—

(5,900)
Prepaid expenses and other current assets

(149,800)

34,800
Accounts payable

398,300

226,100
Accrued expenses and other current liabilities

130,700

(138,900)
Deferred rent

—

(19,000)
Convertible promissory notes derivative liability

—

2,000
Net cash used for operating activities

(3,557,200)

(1,000,900)
Cash flows from investing activities:




Purchases of property and equipment

(1,013,100)

(26,500)
Net cash used for investing activities

(1,013,100)

(26,500)
Cash flows from financing activities:




Proceeds from sale of convertible promissory notes

—

250,000
Exercise of stock options

—

9,500
Proceeds from warrant exercise

4,900

—
Proceeds from loan payable

115,600

—
Loan repayments

(10,000)


Proceeds from Series B Preferred Stock issuance

3,000,000

1,571,400
Net cash provided by financing activities

3,110,500

1,830,900
Net change in cash and cash equivalents

(1,459,800)

803,500
Cash and cash equivalents:


Beginning of year

1,929,100

384,300
End of period

$
469,300

$
1,187,800

Supplemental disclosures of non-cash investing and financing activities:




Accruals for property and equipment

$
130,200

$
74,700
Conversion of accounts payable into convertible promissory notes

$
—

$
134,800
Conversion of convertible promissory notes and accrued interest into Series A‑1 Preferred Stock

—

$
407,300
Accruals for deferred initial public offering costs

$
813,000

$
—
Warrants underlying Series B Preferred Stock issuance

$
2,668,300

$
—

~~See accompanying notes to the condensed consolidated financial statements~~

~~Table of Contents~~

KIROMIC BIOPHARMA, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.	ORGANIZATION

Nature of Business

Kiromic BioPharma, Inc. and ~~subsidiary~~subsidiaries (the "Company") is a ~~preclinical~~clinical stage ~~biopharmaceutical~~fully integrated biotherapeutics company formed under the Texas Business Organizations Code in December 2012. On May 27, 2016, the Company converted from a Texas limited liability company into a Delaware corporation and changed its name from Kiromic LLC to Kiromic Inc. On December 16, 2019, the Company amended and restated its certificate of incorporation charter to re-name the company, Kiromic BioPharma, Inc.

The Company is focused on discovering, developing, and commercializing novel immune-oncology therapy applications through its robust product pipeline, which are in the pre initial new drug validation stages of the US Food and Drug Administration clinical trial process. The Company maintains offices in Houston, Texas. The Company has not generated any revenues to date.

From a development standpoint, we utilize innovative engineered and non-engineered GDT manufacturing technologies and are developing proprietary, virus-free cell engineering tools to develop novel therapies for solid tumors that we believe will be effective and cost-efficient. Deltacel is our first allogeneic off-the-shelf GDT cell-based product in Phase 1 clinical stage. Our ProcelÔ (“Procel”) and IsocelÔ (“Isocel”) product candidates consist of allogeneic, cryopreserved, and engineered GDT cells and they are currently in the preclinical development stage. Our Deltacel product candidate consists of non-engineered GDTs that have been expanded, enriched, and activated ex-vivo through a proprietary process, and are intended to treat solid tumors regardless of the specific tumor antigen expression. Our Procel product candidate consists of engineered GDTs and is intended to be used to target PD-L1. Our Isocel product candidate consists of engineered GDTs and is intended to be used to target Mesothelin Isoform 2 positive tumors (“Iso-Meso”).

We currently have three product candidates: 1) Deltacel: not-engineered GDTs, expanded and activated with proprietary technology; 2)Procel: GDTs engineered with a PD-1 switch receptor; and 3) Isocel: GDTs engineered with an anti-Mesothelin isoform 2 Chimeric Antigen Receptor.

We have a total of five clinical programs to study our key product candidates:

Deltacel-01: This phase 1 clinical trial will evaluate Deltacel in combination with low-dose radiation for patients with non-small cell lung cancer (NSCLC)

Procel combination: This phase 1 clinical trial is expected to evaluate Procel in combination with low-dose radiation for patients with PD-L1 positive solid malignancies.

Alexis-PRO-1: This phase 1 clinical trial is expected to evaluate Procel in patients with PD-L1 positive solid malignancies.

Isocel combination: This phase 1 clinical trial is expected to evaluate Isocel in combination with low-dose radiation for patients with Mesothelin Isoform 2 positive solid malignancies.

Alexis-ISO-1: This phase 1 clinical trial is expected to evaluate Isocel in patients with Mesothelin Isoform 2 positive solid malignancies.

In June 2021, the FDA noted deficiencies in the chemistry, manufacturing, and control (CMC) sections of Alexis-PRO-1 (clinical trial evaluating Procel) and Alexis-ISO-1 (clinical trial evaluating Isocel) IND applications, consequently placing them on clinical hold.

On July 13, 2021, the Company received the FDA’s formal clinical hold letters, which asked the Company to address key components regarding the chemical, manufacturing, and control components of the IND applications. The basis for the hold was mainly rooted in the use of a non-suitable retroviral vector to engineer the gamma delta T cells. The Company is developing a novel and virus-independent engineering method, which will result in the submission of new IND applications (numbers 2 to 5 above). These applications are expected to be ready for submission to the FDA in the first

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half of 2025, subject to sufficient financing to support the progression of the developments of those additional clinical trial candidates.

IND #1 (number 1 above) will evaluate Deltacel GDTs in combination with low-dose radiation. We submitted the IND for the Deltacel trial on March 31, 2023. On April 28, 2023, the FDA authorized us to proceed with the first-in-human clinical trial of Deltacel (IND #1).We began the clinical trial activation process during the three months ended June 30, 2023.

Reverse Stock Split — On March 10, 2023, the Company’s ~~wholly-owned subsidiary, GreenPlanet Pharma, Inc., operates an oral healthcare business. It has developed~~Board of Directors approved a ~~mouthwash using~~one-for-thirty reverse split of the Company’s issued and outstanding shares of common stock (“the Reverse Stock Split”). In addition, a ~~high quality, safe, and natural ingredient formulation~~proportionate adjustment was made to ~~provide effective symptomatic relief for a wide range of oral irritations and health concerns. This business is recently formed~~the per share exercise price and the ~~product~~number of shares issuable upon the exercise of all outstanding stock options, restricted stock units and warrants to purchase shares of common stock and the number of shares reserved for issuance pursuant to the Company’s equity incentive compensation plans. Any fraction of a share of common stock that would be created as a result of the Reverse Stock Split was ~~recently developed. This business has not generated any revenues.~~rounded up to the next whole share. Unless noted otherwise, all common shares and per share amounts contained in the consolidated financial statements have been retroactively adjusted for the Reverse Stock Split.

Going Concern—These condensed consolidated financial statements have been prepared onin accordance with generally accepted accounting principles applicable to a going concern, ~~basis,~~ which ~~implies~~contemplates the ~~Company will continue to realize its~~realization of assets and ~~discharge its~~the satisfaction of liabilities in the normal course of business.

The Company has incurred significant losses and negative cash flows from operations since inception and expects to incur additional losses until such time that it can generate significant revenue from the commercialization of its product candidates. The Company had negative cash flow from operations of ~~$3,557,200~~$10,588,800 for the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2023, and an accumulated deficit of ~~$38,062,900~~$114,012,200 as of ~~September~~June 30, 2020. Although the Company completed its initial public offering on October 15, 2020 and received net proceeds of $12,372,700, the Company does not have sufficient cash on hand or available liquidity to meet its obligations through the 12 months following the date the condensed consolidated financial statements are issued. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

2023. To date, the Company has relied on equity and debt financing to fund its operations. The Company’s product candidates are still in the early stages of development, and substantial additional financing will be needed by the Company to fund its operations and ongoing research and development efforts prior to the commercialization, if any, of its product candidates. The Company does not have sufficient cash on hand or available liquidity to meet its obligations through the twelve months following the date the condensed consolidated financial statements are issued. This condition raises substantial doubt about the Company’s ability to continue as a going concern.

Given its projected operating requirements and its existing cash and cash equivalents, ~~the Company~~management’s plans ~~to complete an additional financing transaction in the first half of 2021 in order to continue operations. Management is currently~~include evaluating different strategies to obtain the required funding of future operations. These ~~strategies~~plans may include, but are not limited to, ~~additional~~obtaining funding from current or new ~~investors.~~investors, including through private placements or public offering. However, there can be no assurance that the Company will be able to secure ~~such additional~~ financing, or if available, that it will be sufficient to meet its needs or on favorable terms. Therefore, the plans cannot be deemed ~~probable.~~probable of being implemented. As a result, the Company has concluded that management’s plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern. In the event the Company is unable to secure sufficient financing to allow it to meet its obligations as they become due, the Company may need to file a voluntary petition for relief under the United States Bankruptcy Code in order to implement a restructuring plan or liquidation.

The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

~~NIH Grant~~—In August 2018, the National Institute of Health ("the NIH"), the primary agency of the US government responsible for biomedical and public health research, awarded a Phase I/II grant to the Company in the amount of $2,235,000 for the development and non-clinical testing of a new anti-arteriosclerosis gene therapy delivered by engineered adeno-associated viral vectors. Phase I of the grant approved amounts of $851,000 and covered the period September 2018 through August 2019, entitled the Company to reimbursement for certain salaries and wages, materials and supplies, facilities and administrative costs, and fixed fees. The Company did not complete Phase I by August 2019, but was granted an extension to complete Phase I by the NIH through August 2021. Starting after Phase 1 completion in 2021, Phase II of the grant covers reimbursements for certain salaries and wages, materials and supplies, facilities and administrative costs, and fixed fees of $1,384,000.

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2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles ~~generally accepted~~ in the United States of America ~~("GAAP"~~(“GAAP”) for interim financial information (Accounting Standards Codification ("ASC") 270, Interim Reporting) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information necessary for a full presentation of financial position, results of operations, and cash flows in conformity with GAAP. Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. In the opinion of management, the condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the results of the Company for the periods presented.

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Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Form 10-K for the year ended December 31, 2022. The results of operations for the period ended June 30, 2023 are not necessarily indicative of the operating results that may be expected for a full year. The condensed consolidated balance sheet as of December 31, 2022 contains financial information taken from the audited Company consolidated financial statements as of that date.

All intercompany balances were eliminated upon consolidation.

On December 17, 2019, the Company completed a 1-for-10 reverse stock split of its outstanding common stock. On June 17, 2020, the Company completed a 1-for-3.494 reverse stock split of its outstanding common stock. Accordingly, unless otherwise noted, all share and per share information has been restated to retroactively show the effect of these stock splits.

Use of Estimates—The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include determination of the fair value of common stock and related stock-based compensation, ~~the fair value of convertible promissory notes and the related embedded derivative liability,~~ warrants to purchase common stock underlying shares of Series B Preferred Stock and public offering common stock, and estimating services incurred by third-party service providers used to recognize research and development expense.

~~Cash and Cash Equivalents~~—As of September 30, 2020 and December 31, 2019, cash and cash equivalents consisted entirely of cash on hand and bank deposits. The Company considers all highly liquid instruments with remaining maturities at purchase of 90 days or less to be cash equivalents.

~~Unbilled Receivables from Granting Agency~~—Unbilled receivables include certain cost reimbursements owed to the Company resulting from a biomedical research grant from the NIH. Direct costs subject to reimbursement are recorded only after actual expenses have been incurred while indirect costs are calculated using the percentage-of-completion accounting method. Unbilled receivables represent qualified cost reimbursements for which reimbursement have not yet been requested from or billed to the NIH due to the timing of the accounting invoicing cycle. The Company estimates the amount of probable credit losses from its existing unbilled receivables in the form of an allowance for doubtful accounts. The Company determines the allowance for doubtful accounts based upon an aging of unbilled receivables, historical experience, and management judgment. Unbilled receivable balances are reviewed individually for collectability. For the three and nine months ended September 30, 2020 and 2019, the Company has not experienced any credit-related losses.

Concentrations of Credit Risk and Other Uncertainties—Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents. Substantially all of the Company’s cash and cash equivalents were deposited in accounts at a small number of national financial institutions. Account balances may at times exceed federally-insured limits. The Company has not incurred losses related to these cash and cash equivalents deposited at financial institutions and management believes that the Company is not exposed to significant credit risk due to the financial strength of the depository institutions in which the cash is held.

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The Company is subject to certain risks and uncertainties from changes in any of the following areas that the Company believes could have a material adverse effect on future financial position or results of operations: the ability to obtain regulatory approval and market acceptance of, and reimbursement for, the Company’s product candidates; the performance of third-party clinical research organizations and manufacturers; protection of the intellectual property; litigation or claims against the Company based on intellectual property, patent, product, regulatory or other factors; the Company’s ability to attract and retain employees necessary to support commercial success; and changes in the industry or customer requirements including the emergence of competitive products with new capabilities.

The Company records receivables resulting from activities under its research grant from the NIH. Management believes that the Company is not exposed to significant credit risk due to the financial strength of the granting agency.

~~Deposit~~—In connection with 1 of the Company’s facility leases, a deposit is held by the lessor per the terms of the noncancelable agreement. The deposit has been recorded as a long-term asset on the Company’s condensed consolidated balance sheets.

~~Inventories~~—Inventories consist entirely of finished products. The balances presented are stated at the lower of cost or market and is determined using the first-in, first-out method. The Company’s policy is to write down inventory that has become obsolete, inventory that has a cost basis in excess of its expected net realizable value, and inventory quantity in excess of expected requirements. The estimate of write downs to inventory from obsolescence, costs in excess of inventory net realizable value, and inventory quantity in excess of expected requirements is subjective and primarily dependent on the estimates of future demand for a particular product. Adjustments generally increase as demand decreases due to market conditions and product life-cycle changes. As of September 30, 2020 and December 31, 2019, 0 such adjustments have been recorded.

~~Deferred Initial Public Offering Costs~~—In the nine months ended September 30, 2020, the Company began incurring costs in connection with the filing of a Registration Statement on Form S-1/A for an initial public offering, which are deferred in other current assets in accordance with ASC 505-10-25 in the condensed consolidated balance sheets. Initial public offering costs consist of legal, accounting, and other costs directly related to the Company’s efforts to raise capital. As of September 30, 2020, $933,100 of deferred costs related to the initial public offering were classified as other current assets on the condensed consolidated balance sheets.

~~Property and Equipment~~~~—Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets ranging from~~ 1 to 8 years. Major replacements and improvements are capitalized as leasehold improvements, while general repairs and maintenance are expensed as incurred. Estimated useful lives of leasehold improvements are the shorter of the remaining lease term or the estimated useful economic life of the specific asset.

~~Estimated useful lives of property and equipment are as follows for the major classes of assets:~~


~~Asset Description~~		~~Estimated Lives~~
~~Laboratory Equipment~~		~~3 - 8~~
~~Leasehold Improvements~~		~~1 - 7~~
~~Office Furniture, Fixtures, and Equipment~~		5
~~Software~~		~~3 - 5~~

~~Internal Use Software Development Costs~~—The Company capitalizes certain costs incurred to develop internal use software. All costs incurred that relate to planning and post-implementation phases of development are expensed as incurred. Costs incurred in the development and implementation phases are capitalized and amortized over the estimated life of the software, generally five years. The Company capitalized software development costs of approximately $10,200 and $20,000 for the nine months ended September 30, 2020 and 2019, respectively.

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~~Impairment of Long-Lived Assets~~—The Company reviews its long-lived assets, including property and equipment, for impairment indicators. If indicators are noted, the Company compares the carrying amount of the asset to its estimated undiscounted cash flows. If the carrying amount exceeds its estimated undiscounted cash flows, an impairment loss is recognized to adjust the long-lived asset to fair value. There has been 0 impairment losses on the Company’s long-lived assets since inception.

~~Comprehensive Loss~~—Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders. For all periods presented, there was no difference between net loss and comprehensive loss.

Income Taxes—The Company files federal and state income tax returns, utilizing the accrual basis of accounting. Income taxes are provided for the tax effects of transactions reported in the condensed consolidated financial statements and consist of taxes currently due and deferred taxes. Certain transactions of the Company may be subject to accounting methods for income tax purposes, which differ from the accounting methods used in preparing these condensed consolidated financial statements in accordance with GAAP. Accordingly, the net income or loss of the Company reported for income tax purposes may differ from the balances reported for those same items in the accompanying condensed consolidated financial statements.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which such temporary differences are expected to be recovered or settled. The Company records valuation allowances to reduce deferred income tax assets to the amount that is more likely than not to be realized.

The Company records uncertain tax positions in accordance with ASC 740, Income Taxes, on the basis of a two-step process in which (1) the Company determines whether it is more-likely-than-not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying condensed consolidated statements of operations. ~~NaN~~No such interest or penalties were recognized during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020 and 2019.~~2023 or 2022.

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Research and Development Expense—The Company expenses research and development costs as incurred. Research and development expenses include personnel and personnel-related costs, costs associated with the Company’s ~~pre-clinical~~clinical development activities including costs of outside consultants and contractors, the submission and maintenance of regulatory filings, equipment and supplies used in developing products prior to market approval and an allocation of certain overhead costs such as facility and related expenses.

The Company accrues and expenses costs of services provided by contract research organizations in connection with preclinical studies and contract manufacturing organizations engaged to manufacture clinical trial material, costs of licensing technology, and costs of services provided by research organizations and service providers. Upfront payments and milestone payments made for the licensing of technology are expensed as research and development in the period in which they are incurred if the technology is not expected to have any alternative future uses other than the specific research and development project for which it was intended. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed rather than when the payment is made.

~~Proceeds from Grants~~Net Loss per Share Attributable to Common Stockholders—~~—During~~The Company follows the ~~three months ended September 30, 2020 and 2019,~~two-class method when computing net loss per share as the Company ~~recognized $142,400 and $51,600, respectively, as reductions to research and development expense within~~has issued shares that meet the ~~condensed consolidated statements~~definition of operations pursuant to its grant from the NIH. During the nine months ended September 30, 2020 and 2019, the Company recognized $142,400 and $239,900, respectively, as reductions to research and development expense within the condensed consolidated statements of operations pursuant to its grant from the NIH.

~~Convertible Promissory Notes Derivative Liability~~—participating securities. The ~~Company has recorded an embedded derivative liability related to the discount on the~~two-class method determines net loss per share ~~selling price~~for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the ~~holders~~period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.

Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the ~~convertible promissory notes would receive at the time of conversion in connection with the Company’s next equity financing ("the Next Financing Close"). The embedded derivative liability~~period. Diluted net loss attributable to common stockholders is ~~initially recorded at fair value, with gains and losses arising from changes in fair value~~

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recognized in interest expense in the condensed consolidated statements of operations at each period end while such instruments are outstanding. The embedded derivative liability is valued using a probability weighted expected return model. See Note 7.

~~Upon repurchase of convertible promissory notes, ASC 470,~~ ~~Debt with conversion and other options~~~~, requires the Company~~computed by adjusting net loss attributable to ~~allocate total settlement consideration, inclusive of transaction costs, amongst the liability components of the instrument~~common stockholders to reallocate undistributed earnings based on the ~~fair value~~potential impact of dilutive securities.

Diluted net loss per share attributable to common stockholders is computed by dividing the ~~liability component immediately prior~~diluted net loss attributable to ~~repurchase. The difference between~~common stockholders by the ~~settlement consideration allocated~~weighted average number of common shares outstanding for the period, including potential dilutive common shares. For purpose of this calculation, outstanding stock options, convertible preferred stock and warrants to ~~the liability component and the net carrying value of the liability component would be recognized as gain (loss) on extinguishment of debt in the condensed consolidated statements of operations.~~

~~Fair Value Measurements~~—The carrying value of the Company’s cash and cash equivalents, unbilled receivables from the granting agency, prepaid expenses and other assets, accounts payable, accrued expenses and other current liabilities approximate their fair value due to their short-term nature.

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

~~The Company accounts for financial instruments in accordance with ASC 820,~~ ~~Fair Value Measurements and Disclosures~~. ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below:

~~Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.~~

Level 2—Quoted prices in non-active markets or in active markets for similar assets or liabilities, observable inputs other than quoted prices, and inputs that are not directly observable but are corroborated by observable market data.

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

~~There were 0 changes in the fair value hierarchy levels during the nine months ended September 30, 2020 and 2019.~~

The Company’s liabilities that were measured at fair value on a non-recurring and recurring basis converted into Series A-1 Preferred Stock as of September 30, 2020 and December 31, 2019. Per ASC 820, the fair values of the convertible promissory notes are measured on a non-recurring basis at the relevant measurement date. The fair valuepurchase shares of convertible ~~promissory notes embedded derivative liability is measured on a recurring basis at the end of each reporting period.~~

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~~Rollforward of Level 3 Liabilities Measured at Fair Value on a Non-Recurring Basis:~~

September 30,

December 31,

2020

2019
Convertible promissory notes




Beginning balance

$
—

$
—
Amounts allocated to the embedded derivative liability at inception (at fair value)

—

(21,000)
Conversions from accounts payable into convertible promissory notes

—

134,800
Proceeds from issuances of convertible promissory notes

—

250,000
Conversions into Series A‑1 Stock

—

(363,800)
Ending balance

$
—

$
—

Rollforward of Level 3 Liabilities Measured at Fair Value on a Recurring Basis:
Convertible promissory note embedded derivative liability




Beginning balance

$
—

$
—
Realized and unrealized gains and losses

—

2,000
Fair value of embedded derivative liability at inception

—

21,000
Amounts derecognized upon conversion of the related convertible promissory notes

—

(23,000)
Ending balance

$
—

$
—

~~Nonvested Stock Options and Restricted Stock Units~~—Pursuant to the Company’s 2017 Stock Incentive Plan (the “Plan”), the Company has the ability to issue a variety of share-based payments and incentives to members, employees, and non-employees through grants of nonvestedpreferred stock ~~options.~~

~~The vesting conditions for stock options include annual, and monthly. Annual vesting conditions~~ are ~~for four years. Monthly vesting conditions range from~~ 10 ~~to 48 months. When nonvested options are vested, they become exercisable over a 10 year period from grant date.~~

The vesting conditions for restricted stock units include cliff vesting conditions. Certain restricted stock units vest with a range of 6 to 12 months following the expiration of employee lock-up agreements. Certain restricted stock units vest based on the later of achievement of key milestones or the expiration of employee lock-up agreements. When nonvested restricted stock units are vested, they become exercisable over a 10 year period from grant date.considered potential dilutive common shares.

Stock-Based Compensation—The Company records stock compensation expense related to the 2017 Equity Incentive Plan (the “2017 Plan”) and the 2021 Omnibus Equity Incentive Plan (the “2021 Plan”) in accordance with ASC 718, Compensation—Stock Compensation. The Company measures and recognizes stock compensation expense for all stock-based awards, including stock options, based on estimated fair values recognized using cliff vesting or the straight-line method over the requisite service period. The fair value of stock options is estimated on the grant date using the Black-Scholes option-valuation model (the “Black-Scholes model”). The calculation of stock-based compensation expense requires that the Company make assumptions and judgments about the variables used in the Black-Scholes model, including the fair value of the Company’s common stock, expected term, expected volatility of the underlying common stock, and risk-free interest rate. Forfeitures are accounted for when they occur.

The board of directors’ approach to estimating the fair value of the Company’s common stock includes utilizing methods outlined in the American Institute of Certified Public Accountants’ Practice Aid, ~~Valuation of Privately- Held Company Equity Securities Issued as Compensation~~.

~~The~~ Company estimates the grant-date fair value of stock options using the Black-Scholes model and the assumptions used to value such stock options are determined as follows:

Expected Term. The expected term represents the period that the Company’s stock options are expected to be outstanding. Due to limitations on the sale or transfer of the Company’s common stock ~~as a privately held company,~~under the lock-up agreements and market standoff components of the stock option agreements, the Company does not believe its historical exercise pattern is indicative of the pattern it will experience ~~as a future publicly traded company.~~after restricted periods expire. The Company ~~has consequently used~~uses the Staff Accounting Bulletin (“SAB”) No. 110, simplified method to calculate the expected term, which is the average of the contractual term and vesting period. ~~The Company plans to continue to use the SAB 110 simplified method until it has sufficient trading history as a publicly traded company.~~

~~Table of Contents~~

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

Volatility. The Company determines the price volatility based on the historical volatilities of industry peers as it has nolimited trading history for its common stock price. The Company intends to continue to consistently apply this process using the same or a similar peer group of public companies, until a sufficient amount of historical information regarding the volatility

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of its own common stock price becomes available, or unless circumstances change such that the identified peer companies are no longer similar, in which case other suitable peer companies whose common stock prices are publicly available would be utilized in the calculation.

Dividend Yield. The expected dividend assumption is based on the Company’s current expectations about its anticipated dividend policy. To date, the Company has not declared any dividends and, therefore, the Company has used an expected dividend yield of 0.zero.

Common Stock ~~Valuations.~~ Valuations~~The fair value of~~. We use our listed Nasdaq Capital Market closing price on the grant date to determine common stock underlying the Company’s stock-based compensation grants has historically been determined by the Company’s board of directors, with input from management and third-party valuations. The Company believes that the board of directors has the relevant experience and expertise to determine the fair value of the Company’s common stock. Given the absence of a public trading market of the Company’s common stock, and in accordance with the American Institute of Certified Public Accountants Practice Aid, ~~Valuation of Privately-Held Company Equity Securities Issued as Compensation~~, the board of directors exercised reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of the fair value of the Company’s common stock at each grant date. These factors include:

●

~~valuations of the common stock performed by third-party specialists;~~valuation.

●

~~the prices, rights, preferences, and privileges of the Company’s Series A-1 Preferred Stock and Series B Preferred Stock relative to those of the Company’s common stock;~~

●

~~lack of marketability of the common stock;~~

●

~~current business conditions and projections;~~

●

~~hiring of key personnel and the experience of management;~~

●

~~the Company’s stage of development;~~

●

~~likelihood of achieving a liquidity event, such as an initial public offering, a merger or acquisition of the Company given prevailing market conditions, or other liquidation event;~~

●

~~the market performance of comparable publicly traded companies; and~~

●

~~the US and global capital market conditions.~~

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

For each valuation, the equity value determined by the income and market approaches was then allocated to the common stock using either the option pricing method (“OPM”) or probability—weighted expected return model (“PWERM”).

~~Table of Contents~~

equity interests in early stage, privately held life science companies. Management determined that applying the OPM would violate the major assumptions of the Black Scholes option valuation model approach. Additionally, the simulation approach can generally be reasonably approximated by a scenario-based approach like the PWERM as described below.

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

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

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

Segment Data—The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions.

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

~~In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02,~~ ~~Leases~~ (Topic 842), which requires lessees to recognize the following for all leases (with the exception of short-term leases) at the commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. In July 2018, the FASB issued ASU 2018-11 to amend certain aspects of Topic 842. These amendments provide entities with an additional (and optional) transition method to adopt Topic 842. Under this transition method, an entity initially applies the transition requirements in Topic 842 at that Topic’s effective date with the effects of initially applying Topic 842 recognized as a cumulative effect adjustment to the opening balance of retained earnings (or other components of equity or net assets, as appropriate) in the period of adoption. On October 16, 2019, the FASB changed the effective date of this standard applicable to the Company as an emerging growth company to January 1, 2022. The Company is currently evaluating the potential impact of this standard on its financial position, results of operations, and cash flows.

In June 2016, FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326). The amendments in ASU 2016-13 affect entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in ASU 2016-13 require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. On October 16, 2019, the FASB has changed the effective date of this standard applicable to the Company as an emerging growth company to January 1, 2023. The Company ~~is currently evaluating~~has evaluated the potential impact of this standard on its financial position, results of operations, and cash ~~flows.~~

~~On January 1, 2019,~~flows, and determined that it is immaterial to the ~~Company adopted ASU 2016-15 (Topic 230),~~ ~~Classification of Certain Cash Receipts and Payments~~~~, a new standard providing guidance on statement of cash flow classification on specific issues. The standard is effective for~~ financial statements ~~issued for fiscal periods beginning after December 15, 2018. It is required to be applied~~

~~Table~~as of ~~Contents~~June 30, 2023.

~~on a retrospective approach. The Company determined that this standard had no impact on its financial position, results of operations, and cash flows for the year ended December 31, 2019.~~

3.NET LOSS PER SHARE OF COMMON ~~SHARE~~STOCK

Basic and diluted net loss per common share is determined by dividing net loss less deemed dividends by the weighted-average common shares outstanding during the period. For all periods presented the common shares underlying the stock options, ~~convertible Series A-1 Preferred Stock,~~RSUs and ~~the convertible Series B Preferred Stock~~warrants have been excluded from the calculation because their effect would be anti-dilutive. Therefore, the weighted-average common shares outstanding used to calculate both basic and diluted loss per common shares are the same. The following table illustrates the computation of basic and diluted ~~earnings~~loss per share:

Three Months Ended

Nine Months Ended

September 30,

September 30,


2020

2019

2020

2019
Net loss

$
(2,415,700)

$
(886,900)

$
(15,635,300)

$
(1,558,200)
Less: Series B Preferred Stock discount amortization

—

(16,400)

(692,700)

(16,400)
Net loss attributable to common shareholders, basic and diluted

$
(2,415,700)

$
(903,300)

$
(16,328,000)

$
(1,574,600)
Weighted average common shares outstanding, basic and diluted

3,719,132

2,862,523

3,719,132

2,862,523
Net loss per common share, basic and diluted

$
(0.65)

$
(0.32)

$
(4.39)

$
(0.55)

~~For the nine months ended September 30, 2020 and 2019, potentially dilutive securities excluded from the computations of diluted weighted-average common shares outstanding were (in shares):~~

September 30,

September 30,

2020

2019
Options to purchase

1,484

149,309
Restricted Stock Units

36,368

—
Series A‑1 Preferred Stock

624,594

602,426
Series B Preferred Stock

452,378

70,622
Total

1,114,824

822,357


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Net loss	$	(6,764,400)	$	(8,435,100)	$	(12,064,700)	$	(15,802,800)
Less: Initial Public Offering Common Stock discount amortization		(24,900)		(24,900)		(49,500)		(49,600)
Less: Public Offering Common Stock discount amortization		(61,000)		(61,000)		(121,400)		(121,400)
Less: Dividends attributable to preferred stock		(515,100)		—		(515,100)		—
Net loss attributable to common shareholders	$	(7,365,400)	$	(8,521,000)	$	(12,750,700)	$	(15,973,800)

4.~~PROPERTY AND EQUIPMENT~~

~~Property and equipment consisted of the following at September 30, 2020 and December 31, 2019:~~

September 30,

December 31,

2020

2019
Equipment

$
736,000

$
488,800
Leasehold improvements

1,126,600

302,700
Office furniture, fixtures, and equipment

16,600

16,600
Software

151,700

141,500
Construction in progress

62,000

—

2,092,900

949,600
Less: Accumulated depreciation

(480,600)

(361,700)
Total

$
1,612,300

$
587,900

Depreciation expense was $50,400 and $20,700 for the three months ended September 30, 2020 and 2019, respectively, and $118,900 and $63,700 for the nine months ended September 30, 2020 and 2019, respectively. Depreciation expense is allocated between research and development and general and administrative operating expenses on the condensed consolidated statements of operations.

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5.~~ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES~~

~~Accrued expenses and other current liabilities consisted of the following at September 30, 2020 and December 31, 2019:~~

September 30,

December 31,

2020

2019
Accrued consulting and outside services

$
435,900

$
221,300
Accrued compensation

37,100

—
Total

$
473,000

$
221,300

6.~~CURRENT LOAN PAYABLE~~

On May 1, 2020, the Company received a loan in the principal amount of $115,600 (the “SBA Loan”) under the Paycheck Protection Program (“PPP”), which was established under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (the “SBA”). The intent and purpose of the PPP is to support companies, during the COVID-19 pandemic, by providing funds for certain specified business expenses, with a focus on payroll. As a qualifying business as defined by the SBA, the Company is using the proceeds from this loan to primarily help maintain its payroll. The term of the SBA Loan promissory note (“the Note”) is two years, though it may be payable sooner in connection with an event of default under the Note. The SBA Loan carries a fixed interest rate of 1 percent per year, with the first payment due seven months from the date of initial cash receipt. Under the CARES Act and the PPP, certain amounts of loans made under the PPP may be forgiven if the recipients use the loan proceeds for eligible purposes, including payroll costs and certain rent or utility costs, and meet other requirements regarding, among other things, the maintenance of employment and compensation levels. The Company intends to use the SBA Loan for qualifying expenses and to apply for forgiveness of the SBA Loan in accordance with the terms of the CARES Act.

The Note provides for customary events of default, including, among others, those relating to failure to make payment, bankruptcy, materially false or misleading representations to the SBA, and adverse changes in the Company’s financial condition or business operations that may materially affect its ability to pay the SBA Loan.

~~As the legal form of the Note is a debt obligation, the Company accounts for it as debt under ASC 470,~~ ~~Debt~~, and recorded $105,600 during the nine months ended September 30, 2020 in the condensed consolidated balance sheet. During the nine months ended September 30, 2020, the Company received initial proceeds of $115,600 and made a repayment of $10,000 on the SBA Loan, bringing the balance to $105,600 as of September 30, 2020. The Company accrues interest over the term of the loan and does not impute additional interest at a market rate because the guidance on imputing interest in ASC 835-30, ~~Interest~~, excludes transactions where interest rates are prescribed by a government agency. If any amount of the loan is ultimately forgiven, income from the extinguishment of debt would be recognized as a gain on loan extinguishment in the condensed consolidated statement of operations.

7.~~CONVERTIBLE PROMISSORY NOTES~~

Starting in June 2016, the Company sold convertible promissory notes to certain investors to help finance its operations. The convertible promissory notes were in amounts ranging from $12,500 to $500,000, earning annual interest between 6% and 17% and all maturities were on June 1, 2019, January 2, 2020, or June 30, 2020 (the “Maturity Date”).

The convertible promissory notes were convertible into shares issued in the Company’s Next Financing Close by dividing the total amount of convertible promissory notes, plus accrued interest (the “Balance”), by the applicable conversion price, as defined in the convertible promissory notes. If the convertible promissory notes have not been converted, the Balance shall be payable in full if the Company consummates a change of control transaction. If there has not been a Next Financing Close or a change in control by the Maturity Date, then at the noteholders’ option, the Company shall either repay the Balance then outstanding or convert into the Company’s common stock at a set conversion price then in effect, as defined in the convertible promissory notes.

The estimated fair value of the conversion discount related embedded derivative was determined using a probability-weighted expected return model. The probability of a Next Financing Close occurring prior to the Maturity Date was determined to be 55% during the nine months ended September 30, 2019. The net present value of the conversion discount related embedded derivative was measured using a discount rate of 25% in the nine months ended

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	Three Months Ended				Three Months Ended
	June 30, 2023				June 30, 2022
	Common Stock		Preferred Stock		Common Stock		Preferred Stock
Net loss per share, basic and diluted
Allocation of undistributed net loss	$	(3,398,256)	$	(3,967,144)	$	(8,521,000)	$	—
Weighted average shares outstanding, basic and diluted		1,054,277		8,000		524,402		—
Basic and diluted net loss per share	$	(3.22)	$	(495.89)	$	(16.25)	$	—

~~September 30, 2019. There have been 0 convertible promissory note issuances in~~


	Six Months Ended				Six Months Ended
	June 30, 2023				June 30, 2022
	Common Stock		Preferred Stock		Common Stock		Preferred Stock
Net loss per share, basic and diluted
Allocation of undistributed net loss	$	(7,782,723)	$	(4,967,977)	$	(15,973,800)	$	—
Weighted average shares outstanding, basic and diluted		964,049		4,022		521,259		—
Basic and diluted net loss per share	$	(8.07)	$	(1,235.17)	$	(30.64)	$	—

For the ~~nine~~three months ended ~~September~~June 30, ~~2020. Below is a table~~2023, there were 23,936 restricted stock units and 15,416 warrants, that ~~outlines~~were potentially dilutive securities excluded from the ~~initial value~~computations of ~~issuances and the bifurcated embedded derivative liability during the nine months ended September 30, 2020 and 2019:~~diluted weighted-average shares of common stock.

September 30,

September 30,

2020

2019
Convertible promissory notes- issuances

$
—

$
250,000
Conversion of accounts payable into convertible promissory notes

—

134,800
Total issuances and conversions into convertible promissory notes

—

384,800

Embedded derivative liability




Initial fair value upon issuance of convertible promissory notes

—

21,000
Realized and unrealized gains and losses

—

2,000
Converted embedded derivative liability into Series A‑1 Preferred Stock

—

(23,000)
Embedded derivative liability balance at September 30

$
—

$
—

~~On August 15, 2019, each holder of convertible~~During the six months ended June 30, 2023, the Company entered into an Exchange Agreement whereby outstanding promissory notes ~~issued during 2019 agreed to voluntarily convert the amounts of principal and interest then outstanding into~~totaling $8,000,000 were exchanged for 8,000 shares of Series ~~A-1~~C Convertible Voting Preferred ~~Stock. See Note 9 for further details. NaN additional convertible promissory notes were issued for~~Stock (the “Series C Stock”). The Series C Stock accrues an annual 25% dividend, whether or not declared, which if unpaid is added to the ~~nine~~aggregate liquidation preference. During the six months ended ~~September~~June 30, ~~2020 following~~2023, the ~~conversion on August 15, 2019.~~preferred shareholders earned $515,100 of preferred dividends, which were not declared.

4.	PROPERTY AND EQUIPMENT

8.~~COMMITMENTS AND CONTINGENCIES~~

~~Facility Lease Agreements~~—The Company leases its premises in Houston, Texas under a noncancelable operating lease expiring in May 2021. The lease renewal which occurred in 2019 resulted in an expansion to the lease of approximately 4,100 square feet. The Company may extend this lease for up to two years. The total lease payments per month will be $21,353 beginning January 1, 2020. The Company records rent expense on a straight-line basis over the termProperty and equipment consisted of the ~~respective leases.~~

Asfollowing as of ~~September~~June 30, ~~2020, future minimum commitments under facility lease agreements were as follows:~~2023 and December 31, 2022:


	Amount		June 30, 2023		December 31, 2022
2020	$	64,100
2021		85,400
Equipment			$	3,041,900	$	3,041,900
Leasehold improvements				7,298,500		7,298,500
Office furniture, fixtures, and equipment				137,300		137,300
Software				359,500		359,500
Construction in progress				30,400		—
				10,867,600		10,837,200
Less: Accumulated depreciation				(3,805,800)		(2,700,300)
Total	$	149,500	$	7,061,800	$	8,136,900

~~Rent~~Depreciation expense ~~for the facility lease agreements~~ was ~~$194,800~~$549,600 and ~~$91,300 during the nine months ended September 30, 2020 and 2019, respectively, and $67,700 and $33,300 during~~$399,100 for the three months ended ~~September~~June 30, ~~2020~~2023 and ~~2019,~~2022, respectively, and $1,105,400 and $581,900 for the six months ended June 30, 2023 and 2022, respectively. ~~Rent~~ Depreciation expense is ~~included as an allocation~~allocated between research and development and general and administrative ~~expense in~~operating expenses on the condensed consolidated statements of operations.

5.ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following as of June 30, 2023 and December 31, 2022.


	June 30, 2023		December 31, 2022
Accrued litigation *	$	1,770,000	$	—
Accrued compensation		323,500		668,700
Accrued consulting and outside services		221,300		212,900
Total	$	2,314,800	$	881,600

* See Note 13 Subsequent Events for more information.

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6.NOTE PAYABLE

In November 2022, the Company entered into a financing arrangement for its Director and Officer Insurance policy. The total amount financed was approximately $610,700 with an annual interest rate of 8.49%, to be paid over a period of eleven months. As of June 30, 2023 and December 31, 2022, the remaining payable balance on the financed amount was $227,600 and $557,200, respectively.

7.COMMITMENTS AND CONTINGENCIES

License Agreements—The Company has entered into a number of licensing arrangements for various intellectual property and licensed patent rights for technologies being developed for commercial sale. As part of these arrangements, the Company is subject to contingent milestone payments in accordance with agreed-upon development objectives, as well as future royalty payments on product sales of the underlying assets. As of ~~September~~June 30, ~~2020~~2023 and December 31, ~~2019,~~2022, the Company has not incurred any milestone or royalty liabilities related to these license agreements.

Legal Proceedings— On March 22, 2021, Jason Terrell (“Terrell”), a former consultant and former director of the Company, commenced an action against us in the Court of Chancery of the State of Delaware, C.A. No. 2021-0248-MTZ (the “Action”). In the ~~normal course of business,~~Action, Terrell seeks a declaratory judgment that the Company is obligated to issue him (i) options to purchase 16,667 shares of common stock at a price of $5.10 per share pursuant to an alleged 2014 consulting agreement, and (ii) options to purchase an additional 16,667 shares of common stock at a price of $5.10 per share pursuant to an alleged January 2017 non-employee director options agreement. In his complaint, Terrell also claimed that, pursuant to the operative certificate of incorporation, he is entitled to indemnification from us for attorneys’ fees and costs he incurs in connection with the Action because the Action arises in connection with his position as a former director.

The Company disputes Terrell’s claims and allegations in the Action and intends to vigorously defend against them. On May 21, 2021, the Company filed a motion to dismiss Terrell’s claims in the actions with prejudice, arguing that (i) Terrell’s options-related claims fail because his 2014 and January 2017 agreements were explicitly superseded by a later options agreement, under which Terrell relinquished his prior options; and (ii) Terrell is not entitled to indemnification because the Action relates to contracts between the Company and Terrell in his personal capacity, and not in connection with any activities or duties of Terrell in his official capacity as former director. In response to the motion, filed on June 21, 2021, Terrell withdrew his claim for indemnification, but opposed the portion seeking dismissal of his declaratory judgment claim. The motion was fully briefed with the filing of the Company’s reply brief on July 7, 2021.

Oral argument was held before the Vice Chancellor on October 20, 2021. During oral argument, the Vice Chancellor invited the parties to submit supplemental letter briefs on the question of whether the Court of Chancery even had the authority to adjudicate the Action in light of the delegation of authority in Terrell’s most recent stock option agreement with the Company (the “SOA”) to the Company’s Compensation Committee to resolve all disputes regarding the interpretation of the SOA. The parties submitted simultaneous supplemental letters briefs on this issue on November 15, 2021. On January 20, 2022, the Vice Chancellor issued her decision on our motion to dismiss, ruling that the Action is stayed until the Compensation Committee itself resolves whether it has sole authority to resolve the parties’ contract interpretation dispute.

Subsequently, the parties agreed upon a process for coordinating submissions and/or presentations to the Compensation Committee. The parties made their respective written submissions to the Compensation Committee on March 31, 2022, and on July 21, 2022, the Compensation Committee determined that (i) the Compensation Committee has sole authority under the SOA to resolve the parties’ contract interpretation dispute, and (ii) Terrell’s most recent options agreement superseded and nullified any option rights Terrell may have ~~various claims~~had under his prior agreements. On August 2, 2022, the Vice Chancellor issued an order dismissing the Action for lack of subject matter jurisdiction.

On August 23, 2022, Terrell filed a notice of appeal of the Vice Chancellor’s order of dismissal to the Delaware Supreme Court.

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Supreme Court affirmed several of the Chancery Court’s legal determinations on the motion to dismiss, but concluded that Chancery Court itself should independently review the Compensation Committee’s determinations under Delaware law.

The parties are awaiting guidance from the Chancery Court regarding further briefing and/or argument on our motion to dismiss.

In a separate matter, on or about August 17 and 23, 2021, Tony Tontat, who at the time was the Chief Financial Officer and a member of the Board, submitted substantially identical reports (the “Complaints”) through the Company’s complaint hotline. These Complaints, alleged, among other topics, risks associated with the Company’s public disclosures in ~~process~~securities filings and in statements made to the public, investors, and potential investors regarding (i) the anticipated timing of the FDA authorization of the IND applications and (ii) the anticipated timing of human clinical trials. These Complaints were subsequently submitted to the Audit Committee of the Board.

After receiving the Complaints, the Audit Committee recommended that the Board form, and the Board did in turn form, a Special Committee comprised of three independent directors (the “Special Committee”) to review the Complaints and other ~~contingencies.~~ related issues (the “Internal Review”). The Special Committee retained an independent counsel to assist it in conducting the Internal Review.

On February 2, 2022, following the conclusion of the Internal Review, the Company’s Special Committee reported the results of its Internal Review to the Board. The Board approved certain actions to address the fact that the Company had received communications from the FDA on June 16 and June 17, 2021 that the FDA was placing the IND applications that the Company submitted to the FDA on May 14 and May 17, 2021 for the ALEXIS-PRO-1 and ALEXIS-ISO-1 product candidates, respectively, on clinical hold (the “June 16 and 17 FDA Communications”). The Company did not disclose the June 16 and 17, 2021 FDA Communications in the Registration Statement on Form S-1 (Registration No. 333-257427) that was filed on June 25, 2021 and declared effective on June 29, 2021, nor the final prospectus contained therein dated June 29, 2021 (collectively, the “Registration Statement”). The Company then consummated a public offering of $40 million of its common stock pursuant to the Registration Statement on July 2, 2021. On July 13, 2021, the Company received the FDA’s formal clinical hold letters, which asked the Company to address key components regarding the chemical, manufacturing, and control components of the IND applications. On July 16, 2021, the Company issued a press release disclosing that it had received comments from the FDA on the two INDs, but did not use the term “clinical hold.” The Company did not disclose the clinical hold in its Form 10-Q for the fiscal quarter ended June 30, 2021 that was filed with the Securities and Exchange Commission on August 13, 2021. On August 13, 2021, the Company issued a press release announcing that these INDs were placed on clinical hold.

Upon completion of the Internal Review, the Company voluntarily contacted the SEC to report certain information about the Internal Review. Since that time, the Company has been voluntarily cooperating with requests for information from the SEC and intends to fully cooperate with any further requests from the SEC.

In November 2022, we received a Grand Jury Subpoena (the “Subpoena”) from the U.S. Department of Justice requesting certain information from the company in connection with an ongoing investigation being conducted by the Federal Grand Jury in the Southern District of Texas. The Company is not a target of this investigation at this time.

As a result of the disclosure omission of the June 16 and 17 FDA Communications, on March 7, 2022, entities related to Sabby Management LLC (the “Sabby Entities”) and Empery Asset Management, LP (the “Empery Entities”) filed a complaint in the United States District Court for the Southern District of New York asserting claims against the Company and certain current and former officers and directors of the Company for alleged violations of Sections 11, 12, and 15 of the Securities Act of 1933 in connection with the purchase of common stock through the Company’s public offering that closed on July 2, 2021. On July 1, 2022, the defendants filed motions to dismiss the complaint. In response, on July 22, 2022, the plaintiffs amended their complaint to, among other things, include the Company’s underwriters on the July 2, 2021 public offering, ThinkEquity LLC, as a defendant. The plaintiffs seek unspecified damages; rescission to the extent they still hold the Company’s securities, or if sold, rescissory damages; reasonable costs and expenses, including attorneys’ and experts’ fees; and other unspecified equitable and injunctive relief. The two parties reached a settlement agreement in principle on September 26, 2022, which the Company’s board of directors approved on September 27, 2022. The settlement contained a cash component of $75,000 payable to Sabby Entities and $75,000 to Empery Entities.

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As part of the settlement, the Company also agreed to issue convertible notes (the “Settlement Notes”) in the aggregate principal amount of $1,656,720 to each of the Empery Entities and the Sabby Entities. The Settlement Notes are convertible into shares (the “Conversion Shares”) of the Company’s common stock at an initial conversion price per share of $9.20 and can be convertible into a maximum of 180,000 shares of the Company’s common stock to each of the Empery Entities and Sabby Entities, subject to the adjustment of the conversion price and a beneficial ownership limitation equivalent to 9.99%. The United States District Court for the Southern District of New York granted a motion jointly filed by the plaintiffs and defendants, pursuant to which the Settlement Notes will be unrestricted and exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), and the Conversion Shares, when issued upon conversion of the Settlement Notes in accordance with the terms set forth therein, will also be unrestricted and exempt from the registration requirements of the Securities Act.

There was also a related subordinated convertible promissory note totaling $2,914,000 on the balance sheet at December 31, 2022, which Empery held $1,502,700 and Sabby held $1,411,300. During the three months ended March 31, 2023, Empery and Sabby converted the totality of their notes into shares of common stock of 163,268 and 153,333, respectively, at a share price of $9.20.

On August 5, 2022, Ronald H. Karp filed a class action complaint in the United States District Court for the Southern District of New York (the “Karp Class Action”) covering the same subject matter as the Sabby Entities’ and Empery Entities’ claim discussed above asserting claims against the Company and certain current and former officers and directors for alleged violations of Sections 11, 12, and 15 of the Securities Act of 1933 in connection with the purchase of common stock through the Company’s public offering that closed on July 2, 2021 and Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 promulgated thereunder in connection with the certain statements and acts made by the defendants between June 25, 2021 and August 13, 2021.

On October 3, 2022, Joseph Podmore filed a class action complaint in the United States District Court for the Southern District of New York (the “Podmore Class Action”) covering the same subject matter as the Sabby Entities’ and Empery Entities’ claim discussed above asserting claims against the Company and certain current and former officers and directors for alleged violations of Sections 11, 12, and 15 of the Securities Act of 1933 in connection with the purchase of common stock through the Company’s public offering that closed on July 2, 2021 and Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 promulgated thereunder in connection with the certain statements and acts made by the defendants between June 25, 2021 and August 13, 2021.

The Karp Class Action and the Podmore Class Action are collectively referred to as the “Class Action.” See Note 13 – Subsequent Events for further discussion.

The Company regularly assesses all contingencies and believes, based on information presently known, the Company is not involved in any other matters that would have a material effect on the Company’s financial position, results of operations ~~and~~or cash flows.

8.LEASES

The Company adopted FASB ASU No. 2016-02, Leases (Topic 842) on January 1, 2022, using the modified retrospective method, in which it did not restate prior periods. Upon adoption, the Company elected the package of practical expedients permitted under the transition guidance within Topic 842 which, among other things, allowed the Company to carry forward the historical lease classification.

In our implementation of ASU No. 2016-02 the Company elected to discount lease obligations using our incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments. The Company’s incremental borrowing rate represents the rate of interest that it would have to pay to borrow over a similar term an amount equal to the lease payments in a similar economic environment. The Company considers publicly available data for instruments with similar terms and characteristics when determining its incremental borrowing rates. In addition, we elected the practical expedient to account for the lease and non-lease components on a combined basis. The Company intends to use the full lease term under the existing lease agreement as the lease term,

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9.~~STOCKHOLDERS’ EQUITY (DEFICIT)~~

~~On December 16, 2019,~~which is currently set to expire on April 30, 2026. As of June 30, 2023, the Company ~~amended and restated~~is not able to determine if any renewal options will be exercised.

The Company leases its ~~certificate of incorporation to, among other things, (i) complete a 1-for-10 reverse split of~~premises in Houston, Texas under an operating lease which was renewed on November 19, 2020. This renewed lease agreement will commence under an operating lease agreement that is noncancelable from commencement until May 1, 2024.

On March 22, 2021, the Company’s ~~outstanding shares~~Board of ~~common stock; (ii) increase~~Directors approved a lease expansion within its premises in Houston, Texas. The amended lease agreement commenced on August 1, 2021 under an operating lease agreement that is noncancelable from commencement until May 1, 2024. The amended lease agreement adds approximately 15,385 square feet. The Company has the ~~Company’s authorized Preferred Stock~~option to ~~60,000,000 shares~~cancel the lease thereafter until the agreement expires on May 1, 2026. The termination date is effective after a 90-day notice of cancellation.

Two further amendments were executed in 2021. The agreements commenced on November 1, 2021, and ~~(iii) change~~December 1, 2021 under an operating lease agreement that is noncancelable from commencement until May 1, 2024. The amended lease agreement adds approximately 3,684 square feet. The Company has the ~~par value~~option to cancel the lease thereafter until the agreement expires on May 1, 2026. The termination date is effective after a 90-day notice of cancellation.

An amendment to the ~~Preferred Stock from $0.01~~lease agreement was executed in January 2022 and commenced May 1, 2022. The amendment added approximately 9,352 square feet. The Company has the option to ~~$0.0001~~cancel the lease thereafter until the agreement expires on May 1, 2026. The termination date is effective after a 90-day notice of cancellation. In year one and two monthly rent is $4,800 per ~~share.~~month, in year three and four monthly rent is $4,896 per month, and in year five monthly rent is $5,000 per month.

~~On June 17, 2020,~~If the Company ~~filed an amendment to its amended and restated certificate of incorporation to complete a 1-for-3.494 reverse split of~~exercises the ~~Company’s outstanding shares common stock.~~

~~Accordingly, unless otherwise noted, all share and per share information has been restated to retroactively show the effect of these stock splits.~~

~~As of September 30, 2020,~~cancellation option, the Company ~~was authorized~~must also pay the lessor a termination payment equal to ~~issue 300,000,000 shares~~three months of ~~common stock and 60,000,000 shares of Preferred Stock, of which 24,000,000 shares were designated as Series A-1 Preferred Stock and 16,500,000 shares were designated as Series B Preferred Stock.~~

As of December 31, 2019, the Company was authorized to issue 300,000,000 shares of common stock and 60,000,000 shares of Preferred Stock, of which 24,000,000 shares were designated as Series A-1 Preferred Stock and 14,130,435 shares were designated as Series B Preferred Stock.base rent.

~~Common Stock~~—From inception in December 2012 through May 2016, the Company raised proceeds from capital contributions for common stock at a $0.001 par value, net of redemptions, totaling $6,214,800. When the Company converted from Kiromic, LLC to Kiromic, Inc., the shares converted from two classes to a single class of common stock. At the time of conversion, the par value on the two classes of common stock eliminated, and the par value of common stock transferred entirely into additional paid-in capital. There were 0 additional raises from common stock that occurred in the nine months ended September 30, 2020 or 2019.

The Company ~~authorized shares~~entered into a sublease of ~~300,000,000 as~~three suites for the use of ~~September 30, 2020~~certain fixture, fixtures and December 31, 2019. On June 8, 2020, the Company agreed to amend the warrant vesting schedule such that the warrants became immediately exercisable for each warrant holder. On June 8, 2020, warrant holders exercised their option to purchase 335,982 shares of common stock for proceeds of $1,200. Then,equipment on June 10, 2020, warrant holders exercised their option to purchase an additional 1,063,939 shares of common stock for proceeds of $3,700. There are 0 and 839,952 warrants outstanding as of September 30, 2020 and December 31, 2019, respectively.

~~On June 8, 2020, the Company issued 3,106 and 430 shares of common stock to the Company’s Chief Medical Officer and another employee, respectively. In addition,~~2, 2023. The lease commenced on June ~~19, 2020,~~5, 2023 under an operating lease agreement that is noncancelable until April 29, 2026. The monthly rent is $6,444 and remains flat during the Company issued 402,000 and 320,000 shares of common stock to the Company’s Chief Financial Officer and Chief Operating Officer ("the CFO and COO") and Chief Strategy and Innovation Officer ("the CSO"), respectively. The shares were issued in ~~exchange~~ ~~for services rendered and 0~~ ~~cashconsiderations. These issuances resulted in $9,432,000 in stock compensation expenses.~~

Each holder of outstanding shares of common stock shall be entitled to 1 vote in respect of each share. The number of authorized shares of common stock may be increased or decreased by the affirmative vote of a majorityperiod of the ~~outstanding shares of common stock and preferred stock voting together as a single class.~~

lease. The Company has never paid dividends and has 0 plans to pay dividends on common stock. As of December 31, 2017, the Company adopted a stock option plan (“the Plan”). On September 25, 2019, the board of directors approved an additional 10,000,000 shares to be reserved and authorized under the Plan. This approval increased the total number of authorized shares from 20,000,000 to 30,000,000. After the reverse stock splits, the total number of authorized shares was updated to 858,615. On June 19, 2020, the board of directors approved an additional 850,000 shares to be reserved and authorized under the Plan. This approval increased the total number of authorized shares from 858,615 to 1,708,615.

~~There were 142,141 shares and 258,813 shares available~~rent income received for ~~issuance as of September 30, 2020 and December 31, 2019, respectively.~~this sublease is recorded in other income.

~~Series A-1 Preferred Stock~~—Between June 8, 2018 and August 14, 2018, the Company entered into agreements to issue preferred stock and received advances of $900,000. The advances received under the agreements were recorded as liabilities until the preferred stock was issued and bore interest at a rate of 6.5%. The agreements were amended on

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September 10, 2018, when, in exchange for additional preferred stock to be issued, the advances no longer bore interest. On December 20, 2018, 2,032,749 shares of Series A-1 Preferred Stock were issued for the $912,800, representing the advances received and accrued interest through September 10, 2018.

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or the occurrence of a liquidation the holders of the shares of Series A-1 Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, before any payment shall be made to the holders of common stock by reason of their ownership thereof, an amount per share equal to $0.50, the original issue price.

On matters submitted to a vote of the stockholders of the Company, Series A-1 Preferred Stock and common stock (see above) vote together as one class, with the vote of the Series A-1 Preferred Stock on an as-converted basis. Each holder of Series A-1 Preferred Stock shall have a number of votes equal to the shares of common stock into which the shares of Series A-1 Preferred Stock held by such holder are then convertible.

~~With respect rights on liquidation, winding up and dissolution, shares of the Series A-1 Preferred Stock rank senior to all shares of common stock.~~

Each share of Series A-1 Preferred Stock is convertible at any time at the option of the holder at the then current conversion rate. In addition, upon the closing of the sale of shares of common stock to the public in an initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, all shares of preferred stock shall automatically be converted into shares of common stock at the then effective conversion rate.

~~Series B Preferred Stock~~—On September 13, 2019, the Company amended and restated its certificate of incorporation to authorize the issuance of up to 14,130,435 shares of Series B Preferred Stock. On September 13, 2019, the Company sold 7,608,696 shares of Series B Preferred Stock for $3,500,000. Proceeds of $1,571,400 were received as of September 30, 2020, with the remaining balance received as of October 31, 2019. On November 13, 2019, the Company issued an additional 2,173,913 shares of Series B Preferred Stock for $1,000,000. In connection with the sale of the Series B Preferred Stock, each investor was issued warrants to purchase 0.0859 shares of common stock for each share of Series B Preferred Stock purchased at a price of $0.003494 per share of common stock ("Warrants"). See below for further details.

Until the filing of the amended and restated certificate of incorporation on December 16, 2019, shares of Series B Preferred Stock had accrued unpaid dividends at an annual rate of 6% per share. The amended and restated certificate of incorporation eliminated the clause requiring the dividend accrual. In addition, on December 6, 2019, the Series B Preferred Stock investors voted in favor of forfeiting all accrued and unpaid dividends, along with all future dividends. In exchange, the Company issued 87,050 shares of Series B Preferred Stock to the investors. The Company treated this transaction as accretion and settlement of a Series B Preferred Stock dividends in the amount of $40,000. Accordingly, additional paid-in capital was reduced by $40,000.

The Series B Preferred Stock conversion price is initially equal to the Series B Preferred Stock original issuance price of $0.46 per share divided by the rate at which shares of Series B Preferred Stock may be converted into shares of common stock. The holders of the Series B Preferred Stock held a special redemption right. In the event the Company had not filed an initial registration statement with the United States Securities and Exchange Commission and submitted an application to be listed on the Nasdaq Stock market on or prior to November 15, 2019, subject to Delaware law governing distributions to stockholders and the Company’s ability to redeem its shares, all or part of the shares of Series B Preferred Stock held by any holder of record as of such date of shares of Series B Preferred Stock with an aggregate purchase price of at least $1,000,000 would have been be redeemable at the option of such holders of record commencing any time on or after November 16, 2019 at a price equal to the purchase price paid for such shares plus all unpaid dividends accrued on such shares. Also, in the event that the Company was not ultimately approved for listing on a Nasdaq Stock Market tier lower than the Nasdaq Global Select Market, the special redemption right would remain in effect and may have been exercisable on any date thereafter. If the Company was unable to execute a redemption upon request of a holder, interest would accrue on the shares at rate of 14.6%, or warrants underlying the shares would be exercisable and the fair market value of the shares of common stock received in connection therewith would be treated as payment in exchange for the shares of Series B Preferred Stock submitted for redemption by such holder.

On November 12, 2019 and November 13, 2019, the Series B Preferred Stock investors signed waivers, which provided consent to the Company to eliminate the special redemption right. When the Company amended and restated its certificate of incorporation on December 16, 2019, the special redemption right provision was eliminated.

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The ~~elimination of~~following table indicates the ~~special redemption right allows~~balance sheet line items that include the right-of-use assets and lease liabilities for permanent equity classification for the Series B Preferred Stock. Since the Warrants are equity classified, the Company allocated the relative fair value of the cash proceeds between the Series B Preferred Stock and the Warrants. The fair value of the Warrants is offset by a contra account, which is classified as a discount to the Series B Preferred Stock. The discount is amortized using the effective interest method at an effective interest rate of 28% per annum.our operating lease:

On January 24, 2020, the Company issued 4,782,608 shares of Series B Preferred Stock for $2,200,000. On January 29, 2020, the Company filed a certificate of correction to its amended and restated its certificate of incorporation to authorize the issuance of up to 16,500,000 shares of Series B Preferred Stock. On January 31, 2020, the Company issued an additional 1,739,130 shares of Series B Preferred Stock for $800,000.



	June 30, 2023			December 31, 2022
	Operating lease			Operating lease
Right-of-Use Asset
Operating lease	$	1,840,400	$	2,117,300
Total right-of use asset	$	1,840,400	$	2,117,300

Lease Liabilities
Operating lease - short term	$	(608,800)	$	(584,400)
Operating lease - long term		(1,231,700)		(1,544,900)
Total lease liabilities	$	(1,840,500)	$	(2,129,300)

~~Below is a table that outlines the initial value of issuances allocated to Series B Preferred Stock and the Series B Preferred Stock discount amortized during~~For the three months and ~~nine~~six months ended ~~September 30:~~June 30, 2023, the components of lease expense were as follows:

2020

2019
Series B Preferred Stock




Balance at January 1,

$
1,306,900

$
—
Series B Preferred Stock proceeds

3,000,000

—
Series B Preferred Stock discount

(2,668,300)

—
Series B Preferred Stock discount amortization

368,400

—
Balance at March 31

$
2,007,000

$
—
Series B Preferred Stock discount amortization

324,300

—
Balance at June 30

$
2,331,300

$
—
Series B Preferred Stock proceeds

—

1,571,400
Series B Preferred Stock discount

—

(1,202,600)
Series B Preferred Stock discount amortization

—

16,400
Balance at September 30

$
2,331,300

$
385,200


		Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
		June 30, 2023			June 30, 2022		June 30, 2023				June 30, 2022
Operating lease cost allocated to research and development expense	$	89,500		$	131,300		$	179,000		$	213,700
Operating lease cost allocated to general and administrative expense		89,500			38,200			179,000			106,300
Total lease expense	$	179,000		$	169,500		$	358,000		$	320,000
Weighted-average remaining lease term		2.84			3.84			2.84			3.84
Weighted-average discount rate		7.12	%		7.12	%		7.12	%		7.12	%

InAs of June 30, 2023, the ~~event of any voluntary or involuntary liquidation, dissolution or winding up~~maturities of the Company’s operating lease liabilities were as follows:




Maturity of Lease Liabilities		Operating lease
2023 (remaining)	$	358,800
2024		717,600
2025		724,700
2026		242,800
Total lease payments		2,043,900
Less: imputed interest		(203,400)
Present value of lease payments		1,840,500

The Company ormaintained a month-to-month lease in Arlington, VA, until October 1, 2022, which was considered a short-term lease. The Company elected to exclude this lease from the ~~occurrence of a liquidation, the holders~~determination of the ~~shares~~right-of-use asset and lease liability, as permitted under ASC 842. The Company recognized the lease payments in profit or loss in the statement of ~~Series B Preferred Stock then outstanding shall be entitled to be paid out~~operations on a straight-line basis over the term of the ~~assets~~lease. The monthly rent expense prior to termination of the ~~Company available for distribution to its stockholders, before any payment shall be made to~~lease was $2,500 per month. For the ~~holders of common stock by reason of their ownership thereof, an amount per share equal to $0.46, the original issue price.~~

On matters submitted to a vote of the stockholders of the Company, Series B Preferred Stock, Series A-1 Preferred Stock, and common stock vote together as one class, with the vote of the Series B Preferred Stock on an as-converted basis. Each holder of Series B Preferred Stock shall have a number of votes equal to the shares of common stock into which the shares of Series B Preferred Stock held by such holder are then convertible.

~~With respect rights on liquidation, winding up and dissolution, shares of Series B Preferred Stock rank senior to all shares of common stock, but not senior to Series A-1 Preferred Stock.~~

Each share of Series B Preferred Stock is convertible at any time at the option of the holder at the then current conversion rate. In addition, upon the closing of the sale of shares of common stock to the public in an initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, all shares of preferred stock shall automatically be converted into shares of common stock at the then effective conversion rate.six months ended June 30, 2022, short-term lease expense was $15,000.

~~Conversion of Convertible Promissory Notes~~—On December 20, 2018, the Company’s certificate of incorporation was amended to authorize 24,000,000 shares Series A-1 Preferred Stock. This amendment qualified as the Next Financing Close with respect to the convertible promissory notes. Therefore, the outstanding principal and accrued interest was converted into Series A-1 Preferred Stock. At the time of conversion, outstanding principal and accrued interest of the convertible promissory notes totaled $7,541,600. Per the convertible promissory notes, the conversion price was $0.40. Accordingly, 18,854,033 shares were issued to convert the outstanding principal and accrued interest into Series A-1 Preferred Stock.

On August 15, 2019, each holder of convertible promissory notes issued during 2019 agreed to voluntarily convert the amounts of principal and interest then outstanding into shares of Series A-1 Preferred Stock. At the time of conversion, outstanding principal and accrued interest of the convertible promissory notes totaled $405,300. Per the convertible promissory notes, the notes containing a $250,000 principal balance with a 17% coupon rate had a conversion price of

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~~$0.43. Additionally,~~9.CONVERTIBLE DEBT

The Company began issuing senior secured promissory notes (each a “CPN” and together the “Notes”) notes payable to a private accredited investor (the “Investor”) during 2022. The Company has continued to issue notes to the Investor during 2023. Through June 30, 2023, the Company ~~settled an accounts payable~~has issued to the Investor eight notes totaling $16,400,000, of which $12,400,000 were issued during the six months ended June 30, 2023. The notes are each 25% Senior Secured Convertible Promissory Notes with largely consistent terms including a ~~vendor by issuing a convertible promissory note in the amount of $134,800 with a 6% coupon rate, with a conversion~~stated interest rate of ~~$0.43. Accordingly, 935,519 shares were issued~~25% per year, a stated conversion price subject to ~~convert~~a beneficial ownership limitation and share cap representing a certain percentage of the outstanding ~~principal and accrued interest into Series A-1 Preferred Stock.~~

~~Warrants Underlying Series B Preferred Stock—In connection with the sale of the Series B Preferred Stock, each investor was issued warrants to purchase 0.0859~~ shares of ~~common stock~~Common Stock at the time of conversion, and a one year maturity. The stated interest rates for ~~each share~~these notes increase to 27% per annum or the highest rate then allowed under applicable law (whichever is lower) upon the occurrence of ~~Series B Preferred Stock purchased at a price~~an event of ~~$0.003494 per share~~default, including the failure by the Company to make payment of ~~common stock. The warrants become exercisable in accordance with~~principal or interest due under the ~~schedule set forth below following completion~~related note on the respective maturity date, and any commencement by the Company of ~~an initial public offering and thereafter may be exercised at~~a case under any ~~time prior to expiration ten years from the date of issuance.~~

●

~~30% of the warrants beginning sixmonths after the date on which the securities of the Company are first listed on a United States national securities exchange (such date, the "Listing Date");~~

●

~~An additional 30% of the warrants beginning ninemonths after the Listing Date; and~~

●

~~The remainder of the warrants beginning twelvemonths after the Listing Date.~~

~~As of December 31, 2019,~~applicable bankruptcy or insolvency law. In April 2023, the Company ~~sold 9,782,609~~executed an exchange agreement to convert $8,000,000 of convertible promissory notes principal into shares of Series B Preferred Stock, which contained 839,952 underlying warrants to purchase common stock based on the exercise price and vesting schedule outlined above. As of September 30, 2020, the Company sold an additional 6,521,738 shares of Series B Preferred Stock, which contained 559,969 underlying warrants to purchase common stock based on the exercise price and vesting schedule outlined above. These warrants were equity classified and the fair value of $5,208,700 is reflected as additional paid-in capital. On June 8, 2020, the Company agreed to amend the warrant vesting schedule such that the warrants became immediately exercisablepreferred stock. See Note 10 – Stockholder’s Equity for ~~each warrant holder.~~

On June 8, 2020, warrant holders exercised their option to purchase 335,982 shares of common stock for proceeds of $1,200. Then, on June 10, 2020, warrant holders exercised their option to purchase an additional 1,063,939 shares of common stock for proceeds of $3,700. There are 0 warrants outstanding as of September 30, 2020.

~~The Black-Scholes option-pricing model was used to estimate the fair value of the warrants with the following weighted-average assumptions for the nine months ended September 30, 2020 and 2019:~~further discussion..

September 30,

September 30,

2020

2019

Risk-free interest rate

1.54% - 1.88
%
1.81% - 1.84
%
Expected volatility

71.95% - 72.71
%
72.18% - 72.20‑
%
Expected life (years)

10.00

10.00

Expected dividend yield

0
%
0
%


	June 30, 2023		December 31, 2022
Senior Secured Convertible Promissory Note, maturing December 12, 2023	$	—	$	4,000,000
Senior Secured Convertible Promissory Note, maturing March 28, 2024		2,000,000		—
Senior Secured Convertible Promissory Note, maturing April 25, 2024		2,000,000		—
Senior Secured Convertible Promissory Note, maturing May 24, 2024		2,000,000		—
Senior Secured Convertible Promissory Note, maturing June 26, 2024		2,400,000		—
Total Convertible Promissory Note	$	8,400,000	$	4,000,000
Less: unamortized debt issuance costs		(364,700)		(190,100)
Convertible Promissory Note, net	$	8,035,300	$	3,809,900

10.STOCKHOLDERS’ EQUITY

Stock— As of June 30, 2023 and December 31, 2022, the Company was authorized to issue 60,000,000 shares of preferred stock (24,000,000 shares designated as Series A-1 Preferred Stock and 16,500,000 shares designated as Series B Preferred stock) and 300,000,000 shares of common stock (1,176,260 and 648,384 shares issued and outstanding, respectively). Additionally, for the six months ended June 30, 2023, the Company authorized the issuance of 8,000 shares of Series C Convertible Voting Preferred Stock (the “Series C Stock”). The Company issued 8,000 shares of Series C Stock on April 2, 2023 as part of the Exchange agreement discussed below, of which 8,000 shares remain outstanding as of June 30, 2023.

The Series C Stock is convertible into shares of the Company’s common stock, par value $0.001 per share. The Series C Preferred Stock is voting stock and holders of the Series C Preferred Stock are entitled to vote together with the Common Stock on an as-if-converted-to-Common-Stock basis as determined by dividing the Liquidation Preference with respect to such shares of Series C Preferred Stock by the Conversion Price. Holders of Common Stock are entitled to one vote for each share of Common Stock held on all matters submitted to a vote of stockholders. Accordingly, holders of Series C Preferred Stock will be entitled to one vote for each whole share of Common Stock into which their Series C Preferred Stock is then-convertible on all matters submitted to a vote of stockholders.

Cumulative Rights of Series C Stock Shareholders— The Series C Stock accumulates undeclared dividends at an annual rate of 25%. Unpaid dividends and undeclared dividends are added to the aggregate Liquidation Preference, which also includes the face value of the Series C Stock outstanding. In the event of any liquidation of the Company, holders of shares of Series C Stock then outstanding shall be entitled to be paid the Liquidation Preference out of the assets of the Company available for distribution to its stockholders, before any payment shall be made to the holders of any other shares of capital. As of June 30, 2023 and December 31, 2022, the outstanding Liquidation Preference of the Series C Stock is $8,515,100 and zero, respectively.

Participating Rights of Series C Stock Shareholders— In the event the Company declares a dividend, and all cumulative dividends have been distributed, the Series C stock participates in any remaing declared dividends to be paid equal to (on an as-if-converted-to-common-stock basis) and in the same form as dividends paid on shares of common stock.

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Exchange Agreement

In April 2023, the Company entered into an Exchange Agreement with the holder of promissory notes to exchange an aggregate principal amount of $8 million of the Company’s 25% Senior Secured Convertible Promissory Notes for 8,000 shares of Series C Stock. The $8 million Senior Secured Convertible Promissory Notes is the aggregate of four promissory notes that were issued in the previous months, for $2 million each.

Representative’s Warrants—In connection with a public offering on October 15, 2020, the Company granted the underwriters warrants (the “Underwriters’ Warrants”) to purchase an aggregate of 2,083 shares of common stock at an exercise price of $450.00 per share. The Underwriters’ Warrants have a five-year term and were not exercisable prior to April 13, 2021. All of the Underwriters’ Warrants were outstanding and exercisable at June 30, 2023 and December 31, 2022. The warrants related to the IPO stock discount will be fully amortized in July 2024.

In connection with a public offering on July 2, 2021, the Company granted the underwriters warrants to purchase an aggregate of 13,333 shares of common stock at an exercise price of $187.50 per share, The Underwriters’ Warrants have a five-year term. All of the Underwriters’ Warrants were outstanding as of June 30, 2023 and December 31, 2022. The warrants related to the Public Offering stock discount will be fully amortized in April 2025.

Standby Equity Purchase Agreement

On May 24, 2023, we exercised the Commitment increase under the SEPA and issued to YA II PN, Ltd. 97,000 shares of common stock at a purchase price of $3.89, for an advance amount of $377,000.

On June 2, 2023, we exercised an additional Commitment increase under the SEPA and issued to YA II PN, Ltd. 100,000 shares of common stock at a purchase price of $2.82, for an advance amount of $282,100.

~~10.~~11.STOCK-BASED COMPENSATION

2017 Stock Incentive Plan—Restricted Stock ~~Options~~Units

The ~~Black-Scholes option-pricing model was used to estimate~~following table summarizes the ~~fair value of stock options with~~activity for all RSUs outstanding under the ~~following weighted-average assumptions for the nine months ended September 30:~~2017 Plan at:

2020

2019

Risk-free interest rate

0.15% - 2.92
%
1.61% - 2.92
%
Expected volatility

72.29% - 82.52
%
72.29% - 78.16
%
Expected life (years)

4.93 – 6.07

4.93 – 6.01

Expected dividend yield

0
%
0
%


	2023			2022
		Weighted Average			Weighted Average
		Grant Date			Grant Date
		Fair Value			Fair Value
	Shares	Per Share		Shares	Per Share
Nonvested RSUs at beginning of period	650	$	259.50	17,028	$	374.40
Granted	—		—	—		—
Vested	(251)		255.85	(356)		259.20
Cancelled and forfeited	(11)		260.10	(11,191)		383.70
Nonvested RSUs at June 30	388	$	285.36	5,481	$	362.70

Total stock compensation expense recognized from stock-based compensation awards classified as restricted stock units were recognized in the condensed consolidated statements of operations for the three and six months ended June 30, 2023 and 2022, as follows:


	Three Months Ended				Six Months Ended
	2023		2022		2023		2022
Research and development	$	15,100	$	1,900	$	15,100	$	13,900
General and administrative		14,500		2,400		14,500		(4,700)
Total	$	29,600	$	4,300	$	29,600	$	9,200

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The fair value of the common shares underlying the stock options has historically been determined by the board of directors, with input from management. Because there was no public market for Company’s common shares, the board of directors determined the fair value of the common shares at the time of grant of the stock option by considering a number of objective and subjective factors, including important developments in the Company’s operations, third-party valuations performed, sales of Series A-1 Preferred2017 Stock ~~sales of Series B Preferred~~Incentive Plan— Stock actual operating results and financial performance, the conditions in the biotechnology industry and the economy in general, the stock price performance and volatility of comparable public companies, and the lack of liquidity of the Company’s common shares, among other factors.Options

The following table summarizes the activity for all stock options outstanding at ~~September~~June 30, 2023 under the 2017 Plan:


	2020			2019			2023			2022
		Weighted			Weighted			Weighted			Weighted
		Average			Average			Average			Average
		Exercise			Exercise			Exercise			Exercise
	Shares	Price		Shares	Price		Shares	Price		Shares	Price
Options outstanding at beginning of year	598,083	$	11.11	520,517	$	8.64
Options outstanding at beginning of period							11,286	$	254.40	12,697	$	257.10
Granted	86,536		17.95	209,505		17.47	—		—	—		—
Exercised	—		—	(1,432)		6.64	—		—	—		—
Cancelled and forfeited	(66,109)		15.06	(94,318)		11.40	(5,433)		215.35	(1,401)		275.70
Balance at September 30	618,510	$	11.58	634,272	$	11.15
Options exercisable at September 30:	390,075	$	8.51	389,584	$	7.82
Weighted average grant date fair value for options granted during the year:		$	17.43		$	11.28
Balance at June 30							5,853	$	285.36	11,296	$	254.70
Options exercisable at June 30:							5,853	$	285.36	11,165	$	255.00

In addition, the weighted average remaining contractual life for the options is 4.43 years and 4.93 years as of June 30, 2023 and December 31, 2022, respectively. The ~~following table summarizes additional information about stock~~ options ~~outstanding and exercisable at September~~have no intrinsic value as of June 30 ~~2020 and 2019 under the Plan:~~

, 2023 or December 31, 2022, respectively.

Options Outstanding

Options Exercisable

Weighted

Average

Weighted

Weighted

Remaining

Average

Aggregate

Average

Aggregate
As of

Options

Contractual

Exercise

Intrinsic

Options

Exercise

Intrinsic
September 30,

Outstanding

Life

Price

Value

Exercisable

Price

Value
2019

634,272

7.97

$
11.15

$
4,009,000

389,584

$
7.82

$
3,761,100
2020

618,510

7.79

$
11.58

$
1,787,200

390,075

$
8.51

$
1,521,400

Total stock compensation expense recognized from stock-based compensation awards classified as stock options were recognized in the condensed consolidated statements of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2023 and ~~2019~~2022 as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,				Three Months Ended				Six Months Ended
	2020		2019		2020		2019		2023		2022		2023		2022
Research and development	$	169,000	$	43,000	$	980,000	$	85,000	$	—	$	3,000	$	—	$	52,000
General and administrative		160,000		62,000		248,000		124,000		—		7,000		—		15,000
Total	$	329,000	$	105,000	$	1,228,000	$	209,000	$	—	$	10,000	$	—	$	67,000

~~On August 20, 2020, the board~~As of ~~directors canceled and terminated 15,792 stock options, granted during the quarter ended~~ June 30, 2020 to 4 non-employees. Thereafter, on August 20, 2020, the board of directors granted 21,112 stock options to the same individuals with a grant date fair value of $12.41 per share. There were 3,959 stock option grants that were considered vested on the grant date. The effects of the stock option modifications resulted in $71,600 of2023, there was no unrecognized stock compensation expense ~~allocable~~related to ~~general~~unvested stock options.

As of June 30, 2023, there was $96,600 unrecognized stock compensation expense related to unvested restricted stock units.

2021 Stock Incentive Plan—Restricted Stock Units

The following table summarizes the activity for all RSUs outstanding at June 30, 2023 and ~~administrative for~~2022 under the ~~three months ended September 30, 2020. Included in that amount were $19,700 of incremental compensation costs resulting from the modifications for the three months ended September 30, 2020.~~2021 Plan:


	2023			2022
		Weighted Average			Weighted Average
		Grant Date			Grant Date
		Fair Value			Fair Value
	Shares	Per Share		Shares	Per Share
Nonvested RSUs at beginning of period	684	$	133.20	2,068	$	165.60
Granted	36,910		0.62	—		—
Vested	(13,425)		0.62	—		—
Cancelled and forfeited	(668)		126.60	(131)		126.60
Nonvested RSUs at June 30	23,501	$	20.41	1,937	$	168.30

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~~As of September 30, 2020, total unrecognized~~Total stock compensation expense recognized from stock-based compensation awards classified as restricted stock units were recognized in the condensed consolidated statements of operations for the three and six months ended June 30, 2023 and 2022, as follows:


	Three Months Ended				Six Months Ended
	2023		2022		2023		2022
Research and development	$	3,900	$	17,400	$	11,800	$	25,700
General and administrative		1,900		19,900		14,700		29,800
Total	$	5,800	$	37,300	$	26,500	$	55,500

The vested outstanding restricted stock units have not been released to grantees as of June 30, 2023, but they were included in calculation of weighted average common shares outstanding, basic and diluted (See Note 3, Net Loss Per Share of Common Stock). The Company plans to release these shares to the grantees before the end of the year. Since there is ~~$2,088,400, related to unvested stock options to~~a possibility that any portion of those shares could be ~~recognized over~~sold as part of the ~~remaining weighted-average vesting period~~release, the shares will be released in compliance with the Company’s insider trading policy when there is an open trading window and grantees are not in possession of ~~2.72 years.~~any material non-public information.

~~2017~~2021 Stock Incentive ~~Plan—Restricted~~Plan — Stock ~~Units~~

In January 2017, the Company’s board of directors approved the adoption of the Plan. The Plan permits the Company to grant up to 1,708,615 shares of the Company’s common stock awards, including incentive stock options; non-statutory stock options; and conditional share awards to employees, directors, and consultants of the Company. All granted shares that are canceled, forfeited, or expired are returned to the Plan and are available for grant in conjunction with the issuance of new common stock awards. Restricted stock units (“RSUs”) vest over a specified amount of time or when certain performance metrics are achieved by the Company.

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

The following table summarizes the activity for all ~~RSUs~~stock options outstanding at ~~September~~June 30, 2023 under the 2021 Plan:


	2020			2023			2022
		Weighted Average			Weighted			Weighted
		Grant Date			Average			Average
		Fair Value			Exercise			Exercise
	Shares	Per Share		Shares	Price		Shares	Price
Nonvested RSUs at beginning of year	—	$	—
Options outstanding at beginning of period				21,420	$	12.90	—	$	—
Granted	1,655,579		15.23	—		—	24,480		12.90
Vested	—		—
Exercised				—		—	—		—
Cancelled and forfeited	(709,334)		19.00	(9,180)		12.90	—		—
Nonvested RSUs at September 30	946,245	$	12.41
Balance at June 30				12,240	$	12.90	24,480	$	12.90
Options exercisable at June 30:				12,240	$	12.90	12,240	$	12.90
Weighted average grant date fair value for options granted during the year:					$	—		$	10.80

~~During~~In addition, the ~~nine months ended September 30, 2020, 1,655,579 RSUs were granted and 709,334 RSUs were cancelled. During the nine months ended September 30, 2020, 0 RSUs vested. NaN RSUs were~~ ~~granted~~ ~~or vested in the nine months ended September 30, 2019.~~

~~On August 20, 2020, the board~~stock options had weighted average remaining contractual life of ~~directors canceled and terminated 709,334 RSUs, granted~~4.93 years. There was no stock compensation expense during the ~~quarter~~six months ended June 30, 2020. The cancelled RSUs were originally granted to 5 individuals with a grant date fair value of $19.00 per share. Thereafter, on August 20, 2020, the board of directors granted 946,245 RSUs to the same individuals with a grant date fair value of $12.41 per share. ~~None~~ ~~of the stock option~~2023 and RSU grants were considered vested on the grant date. The RSU grants were modified for 3 employees and 2 non-employees. The effects of the RSU modifications resulted in $299,000 and $621,000 of stock compensation expense allocable to research and development and general and administrative, respectively, during the three months ended SeptemberJune 30, 2020. Included in those amounts were incremental compensation costs of $65,600 and $141,200 of stock compensation expense allocable to research and development and general and administrative, respectively, during the three months ended September 30, 2020.2022, respectively.

~~11.~~12.INCOME TAXES

The Company’s effective tax rate from continuing operations was 0% for the three and ~~nine~~six months ended ~~September~~June 30 ~~2020~~, 2023 and ~~2019.~~2022. The Company recorded 0no income tax provision for the three ~~and nine~~or six months ended ~~September~~June 30 ~~2020 and 2019.~~, 2023.

The provision for income taxes during the interim reporting periods is calculated by applying an estimate of the annual effective tax rate for the full fiscal year to ~~"ordinary"~~“ordinary” income or loss for the reporting period. Each quarter, the estimate of the annual effective tax rate is updated, and if the estimated effective tax rate changes, a cumulative adjustment is made. There is a potential for volatility of the effective tax rate due to several factors, including changes in the mix of

~~Table of Contents~~

the pre-tax income and the jurisdictions to which it relates, changes in tax laws, business reorganizations and settlements with taxing authorities.

The income tax rates vary from the US federal statutory rate of 21% primarily due to the full valuation allowance on the Company’s deferred tax assets. The Company has recorded the full valuation allowance based on an evaluation of both positive and negative evidence, including latest forecasts and cumulative losses in recent years. The Company has concluded that it was more likely than not that ~~NaN~~none of its deferred tax assets would be realized.

On March 27, 2020, in response to the COVID-19 pandemic, the president of the United States signed the CARES Act. The Company does not expect there to be any significant benefit to its income tax provision as a result of the CARES Act, and the Company continues to monitor for any potential tax legislation related to the COVID-19 pandemic.

~~Through September 30, 2020, the Company maintained 2 separate consulting agreements with the Company’s CSO and the Company’s CFO and COO.~~

Beginning in the year ended December 31, 2014, the Company entered into its first consulting agreement with the CSO. Pursuant to the amended agreement dated July 20, 2018, the CSO is entitled to a consulting feeTable of $400 per hour, provided that he is limited to 19 (19) hours per month unless he obtains approval from the Company’s Chief Executive Officer. The consulting agreement indicates that the CSO will provide a leadership role for the Company’s business development strategies. The consulting fees paid to the CSO totaled $579,700 and $135,900 in the nine months ended September 30, 2020 and 2019, respectively. In addition, the Company issued the CSO 320,000 shares of common stock on June 19, 2020 in exchange for services rendered and 0 cash considerations. See Note 9.Contents

Beginning in the year ended December 31, 2018, the Company entered into its first consulting agreement with the CFO and COO. Initially, his title was "Consultant", and the Company changed his title to CFO and COO on October 25, 2019. The CFO and COO was elected as a director of the Company on January 17, 2020. Pursuant to the agreement on April 18, 2018 and amended on September 4, 2019, the CFO and COO is entitled to a consulting fee of $2,500 per month amended to $10,000 per month plus discretionary bonuses approved by management. The consulting fees paid to the CFO and COO totaled $140,000 and $23,800 in the nine months ended September 30, 2020 and 2019, respectively. In addition, the Company issued the CFO and COO 402,000 shares of common stock on June 19, 2020 in exchange for services rendered and 0 cash considerations. See Note 9.

~~On June 8, 2020, the Company issued the Chief Medical Officer and another employee 3,106 and 430 shares of common stock, respectively. The shares were issued in exchange for services rendered and 0~~ ~~cash~~ ~~considerations. See Note 9.~~

13.SUBSEQUENT EVENTS

~~Initial Public Offering and Preferred Stock Conversion~~Exchange Agreement

On ~~October 15, 2020,~~July 18, 2023, the Company ~~received net proceeds~~entered into an Exchange Agreement (the “July 18 Exchange Agreement”) with the holder of ~~$12,372,700 its initial public offering (“~~promissory notes of the ~~IPO”~~Company (the “Holder”) pursuant to which the Holder agreed to exchange aggregate principal amount of $6 million of the Company’s 25% Senior Secured Convertible Promissory Notes (the “July 18 Exchange Notes”) for 6,000 shares of Series C Stock. The $6 million Senior Secured Convertible Promissory Notes is the aggregate of three promissory notes that were issued in the previous months, for $2 million each, as discussed in Note 9 above.

Board of Directors Appointment

On July 20, 2023, the Board of Directors appointed Pam Misajon and Mike Catlin as members of the Board of Directors. Ms. Misajon has been appointed chair of the Nominating and Corporate Governance Committee and member of the Compensation Committee, Mr. Catlin has been appointed chair of the Audit Committee and member of the Nominating and Corporate Governance Committee. After these nominations, the Company regained the audit committee requirements under Listing Rule 5605 (c)(4), ~~after deducting underwriting discounts and commissions~~meeting the expectations of ~~$1,275,000 and other offering expenses~~the Nasdaq which gave the Company until November 16, 2023 for compliance.

Issuance of ~~$1,352,300 incurred. The~~Senior Secured Convertible Promissory Note

On July 25, 2023, the Company issued ~~and sold 1,250,000 shares~~a 25% Senior Secured Convertible Promissory Note (the “July 25 Note”) to the investor. The Note has a principal amount of ~~common stock in the IPO~~$2,400,000, bears interest at a ~~price~~rate of ~~$12.00~~25% per ~~share. In connection with~~annum (the “Stated Rate”) and matures on July 25, 2024 (the “July 25 Maturity Date”), on which the ~~IPO, all~~principal balance and accrued but unpaid interest under the Note shall be due and payable. The Stated Rate will increase to 27% per annum or the highest rate then allowed under applicable law (whichever is lower) upon occurrence of an event of default, including the failure by the Company to make payment of principal or interest due under the Note on the Maturity Date, and any commencement by the Company of a case under any applicable bankruptcy or insolvency laws.

The July 25 Note is convertible into shares of the Company’s ~~Series A-1 Preferred Stock and Series B Preferred Stock were converted into 624,594 and 469,136 shares of~~ common stock, ~~respectively.~~par value $0.001 per share, at an initial conversion price of $6.50 per share, subject to a beneficial ownership limitation equivalent to 9.99%.

Settlement in Principle of the Class Action

On August 7, 2023, we entered into a term sheet with the plaintiffs in the Class Action, to settle in principle (and globally resolve) the Class Actions. In the Class Action, the plaintiffs have made allegations and asserted claims against the Company and certain current and former directors and officers, as well as the Company’s former underwriter, including for alleged violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 as well as Section 10(b) (and Rule 10b-5 promulgated thereunder) and Section 20(a) of the Securities Exchange Act of 1934 in connection with a public offering by the Company that closed on or about July 2, 2021. The Term Sheet provides, among other things, that it is subject to approval by the U.S. District Court for the Southern District of New York (the “Court”); that plaintiffs and the Company will prepare settlement materials consistent with the Term Sheet; that the settlement will globally resolve all claims and allegations; that no defendant admits any liability or any allegation; that the Company shall make cash consideration payments totaling $2,300,000 into an escrow account, of which $530,000 we expect to be paid by our insurance carrier directly to the plaintiffs, resulting in recognition of a $1.77 million expense in our income statement for the three and six months ended June 30, 2023. Such amounts shall be distributed as set forth in the Term Sheet, including that amounts shall be distributed upon approval of the settlement by the Court. The plaintiffs subsequently sent a letter to the Court on August 7, 2023, informing the Court of the settlement in principle and requesting that the Court stay all proceedings pending approval of the settlement.

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~~Lease Facility Renewal~~

On November 19, 2020, the Company’s board of directors approved the lease renewal of its premises in Houston, Texas. Once the current lease expires in May, 2021, the renewed lease agreement will commence under an operating lease agreement that is noncancelable from commencement until May 1, 2024. The Company has the option to cancel the lease thereafter until the agreement expires on May 1, 2026. The termination date is effective after 90 days notice of cancellation.

~~If the Company exercises the cancellation option, the Company must also pay the lessor a termination payment equal to 3 months of base rent.~~

~~The future minimum commitments under the renewed facility lease agreement will be as follows:~~

Amount
2021

$
179,800
2022

269,700
2023

274,200
2024

230,400
Total

$
954,100

~~Table of Contents~~

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

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

Our Business

Overview

Kiromic BioPharma, Inc. ~~(together with its subsidiary, “we,” “us,” “our” or the “Company”~~and subsidiaries (the "Company") is a ~~pre-clinical~~clinical stage ~~immuno-oncology,~~fully integrated biotherapeutics company formed under the Texas Business Organizations Code in December 2012. The Company maintains offices in Houston, Texas. The Company has not generated any revenues to date.

The Company is an Artificial Intelligence (“AI”) driven, end-to-end allogeneic cell therapy company, currently developing multi-indication allogeneic T cell therapies that exploit the natural potency of Gamma Delta T cells (“GDTs”) to target solid tumors. Our end-to-end approach consists of target discovery and ~~gene editing company developing tumor-specific cancer engineered immunotherapies to face~~validation, product development, and defeat multiple cancer types. We are focused on extending the benefits of immunotherapy by leveraging our proprietary technologies. Our approach seeks to generate a therapeutic immune response in patients by unleashing the demonstrated natural power of a patient's own immune system to recognize tumor-specific peptide sequences presented on cancer cells, known as tumor specific iso-antigens, capable of generating an immunological response and therefore eradicate cancer cells. We are developing our brand of chimeric antigen receptorcurrent good manufacturing practices (“~~CAR”~~cGMP”) T cell product candidates known as ALEXIS. These are designed to treat cancer by capitalizing on the immune system's ability to destroy cancer cells. These products are in the pre-initial new drug (“IND”) stages of the US Food and Drug Administration (the “FDA”) clinical trial process. We are currently going through the IND validation process and we expect that IND enabling trials will commence in the fourth quarter of 2020.

CAR T cell therapy, a form of cancer immunotherapy, has recently emerged as a revolutionary and potentially curative therapy for patients with hematologic cancers, including refractory cancers. In 2017, two autologous anti-CD19 CAR T cell therapies, Kymriah, developed by Novartis International AG, and Yescarta, developed by Kite Pharma, Inc., were approved by the FDA for the treatment of relapsing/remitting B-cell precursor acute lymphoblastic leukemia and relapsing/remitting large B cell lymphoma, respectively. Autologous CAR T cell therapies are manufactured individually for the patient's use by modifying the patient's own T cells outside the body, causing the T cells to express CARs. The entire manufacturing process is dependent on the viability of each patient's T cells and takes approximately two to four weeks. Allogenic T cell therapies involve engineering healthy donor T cells, which we believe will allow us to leverage a new framework for the ~~creation~~next generation of cell therapies. We also have new technologies in development to support our end-to-end approach.

From a development standpoint, we utilize innovative engineered and non-engineered GDT manufacturing technologies and are developing proprietary, virus-free cell engineering tools to develop novel therapies for solid tumors that we believe will be effective and cost-efficient. Deltacel is our first allogeneic off-the-shelf gamma delta T cell-based product in Phase 1 clinical stage. Our ProcelÔ (“Procel”) and IsocelÔ (“Isocel”) product candidates consist of allogeneic, cryopreserved, and engineered gamma delta T cells and they are currently in the preclinical development stage. Our Deltacel product candidate consists of non-engineered GDTs that have been expanded, enriched, and activated ex-vivo through a proprietary process, and are intended to treat solid tumors regardless of the specific tumor antigen expression. Our Procel product candidate consists of engineered GDTs and is intended to target PD-L1. Our Isocel product candidate consists of engineered GDTs and is intended to target Mesothelin Isoform 2 positive tumors (“Iso-Meso”).

We currently have three product candidates: 1) Deltacel: not-engineered GDTs, expanded and activated with proprietary technology; 2)Procel: GDTs engineered with a PD-1 switch receptor; and 3) Isocel: GDTs engineered with an ~~inventory~~anti-Mesothelin isoform 2 Chimeric Antigen Receptor.

We have a total of ~~off-the-shelf products~~five clinical programs to study our key product candidates:

Deltacel-01: This phase 1 clinical trial will evaluate Deltacel in combination with low-dose radiation for patients with non-small cell lung cancer (NSCLC).

Procel combination: This phase 1 clinical trial is expected to evaluate Procel in combination with low-dose radiation for patients with PD-L1 positive solid malignancies.

Alexis-PRO-1: This phase 1 clinical trial is expected to evaluate Procel in patients with PD-L1 positive solid malignancies.

Isocel combination: This phase 1 clinical trial is expected to evaluate Isocel in combination with low-dose radiation for patients with Mesothelin Isoform 2 positive solid malignancies.

Alexis-ISO-1: This phase 1 clinical trial is expected to evaluate Isocel in patients with Mesothelin Isoform 2 positive solid malignancies..

Since the second half of 2022, we have been developing a novel, non-engineered GDT cell therapy based on a proprietary methodology of expanding and activating GDT cells from healthy donors. The product candidate, Deltacel, is intended to be used in combination with low-dose radiation.

Accordingly, we have entered into a Sponsored Research Agreement (the “SRA”) with Principal Investigator James W. Welsh, M.D. of The University of Texas MD Anderson Cancer Center, to facilitate the development of our Deltacel,

Table of Contents

Procel, and Isocel product candidates. We believe this SRA will generate sufficient in-vivo, pre-clinical data to enhance our GDT product platform, supporting three new IND submissions: (1) Deltacel in combination with low-dose radiation; (2) Procel in combination with a low-dose radiation; and (3) Isocel in combination with a low-dose radiation. The first IND submitted to the FDA was IND #1, as explained in further detail below. The clinical trial activation process begins after the following two events: (1) the IND receives FDA authorization to begin the clinical trial (which would take place 30 days after receipt by the FDA, unless the FDA raises concerns or questions regarding the proposed clinical trials and places the trial on a clinical hold within that ~~can be delivered~~30-day time period); and (2) the review and approval process commences by an independent institutional review board (“IRB”) or ethics committee at the selected clinical trial site(s).

IND #1 (number 1 above) will evaluate Deltacel GDTs in combination with low-dose radiation. We submitted the IND for the Deltacel trial on March 31, 2023, and on April 28, 2023, the FDA authorized the Deltacel-01 IND application. We began the clinical trial activation process in Q2 2023 and expect to begin the clinical trial in Q4 of 2023. The Procel combination IND will evaluate a ~~larger portion~~combination of ~~eligible patients throughout~~low-dose radiation and our genetically engineered product candidate targeting PD-L1, which is the ~~world.~~target associated with the ALEXIS-PRO-1 clinical trial candidate on the Procel product candidate platform. The Isocel combination IND will evaluate a combination of low-dose radiation in combination of our genetically engineered product candidate targeting Iso-Meso, the target associated with the ALEXIS-ISO-1 clinical trial candidate on the Isocel product candidate platform. Since the Company has aligned its operations with the Deltacel product candidate and IND #1, we are planning to submit the other IND applications once we obtain sufficient financing to support the progression of the development of these additional clinical trial candidates.

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

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

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

The severity of the impact of the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company's service providers, suppliers, contract research organizations and our clinical trials, all of which are uncertain and cannot be predicted. As of the date of this report, the extent to which the COVID-19 pandemic may in the future materially impact our financial condition, liquidity or results of operations is uncertain.October 2023.

Recent Developments

AsSettlement Update

On October 10, 2022, we and certain current and former officers and directors (together with us, the “Defendants”) entered into a Stipulation of Settlement and Mutual Release (the “Initial Settlement Agreements”) with the Empery Entities and with the Sabby Entities (collectively, the “Plaintiffs”), respectively, in connection with a case filed by the Plaintiffs against the Defendants for alleged violations of Sections 11, 12, and 15 of the ~~date~~Securities Act in connection with the purchase of Company’s common stock through the Company’s public offering that closed on July 2, 2021. Pursuant to the Initial Settlement Agreements, the Plaintiffs and the Defendants agreed to dismiss the case with prejudice against all Defendants (including ThinkEquity, LLC) with no admission of liability. As part of the ~~audit report on our 2019 financial statements, conditions~~Settlement, the Company agreed to (a) make a $75,000 cash payment to each of the Empery Entities and ~~events existed that raised substantial doubt~~Sabby Entities and (b) issue the Settlement Notes in the aggregate principal amount of $1,656,720 to each of the Empery Entities and Sabby Entities. The Settlement Notes are convertible into shares of the Company’s common stock at an initial conversion price per share of $9.20 (the “Conversion Price”), subject to a beneficial ownership limitation equivalent to 9.99% (“Beneficial Ownership Limitation”).

On November 2, 2022, the Court granted a joint motion, pursuant to which the Settlement Notes will be unrestricted and exempt from the registration requirements of the Securities Act, and the Conversion Shares, when issued upon conversion of the Settlement Notes in accordance with ~~respect to~~ the ~~going concern assumption~~terms set forth therein, will also be unrestricted and exempt from the registration requirements of the Securities Act.

All the subordinated convertible promissory notes totaling $2,914,000 on the ~~financial statements. Based on proceeds obtained from~~balance sheet at December 31, 2022 held by Empery and Sabby for $1,502,700 and $1,411,300, respectively, were converted into shares of common stock of 163,268 and 153,333, respectively, at a share price of $9.20 during the six months ended June 30, 2023.

On August 7, 2023, the Company entered into a term sheet with the plaintiffs in re Kiromic BioPharma, Inc. Securities Litigation, Case No. 1:22-cv-06690 (S.D.N.Y.) (“Class Action”), to settle in principle (and globally resolve) the Class Action. In the Class Action, the plaintiffs have made allegations and asserted claims against the Company and certain current and former directors and officers, as well as the Company’s former underwriter, for alleged violations of Sections

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~~Series B Preferred Stock round~~11, 12(a)(2), and 15 of ~~financing~~the Securities Act of 1933 as well as Section 10(b) (and Rule 10b-5 promulgated thereunder) and Section 20(a) of the Securities Exchange Act of 1934 in connection with a public offering by the Company that closed on or about July 2, 2021. The Term Sheet provides, among other things, that it is subject to approval by the U.S. District Court for the Southern District of New York (the “Court”); that plaintiffs and the Company will prepare settlement materials consistent with the Term Sheet; that the settlement will globally resolve all claims and allegations; that no defendant admits any liability or any allegation; that the Company shall make cash consideration payments totaling $2,300,000 into an escrow account, of which $530,000 we expect to be paid by our ~~plans~~insurance carrier directly to ~~reduce discretionary spending, management projected it would~~the plaintiffs, resulting in recognition of a $1.77 million expense in our income statement for the three and six months ended June 30, 2023. Such amounts shall be distributed as set forth in the Term Sheet, including that amounts shall be distributed upon approval of the settlement by the Court. The plaintiffs subsequently sent a letter to the Court on August 7, 2023 informing the Court of the settlement in principle and requesting that the Court stay all proceedings pending approval of the settlement.

Subsequent to June 30, 2023, the Company has:

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Issued $2.4 million of convertible promissory notes;

●

Converted $6 million of convertible promissory notes into 6,000 shares of Series C Stock;

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Appointed two new independent members to the Board of Directors; and

●

Entered into a settlement agreement with plaintiffs with respect to the Class Action suit for a net $1.77 million on August 7, 2023 as disclosed above.

See Note 13 – Subsequent Events for more information.

Going Concern and Liquidity

We do not have sufficient cash on hand and available liquidity to ~~support operations~~meet our obligations through ~~at least April 7, 2021. As a result,~~ the ~~Company concluded that management's plans were probable of being implemented and alleviated~~twelve months following the date the condensed consolidated financial statements are issued. Therefore, this condition raises substantial doubt about ~~its~~the Company’s ability to continue as a going concern.

~~As of June 26, 2020, management evaluated substantial doubt regarding the going concern assumption through June 26, 2021. Management's~~ Management’s plans were updated to ~~further finance operations through~~evaluate different strategies to obtain the required funding of future operations. These plans may include, but are not limited to, additional ~~equity~~funding from current or ~~debt financing arrangements, and/or third party collaboration funding;~~new investors; however, if ~~the Company was~~we are unable to raise additional funding to meet ~~its~~ working capital needs, itwe will be forced to delay or reduce the scope of ~~its~~our research programs and/or limit or cease ~~its~~ operations. The negative cash flows and lack of financial resources ~~of the Company~~ raised substantial doubt as to ~~the Company's ability to continue as a going concern, and that substantial doubt was not alleviated as of June 26, 2020.~~

After considering the Form 10-Q filing date of November 30, 2020, management extended its consideration of the going concern assumption through November 30, 2021. Management's plans were updated to further finance operations through additional equity or debt financing arrangements, and/or third party collaboration funding; however, if the Company is unable to raise additional funding to meet its working capital needs, it will be forced to delay or reduce the scope of its research programs and/or limit or cease its operations. The negative cash flows and lack of financial resources of the Company raise substantial doubt as to the Company'sour ability to continue as a going concern, and that substantial doubt has not been alleviated. Therefore, this condition raises substantial doubt about the Company’s ability to continue as a going concern. See Note 1 to the Company’s Condensed Consolidated Financial Statements, “Going Concern” for further details.

The Company’s cash and cash equivalents were $2,704,200 as of June 30, 2023. The Company is currently in discussions with financing sources in an attempt to secure short-term financing to continue operations and fund other liquidity needs through the end of the year. The Company has begun working with a financial advisor to assist it with its efforts to obtain financing. In the absence of such financing, management anticipates that existing cash resources combined with verbal, non-contractual commitments for additional financing will not be sufficient to meet operating and liquidity needs beyond the beginning of October 2023. However, management may further evaluate additional cost reduction actions, including additional reductions in the Company’s workforce and delay of research and development expenditures on one or more product candidates, in order to reduce the Company’s current expenditures and preserve cash. We are not able to predict whether any such cost reduction actions will be successful.

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

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Financing Update

For the six months ended June 30, 2023, the Company has issued 197,000 shares under the SEPA for $659,100, and $12,400,000 of principal of senior secured convertible notes. The Company converted $8 million of outstanding senior secured convertible notes to Series C preferred shares.

NASDAQ Letter

On March 14, 2023, the Company received written notice (the “Notice”) from The Nasdaq Stock Market LLC (“Nasdaq”) stating that the Company did not maintain a minimum bid price of at least $1.00 for a minimum of ten (10) consecutive business days before the end of the Nasdaq grace period and, therefore, did not regain compliance with Listing Rule 5550(a)(2) by March 13, 2023, as required.

As a result of the foregoing, the Staff informed the Company that its common stock would be subject to delisting from The Nasdaq Capital Market, unless the Company timely requested a hearing before the Nasdaq Hearings Panel (the “Panel”). Accordingly, the Company timely requested and attended a hearing before the Panel, at which the Company presented its plan to evidence compliance with the minimum bid price requirement as well as its plan to comply with Nasdaq’s $2,500,000 minimum stockholders’ equity requirement for continued listing as set forth in Listing Rule 5550(b)(1).

On March 28, 2023, the Company was notified by Nasdaq that compliance with the bid price deficiency has been cured and now the Company complies with Listing Rule 5550(a)(2). However, the Company remains out of compliance with respect to the stockholders’ equity requirement set forth in Listing Rule 5550(b)(1).

As previously disclosed, on April 20, 2023, the Company presented its plan to comply with the minimum stockholders’ equity requirement for continued listing on The Nasdaq Capital Market (the “Stockholders’ Equity Requirement”) to the Nasdaq Hearings Panel. On May 11, 2023, the Nasdaq Hearings Panel granted the Company’s request to provide an extension until September 11, 2023 for the Company to comply with the stockholders’ equity requirement.

Based on the information regarding the appointment of Michael Catlin to the Company’s Board of Directors and Audit Committee, the Company was notified by Nasdaq on July 26, 2023 that it complies with the rule 5605(c)(2), and the matter is now closed.

Clinical Update

IND #1 will evaluate Deltacel GDTs in combination with low-dose radiation. We submitted the IND for the Deltacel trial on March 31, 2023 and on May 1, 2023, we announced that the FDA authorized our IND. We began the activation of the clinical trial process during the three months ended June 30, 2023. We expect to have the first clinical data by end of 2023 and to complete the Phase 1 of the trial by the second half of 2024.

Results from our Internal Review

On or about August 17 and 23, 2021, Tony Tontat, who at the time was the Chief Financial Officer and a member of the Board of Directors (“the Board”), submitted substantially identical reports (the “Complaints”) through our complaint hotline. These Complaints, alleged, among other topics, risks associated with our public disclosures in our securities filings and in statements made to the public, investors, and potential investors regarding (i) the anticipated timing of the U.S. Food and Drug Administration’s (“FDA”) authorization of our investigational new drug (“IND”) applications and (ii) the anticipated timing of human clinical trials. These Complaints were subsequently submitted to the Audit Committee of the Board.

After receiving the Complaints, the Audit Committee recommended that the Board form, and the Board did in turn form, a Special Committee comprised of three independent directors (the “Special Committee”) to review the Complaints and other related issues (the “Internal Review”). The Special Committee retained an independent counsel to assist it in conducting the Internal Review.

On February 2, 2022, following the conclusion of the Internal Review, the Special Committee reported the results of its Internal Review to the Board. The Board approved certain actions to address the fact that we had received communications

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from the FDA on June 16 and June 17, 2021 that the FDA was placing our IND applications that we submitted to the FDA on May 14 and May 17, 2021 for the ALEXIS-PRO-1 and ALEXIS-ISO-1 product candidates, respectively, on clinical hold (the “June 16 and 17, 2021 FDA Communications”). On July 13, 2021, we received the FDA’s formal clinical hold letters, which asked us to address key components regarding the chemical, manufacturing, and control components of the IND applications. On July 16, 2021, we issued a press release disclosing that it had received comments from the FDA on our two INDs, but did not use the term “clinical hold.” On August 13, 2021, we issued a press release announcing that these INDs were placed on clinical hold. We did not disclose the June 16 and 17, 2021 FDA Communications in (i) our Registration Statement on Form S-1 (Registration No. 333-257427) that was filed on June 25, 2021 and declared effective on June 29, 2021, nor the final prospectus contained therein dated June 29, 2021 (collectively, the “Registration Statement”); or (ii) our Form 10-Q for the fiscal quarter ended June 30, 2021 that was filed with the Securities and Exchange Commission on August 13, 2021. We consummated a public offering of $40 million of our common stock pursuant to the Registration Statement on July 2, 2021.

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

Upon completion of the Internal Review, we voluntarily contacted the SEC to report certain information about the Internal Review. Since that time, we have been voluntarily cooperating with requests for information from the SEC and intend to fully cooperate with any further requests from the SEC.

Remediation Actions resulting from the Internal Review

The Board approved the inclusion of certain Risk Factors for inclusion in its periodic reports. See Part II, Item 1A. Risk Factors for further information. Such risk factors have been included in our Form 10-K for the year ended December 31, 2022.

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

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

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The Board named Pietro Bersani as Interim Chief Executive Officer, effective as of January 27, 2022. Mr. Bersani has resigned from all Committees of the Board. Subsequently on May 10, 2022, Mr. Bersani was named Chief Executive Officer.

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

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

On November 16, 2022, Frank Tirelli informed the Board of Directors (the “Board”) of Kiromic BioPharma, Inc. (the “Company”) that he was resigning his position as a director of the Company, effective immediately. Mr. Tirelli also ceased to be a member of the Audit Committee, and the Nominating and Corporate Governance Committee of the Board, effective immediately. Mr. Tirelli’s resignation did not involve a disagreement with the Company on any matter relating to the Company’s operations, policies or practices.

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

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

10.

Under the terms of the Executive Employment Agreement between Mr. Rotino and the Company effective as of July 1, 2020, as amended October 21, 2020, as the result of the termination of Mr. Rotino’s employment, Mr. Rotino is deemed to have resigned as a member of the Board effective as of February 9, 2022.

11.

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

12.

On December 6, 2022, Dr. Karen Reeves informed the Board of Directors (the “Board”) of Kiromic BioPharma, Inc. (the “Registrant”) that she was resigning her position as a director of the Registrant, effective immediately. Dr. Reeves also ceased to be a member of the Nominating and Corporate Governance Committee, and the Compensation Committee of the Board. Dr. Reeves’ resignation did not involve a disagreement with the Registrant on any matter relating to the Registrant’s operations, policies or practices.

13.

On June 12, 2023, Kiromic BioPharma, Inc. (the “Company”) appointed Brian Hungerford as Interim Chief Financial Officer of the Company. Mr. Hungerford was retained by the Company through an agreement with Element 78 Partners, LLC.

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14.

On July 20, 2023, the Board of Directors of Kiromic BioPharma, Inc. (the “Company”) appointed Pam Misajon and Mike Catlin as members of the Board of Directors. Ms. Misajon has been appointed chair of the Nominating and Corporate Governance Committee and member of the Compensation Committee and Mr. Catlin has been appointed chair of the Audit Committee and member of the Nominating and Corporate Governance Committee. After these nominations, the Company regained the audit committee requirements under Listing Rule 5605 (c)(4), meeting the expectations of the Nasdaq which gave us until November 16, 2023 for compliance.

Principal Factors Affecting Our Financial Performance

Our operating results are primarily affected by the following factors:

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slow or delayed IND applications;

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slow or delayed clinical trial enrollment;

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patent reinforcement and prosecution; and

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changes in laws or the regulatory environment affecting our company.

Emerging Growth Company

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

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

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comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the ~~auditor's~~auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

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submit certain executive compensation matters to stockholder advisory votes, such as ~~"say-on-pay"~~“say-on-pay” and ~~"say-on-frequency;"~~“say-on-frequency;” and

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

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with

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new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

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

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Components of Results of Operations

Revenue

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

Research and Development Expenses

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

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salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions;

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expenses incurred under agreements with third parties, including contract research organizations and other third parties that conduct preclinical research and development activities and clinical trials on our behalf;

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costs of developing and scaling our manufacturing process and manufacturing drug products for use in our preclinical studies and future clinical trials, including the costs of contract manufacturing organizations, that will manufacture our clinical trial material for use in our preclinical studies and potential future clinical trials;

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costs of outside consultants, including their fees and related travel expenses;

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costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials;

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license payments made for intellectual property used in research and development activities; and

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

Research and development activities are central to our business model. We expect that our research and development expenses will ~~continue to increase substantially for the foreseeable future and will~~ comprise a larger percentage of our total expenses as we initiate a Phase ~~1/2a~~1 clinical ~~trial~~trials for our ~~ALEXIS AIDT-1~~Deltacel, Isocel and ~~Isomesothelin product candidates~~Procel, and continue to discover and develop additional candidates. However, management may further evaluate various cost reduction actions, including delay of research and development expenditures on one or more product ~~candidates.~~candidates to focus on Deltacel, in order to reduce the Company’s current expenditures and preserve cash. As of the date of this quarterly report, we are not able to predict on what product candidates and how much expenditures we plan to reduce. However, we expect that our research and development and general and administrative costs will increase over the long-term, even if we are able to successfully reduce our costs in the short-term in order to preserve cash in light of the Company’s current liquidity situation.

We cannot determine with certainty the duration and costs of future clinical trials of our ~~Isomesothelin~~Deltacel, Procel, and Isocel product candidates, ~~ALEXIS AIDT-1 product candidate,~~ or any other product candidate we may develop or if, when or to what extent we will generate revenue from the commercialization and sale of any product candidate for which we obtain

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marketing approval. We may never succeed in obtaining marketing approval for any product candidate. The duration, costs and timing of clinical trials of Deltacel, and of preclinical and clinical development of ~~our Isomesothelin product candidates~~Isocel and ~~ALEXIS AIDT-1 product candidate and~~Procel (and any other ~~our product~~trial candidate we may ~~develop~~develop) will depend on a variety of factors, including:

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the scope, rate of progress, expense and results of clinical trials ~~of our Isomesothelin product~~Deltacel trial candidates ~~ALEXIS AIDT-1 product candidate,~~, as well as of any future clinical trials of other product candidates and other research and development activities that we may conduct;

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uncertainties in clinical trial design and patient enrollment rates;

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the actual probability of success for our product candidates, including their safety and efficacy, early clinical data, competition, manufacturing capability and commercial viability;

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significant and changing government regulation and regulatory guidance;

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the timing and receipt of any marketing approvals; ~~and~~

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the expense of filing, prosecuting, defending and enforcing any patent claims and other intellectual property ~~rights.~~rights; and

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our ability to effectively address the deficiencies elucidated in the FDA’s clinical hold letters for our IND applications related to key chemical manufacturing and control components.

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

General and Administrative Expenses

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

We expect that our general and administrative expenses will increase in the future as we increase our personnel headcount to support our continued research activities, development, and ~~development~~manufacturing of product candidates. We also have incurred and expect to continue to incur increased expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with Nasdaq and SEC requirements; director and officer insurance costs; and investor and public relations costs.

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Results of Operations

Comparison of the Three Months Ended ~~September~~June 30, ~~2020~~2023 and ~~2019~~2022

The following table sets forth key components of our results of operations for the three ~~and nine~~ months ended ~~September~~June 30, ~~2020~~2023 and ~~2019.~~2022.


	Three Months Ended								Three Months Ended
	September 30,				Increase (Decrease)				June 30,				Increase (Decrease)
	2020		2019		$		%		2023		2022		$		%
Operating expenses:
Research and development	$	1,225,700	$	272,100	$	953,600	350.46	%	$	1,966,600	$	3,880,700	$	(1,914,100)	(49)	%
General and administrative		1,190,000		607,400		582,600	95.92	%		2,325,900		4,551,700		(2,225,800)	(49)	%
Total operating expenses		2,415,700		879,500		1,536,200	174.67	%		4,292,500		8,432,400		(4,139,900)	(49)	%
Loss from operations		(2,415,700)		(879,500)		1,536,200	174.67	%		(4,292,500)		(8,432,400)		(4,139,900)	(49)	%
Other expense
Interest expense		—		(7,400)		(7,400)	(100.00)	%		(335,400)		(2,700)		332,700	NM
Debt issuance amortization										(366,500)		—		366,500	NM
Litigation settlement										(1,770,000)		—		(1,770,000)	NM
Total other expense		—		(7,400)		(7,400)	(100.00)	%		(2,471,900)		(2,700)		2,469,200	NM
Net loss	$	(2,415,700)	$	(886,900)	$	1,528,800	172.38	%	$	(6,764,400)	$	(8,435,100)	$	(1,670,700)	(20)	%

NM – Not meaningful

Research and development expenses. ~~Our~~

The following table summarizes our change in research and development expenses ~~increased~~ by ~~$953,600,~~product candidate or ~~350.46%~~development program:


	Three Months Ended
	June 30,				Increase (Decrease)
	2023		2022		$		%
Direct research and development expenses by product candidate:
AIDT-1 development costs	$	161,900	$	—	$	161,900	NM
ALEXIS-PRO-1		—		426,900		(426,900)	(100)	%
ALEXIS-ISO-1		—		738,100		(738,100)	(100)	%
Platform development, early-stage research and unallocated expenses:
Employee-related costs		614,500		1,456,200		(841,700)	(58)	%
Laboratory supplies and services		43,100		428,800		(385,700)	(90)	%
Outsourced research and development (net of reimbursements)		140,500		18,000		122,500	681	%
Laboratory equipment and maintenance		788,400		493,900		294,500	60	%
Facility-related costs		158,300		238,100		(79,800)	(34)	%
Intellectual property		45,800		58,300		(12,500)	(21)	%
Other research and development costs		14,100		22,400		(8,300)	(37)	%
Total research and development expenses	$	1,966,600	$	3,880,700	$	(1,914,100)	(49)	%

NM – Not meaningful

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The primary drivers for the reduction in cost are as follows:

AIDT-1 development cost increased by $161,900, related to the prioritization of the Deltacel-01 development.

Direct research and development costs for ALEXIS-PRO-1 and ALEXIS-ISO-1 decreased by $426,900 and $738,100, respectively, related to the prioritization of Deltacel-01 and the temporary suspension of the development of these two product lines.

Employee related costs decreased by $841,700, mainly related to a decrease in employee headcount.

Laboratory supplies and services decreased by $385,700, primarily due to the temporary suspension of the development of ALEXIS-PRO-1 and ALEXIS-ISO-1.

Outsourced research and development increased by $122,500 primarily due to the focus on Deltacel, and the related expense attributable to preparation for our clinical trials.

Laboratory equipment and maintenance increased by $294,500, primarily due to increased depreciation expense related to purchases of equipment for the development of ALEXIS-PRO that occurred in June of 2022.

Facilities related costs decreased by $79,800, due to the lab expansion attributable to GDT manufacturing during the three months ended June 30, 2022.

General and administrative expenses. The decrease in general and administrative expenses by $2,225,800, or 49%, ~~to $1,225,700~~ for the three months ended ~~September~~June 30, ~~2020 from $272,100~~2023, compared to June 30, 2022 were primarily due to:

A decrease in legal services of $999,200 driven by a significant decline in expenses related to the Internal Review and related matters.

A decrease in employee-related expenses of $1,088,700 driven by a decline in the average headcount.

Comparison of the Six Months Ended June 30, 2023 and 2022

The following table sets forth key components of our results of operations for the ~~three~~six months ended ~~September~~June 30, ~~2019.~~ 2023 and 2022.


	Six Months Ended
	June 30,				Increase (Decrease)
	2023		2022		$		%
Operating expenses:
Research and development	$	4,041,600	$	6,806,500	$	(2,764,900)	(41)	%
General and administrative		5,028,300		8,990,800		(3,962,500)	(44)	%
Total operating expenses		9,069,900		15,797,300		(6,727,400)	(43)	%
Loss from operations		(9,069,900)		(15,797,300)		(6,727,400)	(43)	%
Other expense
Interest expense		(779,400)		(5,500)		773,900	NM
Debt issuance amortization		(445,400)		—		445,400	NM
Litigation settlement		(1,770,000)		—		1,770,000	NM
Total other expense		(2,994,800)		(5,500)		2,989,300	NM
Net loss	$	(12,064,700)	$	(15,802,800)	$	(3,738,100)	(24)	%

NM: Not meaningful

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Research and development expenses.

The following table summarizes our research and development expenses by product candidate or development program:


	Three Months Ended								Six Months Ended
	September 30,				Increase (Decrease)				June 30,				Increase (Decrease)
	2020		2019		$		%		2023		2022		$		%
Direct research and development expenses by product candidate:
AIDT-1 development costs	$	—	$	26,200	$	(26,200)	(100.00)	%	$	683,100	$	—	$	683,100	NM
Isomesothelin development costs		13,500		—		13,500	100.00	%
ALEXIS-PRO-1										—		892,000		(892,000)	(100)	%
ALEXIS-ISO-1										—		843,200		(843,200)	(100)	%
Platform development, early-stage research and unallocated expenses:
Employee-related costs		813,300		144,500		668,800	462.84	%		1,190,700		2,798,700		(1,608,000)	(57)	%
Laboratory supplies and services		252,000		28,200		223,800	793.62	%		153,300		594,100		(440,800)	(74)	%
Outsourced research and development (net of reimbursements)		(11,300)		48,400		(59,700)	(123.35)	%		247,700		190,700		57,000	30	%
Laboratory equipment and maintenance		22,300		1,100		21,200	1,927.27	%		1,399,200		864,400		534,800	62	%
Facility-related costs		104,600		23,600		81,000	343.22	%		278,100		432,300		(154,200)	(36)	%
Intellectual property										43,400		154,800		(111,400)	(72)	%
Other research and development costs		31,300		100		31,200	n/m			46,100		36,300		9,800	27	%
Total research and development expenses	$	1,225,700	$	272,100	$	953,600	350.46	%	$	4,041,600	$	6,806,500	$	(2,764,900)	(41)	%

NM – Not meaningful

~~As illustrated above,~~The primary drivers for the ~~increase~~reduction in cost are as follows:

AIDT-1 development cost increased by $683,100, related to the prioritization of the Deltacel-01 development.

Direct research and development costs for ALEXIS-PRO-1 and ALEXIS-ISO-1 decreased by $892,000 and $843,200, respectively, related to the prioritization of Deltacel-01 and the temporary suspension of the development of these two product lines.

Employee related costs decreased by $1,608,000 mainly related to a decrease in employee headcount, in addition to corresponding decrease to a retention bonus for those employees.

Laboratory supplies and services decreased by $440,800 mainly related to the tempoarary suspension of the development of ALEXIS-PRO-1 and ALEXIS-ISO-1.

Outsourced research and development increased by $57,000, primarily due to the focus on Deltacel, and the related expense attributable to preparation for our clinical trials.

Laboratory equipment and maintenance increased by $534,800, primarily due to increased depreciation expense related purchases of equipment due for the development of ALEXIS-PRO that occurred in June of 2022.

Facilities related costs decreased by $154,800, due to the lab expansion attributable to GDT manufacturing during the six months ended June 30, 2022.

Intellectual Property expenses decreased by $111,400, related to the Company’s alignment towards maintaining our key product candidates (Deltacel, Procel, and Isocel) while certain non-key and legacy technologies had patent applications which either expired or were abandoned

General and ~~development~~administrative expenses resulted from (i) a $668,800 increase in employee related costs, which primarily included a $314,500 increase in wages, benefits and payroll taxes and a $342,000 increase in stock compensation expenses attributable to research and development employees; (ii) a $223,800 increase in laboratory supplies in services, which primarily included a $197,500 increase in spending on disposables and consumables for in-vitro testing and validation of pipeline candidates, with the remaining balance driven by supplies spending; (iii) a $81,000 increase in facility-related costs, primarily driven by a $46,800 increase in allocated rent net of granting agency reimbursements, and a $29,900 increase in allocated depreciation expenses with the remaining amount attributed to repairs, maintenance, and utilities; (iv) a $31,200 increase in other research and development costs, which were driven by intellectual property legal expenses and intellectual property filings; (v) a $21,200 increase in laboratory equipment and maintenance, driven entirely by new non-capitalizable equipment purchases and maintenance to support in-vitro testing and validation by our research and development scientists.

~~These increases were offset by a $59,700~~. The decrease in ~~outsourced research~~general and ~~development costs, which~~administrative expenses by $3,962,600, or 44%, for the six months ended June 30, 2023, compared to June 30, 2022 were primarily ~~included a $118,000 in cost reductions from grant reimbursements, offset by an increase in for research studies and other~~due to:

A decrease in legal services of $1,800,500 driven by a significant decline in expenses related to the Internal Review and related matters.

3237

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~~consulting fees of $55,300. The remaining offsetting variance is driven by stock compensation expenses attributable to non-employees.~~

~~These cost increases were primarily incurred to support in-vitro testing and validation of our product candidates.~~

~~Augmented our research and development team: In~~A decrease in employee-related expenses of $1,752,800 driven by a decrease in the ~~three months ended September 30, 2020 and 2019, our~~ average ~~headcount increased to 8.5 employees from 1.5 employees allocable to research and development and clinical trials preparation.~~headcount.

~~Amended lease agreements: We amended our Houston facility lease agreement to expand the leased property by 4,100 square feet.~~

In-vitro experimentation costs: $197,500 in disposable and consumable spending during the three months ended September 30, 2020 for validation experiments and other services related to our Isomesothelin product candidates, ABBIE, and Gamma Delta T-Cell Expansion.

The cost increases were also partially due to the difference in grant reimbursements in the three months ended September 30, 2020 and 2019. In August 2018, the National Institute of Health (NIH), the primary agency of the United States government responsible for biomedical and public health research, awarded a Phase I/II grant in the amount of $2,235,000 for the development and non-clinical testing of a new anti-arteriosclerosis gene therapy delivered by engineered adeno-associated viral vectors. Phase I of the grant approved amounts of $851,000 and which covers the period September 2018 through August 2019, entitles us to reimbursement for certain salaries and wages, materials and supplies, facilities and administrative costs, and fixed fees. The Company did not complete Phase I by August 2019, but was granted an extension to complete Phase I by the NIH through August 2021. Starting after Phase 1 completion in 2021, Phase II of the grant covers reimbursements for certain salaries and wages, materials and supplies, facilities and administrative costs, and fixed fees of $1,384,000. During the three months ended September 30, 2020 and 2019, we recognized $142,400 and $51,600, respectively, as reductions to research and development expense within the statements of operations pursuant to the grant from the NIH.

~~General and administrative expenses~~. ~~Our general and administrative expenses increased by $582,600, or 95.92%, to $1,190,000 for the three months ended September 30, 2020 from $607,400 for the three months ended September 30, 2019.~~

During the three months ended September 30, 2020 and 2019, the increase primarily resulted from an increase in stock compensation expenses of $744,000 and wages and salaries of $104,000. These increases were offset by reductions to corporate finance and development expenses of $229,800, travel of $22,300, and $19,600 in professional services costs.

Employee related expenses were impacted by increases to headcount, employee salary rates, and equity grant modifications. During the three months ended September 30, 2020 and 2019, the headcount for employees allocated to general and administrative purposes increased to four employees from three employees, respectively. In addition, the Chief Executive Officer's salary increased to an annual rate of $504,000 from $280,000 as of September 30, 2020 and 2019, respectively.

The increase in stock compensation expense was primarily driven by stock option grant modification allocated to general and administrative expense increased stock compensation expense by $692,600. The decrease in corporate finance and development expenses are driven by reduced consulting fees owed to our Chief Scientific and Innovation Officer and Chief Financial Officer during the three months ended September 30, 2020 compared to the same period in the prior year. The decrease in professional service costs were primarily driven by reduced legal, and accounting costs.

~~Interest expense~~. Interest expense decreased by $7,400, to $0 for the three months ended September 30, 2020 from $7,400 for the three months ended September 30, 2019. The decrease is driven by the variance in the balance of convertible promissory notes during the three months ended September 30, 2020 and 2019.

~~Table of Contents~~

Total interest expense accrued on the notes in the three months ended September 30, 2019 totaled $7,400. On August 15, 2019, each holder of convertible promissory notes issued during 2019 agreed to voluntarily convert the amounts of principal and interest then outstanding into shares of Series A-1 Preferred Stock.

~~Net loss~~. As a result of the cumulative effect of the factors described above, our net loss increased to $2,415,700 during the three months ended September 30, 2020 compared to $886,900 during the three months ended September 30, 2019.

~~Comparison of the Nine Months Ended September30, 2020 and 2019~~

Nine Months Ended

September 30,

Increase (Decrease)


2020

2019

$

%

Operating expenses:









Research and development

$
3,526,100

$
601,500

$
2,924,600

486.22
%
General and administrative

12,109,200

934,300

11,174,900

1,196.07
%
Total operating expenses

15,635,300

1,535,800

14,099,500

918.06
%
Loss from operations

(15,635,300)

(1,535,800)

14,099,500

918.06
%
Other expense









Interest expense

—

(22,400)

(22,400)

(100.00)
%
Total other expense

—

(22,400)

(22,400)

(100.00)
%
Net loss

$
(15,635,300)

$
(1,558,200)

$
14,077,100

903.42
%

~~Research and development expenses~~. Our research and development expenses increased by $2,924,600, or 486.22%, to $3,526,100 for the nine months ended September 30, 2020 from $601,500 for the nine months ended September 30, 2019. The following table summarizes our research and development expenses by product candidate or development program:

Nine Months Ended

September 30,

Increase (Decrease)


2020

2019

$

%

Direct research and development expenses by product candidate:









AIDT-1 development costs

$
3,000

$
46,300

$
(43,300)

(93.52)
%
Isomesothelin development costs

59,000

—

59,000

100.00
%
Platform development, early-stage research and unallocated expenses:





Employee-related costs

1,940,400

208,200

1,732,200

831.99
%
Laboratory supplies and services

385,800

73,400

312,400

425.61
%
Outsourced research and development

653,000

190,900

462,100

242.06
%
Laboratory equipment and maintenance

49,600

1,100

48,500

4,409.09
%
Facility-related costs

282,500

81,200

201,300

247.91
%
Other research and development costs

152,800

400

152,400

n/m

Total research and development expenses

$
3,526,100

$
601,500

$
2,924,600

486.22
%

~~As illustrated above, the increase in research and development expenses resulted from (i)~~a $1,732,200 increase in employee related costs, which primarily included a $904,400 increase in wages, benefits and payroll taxes and a $801,400 increase in stock compensation expenses attributable to research and development employees; (ii)a $462,100 increase in outsourced research and development costs, which primarily included a $165,800 increase in research studies and other consulting fees along with a $310,000 increase in stock compensation expenses attributable to non-employees; (iii)a $312,400 increase in laboratory supplies in services, which primarily included a $301,000 increase in spending on disposables and consumables for in-vitro testing and validation of pipeline candidates, with the remaining balance driven

~~Table of Contents~~

~~by supplies spending; (iv)~~a $201,300 increase in facility-related costs, primarily driven by a $142,200 increase in allocated rent net of granting agency reimbursements, and a $56,100 increase in allocated depreciation expenses with the remaining amount attributed to repairs, maintenance, and utilities; (v)~~a $152,400 increase in other research and development costs, which were driven by intellectual property legal expenses and intellectual property filings; (vi)~~a $48,500 increase in laboratory equipment and maintenance, driven entirely by new non-capitalizable equipment purchases and maintenance to support in-vitro testing and validation by our research and development scientists.

~~These cost increases were primarily incurred to support in-vitro testing and validation of our product candidates.~~

~~Augmented our research and development team: In the nine months ended September30, 2020 and 2019, our average headcount increased to 7 employees from 1.5 employees allocable to research and development and clinical trials preparation.~~

~~Amended lease agreements: We amended our Houston facility lease agreement to expand the leased property by 4,100 square feet.~~

~~Intellectual property augmentation: Longwood University (~~“~~Longwood~~”), granted us the exclusive right to negotiate a worldwide, exclusive license for certain patent rights. The patent rights pertain to "T-cells expressing a chimeric -PD l-CD3zeta receptor reduce tumor burden in multiple murine syngeneic models of solid cancer." As compensation for this right, we agreed to pay Longwood an upfront fee of $15,000. We also agreed to reimburse Longwood for fees and expenses incurred for the preparation, filing, prosecution and maintenance of such patent rights. We also filed two utility patent applications and four provisional patent applications to protect intellectual property associated with our other value drivers.

~~The cost increases were also partially due to the difference in grant reimbursements in the nine months ended September30, 2020 and 2019. In August 2018, the NIH, the primary agency of the United States government responsible for biomedical and public health research, awarded a PhaseI/II grant in the amount of $2,235,000 for the development and non-clinical testing of a new anti-arteriosclerosis gene therapy delivered by engineered adeno-associated viral vectors. Phase~~I of the grant approved amounts of $851,000 and which covers the period September 2018 through August 2019, entitles us to reimbursement for certain salaries and wages, materials and supplies, facilities and administrative costs, and fixed fees. The Company did not complete Phase I by August 2019, but was granted an extension to complete Phase I by the NIH through August 2021. Starting after Phase 1 completion in 2021, Phase~~II of the grant covers reimbursements for certain salaries and wages, materials and supplies, facilities and administrative costs, and fixed fees of $1,384,000. During the nine months ended September30, 2020 and 2019, we recognized $142,400 and $239,900, respectively, as reductions to research and development expense within the statements of operations pursuant to the grant from the NIH.~~

~~General and administrative expenses~~.~~Our general and administrative expenses increased by $11,174,900, or 1,196.07%, to $12,109,200 for the nine months ended September30, 2020 from $934,300 for the nine months ended September30, 2019.~~

During the nine months ended September 30, 2020 and 2019, the increase primarily resulted from an increase in stock compensation expenses of $10,099,600, an increase in corporate finance and development expenses of $349,700, a $337,100 increase in professional services costs, and $375,200 of increased employee related expenses.

The increase in stock compensation expense was primarily driven by common stock issuances of 725,536 shares to our Chief Financial Officer, Chief Strategy and Innovation Officer, Chief Medical Officer, and another employee in exchange for services rendered totaling $9,432,000. In addition, stock option grant modification allocated to general and administrative expense increased stock compensation expense by $692,600. The increase in corporate finance and development expenses are driven by consulting fees owed to our Chief Scientific and Innovation Officer and Chief Financial Officer. The increase in professional service costs were primarily driven by increased legal, and accounting expenses.

~~Table of Contents~~

~~Employee related expenses were impacted by increases to headcount and employee salary rates. During the nine months ended September~~30, 2020 and 2019, the headcount for employees allocated to general and administrative purposes increased to four employees from three employees, respectively. In addition, the Chief Executive Officer's salary increased to an annual rate of $504,000 from $280,000 as of September~~30, 2020 and 2019, respectively.~~

~~Interest expense~~.~~Interest expense decreased by $22,400, to $0 for the nine months ended September30, 2020 from $22,400 for the nine months ended September30, 2019. The decrease is driven by the variance in the balance of convertible promissory notes during the nine months ended September30, 2020 and 2019.~~

~~During the nine months ended September~~30, 2019, we issued an additional $250,000 convertible promissory notes. The issued notes accrued interest at a rate of 17% per annum. Additionally, the Company settled an accounts payable with a vendor by issuing a convertible promissory note in the amount of $134,800 which accrued interest at a rate of 6% per annum. Total interest expense accrued on the notes in the nine months ended September~~30, 2019 totaled $22,400. On August15, 2019, each holder of convertible promissory notes issued during 2019 agreed to voluntarily convert the amounts of principal and interest then outstanding into shares of SeriesA-1 Preferred Stock.~~

~~Net loss~~.~~As a result of the cumulative effect of the factors described above, our net loss increased to $15,635,300 during the nine months ended September30, 2020 compared to $ $1,558,200 during the nine months ended September30, 2019.~~

Liquidity and Capital Resources

As of ~~September~~June 30, ~~2020,~~2023, we had cash and cash equivalents of ~~$469,300.~~$2,704,200. As of ~~December~~July 31, ~~2019~~2023, we had cash and cash equivalents of ~~$1,929,100.~~$3,109,900. We do not currently have any approved products and have never generated any revenue from product sales. To date, we have financed our operations primarily with proceeds from the sale of our convertible promissory notes, preferred stock, common stock from the initial public offering and ~~preferred stock.~~follow-on offering.

~~Following~~

We have material contractual obligations which will require cash to meet their requirements. These applicable obligations include our ~~recent offering of SeriesB Preferred Stock discussed below~~facility lease agreement, our employment contracts, and ~~increased expenditures related~~our financing arrangement for our Director and Officer Insurance Policy. We also plan to ~~our ongoing~~deploy cash for other research and development ~~efforts as well as~~and general and administrative operating expenses. Our ability to continue meeting these contractual obligations will be reliant upon our ability to secure significant additional capital funding.

As described above under “Going Concern and Liquidity,” in the ~~completion~~absence of ~~an initial public offering on October 15, 2020, we determined~~financing, management anticipates that ~~our current levels of~~existing cash resources combined with verbal, non-contractual commitments for additional financing will not be sufficient to meet operating and liquidity needs beyond the beginning of October 2023. Management may further evaluate various cost reduction actions, including possible reductions in the Company’s workforce and suspending research and development expenditures on one or more product candidates, in order to reduce the Company’s expenditures and preserve cash. We are limited in our ~~anticipated cash needs~~ability to reduce expenditures for ~~our operations through November 30, 2021. We~~known contractual obligations. As a result, we are not able to predict whether any cost reduction actions will be successful or how much longer any such actions will allow the Company to continue to operate without financing.

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

As described above, our recent planned underwritten public offering was not successful, and we are currently seeking short-term financing to be able to continue our operations past the beginning of October 2023. If we are successful in obtaining short-term financing to fund our operations beyond the end of the year, we intend to seek significant additional capital funding to develop our platform, ~~additional hiring of~~hire scientific professionals ~~hiring~~and other general and administrative employees, and for clinical trials. However, there can be no assurance that such efforts will be successful or that, in the event that they are successful, the terms and conditions of any such ~~financing~~financings will be favorable. Further, the results of our Internal Review demonstrated that we had ineffective disclosure controls and procedures during the first quarter of 2022 and earlier periods, which resulted in our failure to disclose certain information, which has resulted in litigation which has adversely affected our ability to raise capital. Further, there are other factors which may make financing our operations more difficult, including potential governmental investigation, continued elevated legal and accounting professional fees associated with the Internal Review and securities litigation, and other risk factors listed in Item 1A. of Part I of our Annual Report on Form 10-K for the year ended December 31, 2022. In consideration of our plans, substantial doubt ~~cannot be alleviated with respect to our continued operations through November 30, 2021. Management's plans, of which the raising additional capital~~ is not ~~within management's control and cannot be assured, do not alleviate such substantial doubt through November 30, 2021.~~

alleviated.

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Summary of Cash Flow

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


	Nine Months Ended September 30,				Six Months Ended June 30,
	2020		2019		2023		2022
Net cash used in operating activities	$	(3,557,200)	$	(1,000,900)	$	(10,588,800)	$	(13,548,000)
Net cash used in investing activities		(1,013,100)		(26,500)		—		(4,955,700)
Net cash provided by financing activities		3,110,500		1,830,900		12,647,800		(339,600)
Net increase (decrease) in cash and cash equivalents		(1,459,800)		803,500		2,059,000		(18,843,300)
Cash and cash equivalents at beginning of the period		1,929,100		384,300		645,200		25,353,900
Cash and cash equivalents at end of the period		469,300		1,187,800	$	2,704,200	$	6,510,600

Cash flows from operating activities

Net cash used in operating activities ~~was $3,557,200 for~~decreased by approximately $3 million dollars. This decrease is driven primarily by the ~~nine months ended September30, 2020, as compared to $1,000,900 for nine months ended September30, 2019. In the nine months ended September30, 2020, net loss of $15,635,300 and outflows from prepaid expenses and other current assets~~reduction in ~~the amount of $149,800 were the cash outflows drivers. These cash outflows were offset by stock compensation expenses from common stock issuances~~overall spending in the amount of $9,432,000, stock compensation expenses from stock options and restricted stock units of $2,148,000, accounts payable in the amount of $398,300, and accrued expenses in the amount of $130,700.

Net cash used in operating activities increased by a total of $2,556,300 period-over-period. The main driver for the increase is the $14,077,100 increase in net loss offset by non-cash inflows from increased stock compensation expenses in the amount of $11,211,000. We primarily used cash to augment our research and development ~~team, expand~~due to the deferral of expenditures on the Procel and Isocel lines combined with an overall reduction in headcount. See our ~~leased property, expand~~discussion in Results of Operations and our ~~intellectual property portfolio, and pay~~Statement of Cash Flows for ~~corporate development costs related to obtaining additional financing. See "Results of Operations" above for further details.~~more information.

Cash flows from investing activities

Net cash used in investing activities was ~~$1,013,100~~zero for the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2023, as compared to ~~$20,000~~$4,955,700 for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2022. Our net cash used in investing activities for the six months ended June 30, 2022 primarily consisted ~~entirely~~ of cash flows for purchases of property and ~~equipment.~~

~~Net cash used in investing activities increased by a total of $986,600 in the nine months ended September30, 2020 from September30, 2019. This was primarily driven by $986,400 in cash outflows from~~ equipment, ~~and leasehold improvements attributed to~~for our ~~Clean Room and Vivarium current good manufacturing practices~~cGMP facilities located in our leased facility in Houston, ~~office.~~Texas.

Cash flows from financing activities

~~Net~~The change in cash ~~provided by~~flows from financing activities ~~was $3,110,500 during~~for the ~~nine~~periods shown are driven by the issuance of approximately $578 thousand of equity and $12.4 million of convertible notes for the six months ended ~~September~~June 30, ~~2020 as compared to $1,830,900 for the nine months ended September~~2023.~~30, 2019. For the nine months ended September~~30, 2020, the net cash provided by financing activities primarily consisted of proceeds from preferred stock issuance in the amount of $3,000,000 and proceeds from a loan payable of $105,600, net of repayments. During the nine months ended September30, 2019, the net cash provided by financing activities consisted of proceeds from the sale of convertible promissory notes in the amount of $250,000, proceeds from the Series B Preferred Stock round of financing totaling $1,571,400, and stock option exercises totaling $9,500.

Off-Balance Sheet Arrangements

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

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~~Critical Accounting Policies and Estimates~~

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

~~Fair Value Measurements~~—The carrying value of our cash and cash equivalents, unbilled receivables from the granting agency, prepaid expenses and other assets, accounts payable, accrued expenses and other current liabilities approximate their fair value due to their short-term nature.

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

~~We account for financial instruments in accordance with Accounting Standards Codification (~~“~~ASC~~”~~) 820,~~~~Fair Value Measurements and Disclosures~~. ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level~~1 measurements) and the lowest priority to unobservable inputs (Level3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below:~~

~~Level~~1—~~Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.~~

~~Level~~2—Quoted prices in non-active markets or in active markets for similar assets or liabilities, observable inputs other than quoted prices, and inputs that are not directly observable but are corroborated by observable market data.

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

~~There were no changes in the fair value hierarchy leveling during the years ended December31, 2019 and 2018.~~

~~Stock-Based Compensation~~—~~We record stock compensation expense related to our 2017 Equity Incentive Plan in accordance with ASC718,~~~~Compensation~~—~~Stock Compensation~~. We measure and recognize stock compensation expense for all stock-based awards, including stock options, based on estimated fair values recognized using the straight-line method over the requisite service period. The fair value of stock options is estimated on the grant date using the Black-Scholes option-valuation model. The calculation of stock-based compensation expense requires that we make assumptions and judgments about the variables used in the Black- Scholes option-valuation model, including the fair value of our common stock, expected term, expected volatility of the underlying common stock, and risk-free interest rate. Forfeitures are accounted for when they occur.

~~We estimate the grant-date fair value of stock options using the Black-Scholes option-valuation model and the assumptions used to value such stock options are determined as follows:~~

~~Table of Contents~~

~~Expected Term.~~The expected term represents the period that our stock options are expected to be outstanding. Due to limitations on the sale or transfer of our common stock as a privately held company, we do not believe our historical exercise pattern is indicative of the pattern we will experience as a future publicly traded company. We have consequently used the SAB No.~~110, simplified method to calculate the expected term, which is the average of the contractual term and vesting period. We plan to continue to use the SAB110 simplified method until we have sufficient trading history as a publicly traded company.~~

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

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

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

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

~~valuations of the common stock performed by third-party specialists;~~

~~the prices, rights, preferences, and privileges of our SeriesA-1 Preferred Stock and SeriesB Preferred Stock relative to those of our common stock;~~

~~lack of marketability of the common stock;~~

~~current business conditions and projections;~~

~~hiring of key personnel and the experience of management;~~

~~our stage of development;~~

~~likelihood of achieving a liquidity event, a merger or acquisition of our company given prevailing market conditions, or other liquidation event;~~

~~the market performance of comparable publicly traded companies; and~~

~~the U.S. and global capital market conditions.~~

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

~~Table of Contents~~

~~cash flows. The market approach references actual transactions involving (i)the subject being valued, or (ii)similar assets and/or enterprises.~~

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

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

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

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

~~Warrants Underlying Shares of SeriesB Preferred Stock~~—~~We record warrants to purchase shares of common stock underlying our shares of SeriesB Preferred Stock in accordance with ASC470,~~~~Debt with conversion and other options~~. The fair value of the warrants is estimated on the purchase date using the Black-Scholes option- valuation model. The calculation of warrants requires that we make assumptions and judgments about the variables used in the Black-Scholes option-valuation model, including the fair value of our common stock, expected term, expected volatility of the underlying common stock, and risk-free interest rate.

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

~~Expected Term.~~The expected term represents the period that our warrants are expected to be outstanding. The warrants become exercisable in accordance with the schedule set forth below following completion by the Company of an initial public offering and thereafter may be exercised at any time prior to expiration ten years from the date of issuance.

~~30% of the warrants beginning nine months after the date on which the securities of the Company are first listed on a United States national securities exchange (such date, the "Listing Date");~~

~~An additional 30% of the warrants beginning nine months after the Listing Date; and~~

~~The remainder of the warrants beginning twelve months after the Listing Date.~~

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~~Since the vesting schedule is contingent upon completion of an initial public offering, we assessed the expected term of the warrants to be ten years.~~

~~Common Stock Valuations.~~The fair value of the common stock underlying our warrants has historically been determined by our board of directors, with input from management and third-party valuations. We believe that the board of directors has the relevant experience and expertise to determine the fair value of our common stock. Given the absence of a public trading market of our common stock, and in accordance with the American Institute of Certified Public Accountants Practice Aid,~~Valuation of Privately-Held Company Equity Securities Issued as Compensation~~, the board of directors exercised reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of the fair value of our common stock at each grant date. These factors include:

~~valuations of the common stock performed by third-party specialists;~~

~~the prices, rights, preferences, and privileges of our SeriesA-1 Preferred Stock and SeriesB Preferred Stock relative to those of our common stock;~~

~~lack of marketability of the common stock;~~

~~current business conditions and projections;~~

~~hiring of key personnel and the experience of management;~~

~~our stage of development;~~

~~likelihood of achieving a liquidity event, such as an initial public offering, a merger or acquisition of our company given prevailing market conditions, or other liquidation event;~~

~~the market performance of comparable publicly traded companies; and~~

~~the U.S. and global capital market conditions.~~

~~Table of Contents~~

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

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

~~Recent Accounting Pronouncements~~

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

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~~In June 2016, FASB issued ASU 2016-13,~~ ~~Financial Instruments—Credit Losses (Topic 326)~~. The amendments in ASU 2016-13 affect entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in ASU 2016-13 require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. On October 16, 2019, the FASB has changed the effective date of this standard applicable to the Company as an emerging growth company to January 1, 2023. The Company is currently evaluating the potential impact of this standard on its financial position, results of operations, and cash flows.

~~On January 1, 2019, the Company adopted ASU 2016-15 (Topic 230),~~ ~~Classification of Certain Cash Receipts and Payments~~, a new standard providing guidance on statement of cash flow classification on specific issues. The standard is effective for financial statements issued for fiscal periods beginning after December 15, 2018. It is required to be applied on a retrospective approach. The Company determined that this standard had no impact on its financial position, results of operations, and cash flows for the year ended December 31, 2019.

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ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

~~Not applicable.~~

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

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (“CEO”) and ~~Chief~~Principal Financial Officer, ~~(our principal executive officer and principal financial officer, respectively),~~ evaluated the effectiveness of our disclosure controls and procedures as of ~~September~~June 30, ~~2020.~~2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the ~~company’s~~Company’s management, including its principal executive and principal financial officers, as appropriate to allow

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timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

~~The closing~~ Under the supervision, and with the participation, of our ~~initial public offering occurred on October 20, 2020. Consequently,~~current management, including our CEO and Principal Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures as ~~a newly reporting company~~defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, ~~we are not required to evaluate the effectiveness~~as of June 30, 2023. Based on this evaluation of our ~~internal~~disclosure controls ~~over financial reporting until the end~~and procedures, our management, including our CEO and Principal Financial Officer, have concluded that our disclosure controls and procedures were not effective as of June 30, 2023 because of the fiscal year after we file our first annual report on Form 10-K, which will occur on December 31, 2021. However, in connection with the audit of our financial statements for the years ended December 31, 2019 and 2018, prior to our initial public offering, we observed material weaknesses in our internal ~~controls~~control over financial reporting described below.

Material Weaknesses

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. The material weaknesses were identified during ~~those periods~~the quarter ended June 30, 2023 because we ~~did~~do not have a formal process for period end financial closing and reporting, and also because we ~~historically had~~have insufficient resources to conduct an effective monitoring and oversight function independent from our operations. These material weaknesses result in an increased risk of material misstatement in the financial statements. In addition, during the year ended December 31, 2021, we identified a material weakness in our internal control over financial reporting related to a lack of effective disclosure controls. Such material weakness has not been fully remediated during the quarter ended June 30, 2023.

Remediation Activities

We believe that we are addressing ~~these~~the material weaknesses identified in connection with the quarter ended June 30, 2023, through measures including:

-●

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

-●

~~ensuring~~Designing those controls with the ~~implementation of those internal controls processes allows for a proper~~appropriate segregation of ~~duties; and~~duties.

-●

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

~~Our~~Management concluded that these material weaknesses still existed as of June 30, 2023. In order to consider these material weaknesses to be fully remediated, we believe additional time is needed to demonstrate effectiveness of the remediation.

As a remedial measure to address the Company’s material weakness in internal control over financial reporting identified as a result of the Internal Review, on January 10, 2022, and as amended on April 10, 2023, the Board approved the formation of a Disclosure Committee comprised of certain members of the Company’s management ~~intends~~including (i) its Chief Executive Officer; (ii) the executive in charge of overseeing submissions of any nature to ~~monitor these weaknesses~~the FDA; (iii) its Chief Financial Officer, if any; (iv) its General Counsel, if any; (v) its Controller, if any; (vi) any other finance executive overseeing financial disclosures; (vii) the executive in charge of investor relations, if any; and ~~evaluate whether~~(viii) such other employees as the ~~remedial actions taken~~Chief Executive Officer, who serves as chairman of the Disclosure Committee, may invite from time to time. The Disclosure Committee shall be responsible for preparing and reviewing all corporate disclosures made by the Company ~~have remediated these weaknesses when it completes~~to its ~~first evaluation of~~security holders, the SEC and/or the broader investment community to ensure that such disclosures (i) shall be accurate and complete; (ii) shall fairly present, in all material respects, the Company’s ~~internal controls over~~ financial ~~reporting for~~condition, results of operations and cash flows; and (iii) shall be made on a timely basis in accordance with all applicable requirements of (A) the ~~fiscal year ending December 31, 2021.~~Exchange Act and the rules and regulations promulgated thereunder, (B) the Securities Act of 1933, as amended and the rules and regulations promulgated thereunder (C) the Nasdaq Stock Market or such other stock exchange on which the Company’s securities may be traded and (D) any other applicable laws or legal requirements.

Our management believes that these material weaknesses were not remediated as of June 30, 2023 because the Company continues to be cash constrained and could not fully remediate. In order to consider these material weaknesses to be fully remediated, we believe additional time is needed to demonstrate effectiveness of the remediation.

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Changes in Internal Control over Financial Reporting

There have been no other changes in our internal control over financial reporting for the quarter ended June 30, 2023.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time in the future, we may become involved in litigation or other legal proceedings that arise in the ordinary course of business. ~~We are not currently party to any legal proceedings,~~

Dr. Terrell Claim

On March 22, 2021, Jason Terrell (“Terrell”), a former consultant for and director of the Company, commenced an action against us in the Court of Chancery of the State of Delaware, C.A. No. 2021-0248-MTZ (the “Action”). In the Action, Terrell seeks a declaratory judgment that we are obligated to issue him (i) options to purchase 500,000 shares of our common stock at a price of $0.50 per share pursuant to an alleged 2014 consulting agreement, and (ii) options to purchase an additional 500,005 shares of our common stock at a price of $0.17 per share pursuant to an alleged January 2017 non-employee director options agreement. In his complaint, Terrell also claimed that, pursuant to our operative certificate of incorporation, he is entitled to indemnification from us for attorneys’ fees and costs he incurs in connection with the Action because the Action arises in connection with his position as a former director.

We dispute Terrell’s claims and allegations in the Action and intend to vigorously defend against them. On May 21, 2021, we filed a motion to dismiss Terrell’s claims in the actions with prejudice, arguing that (i) Terrell’s options-related claims fail because his 2014 and January 2017 agreements were explicitly superseded by a later options agreement, under which Terrell relinquished his prior options; and (ii) Terrell is not ~~aware~~entitled to indemnification because the Action relates to contracts between the Company and Terrell in his personal capacity, and not in connection with any activities or duties of Terrell in his official capacity as former director. In response to the motion, filed on June 21, 2021, Terrell withdrew his claim for indemnification, but opposed the portion seeking dismissal of his declaratory judgment claim. The motion was fully briefed with the filing of our reply brief on July 7, 2021.

Oral argument was held before the Vice Chancellor on October 20, 2021. During oral argument, the Vice Chancellor invited the parties to submit supplemental letter briefs on the question of whether the Court of Chancery even had the authority to adjudicate the Action in light of the delegation of authority in Terrell’s most recent stock option agreement with the Company (the “SOA”) to our Compensation Committee to resolve all disputes regarding the interpretation of the SOA. The parties submitted simultaneous supplemental letters briefs on this issue on November 15, 2021. On January 20, 2022, the Vice Chancellor issued her decision on our motion to dismiss, ruling that the Action is stayed until the Compensation Committee itself resolves whether it has sole authority to resolve the parties’ contract interpretation dispute.

Subsequently, the parties agreed upon a process for coordinating submissions and/or presentations to the Compensation Committee. The parties made their respective written submissions to the Compensation Committee on March 31, 2022, and on July 21, 2022, the Compensation Committee determined that (i) the Compensation Committee has sole authority under the SOA to resolve the parties’ contract interpretation dispute, and (ii) Terrell’s most recent options agreement superseded and nullified any option rights Terrell may have had under his prior agreements. On August 2, 2022, the Vice Chancellor issued an order dismissing the Action for lack of subject matter jurisdiction. No further proceedings are taking place.

On August 23, 2022, Terrell filed a notice of appeal of the Vice Chancellor’s order of dismissal to the Delaware Supreme Court.

Oral argument on Terrell’s appeal was held before the Delaware Supreme Court on February 8, 2023. On May 4, 2023, the Delaware Supreme Court issued a written opinion (the “Opinion”) reversing the Vice Chancellor’s order of dismissal and remanding to Chancery Court for further proceedings consistent with the Opinion. In its Opinion, the Delaware Supreme Court affirmed several of the Chancery Court’s legal determinations on the motion to dismiss, but concluded that Chancery Court itself should independently review the Compensation Committee’s determinations under Delaware law.

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The parties have stipulated to and the Chancery Court has so ordered a schedule for supplemental briefing on our motion to dismiss to address the import of the Delaware Supreme Court’s Opinion. Under that schedule, supplemental briefing will conclude by August 18, 2023. The Chancery Court has not yet indicated whether it wishes to hold further oral argument on the motion to dismiss.

Karp Class Action

On August 5, 2022, Ronald H. Karp, filed a class action complaint in the United States District Court for the Southern District of New York (the “Karp Class Action”) covering the same subject matter as the Sabby Entities’ and Empery Entities’ claims discussed above and asserting claims against the Company and certain current and former officers and directors of the Company for alleged violations of Sections 11, 12, and 15 of the Securities Act of 1933 in connection with the purchase of common stock through the Company’s public offering that closed on July 2, 2021 and Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 promulgated thereunder in connection with the certain statements and acts made by the defendants between June 25, 2021 and August 13, 2021.

Podmore Class Action

The Karp Class Action and the Podmore Class Action are collectively referred to as the “Class Action”. Please refer to the Settlement of the Class Action described more fully below.

Settlement in Principle of the Class Action

On August 7, 2023, we entered into a term sheet with the plaintiffs in the Class Action, to settle in principle (and globally resolve) the Class Actions. In the Class Action, the plaintiffs have made allegations and asserted claims against the Company and certain current and former directors and officers, as well as the Company’s former underwriter, including for alleged violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 as well as Section 10(b) (and Rule 10b-5 promulgated thereunder) and Section 20(a) of the Securities Exchange Act of 1934 in connection with a public offering by the Company that closed on or about July 2, 2021. The Term Sheet provides, among other things, that it is subject to approval by the U.S. District Court for the Southern District of New York (the “Court”); that plaintiffs and the Company will prepare settlement materials consistent with the Term Sheet; that the settlement will globally resolve all claims and allegations; that no defendant admits any liability or any allegation; that the Company shall make cash consideration payments totaling $2,300,000 into an escrow account, of which $530,000 we expect to be paid by our insurance carrier directly to the plaintiffs, resulting in recognition of a $1.77 million expense in our income statement for the three and six months ended June 30, 2023. Such amounts shall be distributed as set forth in the Term Sheet, including that amounts shall be distributed upon approval of the settlement by the Court. The plaintiffs subsequently sent a letter to the Court on August 7, 2023 informing the Court of the settlement in principle and requesting that the Court stay all proceedings pending ~~or threatened litigation against us~~approval of the settlement.

The Company regularly assesses all contingencies and believes, based on information presently known, the Company is not involved in any other matters that ~~we believe could~~would have a material ~~adverse~~ effect on ~~our business, operating~~the Company’s financial position, results ~~or financial condition. In the event we are subject to a legal proceeding, it could have a material adverse impact on us because~~ of ~~litigation costs~~operations and ~~diversion of management resources.~~cash flows.

ITEM 1A. RISK FACTORS.

~~Not applicable.~~There have been no material changes from the risk factors disclosed in our Form 10-K for the year ended December 31, 2022.

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

~~We have not sold any equity securities during three months ended September 30, 2020 that were not previously disclosed.~~None.

~~We did not repurchase any of shares of our common stock during the three months ended September 30, 2020.~~

~~ITEM 3.~~ ~~DEFAULTS UPON SENIOR SECURITIES.~~

~~None.~~

~~ITEM 4.~~ ~~MINE SAFETY DISCLOSURES.~~

~~Not applicable.~~

~~ITEM 5.~~ ~~OTHER INFORMATION.~~

We have no information to disclose that was required to be in a report on Form 8-K during the three months ended September 30, 2020 but was not reported. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.

ITEM 6. EXHIBITS.

~~See Exhibit Index.~~

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~~EXHIBIT INDEX~~


Exhibit No.		Description of Exhibit
3.1		~~Fourth Amended and Restated Certificate of Incorporation~~Amendment to Bylaws of Kiromic BioPharma, Inc. (incorporated by reference to Exhibit 3.1 to ~~the Current Report on~~ Form 8-K filed on ~~October 21, 2020)~~July 18, 2023)
3.2*3.2		~~Second Amended~~Amendment to Certificate of Designation of Preferences, Rights and ~~Restated Bylaws~~Limitation of ~~Kiromic BioPharma, Inc.~~the Series C Convertible Voting Preferred Stock dated July 18, 2023 (incorporated by reference to Exhibit 3.1 to Form 8-K filed on July 19, 2023)
4.1*10.1		Form of ~~Representative’s Warrant Agreement~~the 25% Senior Secured Convertible Promissory Note (incorporated by reference to Exhibit 10.1 to Form 8-K filed on April 28, 2023)
31.1*10.2		Form of the 25% Senior Secured Convertible Promissory Note (incorporated by reference to Exhibit 10.1 to Form 8-K filed on May 30, 2023)
10.3		Form of the 25% Senior Secured Convertible Promissory Note (incorporated by reference to Exhibit 10.1 to Form 8-K filed on June 27, 2023)
10.4		Form of Exchange Agreement dated as of July 18, 2023 between the Company and the holder of the Exchange Securities (incorporated by reference to Exhibit 10.1 to Form 8-K filed on July 19, 2023)
10.5		Form of the 25% Senior Secured Convertible Promissory Note (incorporated by reference to Exhibit 10.1 to Form 8-K filed on July 27, 2023)
31.1		Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*31.2		Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*32.1		Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*32.2		Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*101.INS		Inline XBRL Instance Document
101.SCH*101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL*101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

~~______________~~

*Filed herewith

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SIGNATURES

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

5
Date: ~~November 30, 2020~~August 14, 2023	KIROMIC BIOPHARMA, INC.

	/s/ ~~Maurizio Chiriva-Internati~~Pietro Bersani
	Name: ~~Maurizio Chiriva-Internati~~Pietro Bersani
	Title: Chief Executive Officer (Principal Executive Officer)
	~~(Principal Executive Officer)~~

	/s/ ~~Tony Tontat~~Brian Hungerford
	Name: ~~Tony Tontat~~Brian Hungerford
	Title: Interim Chief Financial Officer (Principal Financial and Accounting Officer)
	~~(Principal Financial and Accounting Officer)~~

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	Three and Nine Months Ended September 30, 2020
	Series A‑1			Series B
	Preferred Stock			Preferred Stock			Common Stock
										Additional Paid-
	Number of			Number of			Number of			In		Accumulated
	Shares	Amount		Shares	Amount		Shares	Amount		Capital		Deficit		Total
Balance at December 31, 2019	21,822,301	$	9,134,700	9,869,659	$	1,306,900	2,863,812	$	—	$	13,965,000	$	(22,427,600)	$	1,979,000
Issuance of Series B Preferred Stock	—		—	6,521,738		331,700	—		—		—		—		331,700
Series B Preferred Stock discount amortization	—		—	—		368,400	—		—		(368,400)		—		—
Warrants underlying Series B Preferred Stock issuance	—		—	—		—	—		—		2,668,300		—		2,668,300
Stock compensation expense	—		—	—		—	—		—		456,000		—		456,000
Net loss	—		—	—		—	—		—		—		(1,852,700)		(1,852,700)
Balance at March 31, 2020	21,822,301		9,134,700	16,391,397	$	2,007,000	2,863,812	$	—	$	16,720,900	$	(24,280,300)	$	3,582,300
Series B Preferred Stock discount amortization	—		—	—		324,300	—		—		(324,300)		—		—
Exercise of warrants	—		—	—		—	1,399,921		—		4,900		—		4,900
Common stock issuance to employees and non-employees	—		—	—		—	725,536		—		9,432,000		—		9,432,000
Stock compensation expense	—		—	—		—	—		—		443,000		—		443,000
Net loss	—		—	—		—	—		—		—		(11,366,900)		(11,366,900)
Balance at June 30, 2020	21,822,301		9,134,700	16,391,397	$	2,331,300	4,989,269	$	—	$	26,276,500	$	(35,647,200)	$	2,095,300
Stock compensation expense	—		—	—		—	—		—		1,249,000		—		1,249,000
Net loss	—		—	—		—	—		—		—		(2,415,700)		(2,415,700)
Balance at September 30, 2020	21,822,301	$	9,134,700	16,391,397	$	2,331,300	4,989,269		—		27,525,500		(38,062,900)		928,600

		��
	Nine Months Ended
	September 30,
	2020		2019
Cash flows from operating activities:
Net loss	$	(15,635,300)	$	(1,558,200)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation		118,900		63,700
Stock compensation expense		11,580,000		369,000
Non-cash interest		—		20,500
Changes in operating assets and liabilities:
Unbilled receivables from granting agency		—		5,000
Inventories		—		(5,900)
Prepaid expenses and other current assets		(149,800)		34,800
Accounts payable		398,300		226,100
Accrued expenses and other current liabilities		130,700		(138,900)
Deferred rent		—		(19,000)
Convertible promissory notes derivative liability		—		2,000
Net cash used for operating activities		(3,557,200)		(1,000,900)
Cash flows from investing activities:
Purchases of property and equipment		(1,013,100)		(26,500)
Net cash used for investing activities		(1,013,100)		(26,500)
Cash flows from financing activities:
Proceeds from sale of convertible promissory notes		—		250,000
Exercise of stock options		—		9,500
Proceeds from warrant exercise		4,900		—
Proceeds from loan payable		115,600		—
Loan repayments		(10,000)
Proceeds from Series B Preferred Stock issuance		3,000,000		1,571,400
Net cash provided by financing activities		3,110,500		1,830,900
Net change in cash and cash equivalents		(1,459,800)		803,500
Cash and cash equivalents:
Beginning of year		1,929,100		384,300
End of period	$	469,300	$	1,187,800

Supplemental disclosures of non-cash investing and financing activities:
Accruals for property and equipment	$	130,200	$	74,700
Conversion of accounts payable into convertible promissory notes	$	—	$	134,800
Conversion of convertible promissory notes and accrued interest into Series A‑1 Preferred Stock		—	$	407,300
Accruals for deferred initial public offering costs	$	813,000	$	—
Warrants underlying Series B Preferred Stock issuance	$	2,668,300	$	—


	2020		2019
Series B Preferred Stock
Balance at January 1,	$	1,306,900	$	—
Series B Preferred Stock proceeds		3,000,000		—
Series B Preferred Stock discount		(2,668,300)		—
Series B Preferred Stock discount amortization		368,400		—
Balance at March 31	$	2,007,000	$	—
Series B Preferred Stock discount amortization		324,300		—
Balance at June 30	$	2,331,300	$	—
Series B Preferred Stock proceeds		—		1,571,400
Series B Preferred Stock discount		—		(1,202,600)
Series B Preferred Stock discount amortization		—		16,400
Balance at September 30	$	2,331,300	$	385,200


	2020		2019
Risk-free interest rate	0.15% - 2.92	%	1.61% - 2.92	%
Expected volatility	72.29% - 82.52	%	72.29% - 78.16	%
Expected life (years)	4.93 – 6.07		4.93 – 6.01
Expected dividend yield	0	%	0	%


	Options Outstanding						Options Exercisable
		Weighted
		Average	Weighted					Weighted
		Remaining	Average		Aggregate			Average		Aggregate
As of	Options	Contractual	Exercise		Intrinsic		Options	Exercise		Intrinsic
September 30,	Outstanding	Life	Price		Value		Exercisable	Price		Value
2019	634,272	7.97	$	11.15	$	4,009,000	389,584	$	7.82	$	3,761,100
2020	618,510	7.79	$	11.58	$	1,787,200	390,075	$	8.51	$	1,521,400


	Amount
2021	$	179,800
2022		269,700
2023		274,200
2024		230,400
Total	$	954,100