UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022March 31, 2023
or
| |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-39169001-39619
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, 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 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 filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large-accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | |
| Large Accelerated Filer ☐ | | Accelerated Filer ☐ | |
| Non-accelerated Filer ☒ | | Smaller Reporting Company ☒ | |
| | | Emerging Growth Company ☒ | |
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 14, 2022,May 12, 2023, there were 18,246,718979,243 shares of the registrant’s common stock outstanding.
2
TABLE OF CONTENTS
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
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2
Note Regarding Forward-Looking Statements
Various statements made in this Quarterly Report on Form 10-Q are forward-looking and involve risks and uncertainties. All statements that address activities, events or developments that we intend, expect or believe may occur in the future are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements give our current expectations or forecasts of future events and are not statements of historical or current facts. These statements include, among others, 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; |
● | our ability to raise capital when needed; |
● | relevant government policies and regulations relating to our industry; and |
● | the outcome of any pending or threatened litigation. |
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 using words or phrases such as “may," "could," "will,"
3
"should, "should," "would," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," "potential," "project" or "continue".
3
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 extent to which the COVID-19 pandemic impacts our business, our customers’ businesses, the medical community and the global economy; |
● | the effectiveness and timeliness of our preclinical studies and clinical trials, and the usefulness of the data; |
● | our expectations regarding the timing and clinical development of our product candidates; |
● | our ability to achieve profitable operations and access to needed capital; |
● | fluctuations in our operating results; |
● | the success of current and future license and collaboration agreements |
● | our dependence on contract research organizations, vendors and investigators; |
● | effects of competition and other developments affecting development of products; |
● | market acceptance of our products; |
● | protection of intellectual property and avoiding intellectual property infringement; |
● | product liability; and |
● | other factors described in our filings with the SEC. |
We cannot guarantee that the results and other 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, 20212022 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.
4
PART I —FINANCIAL INFORMATION
Item 1. Financial Statements
KIROMIC BIOPHARMA, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
| | | | | | | | | | | | |
|
| September 30, |
| December 31, |
| March 31, |
| December 31, | ||||
| | 2022 | | 2021 | | 2023 | | 2022 | ||||
Assets |
| |
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| |
|
| |
|
| |
|
Current Assets: |
| |
|
| |
|
| |
|
| |
|
Cash and cash equivalents | | $ | 432,700 | | $ | 25,353,900 | | $ | 2,054,300 | | $ | 645,200 |
Accounts receivable | | | — | | | 16,200 | ||||||
Prepaid expenses and other current assets | |
| 1,705,500 | |
| 1,699,400 | |
| 1,462,400 | |
| 1,043,700 |
Total current assets | |
| 2,138,200 | |
| 27,069,500 | |
| 3,516,700 | |
| 1,688,900 |
Property and equipment, net | |
| 8,685,500 | |
| 3,629,000 | |
| 7,581,100 | |
| 8,136,900 |
Operating lease right-of-use asset | | | 2,164,500 | | | — | | | 1,985,800 | | | 2,117,300 |
Other assets | |
| 31,100 | |
| 31,100 | |
| 24,400 | |
| 24,400 |
Total Assets | | $ | 13,019,300 | | $ | 30,729,600 | | $ | 13,108,000 | | $ | 11,967,500 |
| | | | | | | | | | | | |
Liabilities and Stockholders’ Equity: | |
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Liabilities and Stockholders’ Deficit: | |
|
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Current Liabilities: | |
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| |
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| |
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| |
|
|
Senior secured convertible promissory note, net | | $ | 9,588,800 | | $ | 3,809,900 | ||||||
Accounts payable | | $ | 6,494,100 | | $ | 2,214,300 | | | 8,151,800 | | | 7,308,100 |
Accrued expenses and other current liabilities | |
| 604,000 | |
| 741,000 | |
| 554,300 | |
| 881,600 |
Interest payable | |
| 573,500 | |
| 142,100 | ||||||
Note payable | |
| — | |
| 454,500 | |
| 394,100 | |
| 557,200 |
Accrued litigation liability | | | 3,463,000 | | | — | ||||||
Operating lease liability - short term | | | 547,800 | | | — | | | 597,200 | | | 584,400 |
Total current liabilities | |
| 11,108,900 | |
| 3,409,800 | |
| 19,859,700 | |
| 13,283,300 |
Subordinated convertible promissory note | | | — | | | 2,914,000 | ||||||
Operating lease liability - long term | | | 1,626,300 | | | — | | | 1,388,600 | | | 1,544,900 |
Total Liabilities | |
| 12,735,200 | |
| 3,409,800 | |
| 21,248,300 | |
| 17,742,200 |
| | | | | | | | | | | | |
Commitments and contingencies (Note 8) | |
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Stockholders’ Equity: | |
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| |
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Common stock, $0.001 par value: 300,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 15,843,191 shares and 15,488,516 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | |
| 9,300 | |
| 9,300 | ||||||
Preferred stock, $0.0001 par value: 60,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 24,000,000 shares designated as Series A-1 Preferred Stock and 16,500,000 shares designated as Series B Preferred Stock as of September 30, 2022 and December 31, 2021. | | | — | | | — | ||||||
Commitments and contingencies (Note 10) | |
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Stockholders’ Deficit: | |
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| |
|
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Preferred Stock, $0.0001 par value: 60,000,000 shares authorized, of which 24,000,000 shares designated as Series A-1 Preferred Stock and 16,500,000 shares designated as Series B Preferred Stock; no shares issued or outstanding as of March 31, 2023 and December 31, 2022 | |
| — | |
| — | ||||||
Common stock, $0.001 par value: 300,000,000 shares authorized as of March 31, 2023 and December 31, 2022; 979,243 and 648,384 shares issued and outstanding as of March 31, 2023 and December 31, 2022 | |
| 979 | |
| 648 | ||||||
Additional paid-in capital | |
| 95,154,500 | |
| 94,527,000 | |
| 99,106,521 | |
| 96,172,152 |
Accumulated deficit | |
| (94,879,700) | |
| (67,216,500) | |
| (107,247,800) | |
| (101,947,500) |
Total Stockholders’ Equity | |
| 284,100 | |
| 27,319,800 | ||||||
Total Stockholders’ Deficit | |
| (8,140,300) | |
| (5,774,700) | ||||||
| | | | | | | | | | | | |
Total Liabilities and Stockholders’ Equity | | $ | 13,019,300 | | $ | 30,729,600 | ||||||
Total Liabilities and Stockholders’ Deficit | | $ | 13,108,000 | | $ | 11,967,500 |
See accompanying notes to the condensed consolidated financial statements
5
KIROMIC BIOPHARMA, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | Three Months Ended | ||||||||||||
| | September 30, | | September 30, | | March 31, | ||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | | 2023 |
| 2022 | ||||||
Operating expenses: |
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| |
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| |
| | |
|
| |
|
Research and development |
| $ | 3,784,200 | | $ | 3,486,700 | | $ | 10,590,700 | | $ | 8,030,400 | | $ | 2,075,000 | | $ | 2,925,800 |
General and administrative |
| | 4,611,700 | |
| 2,655,600 | |
| 13,602,600 | |
| 7,040,700 | |
| 2,702,400 | |
| 4,439,200 |
Total operating expenses |
| | 8,395,900 | |
| 6,142,300 | |
| 24,193,300 | |
| 15,071,100 | |
| 4,777,400 | |
| 7,365,000 |
Loss from operations |
| | (8,395,900) | |
| (6,142,300) | |
| (24,193,300) | |
| (15,071,100) | |
| (4,777,400) | |
| (7,365,000) |
Other income (expense) |
| | | |
| | |
| | |
| | ||||||
Gain on loan extinguishment | | | — | | | — | | | — | | | 105,800 | ||||||
Other income | | | — | | | 18,000 | | | — | | | 18,000 | ||||||
Litigation settlement loss contingency | | | (3,463,000) | | | — | | | (3,463,000) | | | — | ||||||
Other income (expense): | |
|
| |
|
| ||||||||||||
Interest expense |
| | (1,400) | |
| (500) | |
| (6,900) | |
| (6,300) | | | (444,000) | | | (2,800) |
Debt issuance amortization | |
| (78,900) | |
| — | ||||||||||||
Total other income (expense) |
| | (3,464,400) | |
| 17,500 | |
| (3,469,900) | |
| 117,500 | |
| (522,900) | |
| (2,800) |
Net loss |
| $ | (11,860,300) | | $ | (6,124,800) | | $ | (27,663,200) | | $ | (14,953,600) | | $ | (5,300,300) | | $ | (7,367,800) |
Net loss per share, basic and diluted |
| $ | (0.75) | | $ | (0.40) | | $ | (1.78) | | $ | (1.50) | | $ | (6.17) | | $ | (14.39) |
Weighted average common shares outstanding, basic and diluted |
| | 15,840,454 | |
| 15,366,075 | |
| 15,706,079 | |
| 10,048,170 | |
| 872,818 | |
| 518,081 |
See accompanying notes to the condensed consolidated financial statements
6
KIROMIC BIOPHARMA, INC.
Condensed Consolidated Statements of Stockholders’ EquityDeficit
(Unaudited)
| | | | | | | | | | | | | | |
| | Three and Nine Months Ended September 30, 2022 | ||||||||||||
| | Common Stock | | Additional Paid- | | | | | | | ||||
| | Number of | | | | | In | | Accumulated | | |
| ||
|
| Shares |
| Amount |
| Capital |
| Deficit | | Total | ||||
Balance at January 1, 2022 |
| 15,488,516 | | $ | 9,300 | | $ | 94,527,000 | | $ | (67,216,500) | | $ | 27,319,800 |
Common stock discount amortization |
| — | |
| — | |
| 85,100 | |
| — | |
| 85,100 |
Warrants underlying common stock issuance |
| — | |
| — | |
| (85,100) | |
| — | |
| (85,100) |
Released restricted stock units | | 97,071 | | | — | | | — | | | — | | | — |
Stock compensation expense |
| — | |
| — | |
| 80,100 | |
| — | |
| 80,100 |
Net loss |
| — | |
| — | |
| — | |
| (7,367,800) | |
| (7,367,800) |
Balance at March 31, 2022 |
| 15,585,587 | | $ | 9,300 | | $ | 94,607,100 | | $ | (74,584,300) | | $ | 20,032,100 |
Common stock discount amortization | | — | | | — | | | 85,900 | | | — | | | 85,900 |
Warrants underlying common stock issuance | | — | | | — | | | (85,900) | | | — | | | (85,900) |
Released restricted stock units | | 253,525 | | | — | | | — | | | — | | | — |
Stock compensation expense | | — | | | — | | | 184,200 | | | — | | | 184,200 |
Net loss | | — | | | — | | | — | | | (8,435,100) | | | (8,435,100) |
Balance at June 30, 2022 | | 15,839,112 | | $ | 9,300 | | $ | 94,791,300 | | $ | (83,019,400) | | $ | 11,781,200 |
Warrants underlying common stock issuances discount amortization | | — | | | — | | | 86,900 | | | — | | | 86,900 |
Warrants underlying common stock issuances | | — | | | — | | | (86,900) | | | — | | | (86,900) |
Released restricted stock units | | 4,079 | | | — | | | — | | | — | | | — |
Stock compensation expense | | — | | | — | | | 363,200 | | | — | | | 363,200 |
Net loss | | — | | | — | | | — | | | (11,860,300) | | | (11,860,300) |
Balance at September 30, 2022 | | 15,843,191 | | $ | 9,300 | | $ | 95,154,500 | | $ | (94,879,700) | | $ | 284,100 |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
|
| | Common Stock | | | | | | | | | ||||
| | Number of | | | | | Additional | | Accumulated | | |
| ||
|
| 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) | |
| — | |
| (0) |
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) |
See accompanying notes to the condensed consolidated financial statements
7
KIROMIC BIOPHARMA, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
| | | | | | | | | | | | | | |
| | Three and Nine Months Ended September 30, 2021 | ||||||||||||
| | Common Stock | | Additional Paid- | | | | | | | ||||
| | Number of | | | | | In | | Accumulated | | |
| ||
|
| Shares |
| Amount |
| Capital |
| Deficit | | Total | ||||
Balance at January 1, 2021 |
| 7,332,999 | | $ | 1,200 | | $ | 52,988,700 | | $ | (41,627,800) | | $ | 11,362,100 |
Common stock discount amortization |
| — | |
| — | |
| 24,700 | |
| — | |
| 24,700 |
Warrants underlying common stock issuance |
| — | |
| — | |
| (24,700) | |
| — | |
| (24,700) |
Stock compensation expense |
| — | |
| — | |
| 945,200 | |
| — | |
| 945,200 |
Net loss |
| — | |
| — | |
| — | |
| (3,854,500) | |
| (3,854,500) |
Balance at March 31, 2021 |
| 7,332,999 | | $ | 1,200 | | $ | 53,933,900 | | $ | (45,482,300) | | $ | 8,452,800 |
Common stock discount amortization | | — | | | — | | | 24,900 | | | — | | | 24,900 |
Warrants underlying common stock issuance | | — | | | — | | | (24,900) | | | — | | | (24,900) |
Exercised stock options | | 18,891 | | | 100 | | | 125,300 | | | — | | | 125,400 |
Released restricted stock units | | 35,610 | | | — | | | — | | | — | | | — |
Stock compensation expense | | — | | | — | | | 1,268,600 | | | — | | | 1,268,600 |
Net loss | | — | | | — | | | — | | | (4,974,300) | | | (4,974,300) |
Balance at June 30, 2021 | | 7,387,500 | | $ | 1,300 | | $ | 55,327,800 | | $ | (50,456,600) | | $ | 4,872,500 |
Common stock issuance net of issuance costs and discount amortization | | 8,000,000 | | | 8,000 | | | 36,144,400 | | | — | | | 36,152,400 |
Warrants underlying common stock issuances discount amortization | | — | | | — | | | (85,500) | | | — | | | (85,500) |
Warrants underlying common stock issuances | | — | | | — | | | 1,051,200 | | | — | | | 1,051,200 |
Common shares issued for Insilico Solutions LLC Membership Purchase Agreement | | 50,189 | | | — | | | 400,000 | | | — | | | 400,000 |
Restricted stock units issued for Insilico Solutions LLC Membership Purchase Agreement | | 33,177 | | | — | | | 140,000 | | | — | | | 140,000 |
Released restricted stock units | | 6,652 | | | — | | | — | | | — | | | — |
Stock compensation expense | | — | | | — | | | 1,105,300 | | | — | | | 1,105,300 |
Net loss | | — | | | — | | | — | | | (6,124,800) | | | (6,124,800) |
Balance at September 30, 2021 | | 15,477,518 | | $ | 9,300 | | $ | 94,083,200 | | $ | (56,581,400) | | $ | 37,511,100 |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| |
| | 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 | | | 3 | | | (3) | | | — | | | — |
Stock compensation expense |
| — | |
| — | |
| 80,100 | |
| — | |
| 80,100 |
Net loss |
| — | |
| — | |
| — | |
| (7,367,800) | |
| (7,367,800) |
Balance at March 31, 2022 |
| 519,520 | | $ | 519 | | $ | 94,615,881 | | $ | (74,584,300) | | $ | 20,032,100 |
See accompanying notes to the condensed consolidated financial statements
8
KIROMIC BIOPHARMA, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| | | | | | | | | | | | |
| | Nine Months Ended | | Three months Ended | ||||||||
| | September 30, | | March 31, | ||||||||
|
| 2022 | | 2021 |
| 2023 |
| 2022 | ||||
Cash flows from operating activities: |
| |
|
| |
|
| |
|
| |
|
Net loss | | $ | (27,663,200) | | $ | (14,953,600) | | $ | (5,300,300) | | $ | (7,367,800) |
Adjustments to reconcile net loss to net cash used for operating activities: | |
|
| |
|
| |
|
| |
|
|
Depreciation | |
| 1,118,500 | |
| 331,200 | |
| 555,800 | |
| 182,800 |
Amortization | | | — | | | 2,200 | ||||||
Operating lease non-cash expense | | | 131,500 | | | 150,400 | ||||||
Stock compensation expense | |
| 627,500 | |
| 3,319,100 | |
| 20,700 | |
| 80,100 |
Gain on loan extinguishment | | | — | | | (105,800) | ||||||
Operating lease interest expense | | | 273,000 | | | — | ||||||
Changes in operating assets and liabilities, net of effects from acquisitions: | |
| | |
|
| ||||||
Amortization of debt issuance costs | |
| 78,900 | |
| — | ||||||
Changes in operating assets and liabilities: | |
|
| |
|
| ||||||
Accounts receivable | | | 16,200 | | | 20,200 | |
| — | |
| 16,200 |
Prepaid expenses and other current assets | |
| (6,100) | |
| (168,500) | |
| (418,700) | |
| 91,500 |
Accounts payable | |
| 2,928,100 | |
| 216,000 | |
| 843,700 | |
| (882,800) |
Interest payable | | | 431,400 | | | — | ||||||
Accrued expenses and other current liabilities | |
| (137,000) | |
| 182,900 | |
| (327,300) | |
| 293,800 |
Accrued litigation liability | | | 3,463,000 | | | — | ||||||
Deferred rent | |
| — | |
| 5,500 | ||||||
Operating lease liability | | | (263,400) | | | — | |
| (143,500) | |
| (148,600) |
Net cash used for operating activities | |
| (19,643,400) | |
| (11,156,300) | |
| (4,127,800) | |
| (7,578,900) |
Cash flows from investing activities: | |
|
| |
|
| |
|
| |
|
|
Purchases of property and equipment, net of effects from acquisitions | |
| (4,823,300) | |
| (797,500) | ||||||
Cash received from acquisition | | | — | | | 84,000 | ||||||
Purchases of property and equipment | |
| — | |
| (2,483,100) | ||||||
Net cash used for investing activities | |
| (4,823,300) | |
| (713,500) | |
| — | |
| (2,483,100) |
Cash flows from financing activities: | |
|
| |
|
| |
|
| |
|
|
Proceeds from issuance of common stock | | | — | | | 40,000,000 | ||||||
Issuance cost | | | — | | | (2,881,900) | ||||||
Exercise of stock options | | | — | | | 125,400 | ||||||
Loan repayments | | | (454,500) | | | (362,400) | ||||||
Proceeds from senior secured convertible note payable | |
| 6,000,000 | |
| — | ||||||
Debt issuance costs | | | (300,000) | | | — | ||||||
Repayments of note payable | |
| (163,100) | |
| (168,800) | ||||||
Net cash provided by financing activities | |
| (454,500) | |
| 36,881,100 | |
| 5,536,900 | |
| (168,800) |
Net change in cash and cash equivalents | |
| (24,921,200) | |
| 25,011,300 | |
| 1,409,100 | |
| (10,230,800) |
Cash and cash equivalents: | |
| | |
|
| |
| | |
|
|
Beginning of year | |
| 25,353,900 | |
| 10,150,500 | |
| 645,200 | |
| 25,353,900 |
End of period | | $ | 432,700 | | $ | 35,161,800 | | $ | 2,054,300 | | $ | 15,123,100 |
| | | | | | | | | | | | |
Supplemental disclosures of non-cash investing and financing activities: | |
|
| |
|
| |
|
| |
|
|
Accruals for property and equipment | | $ | 1,351,700 | | $ | 46,500 | ||||||
Right-of-use asset/lease liability recognized from ASC842 implementation | | | — | | | 2,232,700 | ||||||
Conversion of subordinated convertible promissory note into common stock | | $ | (2,914,000) | | $ | — | ||||||
Accruals for property and equipment purchases | | $ | — | | $ | 971,100 | ||||||
Cash paid for interest on note payable | | $ | 6,900 | | $ | 6,300 | | $ | 12,700 | | $ | 2,800 |
Common stock issuance for acquisition | | $ | — | | $ | 400,000 | ||||||
Restricted stock units granted for acquisition | | $ | — | | $ | 140,000 | ||||||
Acquisitions net of cash acquired | | $ | — | | $ | 456,000 | ||||||
ASC 842 right-of-use asset/liability implementation | | $ | 2,232,700 | | $ | — | ||||||
Right-of-use asset/liability acquired through lease liability | | $ | 204,800 | | $ | — |
See accompanying notes to the condensed consolidated financial statements
9
KIROMIC BIOPHARMA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. | ORGANIZATION |
Nature of Business
Kiromic BioPharma, Inc. and subsidiaries (the "Company") is a clinical stage fully integrated biotherapeutics company formed under the Texas Business Organizations Code in December 2012.
The Company is an artificial intelligence-driven, end-to-end CAR-T and genecell therapy company, developing the first multi-indication allogeneic CAR-T cell therapy, that exploits the natural potency of Gamma Delta T-cells (“GDTs”) to target solid cancers. The Company maintains offices in Houston, Texas. The Company has not generated any revenues to date.
From a development standpoint, the Company utilizes innovative engineered and non-engineered GDT manufacturing technologies and is developing proprietary, virus-free gene editing tools, to develop novel therapies for solid tumors that we believe will be effective and cost-efficient. The Procel, Isocel, and Deltacel product platform candidates consist of allogeneic cell therapy candidates that are currently in the preclinical development stage. Our Procel product candidate consists of engineered GDTs targeting PD-L1. Our Isocel product candidate consists of engineered GDTs targeting Mesothelin Isoform 2 positive tumors (“Iso-Meso”). Our Deltacel product candidate consists of non-engineered GDTs that have been expanded, enriched, and activated ex-vivo through a proprietary process, and are used to treat solid tumors regardless of the specific tumor antigen expression.
We currently have three product candidates: 1) Deltacel: not-engineered gamma delta T cells, expanded and activated with proprietary technology; 2)Procel: gamma delta T cells engineered with a PD-1 switch receptor; 3) Isocel: gamma delta T cells engineered with an anti-Mesothelin isoform 2 Chimeric Antigen Receptor.
We have a total of five clinical programs to study our key product candidates:
1) | 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) |
2) | 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. |
3) | Alexis-PRO-1: this phase 1 clinical trial is expected to evaluate Procel in patients with PD-L1 positive solid malignancies. |
4) | 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. |
5) | 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 and Alexis-ISO-1 IND applications, consequently placing them on clinical hold. The Company is currently has one clinical trial candidate withworking on addressing the Procel product candidate platform titled ALEXIS-PRO-1. The Company currently has one clinical trial candidate with the Isocel product candidate platform titled ALEXIS-ISO-1. The ALEXIS-PRO-1 clinical trial candidate is our allogeneic GDT therapy product candidate targeting PD-L1. The ALEXIS-ISO-1 clinical trial candidate is our allogeneic GDT therapy product candidate targeting an isoform of Mesothelin that is preferentially present on tumor cells, namely Iso-Meso.
The Company filed two investigational new drug (“IND”) applications in May 2021 for ALEXIS-PRO-1 and ALEXIS-ISO-1. The Food and Drug Administration (“FDA”) placed these applications under a clinical hold in June 2021.FDA’s comments. On July 13, 2021, the Company received the FDA’s formal clinical hold letters, which asked the Company to address key components regarding the chemical, manufacturing, and control components of the IND applications. Those components included tracing of all reagents used in manufacturing, flow chart of manufacturing processes, and certificate of analysis. The Company is currently working on addressing the FDA’s comments.
IND #1 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 has authorized Deltacel-01 IND application.We expect to begin the activation of clinical trial process in Q2 2023.
Reverse Stock Split — On March 10, 2023, the Company’s board of directors approved a one-for-thirty reverse split of the Company’s issued and outstanding shares of common stock (“the Reverse Stock Split”). In addition, a proportionate adjustment will be made to the per share exercise price and the number of shares issuable upon the exercise of all
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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 will be 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 in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
The Company has incurred significant losses and negative cash flows from operations since inception and expects to incur additional losses until such time that it can generate significant revenue from the commercialization of its product candidates. The Company had negative cash flow from operations of $19,643,400$4,127,800 for the ninethree months ended September 30, 2022,March 31, 2023, and an accumulated deficit of $94,879,700$107,247,800 as of September 30, 2022.March 31, 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, management’s plans include evaluating different strategies to obtain the required funding of future operations. These plans may include, but are not limited to, obtaining funding from current or new investors. However, there can be no assurance that the Company will be able to secure financing, or if available, that it will be sufficient to meet its needs or on favorable terms. Therefore, the plans cannot be deemed probable of being implemented. As a result, the Company has concluded that management’s
10
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 sufficient to allow it to meet its obligations as they become due, the Company may need to file a voluntary petition for relief under the United States Bankruptcy Code in order to implement a restructuring plan or liquidation.
The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP")GAAP for interim financial information (Accounting Standards Codification ("ASC") 270, Interim Reporting) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information necessary for a full presentation of financial position, results of operations, and cash flows in conformity with GAAP. Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. In the opinion of management, the condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the results of the Company for the periods presented.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Form 10-K for the year ended December 31, 2021.2022. The results of operations for the period ended September 30, 2022March 31, 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, 20212022 contains financial information taken from the audited Company consolidated financial statements as of that date.
All intercompany balances were eliminated upon consolidation.
11
Use of Estimates—The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include determination of the fair value of common stock and related stock-based compensation, warrants to purchase common stock underlying shares of Series B Preferred Stock and public offering common stock, and estimating services incurred by third-party service providers used to recognize research and development expense.
Concentrations of Credit Risk and Other Uncertainties—Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents. Substantially all of the Company’s cash and cash equivalents were deposited in accounts at a small number of national financial institutions. Account balances may at times exceed federally-insured limits. The Company has not incurred losses related to these cash and cash equivalents deposited at financial institutions and management believes that the Company is not exposed to significant credit risk due to the financial strength of the depository institutions in which the cash is held.
The Company is subject to certain risks and uncertainties from changes in any of the following areas that the Company believes could have a material adverse effect on future financial position or results of operations: the ability to obtain regulatory approval and market acceptance of, and reimbursement for, the Company’s product candidates; the performance of third-party clinical research organizations and manufacturers; protection of the intellectual property; litigation or claims against the Company based on intellectual property, patent, product, regulatory or other factors; the 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.
1112
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. No such interest or penalties were recognized during the three and nine months ended September 30, 2022March 31, 2023 or 2021.2022.
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 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.
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 Company estimates the grant-date fair value of stock options using the Black-Scholes model and the assumptions used to value such stock options are determined as follows:
Expected Term. The expected term represents the period that the Company’s stock options are expected to be outstanding. Due to limitations on the sale or transfer of the Company’s common stock under the lock-up agreements and market standoff components of the stock option agreements, the Company does not believe its historical exercise pattern is indicative of the pattern it will experience after restricted periods expire. The Company 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.
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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 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 zero.
Common Stock Valuations. ValuationsDuring the three and nine months ended September 30, 2022 and 2021, the closing price. We use our listed on the Nasdaq Capital Market forclosing price on the Company’sgrant date to determine common stock on the date of the grant was used as the common stock valuation.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. Accordingly, the Company has adopted Topic 842 beginning in the first quarter of 2022. Modified retroactive transition approach will be required for operating leases existing at or entered into after the beginning of the earliest comparative period presented. The Company notes that adopting the new standard resulted in recording a lease liability and right-of-use asset associated with the Company’s facility lease agreement and subsequent amendments thereto totaling $2,232,700, as of January 1, 2022.
In June 2016, FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326). The amendments in ASU 2016-13 affect entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in ASU 2016-13 require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. On October 16, 2019, the FASB has changed the effective date of this standard applicable to the Company as an emerging growth company to January 1, 2023. The Company is currently evaluatinghas evaluated the potential impact of this standard on its financial position, results of operations, and cash flows.
13
Tableflows, and determined that it is immaterial to the financial statements as of ContentsMarch 31, 2023.
3.NET LOSS PER SHARE OF COMMON STOCK
Basic and diluted net loss per share of common stockshare is determined by dividing net loss less deemed dividends by the weighted-average shares of common stockshares outstanding during the period. For all periods presented, the shares of common stockshares underlying the stock options, RSUs and restricted stock unitswarrants have been excluded from the calculation because their effect would be anti-dilutive. Therefore, the weighted-average shares of common stockshares outstanding used to calculate both basic and diluted loss per share of common stockshares are the same. The following table illustrates the computation of basic and diluted earningsloss per share:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | Three Months Ended | ||||||||||||
| | September 30, | | September30, | | March 31, | ||||||||||||
|
| 2022 |
| 2021 |
| 2022 | | 2021 |
| 2023 |
| 2022 | ||||||
Net loss | | $ | (11,860,300) | | $ | (6,124,800) | | $ | (27,663,200) | | $ | (14,953,600) | | $ | (5,300,300) | | $ | (7,367,800) |
Less: Initial Public Offering Common Stock discount amortization | | | (25,200) | | | (25,200) | | | (74,800) | | | (74,800) | | | (24,600) | | | (24,700) |
Less: Public Offering Common Stock discount amortization | |
| (61,700) | |
| (60,300) | |
| (183,100) | |
| (60,300) | |
| (60,400) | |
| (60,400) |
Net loss attributable to common shareholders, basic and diluted | | $ | (11,947,200) | | $ | (6,210,300) | | $ | (27,921,100) | | $ | (15,088,700) | ||||||
Net loss attributable to common shareholders | | $ | (5,385,300) | | $ | (7,452,900) | ||||||||||||
Weighted average common shares outstanding, basic and diluted | |
| 15,840,454 | |
| 15,366,075 | |
| 15,706,079 | |
| 10,048,170 | |
| 872,818 | |
| 518,081 |
Net loss per common share, basic and diluted | | $ | (0.75) | | $ | (0.40) | | $ | (1.78) | | $ | (1.50) | | $ | (6.17) | | $ | (14.39) |
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For the three months ended September 30,March 31, 2023 and 2022, and 2021, there were 0633 and 6,698 restricted stock units that were potentially dilutive securities excluded from the computations of diluted weighted-average shares of common stock. For the nine months ended September 30, 2022 and 2021, there were 0 and 73,366 restricted stock units that were potentially dilutive securities excluded from the computations of diluted weighted-average shares of common stock.
In addition, while not considered potentially dilutive securities under the treasury stock method, there were 595,04918,414 vested and outstanding restricted stock units that had not been released to grantees as of September 30, 2022March 31, 2023 which were not included in calculation of weighted average common shares outstanding, basic and diluted. The Company plans to release these shares to the grantees before the end of the year. Since there is a possibility that any portion of those shares could be sold as part of the 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 any material non-public information.
4. | PROPERTY AND EQUIPMENT |
Property and equipment consisted of the following as of September 30, 2022March 31, 2023 and December 31, 2021:2022:
| | | | | | |
|
| September 30, |
| December 31, | ||
| | 2022 | | 2021 | ||
Equipment | | $ | 2,722,800 | | $ | 1,593,100 |
Leasehold improvements | |
| 7,193,700 | |
| 1,464,700 |
Office furniture, fixtures, and equipment | |
| 137,300 | |
| 16,600 |
Software | |
| 359,500 | |
| 359,500 |
Construction in progress | |
| 422,200 | |
| 1,226,600 |
| |
| 10,835,500 | |
| 4,660,500 |
Less: Accumulated depreciation | |
| (2,150,000) | |
| (1,031,500) |
Total | | $ | 8,685,500 | | $ | 3,629,000 |
| | | | | | |
|
| 2023 |
| 2022 | ||
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 |
| |
| 10,837,200 | |
| 10,837,200 |
Less: Accumulated depreciation | |
| (3,256,100) | |
| (2,700,300) |
Total | | $ | 7,581,100 | | $ | 8,136,900 |
Depreciation expense was $536,600$555,800 and $128,800$182,800 for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, and $1,118,500 and $331,200 for the nine months ended September 30, 2022 and 2021, respectively. Depreciation expense is allocated between research and development and general and administrative operating expenses on the condensed consolidated statements of operations.
14
5.ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following as of September 30, 2022March 31, 2023 and December 31, 2021:2022:
| | | | | | |
|
| September 30, |
| December 31, | ||
| | 2022 | | 2021 | ||
Accrued consulting and outside services | | $ | 137,400 | | $ | 467,100 |
Accrued compensation | |
| 466,600 | |
| 273,900 |
Total | | $ | 604,000 | | $ | 741,000 |
| | | | | | |
|
| 2023 |
| 2022 | ||
Accrued compensation | | $ | 491,300 | |
| 668,700 |
Accrued consulting and outside services | |
| 63,000 | |
| 212,900 |
Total | | $ | 554,300 | | $ | 881,600 |
6.LOAN PAYABLE
On May 1, 2020, the Company received a loan in the principal amount of $115,600 (the “SBA Loan”) under the Paycheck Protection Program (“PPP”), which was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (the “SBA”).
During the year ended December 31, 2020, the Company applied for forgiveness of the SBA Loan in accordance with the terms of the CARES Act. On February 16, 2021, the SBA granted forgiveness of the SBA Loan and all applicable interest. On the date of forgiveness, the principal and accrued interest totaled $105,800. The forgiveness was classified as a gain on loan extinguishment in the condensed consolidated statement of operations the condensed consolidated statement of operations during the nine months ended September 30, 2021.
7.NOTE PAYABLE
In November 2021,2022, the Company entered into a financing arrangement for its Director and Officer Insurance policy. The total amount financed was approximately $665,900$610,700 with an annual interest rate of 4.59%8.49%, to be paid over a period of teneleven months. As of September 30, 2022March 31, 2023 and December 31, 2021,2022, the remaining payable balance on the financed amount was $0$394,100 and $454,500,$557,200, respectively.
8.7.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 30, 2022March 31, 2023 and December 31, 2021,2022, 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 Action, Terrell seeks a declaratory judgment that the Company is obligated to issue him (i) options to purchase 500,00016,667 shares of common stock at a price of $0.50$5.10 per share pursuant to an alleged 2014 consulting agreement, and (ii) options to purchase an additional 500,00516,667 shares of common stock at a price of $0.17$5.10 per share pursuant to an alleged January 2017 non-employee director options agreement. In his complaint, Terrell also claimed
15
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.
15
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 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. That same day,
Oral argument on Terrell’s appeal was held before the Delaware Supreme Court set a briefing schedule foron February 8, 2023. On May 4, 2023, the appeal, under which Terrell’s opening brief and appendix were due October 7, 2022, Kiromic’s answering brief and appendix are due November 7, 2022, and Terrell’s reply appellate brief is due 15 days thereafter. Terrell filed his opening brief and appendix on October 7, 2022, and Kiromic is set to file its answering brief on November 7, 2022. The Delaware Supreme Court has not yet designated this appealissued a written opinion (the “Opinion”) reversing the Vice Chancellor’s order of dismissal and remanding to Chancery Court for oral argument.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.
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 securities filings and in statements made to the public, investors, and potential investors regarding (i) the anticipated timing of the FDA authorization of the IND applications and (ii) the anticipated timing of human clinical trials. These Complaints were subsequently submitted to the Audit Committee of the Board.
After receiving the Complaints, the Audit Committee recommended that the Board form, and the Board did in turn form, a Special Committee comprised of three independent directors (the “Special Committee”) to review the Complaints and other related issues (the “Internal Review”). The Special Committee retained an independent counsel to assist it in conducting the Internal Review.
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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
16
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.
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.
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 $0.3068$9.20 and can be convertible into a maximum of 5,400,000180,000 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%. This settlement loss is considered probable and resulted in an expense charged as a separate line item within Other expenses on the condensed consolidated statement of operations and related accrued litigation liability totaling $3,463,000 on the balance sheet. This amount excludes any legal and others costs that were incurred in connection with the defense of this action, and any legal and other costs incurred by the other defendants that we are required to reimburse. Subject to certain exceptions, the Company is obligated to indemnify the defendants in this action, including ThinkEquity, for their reasonable costs incurred in connection with this action and those costs could be substantial. On November 2, 2022, theThe 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. Similarly,
There was also a related subordinated convertible promissory note totaling $2,914,000 on the Company has evaluated that it is reasonably possible that other unasserted claims in future litigationbalance sheet at December 31, 2022, which Empery held $1,502,700 and losses may occur. However,Sabby held $1,411,300. During the Company is unable to estimate any possible rangethree months ended March 31,2023, Empery and Sabby converted the totality of loss attributed to other unasserted claimstheir notes into shares of common stock of 163,268 and 153,333, respectively, at this time.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 covering the same subject matter as the Sabby Entities’ and Empery Entities’ claim discussed above asserting claims against the Company and certain current and former officers and directors for alleged violations of Sections 11, 12, and 15 of the Securities Act of 1933 in connection with the purchase of common stock through the Company’s public offering that closed on July 2, 2021 and Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 promulgated thereunder in connection with the certain statements and acts made by the defendants between June 25, 2021 and August 13, 2021. The Company has evaluated the Karp class claims and has determined that it is not possible to estimate a potential range of loss at this time.
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On October 3, 2022, Joseph Podmore (“Podmore”) filed a class action complaint in the United States District Court for the Southern District of New York covering the same subject matter as the Sabby Entities’ and Empery Entities’ claim discussed above asserting claims against the Company and certain current and former officers and directors for alleged violations of Sections 11, 12, and 15 of the Securities Act of 1933 in connection with the purchase of common stock through the Company’s public offering that closed on July 2, 2021 and Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 promulgated thereunder in connection with the certain statements and acts made by the defendants between June 25, 2021 and August 13, 2021. The Company has evaluated the Podmore class claims and has determined that it is not possible to estimate a potential range of loss at this time.
The Company regularly assesses all contingencies and believes, based on information presently known, the Company is not involved in any other matters that would have a material effect on the Company’s financial position, results of operations or cash flows.
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98.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, which is currently set to expire on April 30, 2026. As of September 30, 2022,March 31, 2023, the Company is not able to determine if any renewal options will be exercised.
The Company leases its premises in Houston, Texas under an operating lease which was renewed on November 19, 2020. This renewed lease agreement will commence under an operating lease agreement that is noncancelable from commencement until May 1, 2024.
On March 22, 2021, the Company’s board of directors approved a lease expansion within its premises in Houston, Texas. The amended lease agreement commenced on August 1, 2021 under an operating lease agreement that is noncancelable from commencement until May 1, 2024. The amended lease agreement adds approximately 15,385 square feet. The Company has the option to cancel the lease thereafter until the agreement expires on May 1, 2026. The termination date is effective after a 90-day notice of cancellation.
Two further amendments were executed in 2021. The agreements commenced on November 1, 2021, and December 1, 2021 under an operating lease agreement that is noncancelable from commencement until May 1, 2024. The amended lease agreement adds approximately 3,684 square feet. The Company has the option to cancel the lease thereafter until the agreement expires on May 1, 2026. The termination date is effective after a 90-day notice of cancellation.
An amendment to the lease agreement was executed in January 2022 and commenced May 1, 2022. The amendment will add approximately 9,352 square feet. The Company has the option to cancel the lease thereafter until the agreement expires on May 1, 2026. The termination date is effective after a 90-day notice of cancellation. In year one and two monthly rent is $4,800 per month, in year three and four monthly rent is $4,896 per month, and in year five monthly rent is $5,000 per month.
If the Company exercises the cancellation option, the Company must also pay the lessor a termination payment equal to three months of base rent.
The following table indicates the balance sheet line items that include the right-of-use assets and lease liabilities for our operating lease:
| | | |
| | September 30, | |
| | 2022 | |
| | Operating lease | |
Right-of-Use Asset | | | |
Operating lease | | $ | 2,164,500 |
Total right-of use asset | | | 2,164,500 |
| | | |
Lease Liabilities | | | |
Operating lease - short term | | $ | (547,800) |
Operating lease - long term | | | (1,626,300) |
Total lease liabilities | | | (2,174,100) |
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| | | | | | |
| | March 31, | | December 31, | ||
|
| 2023 | | | 2022 | |
| | Operating lease | | | Operating lease | |
Right-of-Use Asset | | | | | | |
Operating lease | | $ | 1,985,800 | | $ | 2,117,300 |
Total right-of use asset | | $ | 1,985,800 | | $ | 2,117,300 |
| | | | | | |
Lease Liabilities | | | | | | |
Operating lease - short term | | $ | (597,200) | | $ | (584,400) |
Operating lease - long term | | | (1,388,600) | | | (1,544,900) |
Total lease liabilities | | $ | (1,985,800) | | $ | (2,129,300) |
For the three and nine months ended September 30, 2022,March 31, 2023, the components of lease expense were as follows:
| | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||
| | September 30, | | September 30, | ||||
Operating lease cost allocated to research and development expense | | $ | 132,700 | | | $ | 346,400 | |
Operating lease cost allocated to general and administrative expense | | | 38,900 | | | | 145,200 | |
Total lease expense | | $ | 171,600 | | | $ | 491,600 | |
Weighted-average remaining lease term | | | 3.59 | | | | 3.59 | |
Weighted-average discount rate | | | 7.12 | % | | | 7.12 | % |
| | | | | | | |
|
| | Three Months Ended | | | Three Months Ended | |
| | March 31, 2023 | | | March 31, 2022 | | |
Operating lease cost allocated to research and development expense | | $ | 89,500 | | $ | 82,300 | |
Operating lease cost allocated to general and administrative expense | | | 89,500 | | | 68,100 | |
Total lease expense | | $ | 179,000 | | | 150,400 | |
Weighted-average remaining lease term | | | 3.09 | | | 4.08 | |
Weighted-average discount rate | | | 7.12 | % | | 7.12 | % |
As of September 30, 2022March 31, 2023, the maturities of the Company’s operating lease liabilities were as follows:
| | | | |||
| | | ||||
| | | |
| | |
Maturity of Lease Liabilities | | | Operating lease | | Operating lease | |
2022 | | $ | 169,400 | |||
2023 | | 684,300 | ||||
2023 (remaining) | | $ | 537,300 | |||
2024 | | 687,700 | | | 717,600 | |
2025 | | 694,300 | | | 724,700 | |
2026 | | | 232,600 | | | 242,800 |
Total lease payments | | | 2,468,300 | | | 2,222,400 |
Less: imputed interest | | | (294,200) | | | (236,600) |
Present value of lease payments | | | 2,174,100 | | | 1,985,800 |
The Company maintainsmaintained a month to monthmonth-to-month lease in Arlington, VA, until October 1, 2022, which iswas considered a short termshort-term lease. The Company elected to exclude this lease from the determination of the right-of-use asset and lease liability, as permitted under ASC 842. The Company will recognizerecognized the lease payments in profit or loss in the statement of operations on a straight-line basis over the term of the lease. The monthly rent expense asprior to termination of June 30, 2022 isthe lease was $2,500 per month. For the three and nine months ended September 30,March 31, 2022, short-term lease expense was $7,500 and $22,500, respectively.
Under ASC 840, rent expense recognized under the leases was $126,900 and $270,800 for the three and nine months ended September 30, 2021.
$7,500.
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109.STOCKHOLDERS’ EQUITY
As of March 31, 2023 and December 31, 2022, the Company was authorized to issue 300,000,000 shares of common stock
Common Stock—As of September 30, 2022March 31, 2023 and December 31, 2021,2022, the Company has a single class of common stock.
On July 2, 2021, the Company received net proceeds of $37,118,100 from its public offering, after deducting underwriting discounts and commissions of $2,494,900 and other offering expenses of $457,000 incurred. The Company issued and sold 8,000,000 shares of common stock in the public offering at a price of $5.00 per share.
Below is a table that outlines the initial value of issuances allocated to the IPO and public offering of common stock and the IPO and public offering common stock discount amortization, during the three and nine months ended September 30:
| | | | | | |
| | 2022 |
| 2021 | ||
Common Stock | | |
|
| |
|
Balance at January 1, | | $ | 48,264,300 | | $ | 11,975,400 |
Common stock initial public offering discount amortization | | | 24,700 | |
| 24,700 |
Common stock public offering discount amortization | | | 60,400 | | | — |
Balance at March 31, | | $ | 48,349,400 | | $ | 12,000,100 |
Common stock initial public offering discount amortization | | | 24,900 | | | 24,900 |
Common stock public offering discount amortization | | | 61,000 | | | — |
Balance at June 30, | | $ | 48,435,300 | | $ | 12,025,000 |
Common stock issuance from public offering, net of underwriting discounts and commissions and other offering expenses | | | — | | | 37,118,100 |
Common stock public offering discount | | | — | | | (1,051,200) |
Common stock initial public offering discount amortization | | | 25,200 | | | 25,200 |
Common stock public offering discount amortization | | | 61,700 | | | 60,300 |
Balance at September 30, | | $ | 48,522,200 | | $ | 48,177,400 |
Representative’s Warrants—In connection with the IPO on October 15, 2020, the Company granted the underwriters warrants (the “Underwriters’ Warrants”) to purchase an aggregate of 62,5002,083 shares of common stock at an exercise price of $15.00$450.00 per share, which is 125% of the initial public offering price. 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 September 30, 2022.
These warrants were equity classified. As of September 30, 2022March 31, 2023 and December 31, 2021, the warrant fair values of $182,500 and $257,300, respectively, is reflected as additional paid-in capital.2022.
In connection with the public offering on July 2, 2021, the Company granted the underwriters warrants (the “Additional Underwriters’ Warrants”) to purchase an aggregate of 400,00013,333 shares of common stock at an exercise price of $6.25$187.50 per share, which is 125% of the initial public offeringIPO price. The Additional Underwriters’ Warrants have a five-year term and are not exercisable prior to January 2, 2022.term. All of the Additional Underwriters’ Warrants were outstanding at September 30, 2022.
These warrants were equity classified. Asas of September 30, 2022March 31, 2023 and December 31, 2021,2022. The Black-Scholes option-pricing model was used to estimate the fair value of the warrants was $746,200with the following weighted-average assumptions on July 2, 2021:
| | | |
Risk-free interest rate | 0.40 | % | |
Expected volatility | 98.27 | % | |
Expected life (years) | 2.75 | ||
Expected dividend yield | 0 | % |
Note Purchase Agreement—On January 20, 2023 (the “Issuance Date”), we entered into a note purchase agreement (the “Agreement”) with the Investor and $929,300, respectively,pursuant to the Agreement issued a Note to the Investor. The Note has a principal amount of $2,000,000, bears interest at the Stated Rate and matures on January 20, 2024, on which the principal balance and accrued but unpaid interest under the Note shall be due and payable. Pursuant to the Agreement, the Company may sell and issue up to a maximum aggregate principal amount of $6 million for all Notes issued pursuant to the Agreement to the Investor in two subsequent closings to occur on or before February 15, 2023 and March 15, 2023. We issued additional Notes in the aggregate principal amount of $2,000,000 each on February 21, 2023 and March 28, 2023.
The Note is reflectedconvertible into shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at an initial conversion price of $6.50 per share, subject to the “Beneficial Ownership Limitation and a share cap of 195,751 shares, representing 19.9% of the total issued and outstanding shares of Common Stock as additional paid-in capital.of March 28, 2023, in the event that the Conversion Price is lower than $3.84 per share, representing the lower of the closing price immediately preceding the Issuance Date or the average closing price of the Common Stock for the five trading days immediately preceding the Issuance Date.
10.STOCK-BASED COMPENSATION
2017 Stock Incentive Plan—Restricted Stock Units
In January 2017, the Board approved the adoption of the 2017 Plan. The 2017 Plan permitted the Company to grant up to 56,954 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 2017 Plan and are available for grant in conjunction with the issuance of new common stock awards. RSUs vest over a specified amount of time or when certain performance metrics are achieved by the Company.
In the quarter ended March 31, 2023, the fair value of the shares of common stock underlying RSUs was determined by the closing stock price listed on the Nasdaq Capital Market on the grant date.
The following table summarizes the activity for all RSUs outstanding under the 2017 Plan at:
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| | | | | | | | | | |
| | 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 year |
| 650 | | $ | 259.50 |
| 17,028 | | $ | 374.40 |
Granted |
| — | |
| — |
| — | |
| — |
Vested |
| (35) | |
| 252.60 |
| (98) | |
| 261.30 |
Cancelled and forfeited |
| — | |
| — |
| (11,142) | |
| 384.30 |
Nonvested RSUs at March 31 |
| 615 | | $ | 258.88 |
| 5,788 | | $ | 357.30 |
11.STOCK-BASED COMPENSATION
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 months ended March 31, 2023 and 2022, as follows:
| | | | | | |
| | Three Months Ended | ||||
|
| 2023 |
| 2022 | ||
Research and development | | $ | — | | $ | 12,000 |
General and administrative | |
| — | |
| (7,100) |
Total | | $ | — | | $ | 4,900 |
2017 Stock Incentive Plan— Stock Options
There were no stock option grants from the 2017 Plan during the nine months ended September 30, 2022.
The Black-Scholes option-pricing model was used to estimate the fair value of stock option grantsoptions with the following weighted-averageweighted average assumptions for the ninethree months ended September 30, 2021:March 31:
| | | |
|
|
|
|
|
|
|
|
Risk-free interest rate |
| 1.09 | % |
Expected volatility |
| 83.34 | % |
Expected life (years) |
| 6.22 |
|
Expected dividend yield |
| 0 | % |
In the three months ended March 31, 2023, the fair value of the common shares underlying the stock options was determined by the closing stock price listed on the Nasdaq Capital Market on the grant date.
The following table summarizes the activity for all stock options outstanding at September 30March 31 under the 2017 Plan:
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 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 |
| 380,909 | | $ | 8.57 |
| 489,718 | | $ | 10.03 |
| 11,286 | | $ | 254.40 |
| 12,697 | | $ | 300.90 |
Granted |
| — | |
| — |
| 147,038 | |
| 8.47 |
| — | |
| — |
| — | |
| — |
Exercised |
| — | |
| — |
| (18,891) | |
| 6.64 |
| — | |
| — |
| — | |
| — |
Cancelled and forfeited |
| (42,037) | |
| 9.19 |
| (64,427) | |
| 17.67 |
| (5,185) | |
| 215.35 |
| (1,401) | |
| 275.70 |
Balance at September 30 |
| 338,872 | | $ | 8.49 |
| 553,438 | | $ | 8.84 | ||||||||||
Options exercisable at September 30: |
| 336,108 | | $ | 8.53 |
| 369,020 | | $ | 8.87 | ||||||||||
Weighted average grant date fair value for options granted during the year: |
|
| | $ | — |
|
| | $ | 8.47 | ||||||||||
Balance at March 31 |
| 6,101 | | $ | 287.58 |
| 11,296 | | $ | 254.70 | ||||||||||
Options exercisable at March 31: |
| 6,083 | | $ | 286.20 |
| 11,089 | | $ | 253.20 |
The intrinsic value of the options exercised during the nine months ended September 30, 2021 was $33,000. In addition, the weighted average remaining contractual life for the options is 5.284.68 years and 6.494.93 years as of SeptemberMarch 31, 20222023 and 2021,December 31, 2022, respectively. The options have no intrinsic value as of September 30,March 31, 2023 or December 31, 2022, or 2021, respectively.
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 months ended September 30,March 31, 2023 and 2022 and 2021 as follows:
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Research and development | | $ | 9,000 | | $ | 44,500 | | $ | 61,000 | | $ | 86,400 |
General and administrative | |
| 8,000 | |
| 32,500 | |
| 23,000 | |
| 189,400 |
Total | | $ | 17,000 | | $ | 77,000 | | $ | 84,000 | | $ | 275,800 |
On August 20, 2020, the Board canceled and terminated 15,792 stock options, granted during the quarter ended June 30, 2020, to four non-employees. Thereafter, on August 20, 2020, the Board granted 21,112 stock options to the same individuals with a grant date fair value of $12.81 per share. There were 3,959 stock option grants that were considered vested on the grant date. The effects of the stock option modifications resulted in $0 and $34,900 of stock compensation expense allocable to general and administrative for the three and nine months ended September 30, 2021, respectively. Included in that amount were $0 and $16,000 of incremental compensation costs resulting from the modifications for the three and nine months ended September 30, 2021, respectively. There were no effects stock option modifications during the three and nine months ended September 30, 2022.
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As of September 30, 2022, total unrecognized stock compensation expense is $20,900 related to unvested stock options to be recognized over the remaining weighted-average vesting period of 0.42 years.
2017 Stock Incentive Plan—Restricted Stock Units
The 2017 Plan permits the Company to grant equity awards for up to 1,708,615 shares of the Company’s common stock awards, including incentive stock options; non-statutory stock options; and conditional share awards to employees, directors, and consultants of the Company. All granted shares that are canceled, forfeited, or expired are returned to the 2017 Plan and are available for grant in conjunction with the issuance of new common stock awards. Restricted stock units (“RSUs”) vest over a specified amount of time or when certain performance metrics are achieved by the Company.
In the nine months ended September 30, 2022 and 2021, the fair value of the shares of common stock underlying restricted stock units was determined by the closing stock price listed on the Nasdaq Capital Market on the grant date.
The following table summarizes the activity for all RSUs outstanding at September 30 under the 2017 Plan:
| | | | | | | | | | |
| | 2022 | | 2021 | ||||||
|
| |
| Weighted Average |
| |
| Weighted Average | ||
| | | | Grant Date | | | | Grant Date | ||
| | | | Fair Value | | | | Fair Value | ||
| | Shares | | Per Share | | Shares | | Per Share | ||
Nonvested RSUs at beginning of year, as restated |
| 510,851 | | $ | 12.48 |
| 946,245 | | $ | 12.81 |
Granted |
| — | |
| — |
| 166,660 | |
| 7.98 |
Vested |
| (11,980) | |
| 9.90 |
| (37,802) | |
| 6.51 |
Cancelled and forfeited |
| (338,988) | |
| 12.75 |
| (136,445) | |
| 12.79 |
Nonvested RSUs at September 30, |
| 159,883 | | $ | 12.18 |
| 938,658 | | $ | 12.28 |
Subsequent to the issuance of the December 31, 2021 consolidated financial statements, the Company identified an error related to the calculation of the number of vested shares of restricted stock units related to the Company’s 2017 Equity Incentive Plan. The Company used an incorrect number of vested shares of restricted stock units for the year ended December 31, 2021. Accordingly, the Company restated the number of vested shares of restricted stock units for the year ended December 31, 2021 from 37,802 shares to 393,909 shares, and the resulting total non-vested restricted stock units at December 31, 2021 from 866,958 shares to 510,851 shares. Additionally, the weighted average grant date fair value of vested shares for the year ended December 31, 2021 was restated from $6.51 per share to $11.21 per share, and the weighted average grant date fair value for total nonvested restricted stock units as of December 31, 2021 was restated from $12.16 per share to $12.48 per share. This change did not have any impact on our earnings per share calculations, nor did it have any impact on any previous disclosures related to potentially dilutive securities excluded from the computations of diluted weighted-average shares of common stock outstanding. The Company has evaluated the materiality of this error and concluded that it is not material to the December 31, 2021 consolidated financial statements. Further, the Company will also prospectively restate the previously reported financial information for the related error in future and annual filings for the year ending December 31, 2022.
Total stock compensation expense recognized from stock-based compensation awards classified as restricted stock units were recognized in the condensed consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021, as follows:
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Research and development | | $ | 17,300 | | $ | 99,400 | | $ | 31,200 | | $ | 2,000,600 |
General and administrative | |
| 21,100 | |
| 866,900 | |
| 16,400 | |
| 939,800 |
Total | | $ | 38,400 | | $ | 966,300 | | $ | 47,600 | | $ | 2,940,400 |
On August 20, 2020, the board of directors canceled and terminated 709,334 RSUs, granted during the quarter ended June 30, 2020. The cancelled RSUs were originally granted to five individuals with a grant date fair value of $12.87 per share. Thereafter, on August 20, 2020, the board of directors granted 946,245 RSUs to the same individuals with a grant
22
date fair value of $12.81 per share. None of the RSU grants were considered vested on the grant date. The RSU grants were modified for three employees and two non-employees.
| | | | | | |
| | Three Months Ended | ||||
|
| 2023 |
| 2022 | ||
Research and development | | $ | — | | $ | 49,000 |
General and administrative | |
| — | |
| 8,000 |
Total | | $ | — | | $ | 57,000 |
The effectsAs of the RSU modifications resulted in $62,300 and $108,500 ofMarch 31, 2023, total unrecognized stock compensation expense allocableis $13,900 related to research and development and general and administrative, respectively, duringunvested stock options to be recognized over the three months ended September 30, 2021. Included in those amounts were incremental compensation costsremaining weighted-average vesting period of $11,500 and $25,300 of stock compensation expense allocable to research and development and general and administrative, respectively, during the three months ended September 30, 2021.
0.1 year.
The effects of the RSU modifications resulted in $598,900 and $1,286,800 of stock compensation expense allocable to research and development and general and administrative, respectively, during the nine months ended September 30, 2021. Included in those amounts were incremental compensation costs of $52,500 and $115,200 of stock compensation expense allocable to research and development and general and administrative, respectively, during the nine months ended September 30, 2021.
There was no effect from RSU modifications during the three and nine months ended September 30, 2022.
2021 Stock Incentive Plan—Restricted Stock Units
The 2021 Plan permits the Company to grant equity awards for up to 1,217,292 shares of the Company’s common stock awards, including incentive stock options; non-statutory stock options; and conditional share awards to employees, directors, and consultants of the Company. All granted shares that are canceled, forfeited, or expired are returned to the 2021 Plan and are available for grant in conjunction with the issuance of new common stock awards. RSUs vest over a specified amount of time or when certain performance metrics are achieved by the Company.
In the ninethree months ended September 30, 2022,March 31, 2023, the fair value of the shares of common stock underlying restricted stock units was determined by the closing stock price listed on the Nasdaq Capital Market on the grant date.
The following table summarizes the activity for all RSUs outstanding at September 30,March 31, 2023 and 2022 and 2021 under the 2021 Plan:
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2023 | | 2022 | ||||||||||||
|
| |
| Weighted Average |
| |
| Weighted Average |
| |
| Weighted Average |
| |
| Weighted Average | ||||
| | | | Grant Date | | | | Grant Date | | | | Grant Date | | | | Grant Date | ||||
| | | | Fair Value | | | | Fair Value | | | | Fair Value | | | | Fair Value | ||||
| | Shares | | Per Share | | Shares | | Per Share | | Shares | | Per Share | | Shares | | Per Share | ||||
Nonvested RSUs at beginning of year |
| 62,049 | | $ | 5.52 |
| — | | $ | — | | 684 | | $ | 133.20 |
| 2,068 | | $ | 165.60 |
Granted |
| 738,298 | |
| 0.41 |
| 102,613 | |
| 5.20 | | — | |
| — |
| — | |
| — |
Vested |
| (595,581) | |
| 1.28 |
| (37,900) | |
| 4.75 | | — | |
| — |
| — | |
| — |
Cancelled and forfeited |
| (7,936) | |
| 4.22 |
| — | |
| — | | (667) | |
| 126.60 |
| (70) | |
| 126.60 |
Nonvested RSUs at September 30, |
| 196,830 | | $ | 1.44 |
| 64,713 | | $ | 5.46 | ||||||||||
Nonvested RSUs at March 31 | | 17 | | $ | 126.60 |
| 1,998 | | $ | 167.10 |
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 nine months ended September 30,March 31, 2023 and 2022, and 2021, as follows:
| | | | | | | | | | | | | ||||||
| | Three Months Ended | | Nine Months Ended | | | | | | | ||||||||
| | September 30, | | September 30, | | Three Months Ended | ||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||||
Research and development | | $ | 21,800 | | $ | 11,000 | | $ | 47,500 | | $ | 11,000 | | $ | 7,900 | | $ | 8,300 |
General and administrative | |
| 220,000 | |
| 51,000 | |
| 249,800 | |
| 91,900 | |
| 12,800 | |
| 9,900 |
Total | | $ | 241,800 | | $ | 62,000 | | $ | 297,300 | | $ | 102,900 | | $ | 20,700 | | $ | 18,200 |
2021 Stock Incentive Plan — Stock Options
The Black-Scholes option-pricing model was used to estimate the fair value of stock options with the following weighted average assumptions for the three months ended March 31:
| | | |
| 2023 | | |
Risk-free interest rate | 2.99 | % | |
Expected volatility | 119.55 | % | |
Expected life (years) | 5.1 | ||
Expected dividend yield | 0 | % |
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2021 Stock Incentive Plan — Stock Options
The Black-Scholes option-pricing model was used to estimate the fair value of stock options with the following weighted average assumptions forIn the three and nine months ended September 30:
|
|
|
|
|
|
|
|
|
|
| |
|
|
| |
|
| ||
|
|
|
In the nine months ended September 30, 2022,March 31, 2023, the fair value of the common shares underlying the stock options was determined by the closing stock price listed on the Nasdaq Capital Market on the grant date.
The following table summarizes the activity for all stock options outstanding at September 30March 31, 2023 under the 2021 Plan:
| | | | | | | | | | |
| | 2022 | | 2023 | ||||||
|
| |
| Weighted |
| |
| Weighted | ||
| | | | Average | | | | Average | ||
| | | | Exercise | | | | Exercise | ||
| | Shares | | Price | | Shares | | Price | ||
Options outstanding at beginning of year |
| — | | $ | — |
| 21,420 | | $ | 12.90 |
Granted |
| 734,400 | |
| 0.43 |
| — | |
| — |
Exercised |
| — | |
| — |
| — | |
| — |
Cancelled and forfeited |
| — | |
| — |
| (9,180) | |
| — |
Balance at September 30 |
| 734,400 | | $ | 0.43 | |||||
Options exercisable at September 30: |
| 550,800 | | $ | 0.43 | |||||
Balance at March 31 |
| 12,240 | | $ | 12.90 | |||||
Options exercisable at March 31: |
| 12,240 | | $ | 12.90 | |||||
Weighted average grant date fair value for options granted during the year: |
|
| | $ | 0.36 |
|
| | $ | — |
In addition, the stock options had weighted average remaining contractual life of 9.755.18 years. The stock options generatedThere were no stock compensation expense of $66,000 and $198,600 during the three and nine months ended September 30,March 31, 2023 and March 31, 2022. All of the stock compensation expense was allocated to general and administrative expense on the condensed consolidated statement of operations.
As of September 30, 2022, total unrecognized stock compensation expense is $65,300, related to unvested stock options to be recognized over the remaining weighted-average vesting period of 0.25 years.
12.11.INCOME TAXES
The Company’s effective tax rate from continuing operations was 0% for the three and nine months ended September 30, 2022March 31, 2023 and 2021.2022. The Company recorded no income tax provision for the three and nine months ended September 30, 2022 or 2021.March 31, 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” income or loss for the reporting period. Each quarter, the estimate of the annual effective tax rate is updated, and if the estimated effective tax rate changes, a cumulative adjustment is made. There is a potential for volatility of the effective tax rate due to several factors, including changes in the mix of the pre-tax income and the jurisdictions to which it relates, changes in tax laws, business reorganizations and settlements with taxing authorities.
The income tax rates vary from the US federal statutory rate of 21% primarily due to the full valuation allowance on the Company’s deferred tax assets. The Company has recorded the full valuation allowance based on an evaluation of both
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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 none of its deferred tax assets would be realized.
13.12.SUBSEQUENT EVENTS
Joseph Podmore Class Action LitigationExchange Agreement
In April 2023, a holder of promissory notes of the Company (the “Holder”) exchanged an aggregate principal amount of $8 million of the Company’s 25% Senior Secured Convertible Promissory Notes (the “Exchange Notes”) for 8,000 shares of Series C Convertible Voting Preferred Stock (the “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, as discussed in Note 9 above.
Note Purchase Agreement
On October 3, 2022, Joseph Podmore (“Podmore”) filed a class action complaint in the United States District Court for the Southern District of New York covering the same subject matter as the Sabby Entities’ and Empery Entities’ claim discussed above asserting claims against the Company and certain current and former officers and directors for alleged violations of Sections 11, 12, and 15 of the Securities Act 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 JuneApril 25, 2021 and August 13, 2021. The Company has evaluated the Podmore class claims and has determined that it is not possible to estimate a potential range of loss at this time.
Stipulation of Settlement and Mutual Release with Sabby Entities and Empery Entities
On October 10, 2022, the Company and certain current and former officers and directors of the Company (together with the Company, the “Defendants”) entered into a Stipulation of Settlement and Mutual Release2023, Kiromic BioPharma, Inc. (the “Initial Settlement Agreements”“Company”) 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 Securities Act in connection with the purchase of Company’s common stock through the Company’s public offering that closed on July 2, 2021. 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 Settlement, the Company agreed to (a) make a $75,000 cash payment to each of the Empery Entities and 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 (the “Conversion Shares”) at an initial conversion price per share of $0.3068 (the “Conversion Price”), subject to a beneficial ownership limitation equivalent to 9.99% (“Beneficial Ownership Limitation”).
On October 27, 2022, the Defendants entered into an Amended Stipulation of Settlement and Mutual Release with the Empery Entities (the “Amended Empery Settlement Agreement”) and Sabby (together with the Amended Empery Settlement Agreement, the “Amended Settlement Agreements”), respectively. On November 2, 2022, the Court granted the 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 the terms set forth therein, will also be unrestricted and exempt from the registration requirements of the Securities Act.
Standby Equity Purchase Agreement Financing
On October 13, 2022, the Company entered into a Standby Equity Purchase Agreement (the “SEPA”) with YA II PN, Ltd. (the “Investor”). Pursuant to the SEPA, the Company has the right to sell to the Investor up to $5,000,000 (the “Commitment Amount”) of its shares of common stock, par value $0.001 per share (“Common Stock”), subject to increase by an additional $3,000,000 of Common Stock at the Company’s election (the “Commitment Increase”), at the Company’s request any time during the commitment period commencing on October 13, 2022 and terminating on the earliest of (i) the first day of the month following the 24-month anniversary of the SEPA or (ii) the date on which the Investor has paid for shares of Common Stock equal to the Commitment Amount.
The shares would be purchased at 95.0% of the Market Price (as defined in the agreement) and would be subject to certain limitations, including that the Investor could not purchase any shares that would result in it owning more than 9.99% of the outstanding Common Stock after such purchase (the "Ownership Limitation") or an aggregate of 19.9% of the outstanding Common Stock as of the date of the SEPA (the "Exchange Cap"). The Exchange Cap will not apply under
25
certain circumstances, including to any sales of Common Stock under the SEPA that equal or exceed $0.3111, representing the lower of (i) the closing price of the Common Stock as reflected on Nasdaq.com immediately preceding the date of the SEPA, or (ii) the average closing price of the Common Stock for the five trading days immediately preceding the date of the SEPA.
Pursuant to the SEPA, the Company also paid a subsidiary of the Investor, a structuring fee in the amount of $10,000 and issued to the Investor 603,318 shares of Common Stock as a commitment fee on October 13, 2022 (the “Commitment Shares”). In the event of the Commitment Increase, the Company will issue to the Investor an additional number of shares of Common Stock determined by dividing $120,000 by the average of the daily VWAPs for the five trading days prior to the date of delivery by the Company of written notice of the Commitment Increase.
In connection with the SEPA agreement, on October 31, 2022, the Company entered into a letter agreement with an accredited investor (the “Investor”), pursuant to which the Company agreed to issue to the Investor 1,000,000 shares (the “Shares”) of the Company’s common stock in consideration of the Investor’s services to the Company in identifying investors. The Company issued the Shares to the Investor on October 31, 2022. The Shares were issued in reliance upon the exemption from the registration requirements of the Securities Act, provided by Section 4(a)(2) of the Securities Act as sales by an issuer not involving any public offering.
Senior Secured Convertible Note Financing
On October 21, 2022 (the “Issuance Date”), the Company issued a 25% Senior Secured Convertible Promissory Note (the “Note”) to an accredited investor. The Note has a principal amount of $2,000,000, bears interest at a rate of 25% per annum (the “Stated Rate”) and matures on October 21, 2023April 25, 2024 (the “Maturity Date”), on which date the principal balance and accrued but unpaid interest areunder 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, andany commencement by the Company of a case under any applicable bankruptcy or insolvency laws.
23
The Note is convertible into shares (the “Conversion Shares”) of the Company’s Common Stock,common stock, par value $0.001 per share (the “Common Stock”), at an initial conversion price of $0.35$6.50 per share (the “Conversion Price”), subject to a beneficial ownership limitation equivalent to 9.99% (the “Beneficial Ownership Limitation”) and a share cap of 3,287,699 shares (the “Share Cap”), representing 19.9% of the total issued and outstanding shares of Common Stock as of October 20, 2022.
The unpaid principal of and interest on the Note constitute unsubordinated obligations of the Company and are senior and preferred in right of payment to all subordinated indebtedness and equity securities of the Company outstanding as of the Issuance Date; provided, however, that the Company may incur or guarantee additional indebtedness after the Issuance Date, whether such indebtedness are senior, pari passu or junior to the obligations under the Note, which are secured by all of the Company’s right, title and interest, in and to, (i) all fixtures (as defined in the Uniform Commercial Code, the “UCC”) and equipment (as defined in the UCC), and (ii) all of the Company’s intellectual property as specified in the Note, subject to certain exclusions as described in the Note.
Pursuant to the Note, the Company is required to file a Registration Statement with the SEC to register the conversion shares within 30 days after the Conversion Share Delivery Date (as defined in the Note) and shall use its commercially reasonable efforts to have the Registration Statement declared effective by the SEC.
.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following management’s discussion and analysis of financial condition and results of operations provides information that management believes is relevant to an assessment and understanding of our plans and financial condition. The following financial information is derived from our financial statements and should be read in conjunction with such financial statements and notes thereto set forth elsewhere herein.
Our Business
Overview
Kiromic BioPharma, Inc. (together with its subsidiary, “we,” “us,” “our” or the “Company”) is an Artificial Intelligence (“AI”) driven, end-to-end allogeneic cell therapy company, currently developing multi-indication allogeneic T cell therapies that exploits the natural potency of Gamma Delta T cells (“GDTs”) to target solid tumors. Our end-to-end approach consists of target discovery and validation, product development, and current good manufacturing practices (“cGMP”), which we believe will allow us to leverage a new framework for the next generation of cell therapies. We also have new technologies in development that we believe will support our end-to-end approach.
From a development standpoint, we utilize innovative engineered and non-engineered GDT manufacturing technologies and are developing proprietary, virus-free gene editing tools, to develop novel therapies for solid tumors that we believe will be effective and cost-efficient. Our Procel, Isocel, and Deltacel product platform candidates consist of allogeneic cell therapy candidates that 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 will be used to treat solid tumors regardless of the specific tumor antigen expression. Our Procel product candidate consists of engineered GDTs and will be used to target PD-L1. Our Isocel product candidate consists of engineered GDTs and will be used to target Mesothelin Isoform 2 positive tumors (“Iso-Meso”).
We currently have two FDA submittedthree product candidates: 1) Deltacel: not-engineered gamma delta T cells, expanded and activated with proprietary technology; 2)Procel: gamma delta T cells engineered with a PD-1 switch receptor; 3) Isocel: gamma delta T cells engineered with an anti-Mesothelin isoform 2 Chimeric Antigen Receptor.
We have a total of five clinical trial candidates, oneprograms to study our key product candidates:
1) | 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) |
2) | 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. |
3) | Alexis-PRO-1: this phase 1 clinical trial is expected to evaluate Procel in patients with PD-L1 positive solid malignancies. |
4) | 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. |
5) | Alexis-ISO-1 this phase 1 clinical trial is expected to evaluate Isocel in patients with Mesothelin Isoform 2 positive solid malignancies. |
Since the Procelsecond 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, platform titled ALEXIS-PRO-1, and one clinical trial candidateDeltacel, is intended to be used in combination with the Isocel product candidate platform titled ALEXIS-ISO-1. The IND applications for these trial candidates have been on a clinical hold since June 2021, and we are working on addressing the FDA’s comments. Our ALEXIS-PRO-1 clinical trial candidate is our allogeneic GDT therapy product candidate targeting PD-L1. Our ALEXIS-ISO-1 clinical trial candidate is our allogeneic GDT therapy product candidate targeting an isoform of Mesothelin that is preferentially present on tumor cells, namely Iso-Meso. The IND applications for these trial candidates have been on a clinical hold since June 2021. We are currently working on addressing the FDA’s comments. Given that the Company has aligned its operations toward progressing the Deltacel product candidate while maintaining our other product candidates, we expect the clinical hold on ALEXIS-PRO-1 and ALEXIS-ISO-1 will be lifted afterlow-dose radiation.
Accordingly, we have sufficient financing and corresponding resources to do so.
We also have an activeentered into a Sponsored Research Agreement (the “SRA”) with Principal Investigator James W. Welsh, M.D. of The University of Texas MD Anderson Cancer Center, (“MD Anderson”) Principal Investigator to facilitate the development of our Deltacel, 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 a standard anti-tumor modalitylow-dose radiation (“IND #1”); (2) Procel in combination with a standard anti-tumor modalitylow-dose radiation (“IND #2”); and (3) Isocel in combination with a standard anti-tumor modalitylow-dose radiation (“IND #3”). These three new INDs have not yet beenThe first IND to be submitted to the FDA and are described Inwill be IND#1, as explained in further detail below.
25
The beginning of the clinical trial activation process will begin 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 30-day time period); and (2) commencing the review and approval process by an independent institutional review board (“IRB”) or ethics committee at the selected clinical trial site(s).
IND #1 will evaluate Deltacel GDTs in combination with a standard anti-tumor modality.low-dose radiation. We are planningsubmitted the IND for the Deltacel trial on March 31, 2023. On April 28, 2023, the FDA has authorized Deltacel-01 IND application. We expect to submit this IND duringbegin the first quarteractivation of 2023, and believe clinical trial activation may begin during the second quarter ofprocess in Q2 2023. IND #2 combines a standard anti-tumor modalitylow-dose radiation and our genetically engineered product candidate targeting PD-L1, which is the target associated with the ALEXIS-PRO-1 clinical trial candidate on the Procel product candidate platform. IND #3 combines a standard anti-tumor modalitylow-dose radiation and our genetically engineered product candidate targeting Iso-Meso, the target associated with the ALEXIS-ISO-1 clinical trial candidate on the Isocel product candidate platform. Since the Company has aligned its operations with the Deltacel product candidate and IND #1, we are planning to submit INDs for
27
IND #2 and IND #3 when we obtain sufficient financing to support the progression of the development of those 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. 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 fund other liquidity needs through the end of the year. In the absence of such financing, management anticipates that existing cash resources will not be sufficient to meet operating and liquidity needs beyond December 2022.mid-June, 2023.
Recent Developments
Terminated Equity Offering
On June 27, 2022, the Company filed a registration statement on Form S-1 (Registration No. 333-265860) with the Securities and Exchange Commission (the “SEC”), pursuant to which it planned to offer up to 62,500,000 shares of common stock (and/or pre-funded warrants in lieu thereof) and warrants to purchase up to 62,500,000 shares of the Company’s common stock in an underwritten public offering. The Company and ThinkEquity LLC, the underwriter (the “Underwriter”) of this planned offering were conducting road shows with potential investors when the plaintiffs in the securities litigation described below filed an amended complaint to add the Underwriter as a defendant in the lawsuit.
As discussed in more detail under Part II. “Item 1. Legal Proceedings”, on March 7, 2022, entities related to Sabby Management LLC and Empery Asset Management, LP filed a complaint in the United States District Court for the Southern District of New York alleging claims against the Company and certain current and former officers and directors of the Company. On July 22, 2022, the plaintiffs amended their complaint to, among other things, include the Underwriter as a defendant. As a result, the Underwriter suspended the offering, including the roadshows. As a result, on August 12, 2022, the Company terminated the engagement of the Underwriter for cause due to, among other reasons, its unwillingness to continue with the offering. As discussed below, the Company is currently in discussions with financing sources in an attempt to secure short-term financing to continue operations and fund other liquidity needs through the end of the year. However, there is no assurance that the Company will be able to secure financing on acceptable terms, if at all.
Settlement 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 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 Settlement, the Company agreed to (a) make a $75,000 cash payment to each of the Empery Entities and 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 (the “Conversion Shares”) at an initial conversion price per share of $0.3068$9.20 (the “Conversion Price”), subject to a beneficial ownership limitation equivalent to 9.99% (“Beneficial Ownership Limitation”).
Both Initial Settlement Agreements were conditioned upon the Company obtaining financing no later than October 18, 2022 for aggregate gross proceeds to the Company of not less than $5 million (the “Conditional Financing”), after which within one business day the parties should promptly submit a joint motion seeking approval of the Initial Settlement Agreements under Section 3(a)(10) of the Securities Act (the “Joint Motion”) from the United States District Court for the Southern District of New York (the “Court”).
On October 27, 2022, the Defendants entered into an Amended Stipulation of Settlement and Mutual Release with the Empery Entities (the “Amended Empery Settlement Agreement”) and Sabby (together with the Amended Empery Settlement Agreement, the “Amended Settlement Agreements”), respectively. Both Amended Settlement Agreements
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removed the satisfaction of the Conditional Financing as a condition to the Settlement and provided that the parties shall file the Joint Motion no later than October 25, 2022. The Amended Empery Settlement Agreement shall become void if the Court does not approve the Joint Motion by November 15, 2022, subject to extension by the Empery Entities.
On November 2, 2022, the Court granted the Joint Motion,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 the terms set forth therein, will also be unrestricted and exempt from the registration requirements of the Securities Act.
All the subordinated convertible promissory note totaling $2,914,000 on the 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 three months ended March 31, 2023.
Going Concern and Liquidity
We do not have sufficient cash on hand and available liquidity to meet our obligations through the twelve months following the date the condensed consolidated financial statements are issued. Therefore, this condition raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans were updated to evaluate different strategies to obtain the required funding of future operations. These plans may include, but are not limited to, additional funding from current or new investors; however, if we are unable to raise additional funding to meet working
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capital needs, we will be forced to delay or reduce the scope of our research programs and/or limit or cease operations. The negative cash flows and lack of financial resources raised substantial doubt as to our ability to continue as a going concern, and that substantial doubt has not been alleviated. Therefore, this condition raises substantial doubt about the Company’s ability to continue as a going concern. See Note 1 to the Company’s Condensed Consolidated Financial Statements, “Going Concern” for further details.
The Company’s estimated cash and cash equivalents were $1,325,300$2,054,300 as of OctoberMarch 31, 2022.2023. 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 will not be sufficient to meet operating and liquidity needs beyond December 2022.Mid-May 2023. However, management is currently evaluating various cost reduction actions, including additional reductions in the Company’s workforce and suspendingdelay 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.
Financing Update
On October 13, 2022, we entered into a Standby Equity Purchase Agreement (the “SEPA”) with YA II PN, Ltd. (the “Investor”). Pursuant to the SEPA, we shall have the right, but not the obligation, to sell to the Investor up to $5,000,000 (the “Commitment Amount”) of itsour shares of common stock, par value $0.001 per share (“Common Stock”), subject to increase by an additional $3,000,000 of Common Stock at our election (the “Commitment Increase”), at our request any time during the commitment period commencing on October 13, 2022 and terminating on the earliest of (i) the first day of the month following the 24-month anniversary of the SEPA and (ii) the date on which the Investor shall have made payment of any advances requested pursuant to the SEPA for shares of the Common Stock equal to the Commitment Amount. Each sale that we request under the SEPA (an “Advance”) may be for the greater of (i) an amount of shares of Common Stock equal to the average of the daily traded amount of the Common Stock during the five trading days immediately preceding the notice of an Advance or (ii) $1,000,000. The shares would be purchased at 95.0% of the Market Price (as defined below) and would be subject to certain limitations, including that the Investor could not purchase any shares that would result in it owning more than 9.99% of the outstanding Common Stock after such purchase (the "Ownership Limitation") or an aggregate of 19.9% of the outstanding Common Stock as of the date of the SEPA (the "Exchange Cap"). The Exchange Cap will not apply under certain circumstances, including to any sales of Common Stock
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under the SEPA that equal or exceed $0.3111, representing the lower of (i) the closing price of the Common Stock as reflected on Nasdaq.com immediately preceding the date of the SEPA, or (ii) the average closing price of the Common Stock for the five trading days immediately preceding the date of the SEPA. “Market Price” is defined in the SEPA as the lowest of the daily VWAPs (as defined below) of the Common Stock during each of the three consecutive trading days commencing on the day of the our submission of an Advance notice to the Investor. “VWAP” is defined in the SEPA to mean, for any trading day, the daily volume weighted average price of the Common Stock for such date on the Nasdaq Capital Market as reported by Bloomberg L.P. during regular trading hours.
Pursuant to the SEPA, we also paid YA Global II SPV, LLC, a subsidiary of the Investor, a structuring fee in the amount of $10,000 and issued to the Investor 603,31820,111 shares of Common Stock as a commitment fee on October 13, 2022 (the “Commitment Shares”). In the event of the Commitment Increase, we will issue to the Investor an additional number of shares of Common Stock determined by dividing $120,000 by the average of the daily VWAPs for the five trading days prior to the date of delivery by our written notice of the Commitment Increase.
On October 21, 2022, (the “Issuance Date”), we issued a 25% Senior Secured Convertible Promissory Note (the “Note”) to an accredited investor.investor (the “Investor”). The Note has a principal amount of $2,000,000, bears interest at a rate of 25% per annum (the “Stated Rate”) and matures on October 21, 2023 (the “Maturity Date”), on which the principal balance and accrued but unpaid interest under the Note shall be due and payable. Subsequently, on December 12, 2022, the Note was amended to increase the principal amount to $4,000,000, and maturity date was amended to December 12, 2023.
The Note is convertible into shares (the “Conversion Shares”) of our Common Stock, at an initial conversion price of $10.50 per share (the “Conversion Price”), subject to a beneficial ownership limitation equivalent to 9.99% (the “Beneficial Ownership Limitation”).
The unpaid principal of and interest on the Note constitute our unsubordinated obligations and are senior and preferred in right of payment to all our subordinated indebtedness and equity securities outstanding as of the Issuance Date;
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provided, however, that we may incur or guarantee additional indebtedness after the Issuance Date, whether such indebtedness are senior, pari passu or junior to the obligations under the Note, which are secured by all of our right, title and interest, in and to, (i) all fixtures (as defined in the Uniform Commercial Code, the “UCC”) and equipment (as defined in the UCC), and (ii) all of our intellectual property as specified in the Note, subject to certain exclusions as described in the Note.
On January 20, 2023 (the “Issuance Date”), we entered into a note purchase agreement (the “Agreement”) with the Investor and pursuant to the Agreement issued a Note to the Investor. The Note has a principal amount of $2,000,000, bears interest at the Stated Rate and matures on January 20, 2024, on which the principal balance and accrued but unpaid interest under the Note shall be due and payable. Pursuant to the Agreement, the Company may sell and issue up to a maximum aggregate principal amount of $6 million for all Notes issued pursuant to the Agreement to the Investor in two subsequent closings to occur on or before February 15, 2023 and March 15, 2023.
The Note is convertible into shares (the “Conversion Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at an initial conversion price of $0.35 per share (the “Conversion Price”), subject to a beneficial ownership limitation equivalent to 9.99% (the “Beneficial Ownership Limitation”) and a share cap of 4,080,435 shares (the “Share Cap”), representing 19.9% of the total issued and outstanding shares of Common Stock as of January 20, 2023, in the event that the Conversion Price is lower than $0.2074 per share, representing the lower of the closing price immediately preceding the Issuance Date or the average closing price of the Common Stock for the five trading days immediately preceding the Issuance Date.
We issued additional Notes in the aggregate principal amount of $4,000,000 on February 21, 2023 and March 28, 2023. In addition, on March 28, 2023, we entered into an Exchange Agreement (the “Exchange Agreement”) with the Investor pursuant to which the Holder agreed to exchange aggregate principal amount of $8 million of the Notes for 8,000 shares of Series C Convertible Voting Preferred Stock (the “Series C Stock”). The Series C Stock accrues dividends at an annual rate of 25% and if not declared and paid in cash would be added to the liquidation preference of the Series C Stock. Holders of the Series C Stock are entitled to vote together with the Common Stock. The Series C Stock is convertible into Common Stock at $6.50 per share.
On March 28, 2023, the Company entered into an Exchange Agreement (the “Exchange Agreement”) with the holder of promissory notes of the Company (the “Holder”) pursuant to which the Holder agreed to exchange aggregate principal amount of $8 million of the Company’s 25% Senior Secured Convertible Promissory Notes (the “Exchange Notes”) for 8,000 shares of Series C Convertible Voting Preferred Stock (the “Series C Stock”).
In addition, on March 28, 2023, the Company pursuant to the previously disclosed note purchase agreement dated January 20, 2023 (the “Agreement”) issued a 25% Senior Secured Convertible Promissory Note (the “Note”) to the Holder. The Note has a principal amount of $2,000,000, bears interest at a rate of 25% per annum (the “Stated Rate”) and matures on March 28, 2024 (the “Maturity Date”), on which the 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, andany commencement by the Company of a case under any applicable bankruptcy or insolvency laws.
The Note is convertible into shares (the “Conversion Shares”) of our Common Stock,the Company’s common stock, par value $0.001 per share (the “Common Stock”), at an initial conversion price of $0.35$6.50 per share (the “Conversion Price”), subject to a beneficial ownership limitation equivalent to 9.99% (the “Beneficial Ownership Limitation”) and a share cap of 3,287,699195,751 shares (the “Share Cap”), representing 19.9% of the total issued and outstanding shares of Common Stock as of October 20, 2022,March 28, 2023, in the event that the Conversion Price is lower than $0.3268$3.84 per share, representing the lower of the closing price immediately preceding the Issuance Date or the average closing price of the Common Stock for the five trading days immediately preceding the Issuance Date.
The unpaid principal of and interest on the Note constitute our unsubordinated obligations of the Company and are senior and preferred in right of payment to all our subordinated indebtedness and equity securities of the Company outstanding as of the Issuance Date; provided, however, that wethe Company may incur or guarantee additional indebtedness after the Issuance Date, whether such indebtedness are senior, pari passu or junior to the obligations under the Note, which are
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secured by all of ourthe Company’s right, title and interest, in and to, (i) all fixtures (as defined in the Uniform Commercial Code, the “UCC”“UCC”) and equipment (as defined in the UCC), and (ii) all of ourthe Company’s intellectual property as specified in the Note, subject to certain exclusions as described in the Note.
PursuantNASDAQ 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 Note, we are requiredstockholders’ equity requirement set forth in Listing Rule 5550(b)(1).
As previously disclosed, on April 20, 2023, the Company presented its plan to file a Registration Statementcomply with the SECminimum stockholders’ equity requirement for continued listing on The Nasdaq Capital Market (the “Stockholders’ Equity Requirement”) to register the Conversion Shares within 30 days afterNasdaq Hearings Panel. On May 11, 2023, the Conversion Share Delivery Date (as defined inNasdaq Hearings Panel granted the Note) and shall use its commercially reasonable effortsCompany’s request to haveprovide an extension until September 11, 2023 for the Registration Statement declared effective byCompany to comply with the SEC.
Stockholders’ Equity Requirement.
Clinical Update
On October 6, 2022,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 we received validating written feedback on October 4, 2022 from the FDA pursuant tohas authorized our Type B Pre-IND meeting request regarding our development strategy for IND #1. The purpose of the Pre-IND meeting request was to seek alignment with and to obtain FDA guidance on our proposed development strategy about the chemistry, manufacturing, and controls, nonclinical studies, and clinical study plan for IND #1 for treating subjects with Non-Small Cell Lung Cancer.IND. We plan to leverage this FDA Pre-IND written confirmatory feedback and recommendations into a robust IND submission package for a projected clinical trial activation by the end of the first quarter of 2023.
In the same press release, we also reiterated our focus on the Deltacel aligned development strategy. Accordingly we announce that we streamlined its operations and aligned key resources to advance its Deltacel product candidate while maintaining its other product candidates Procel and Isocel. As part of that aligned strategy and following a thorough evaluation to maximize operational efficiencies, we eliminated 20 positions or approximately 29% of our workforce.
On June 30, 2022, we completed construction on our expanded cGMP manufacturing facility in Houston. Such expansion is one of the conditions required for the Companyexpect to begin the activation of its cell therapy clinical trial for
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process in Q2 2023. IND #2 combines a low-dose radiation and our genetically engineered product candidate targeting PD-L1, which is the Deltaceltarget associated with the ALEXIS-PRO-1 clinical trial candidate on the Procel product candidate. The completion also addressescandidate platform. IND #3 combines a key component inlow-dose radiation and our genetically engineered product candidate targeting Iso-Meso, the target associated with the ALEXIS-ISO-1 clinical hold communicationtrial candidate on the Isocel product candidate platform. Since the Company received from the FDA in June 2021.
On June 21, 2022, we announced our revised pipeline to prioritize submission of IND #1,has aligned its operations with the Deltacel product candidate in combination with a standard antitumor modality. We believe that this action advances our non-viral, non-engineered product candidate while also reducing costs, and mitigating current supply chain headwinds associated with a virus-based approach. We also announced thatIND #1, we will also pursue neware planning to submit INDs for IND #2 and IND #3 whichwhen we obtain sufficient financing to support the progression of the development of those 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 our Procelnot and Isocel product candidateshave never been profitable and have incurred losses in combinationeach period since we began principal business operations in 2012. As discussed in more detail below, the Company is currently in discussions with a standard antitumor modalityfinancing sources in 2023.
an attempt to secure short-term financing to continue operations and fund other liquidity needs through the end of the year. In the absence of such financing, management anticipates that existing cash resources will not be sufficient to meet operating and liquidity needs beyond mid-June 2023.In the same press release, we announced our revised clinical timeline, which is superseded by this report. Our expectations on timing changed based on the nature and amount of financing we have been able to secure, and any cost reduction actions the Company has taken in order to reduce the Company’s expenditures and preserve cash.
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
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(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 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.
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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.
Remediation Actions resulting from the Internal Review
1. | The Board approved the inclusion of certain Risk Factors for inclusion in its periodic reports. See Part II, Item 1A. Risk Factors for further information. Such risk factors have been included in |
2. | On January 10, 2022, the Board approved the formation of a Disclosure Committee comprised of certain members of the management including (i) its Chief Executive Officer; (ii) the executive in charge of overseeing submissions of any nature to the FDA; (iii) its Chief Financial |
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traded and (D) any other applicable laws or legal requirements. The Board adopted and approved the Disclosure Committee Charter. |
3. | The Board terminated Maurizio Chiriva-Internati as Chief Executive Officer for cause on January 27, 2022, after the Special Committee’s Internal Review found evidence of conduct that the Board believed was inconsistent with the company policies. Under the terms of the Executive Employment Agreement between Dr. Chiriva and the Company effective as of July 1, 2020, as amended October 21, 2021, as the result of the termination of his employment, Dr. Chiriva also is deemed to have resigned as a Director on the Board effective as of January 27, 2022. |
4. | The Board named Pietro Bersani as Interim Chief Executive Officer, effective as of January 27, 2022. |
5. | The Board named independent Director Michael Nagel as Chairperson of the Board, effective as of January 27, 2022. |
6. | The Board approved the appointment of Frank Tirelli as a member of the Board to fill a vacancy, effective as of January 28, 2022. The Board has determined that Mr. Tirelli is “independent” as that term is defined under Nasdaq Listing Rule 5605(a)(2). Mr. Tirelli has been named Chairperson of the Audit Committee effective January 28, 2022. He was also nominated and appointed as a member of the Nominating and Corporate Governance Committee effective March 1, 2022. Mr. Tirelli was nominated by our Nominating and Corporate Governance Committee of the Board after a thorough review of all his background, relevant experience, and professional and personal reputations. |
7. | 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. |
8. | 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. |
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On February 10, 2022, we and Mr. Gianluca Rotino (“Mr. Rotino”) entered into a Transition and Consulting Agreement dated as of February 9, 2022 (the “Rotino Agreement”). Pursuant to the terms of the Rotino Agreement, effective as of February 9, 2022, Mr. Rotino’s employment as our Chief Strategy and Innovation Officer terminated and the Company retained Mr. Rotino to provide consulting services to the Company for a period of nine months (or until November 9, 2022). Notwithstanding the foregoing, the Rotino Agreement may be terminated by either us or Mr. Rotino upon 30 days’ prior written notice, except no such prior notice shall be required in the event we terminate the Rotino Agreement for cause. |
Under the terms of the Executive Employment Agreement between Mr. Rotino and the Company effective as of July 1, 2020, as amended October 21, 2020, as the result of the termination of Mr. Rotino’s employment, Mr. Rotino is deemed to have resigned as a member of the Board effective as of February 9, 2022.
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. |
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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. |
Principal Factors Affecting Our Financial Performance
Our operating results are primarily affected by the following factors:
● | slow or delayed IND applications; |
● | slow or delayed clinical trial enrollment; |
● | patent reinforcement and prosecution; and |
● | changes in laws or the regulatory environment affecting our company. |
Emerging Growth Company
We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:
● | have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; |
● | 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 report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis); |
● | submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and |
● | disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive 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 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
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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 until the earliest of (i) the last day of the 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, or (c) the date in which we become a “large accelerated 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 (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:
● | salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions; |
● | expenses incurred under agreements with third parties, including contract research organizations and other third parties that conduct preclinical research and development activities and clinical trials on our behalf; |
● | costs of developing and scaling our manufacturing process and manufacturing drug products for use in our preclinical studies and future clinical trials, including the costs of contract manufacturing organizations, that will manufacture our clinical trial material for use in our preclinical studies and potential future clinical trials; |
● | costs of outside consultants, including their fees and related travel expenses; |
● | costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials; |
● | license payments made for intellectual property used in research and development activities; and |
● | 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 comprise a larger percentage of our total expenses as we initiate Phase 1 clinical trials for our IND #1 ALEXIS-PRO-1,(Deltacel), IND #2 ALEXIS-ISO-1,(ALEXIS-PRO-1), and IND #3#3(ALEXIS-ISO-1) trial candidates and continue to discover and develop additional candidates. However, management is currently evaluating various cost reduction actions, including suspendingdelay of research and development expenditures on one or more product 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.
34
We cannot determine with certainty the duration and costs of future clinical trials of our Deltacel, Procel, and Isocel product candidates, or any other product candidate we may develop or if, when or to what extent we will generate revenue from the commercialization and sale of any product candidate for which we obtain marketing approval. We may never succeed in obtaining marketing approval for any product candidate. The duration, costs and timing of clinical trials and development of our IND #1 ALEXIS-PRO-1,(Deltacel), IND #2 ALEXIS-ISO-1,(ALEXIS-PRO-1), and IND #3#3(ALEXIS-ISO-1) trial candidates and any other our trial candidate we may develop will depend on a variety of factors, including:
● | the scope, rate of progress, expense and results of clinical trials of our IND #1 |
33
● | uncertainties in clinical trial design and patient enrollment rates; |
● | the actual probability of success for our product candidates, including their safety and efficacy, early clinical data, competition, manufacturing capability and commercial viability; |
● | significant and changing government regulation and regulatory guidance; |
● | the timing and receipt of any marketing approvals; |
● | the expense of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and |
● | our ability to effectively address the deficiencies elucidated in the FDA’s clinical hold letters for our IND applications related to key chemical manufacturing and control components. |
A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in our clinical trials due to slower than expected patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation for personnel in our executive, finance, business development, operations and administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; travel expenses; and facility-related expenses, which include direct depreciation costs and expenses for rent and maintenance of facilities and other operating costs that are not specifically attributable to research activities.
We expect that our general and administrative expenses will increase in the future as we increase our personnel headcount to support our continued research activities, development, and 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.
3534
Results of Operations
Comparison of the Three Months Ended September 30,March 31, 2023 and 2022 and 2021
The following table sets forth key components of our results of operations for the three months ended September 30, 2022March 31, 2023 and 2021.2022.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | |
| | Three Months Ended | | | | | |
| ||||||||
| | September 30, | | Increase (Decrease) |
| | March 31, | | Increase (Decrease) |
| ||||||||||||||
|
| 2022 |
| 2021 |
| $ |
| % |
|
| 2023 |
| 2022 |
| $ |
| % |
| ||||||
Operating expenses: |
| |
|
| |
| |
|
|
|
| |
| |
|
| |
| |
|
|
|
| |
Research and development | | $ | 3,784,200 | | $ | 3,486,700 | | $ | 297,500 |
| 8.53 | % | | $ | 2,075,000 | | $ | 2,925,800 | | $ | (850,800) |
| (29.08) | % |
General and administrative | |
| 4,611,700 | |
| 2,655,600 | |
| 1,956,100 |
| 73.66 | % | |
| 2,702,400 | |
| 4,439,200 | |
| (1,736,800) |
| (39.12) | % |
Total operating expenses | |
| 8,395,900 | |
| 6,142,300 | |
| 2,253,600 |
| 36.69 | % | |
| 4,777,400 | |
| 7,365,000 | |
| (2,587,600) |
| (35.13) | % |
Loss from operations | |
| (8,395,900) | |
| (6,142,300) | |
| 2,253,600 |
| 36.69 | % | |
| (4,777,400) | |
| (7,365,000) | |
| (2,587,600) |
| (35.13) | % |
Other income (expense) | |
|
| |
|
| |
|
|
|
| | ||||||||||||
Other income | | | — | | | 18,000 | | | 18,000 | | 100.00 | % | ||||||||||||
Litigation settlement loss contingency | | | (3,463,000) | | | — | | | 3,463,000 | | 100.00 | | ||||||||||||
Other expense | |
|
| |
|
| |
|
|
|
| | ||||||||||||
Interest expense | |
| (1,400) | |
| (500) | |
| 900 |
| 180.00 | % | | | (444,000) | | | (2,800) | | | 441,200 | | — | % |
Debt issuance amortization | |
| (78,900) | |
| — | |
| 78,900 |
| 100.00 | % | ||||||||||||
Total other expense | |
| (3,464,400) | |
| 17,500 | |
| 3,481,900 |
| 19,896.57 | % | |
| (522,900) | |
| (2,800) | |
| 520,100 |
| 18,575.00 | % |
Net loss | | $ | (11,860,300) | | $ | (6,124,800) | | $ | 5,735,500 |
| 93.64 | % | | $ | (5,300,300) | | $ | (7,367,800) | | $ | (2,067,500) |
| (28.06) | % |
Research and development expenses. Our research and development expenses increaseddecreased by $297,500,$850,800, or 8.53%29.08%, to $3,784,200$2,075,000 for the three months ended September 30, 2022,March 31, 2023, from $3,486,700$2,925,800 for the three months ended September 30, 2021. March 31, 2022.
The following table summarizes our research and development expenses by product candidate or development program:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | |
| | Three Months Ended | | | | | |
| ||||||||
| | September 30, | | Increase (Decrease) |
| | March 31, | | Increase (Decrease) |
| ||||||||||||||
|
| 2022 |
| 2021 |
| $ |
| % |
|
| 2023 |
| 2022 |
| $ |
| % |
| ||||||
Direct research and development expenses by trial candidate: |
| |
|
| |
| |
|
| |
| | ||||||||||||
IND #1 | | $ | 452,900 | | $ | — | | $ | 452,900 | | 100.00 | % | ||||||||||||
Direct research and development expenses by product candidate: |
| |
|
| |
| |
|
| |
| | ||||||||||||
AIDT-1 development costs | | $ | 548,100 | | | — | | $ | 548,100 | | 100.00 | % | ||||||||||||
ALEXIS-PRO-1 | | | 860,900 | | | 20,300 | | | 840,600 | | 4,140.89 | % | |
| — | |
| 229,300 | |
| (229,300) | | (100.00) | % |
ALEXIS-ISO-1 | |
| 27,600 | |
| 434,100 | |
| (406,500) | | (93.64) | % | | | — | | | 67,700 | | | (67,700) | | (100.00) | % |
Platform development, early-stage research and unallocated expenses: | |
| | | | | |
|
| |
| | |
|
| |
|
| |
|
| |
| |
Employee-related costs | |
| 969,200 | |
| 1,288,200 | |
| (319,000) | | (24.76) | % | |
| 576,200 | | | 1,303,700 | |
| (727,500) | | (55.80) | % |
Laboratory supplies and services | |
| 475,900 | |
| 384,200 | |
| 91,700 | | 23.87 | % | |
| 110,200 | | | 330,800 | |
| (220,600) | | (66.69) | % |
Outsourced research and development | |
| 147,300 | |
| 984,400 | |
| (837,100) | | (85.04) | % | ||||||||||||
Outsourced research and development (net of reimbursements) | |
| 107,200 | | | 405,400 | |
| (298,200) | | (73.56) | % | ||||||||||||
Laboratory equipment and maintenance | |
| 33,600 | |
| 31,200 | |
| 2,400 | | 7.69 | % | |
| 584,000 | | | 156,800 | |
| 427,200 | | 272.45 | % |
Facility-related costs | | | 797,000 | | | 204,800 | | | 592,200 | | 289.16 | % | |
| 114,600 | | | 330,500 | |
| (215,900) | | (65.33) | % |
Intellectual Property | |
| 18,700 | |
| 137,300 | |
| (118,600) | | (86.38) | % | ||||||||||||
Intellectual property | | | (2,300) | | | 94,000 | | | (96,300) | | (102.45) | % | ||||||||||||
Other research and development costs | |
| 1,100 | |
| 2,200 | |
| (1,100) | | (50.00) | % | |
| 37,000 | | | 7,600 | |
| 29,400 | | 386.84 | % |
Total research and development expenses | | $ | 3,784,200 | | $ | 3,486,700 | | $ | 297,500 | | 8.53 | % | | $ | 2,075,000 | | $ | 2,925,800 | | $ | (850,800) | | (29.08) | % |
These cost increasesdecreases were primarily incurred to support GDT manufacturing as well as preparing our product candidates for IND resubmission.due to:
2- | Direct research costs and development expenses of ALEXIS-PRO-1 and ALEXIS-ISO-1 decreased by $229,300 and $67,700 because we prioritized Deltacel. However, management is currently evaluating various |
3635
4- | Outsourced research and development also decreased by $298,200 to $107,200 for the three months ended March 31, 2023, from $405,400 for the three months ended March 31, 2022, as most research was done in-house and the use of outside experts was at a minimum.However, an increase in AIDT-1 development cost as well as Laboratory supplies and services by $548,100 and $427,200, respectively negated the above decreases as the company continues with research and development for the three months ended March 31, 2023. |
General and administrative expenses. Our general and administrative expenses increaseddecreased by $1,956,100,$1,736,800, or 73.66%39.12%, to $4,611,700$2,702,400 for the three months ended September 30, 2022,March 31, 2023, from $2,655,600$4,439,200 for the three months ended September 30, 2021.March 31, 2022. This decrease primarily resulted from a decrease in legal services of $801,300 as well as a decrease in employee-related expenses of $594,700.
DuringThe decrease in legal expenses by $801,300 to $ 749,500 for the three months ended September 30,March 31, 2023 from $1,550,700 for the three months ended March, 31, 2022 the increase primarily resulted from an increase in legal services of $1,246,100 as well as an increase in employee related expenses of $889,300.
The increase in legal expenses of $1,246,100 was primarily driven by incurred fees of $1,116,000a significant decline in expenses related to the Internal Review and related matters.
Employee related expenses decreased by $594,700 to $532,500 for the three months ended March, 31, 2023 from $1,127,200 for the three months ended March, 31, 2022. These decreases were impacted by increases toa decline in headcount. During the three months September 30,March 31, 2023 and 2022, and 2021, the average headcount for employees allocated to general and administrative purposes increaseddecreased to 1916 employees from 11.526 employees, respectively.
Litigation settlement loss contingency. We began settlement discussion with the Sabby Entities and Empery Entities during September 2022. We reached a settlement agreement in principle with both Sabby Entities and Empery Entities 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.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 $0.3068 and can be convertible into a maximum of 5,400,000 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%.
Net loss. As a result of the cumulative effect of the factors described above, our net loss increased to $11,860,300 during the three months ended September 30, 2022, compared to $6,124,800 during the three months ended September 30, 2021.
37
Comparison of the Nine Months Ended September 30, 2022 and 2021
The following table sets forth key components of our results of operations for the nine months ended September 30, 2022 and 2021.
| | | | | | | | | | | | |
| | Nine Months Ended | | | | | |
| ||||
| | September 30, | | Increase (Decrease) |
| |||||||
|
| 2022 |
| 2021 |
| $ |
| % |
| |||
Operating expenses: |
| |
|
| |
| |
|
| |
| |
Research and development | | $ | 10,590,700 | | $ | 8,030,400 | | $ | 2,560,300 | | 31.88 | % |
General and administrative | |
| 13,602,600 | |
| 7,040,700 | |
| 6,561,900 | | 93.20 | % |
Total operating expenses | |
| 24,193,300 | |
| 15,071,100 | |
| 9,122,200 | | 60.53 | % |
Loss from operations | |
| (24,193,300) | |
| (15,071,100) | |
| 9,122,200 | | 60.53 | % |
Other income (expense) | |
|
| |
|
| |
|
| |
| |
Gain on loan extinguishment | | | — | | | 105,800 | | | 105,800 | | 100.00 | % |
Other income | | | — | | | 18,000 | | | 18,000 | | 100.00 | % |
Litigation settlement loss contingency | | | (3,463,000) | | | — | | | 3,463,000 | | 100.00 | |
Interest expense | |
| (6,900) | |
| (6,300) | |
| 600 | | 9.52 | % |
Total other income (expense) | |
| (3,469,900) | |
| 117,500 | |
| 3,587,400 | | 3,053.11 | % |
Net loss | | $ | (27,663,200) | | $ | (14,953,600) | | $ | 12,709,600 | | 84.99 | % |
Research and development expenses. Our research and development expenses increased by $2,560,300, or 31.88%, to $10,590,700 for the nine months ended September 30, 2022, from $8,030,400 for the nine months ended September 30, 2021. The following table summarizes our research and development expenses by product candidate or development program:
| | | | | | | | | | | | |
| | Nine Months Ended | | | | | |
| ||||
| | September 30, | | Increase (Decrease) |
| |||||||
|
| 2022 |
| 2021 |
| $ |
| % |
| |||
Direct research and development expenses by trial candidate: |
| |
|
| |
| |
|
| |
| |
IND #1 | | $ | 452,900 | | $ | — | | $ | 452,900 | | 100.00 | % |
ALEXIS-PRO-1 | | | 1,297,700 | | | 54,200 | | | 1,243,500 | | 2,294.28 | % |
ALEXIS-ISO-1 | |
| 298,400 | |
| 1,326,200 | |
| (1,027,800) | | 100.00 | % |
Platform development, early-stage research and unallocated expenses: | |
| | |
| | |
| | | | |
Employee-related costs | |
| 3,743,000 | |
| 3,073,700 | |
| 669,300 | | 21.78 | % |
Laboratory supplies and services | |
| 1,388,000 | |
| 743,900 | |
| 644,100 | | 86.58 | % |
Outsourced research and development | |
| 1,207,700 | |
| 1,880,400 | |
| (672,700) | | (35.77) | % |
Laboratory equipment and maintenance | |
| 264,500 | |
| 91,100 | |
| 173,400 | | 190.34 | % |
Facility-related costs | |
| 1,785,400 | |
| 569,100 | |
| 1,216,300 | | 213.72 | % |
Intellectual Property | | | 139,100 | | | 286,100 | | | (147,000) | | (51.38) | % |
Other research and development costs | |
| 14,000 | |
| 5,700 | |
| 8,300 | | 145.61 | % |
Total research and development expenses | | $ | 10,590,700 | | $ | 8,030,400 | | $ | 2,560,300 | | 31.88 | % |
These cost increases were primarily incurred to support GDT manufacturing as well preparing our product candidates for IND resubmission.
|
|
38
|
|
|
|
General and administrative expenses. Our general and administrative expenses increased by $6,581,900, or 93.20%, to $13,437,500 for the nine months ended September 30, 2022, from $7,040,700 for the nine months ended September 30, 2021.
During the nine months ended September 30, 2022, the increase primarily resulted from an increase in legal fees of $3,862,400, and an increase in employee related expenses of $3,052,000.
The increase in legal expenses was primarily related to the Internal Review. Between October 1 2021 and September 30, 2022, we incurred $6,249,700 in legal fees and other professional fees directly related to the Internal Review and related matters.
Employee related expenses were impacted by increases to headcount. During the nine months September 30, 2022 and 2021, the headcount for employees allocated to general and administrative purposes increased to 13.5 employees from 10 employees, respectively.
Gain on loan extinguishment.Gain on loan extinguishment was $0 and $105,800 for the nine months ended September 30, 2022 and 2021, respectively. During the year ended December 31, 2020, we applied for forgiveness of the SBA Loan in accordance with the terms of the CARES Act. On February 16, 2021 the SBA granted forgiveness of the SBA Loan and all applicable interest. On the date of forgiveness, the principal and accrued interest totaled $105,800.
Litigation settlement loss contingency. We began settlement discussion with the Sabby Entities and Empery Entities during September 2022. We reached a settlement agreement in principle with both Sabby Entities and Empery Entities 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. 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 $0.3068 and can be convertible into a maximum of 5,400,000 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%.
Net loss. As a result of the cumulative effect of the factors described above, our net loss increased to $27,663,200$5,300,300 during the ninethree months ended September 30, 2022,March 31, 2023, compared to $14,953,600$7,367,800 during the ninethree months ended September 30, 2021.March 31, 2022.
36
Liquidity and Capital Resources
As of September 30, 2022,March 31, 2023, we had cash and cash equivalents of $432,700.$2,054,300. As of October 31, 2022,April 30, 2023, we had cash and cash equivalents of $1,325,300.$2,121,900. 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 follow-on offering.
We have known material contractual obligations which will require cash to meet their requirements. These applicable obligations include our facility lease agreement, our employment contracts, and our financing arrangement for our Director and Officer Insurance Policy. We also plan to deploy cash for other research and development and general and
39
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,” inin the absence of financing, management anticipates that existing cash resources will not be sufficient to meet operating and liquidity needs beyond December 2022.mid-June 2023. Management is currently evaluating various cost reduction actions, including possible reductions in the Company’sCompany’s workforce and suspending research and development expenditures on one or more product candidates, in order to reduce the Company’sCompany’s expenditures and preserve cash. We are limited in our ability to reduce expenditures for known contractual obligations. As a result, we are not able to predict whether any cost reduction actions will be successful or how much longer any such actions will allow the 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 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. These costs include conducting preclinical studies and clinical trials for our product candidates, contracting with clinical research organizations and building out internal capacity to have product candidates manufactured to support preclinical studies and clinical trials, expanding our intellectual property portfolio and providing general and administrative support for our operations. As a result, substantial doubt exists regarding the going concern assumption on our condensed consolidated financial statements. Therefore, these condition raises substantial doubt about our ability to continue as a going concern.
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 December 2022.mid-June 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 scientific professionals, hiring other general and administrative employees, and clinical trials. However, there can be no assurance that such efforts will be successful or that, in the event that they are successful, the terms and conditions of any such 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, 2021.2022. In consideration of our plans, substantial doubt is not alleviated.
4037
Summary of Cash Flow
The following table sets forth a summary of our cash flows for the periods presented:
| | | | | | | | | | | | |
| | Nine Months Ended September 30, | | Three Months Ended March 31, | ||||||||
|
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||
Net cash used in operating activities | | $ | (19,643,400) | | $ | (11,156,300) | | $ | (4,127,800) | | $ | (7,578,900) |
Net cash used in investing activities | |
| (4,823,300) | |
| (713,500) | |
| — | |
| (2,483,100) |
Net cash provided by financing activities | |
| (454,500) | |
| 36,881,100 | |
| 5,536,900 | |
| (168,800) |
Net increase (decrease) in cash and cash equivalents | |
| (24,921,200) | |
| 25,011,300 | |
| 1,409,100 | |
| (10,230,800) |
Cash and cash equivalents at beginning of the period | |
| 25,353,900 | |
| 10,150,500 | |
| 645,200 | |
| 25,353,900 |
Cash and cash equivalents at end of the period | |
| 432,700 | |
| 35,161,800 | |
| 2,054,300 | |
| 15,123,100 |
Cash flows from operating activities
Net cash used in operating activities was $19,643,400$4,127,800 for the ninethree months ended September 30, 2022,March 31, 2023, as compared to $11,156,300$7,578,900 for ninethree months ended September 30, 2021.March 31, 2022. In the ninethree months ended September 30, 2022,March 31, 2023, the primary cash outflows were from the net loss of $27,663,200$5,300,300 compared to $14,953,600$7,367,800 during the ninethree months ended September 30, 2021. NetMarch 31, 2022. The decrease in cash used in operating activities increased bywas primarily due to a total of $8,487,100 period-over-period. We primarily used cash to augment our headcount, develop our trial candidates, and to pay for legal and professional fees.decrease in employee related costs. See “Results of Operations” above for further details.
Cash flows from investing activities
Net cash used for in investing activities was $4,823,300zero for the ninethree months ended September 30, 2022,March 31, 2023, as compared to $713,500$2,483,100 for the ninethree months ended September 30, 2021.March 31, 2022. Our net cash used in investing activities for the three months ended March 31, 2022 primarily consisted of purchases of property and equipment. This increaseequipment, which was primarily driven by cash outflows from equipment and leasehold improvements attributed to our cGMP facilities located in our leased facility in Houston, Texas.
Cash flows from financing activities
Net cash from financing activities was $5,536,900 for the three months ended March 31, 2023, derived from proceeds received of $6,000,000 from the 25% Senior Secured CPN note and payments of $163,000 towards the NP-AON note. During the ninethree months ended September 30,March 31, 2023 and 2022, we paid $454,500$163,100 and $168,800 towards our financing arrangement for our Director and Officer Insurance policy. Cash inflows from financing activities was $36,881,100 during the nine months ended September 30, 2021 which primarily consisted of the public offering which closed on July 2, 2021. This public offering sold 8,000,000 shares of common stock with net proceeds of $37,118,100.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements for any of the periods presented.
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.
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Fair Value Measurements—The carrying value of our cash and cash equivalents, prepaid expenses and other assets, accounts payable, accrued expenses and other current liabilities approximate their fair value due to their short-term nature.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In estimating the fair value of an asset or a liability, we take into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.
We account for financial instruments in accordance with Accounting Standards Codification (“ASC”) 820,Fair Value Measurements and Disclosures. ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level1 measurements) and the lowest priority to unobservable inputs (Level3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below:
Level1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level2—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.
Level3—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 three and nine months ended September 30, 2022 and 2021.
Stock-Based Compensation— We record stock compensation expense related to our 2017 Equity Incentive Plan and 2021 Omnibus Equity Incentive Plan in accordance with ASC 718, Compensation—Stock Compensation. We measure and recognize stock compensation expense for all stock-based awards, including stock options and restricted stock units (“RSUs”).
Stock compensation expense for RSUs is based on estimated fair values recognized using the straight-line method over the requisite service period, as long as the performance obligations in the RSU agreement are deemed probable by management. Stock compensation expense for stock options is based on estimated fair values recognized using the straight-line method over the requisite service period. The fair value of stock options is estimated on the grant date using the Black-Scholes option-valuation model. The calculation of stock-based compensation expense requires that we make assumptions and judgments about the variables used in the Black- Scholes option-valuation model, including the fair value of our common stock, expected term, expected volatility of the underlying common stock, and risk-free interest rate. Forfeitures are accounted for when they occur.
We estimate the grant-date fair value of stock options using the Black-Scholes option-valuation model. During the three and nine months ended September 30, 2022 and 2021, all stock option equity grants under the 2017 Equity Incentive Plan and 2021 Omnibus Equity Incentive Plan contained assumptions used to value such stock options, and were determined as follows:
Expected Term.The expected term represents the period that our stock options are expected to be outstanding. We have used the SAB No. 110, simplified method to calculate the expected term, which is the average of the contractual term and vesting period. We do not plan to continue to use the SAB 110 simplified method after we have sufficient trading history as a publicly traded company.
Risk-Free Interest Rate.We base the risk-free interest rate used in the Black-Scholes option-valuation model on the implied yield available on US Treasury zero-coupon issues with a term equivalent to that of the expected term of the stock options for each stock option group.
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Volatility.We determine the price volatility based on the historical volatilities of industry peers as we have limited trading history for our common stock price. We intend to continue to consistently apply this process using the same or a similar peer group of public companies, until a sufficient amount of historical information regarding the volatility of our own common stock price becomes available, or unless circumstances change such that the identified peer companies are no longer similar, in which case other suitable peer companies whose common stock prices are publicly available would be utilized in the calculation.
Dividend Yield.The expected dividend assumption is based on our current expectations about our anticipated dividend policy. To date, we have not declared any dividends and, therefore, we used an expected dividend yield of zero.
Common Stock Valuations.During the three and nine months ended September 30, 2022 and 2021, we used our listed Nasdaq Capital Market closing price on the grant date to determine common stock valuation.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
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 ChiefPrincipal Financial Officer, (“CFO”) (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2022.March 31, 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
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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 management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Under the supervision, and with the participation, of our current management, including our CEO and CFO,Principal Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of September 30, 2022.March 31, 2023. Based on this evaluation of our disclosure controls and procedures, our management, including our CEO and CFO,Principal Financial Officer, have concluded that our disclosure controls and procedures were not effective as of September 30, 2022March 31, 2023 because of the material weaknesses in our internal control over financial reporting described below.
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Changes in Internal Control over Financial ReportingMaterial Weaknesses
As disclosed under Item 9A., Controls and ProceduresA material weakness is a deficiency, or a combination of deficiencies, in our Annual Report on Form 10-K for the year ended December 31, 2021, we identified material weaknesses in our 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 the quarter ended March 31, 2023 because we (i) do not have a formal process for period end financial closing and reporting; (ii)reporting, and also because we have insufficient resources to conduct an effective monitoring and oversight function independent from our operations; and (iii) we did not have a control to appropriately communicate relevant information from the FDA to appropriate parties on a timely basis.operations. These material weaknesses resultedresult in an increased risk of material misstatement in the financial statements, andstatements.
In addition, during the year ended December 31, 2021, we identified a material weakness in our failureinternal control over financial reporting related to timely disclosea lack of effective disclosure controls. Such material weakness has not been fully remediated during the June 16 and 17, 2021 FDA Communications.quarter ended March 31, 2023.
Remediation Activities
We believe that we are addressing the material weaknesses identified in connection with the audit of our financial statements for the yearquarter ended DecemberMarch 31, 2021 and prior periods2023, through measures including:
● | Implementation of additional internal control processes and procedures regarding the financial close and Reporting process, procure to pay process, and human resources and payroll |
● | Designing those controls with the appropriate segregation of |
● | The recruitment of upon enhanced scrutiny of accounting entries in the areas where we have observed material weaknesses in our internal control over financial reporting. |
Our management concluded that these material weaknesses still existed as of March 31, 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 including (i) its Chief Executive Officer and Principal Financial Officer; (ii) the executive in charge of overseeing submissions of any nature to the FDA; (iii) its Chief Financial Officer;Officer, if any; (iv) its General Counsel, if any; (v) its Controller;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 Executive Officer and Principal Financial Officer, who serves as chairman of the Disclosure Committee, may invite from time to time. The Disclosure Committee isshall be responsible for preparing and reviewing all corporate disclosures made by the Company to its security holders, the Securities and Exchange CommissionSEC and/or the broader investment community to ensure that such disclosures (i) shall be accurate and complete; (ii) shall fairly present, in all material respects, the Company’s financial condition, results of operations and cash flows; and (iii) shall be made on a timely basis in accordance with all applicable requirements of (A) the Exchange Act and the rules and
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regulations promulgated thereunder, (B) the Securities Act of 1933, as amended and the rules and regulations promulgated thereunder (C) the Nasdaq Stock Market or such other stock exchange on which the Company’s securities may be traded and (D) any other applicable laws or legal requirements.
Our management is monitoring these material weaknesses and will continue to evaluate whether the remedial actions initiated by the Company will remediate these material weaknesses. However, our management concludedbelieves that these material weaknesses still existedwere not remediated as of September 30, 2022.March 31, 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
Except as disclosed above, thereThere have been no other changes in our internal control over financial reporting for the quarter ended September 30, 2022.March 31, 2023.
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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time in the future, we may become involved in litigation or other legal proceedings that arise in the ordinary course of business.
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 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. That same day,
Oral argument on Terrell’s appeal was held before the Delaware Supreme Court set a briefing schedule foron February 8, 2023. On May 4, 2023, the appeal, under which Terrell’s opening brief and appendix were due October 7, 2022, Kiromic’s answering brief and appendix are due November 7, 2022, and Terrell’s reply appellate brief is due 15 days thereafter. Terrell filed his opening brief and appendix on October 7, 2022, and Kiromic is set to file its answering brief on November 7, 2022. The Delaware Supreme Court has not yet designated this appealissued a written opinion (the “Opinion”) reversing the Vice Chancellor’s order of dismissal and remanding to Chancery Court for oral argument.
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
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Sabby and Empery Claimthat Chancery Court itself should independently review the Compensation Committee’s determinations under Delaware law.
Sabby Volatility Warrant Master Fund Ltd., et al. v. Kiromic BioPharma, Inc. et al., Case No. 22-cv-1927 (SDNY). On March 7, 2022, entities related to Sabby Management LLC (the “Sabby Entities”) and Empery Asset Management, LP (the “Empery Entities”) filed a complaint in the United States District Court for the Southern District of New York asserting claims against the Company and certain current and former officers and directors of Kiromic BioPharma, Inc. the Company for alleged violations of Sections 11, 12, and 15 of the Securities Act of 1933 in connection with the purchase of common stock through the Company’s public offering that closed on July 2, 2021. On July 1, 2022, the defendants filed motions to dismiss the complaint. In response, on July 22, 2022, the plaintiffs amended their complaint to, among other things, include ThinkEquity LLC as a defendant. The plaintiffs seek unspecified damages; rescission to the extent they still hold Kiromic securities, or if sold, rescissory damages; reasonable costs and expenses, including attorneys’ and experts’ fees; and other unspecified equitable and injunctive relief. The Court directed the defendants to respond to the amended complaint by August 12, 2022. At the parties’ request, the Court extended the defendants’ response date to September 12, 2022 to allow the parties time to discuss a potential resolution. 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. The settlement contained a cash component of $75,000 payable to Sabby Entities and $75,000 to Empery Entities. 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 $0.3068 and can be convertible into a maximum of 5,400,000 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%. This settlement loss is considered probable and resulted in an expense charged as a separate line item within Other expenses on the condensed consolidated statement of operations and related accrued litigation liability totaling $3,463,400 on the balance sheet. This amount excludes any legal and others costs that we were incurred in connection with the defense of this action, and any legal and other costs incurred by the other defendants that we are required to reimburse. Subject to certain exceptions, the Company is obligated to indemnify the defendants in this action, including ThinkEquity, for their reasonable costs incurred in connection with this action and those costs could be substantial. Further, the settlement is subject to the District Court in the Southern District of New York’s approval before delivery of the economic valueawaiting guidance from the CompanyChancery Court regarding further briefing and/or argument on our motion to Sabby and Empery Entities is consummated. Similarly, the Company has evaluated that it is reasonably possible that other unasserted claims in future litigation and losses may occur. However, the Company is unable to estimate any possible range of loss attributed to other unasserted claims at this time.
On October 10, 2022, the Company and certain current and former officers and directors of the Company (together with the Company, the “Defendants”) entered into a Stipulation of Settlement and Mutual Release (the “Initial Settlement Agreement”) with entities related to Empery Asset Management, LP (the “Empery Entities”) and entered into an Initial Settlement Agreement with Sabby Volatility Warrant Master Fund Ltd. (“Sabby”, together with the Empery Entities, 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 Securities Act of 1933, as amended (the “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 (the “Settlement”). As part of the Settlement, the Company agreed to (a) make a $75,000 cash payment to each of the Empery Entities and Sabby and (b) issue convertible notes (the “Settlement Notes”) in the aggregate principal amount of $1,656,720 to each of the Empery Entities and Sabby. The Settlement Notes are convertible into shares of the Company’s common stock (the “Conversion Shares”) at an initial conversion price per share of $0.3068 (the “Conversion Price”), subject to a beneficial ownership limitation equivalent to 9.99% (“Beneficial Ownership Limitation”).dismiss.
Both Initial Settlement Agreements were conditioned upon the Company obtaining financing no later than October 18, 2022 for aggregate gross proceeds to the Company of not less than $5 million (the “Conditional Financing”), after which within one business day the parties should promptly submit a joint motion seeking approval of the Initial Settlement Agreements under Section 3(a)(10) of the Securities Act (the “Joint Motion”) from the United States District Court for the Southern District of New York (the “Court”).
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On October 27, 2022, the Defendants entered into an Amended Stipulation of Settlement and Mutual Release with the Empery Entities (the “Amended Empery Settlement Agreement”) and Sabby (together with the Amended Empery Settlement Agreement, the “Amended Settlement Agreements”), respectively. Both Amended Settlement Agreements removed the satisfaction of the Conditional Financing as a condition to the Settlement and provided that the parties shall file the Joint Motion no later than October 25, 2022. The Amended Empery Settlement Agreement shall become void if the Court does not approve the Joint Motion by November 15, 2022, subject to extension by the Empery Entities.
On November 2, 2022, the Court granted the 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 the terms set forth therein, will also be unrestricted and exempt from the registration requirements of the Securities Act.
Karp Class Action
Ronald H. Karp, et al. v. Kiromic BioPharma, Inc. et al., Case No. 22-6690 (SDNY). On August 5, 2022, Ronald H. Karp, filed a class action complaint in the United States District Court for the Southern District of New York covering the same subject matter as the Sabby Entities’ and 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. The Company has evaluated the Karp class claims and has determined that it is not possible to estimate a potential range of loss at this time.
We intend to defend ourselves vigorously against this securities litigation and any similar claims, but are unable to predict the outcome of any such litigation. Even if we are successful, securities litigation is costly to defend and diverts management’s attention away from the business. These legal proceedings have already had a material adverse impact on us as it has caused the underwriter in our recently planned public offering to suspend the offering and it is making it more difficult to obtain financing.
We are not currently party to any other legal proceedings that we believe could have a material adverse effect on our business, operating results or financial condition.
Podmore Class Action
On October 3, 2022, Joseph Podmore (“Podmore”) filed a class action complaint in the United States District Court for the Southern District of New York covering the same subject matter as the Sabby Entities’ and Empery Entities’ claim discussed above asserting claims against the Company and certain current and former officers and directors for alleged violations of Sections 11, 12, and 15 of the Securities Act of 1933 in connection with the purchase of common stock through the Company’s public offering that closed on July 2, 2021 and Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 promulgated thereunder in connection with the certain statements and acts made by the defendants between June 25, 2021 and August 13, 2021. The Company has evaluated the Podmore class claims and has determined that it is not possible to estimate a potential range of loss at this time.
The Company regularly assesses all contingencies and believes, based on information presently known, the Company is not involved in any other matters that would have a material effect on the Company’s financial position, results of operations and cash flows.
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ITEM 1A. RISK FACTORS.
An investment in our securities involves a high degree of risk. Before making an investment decision, you should carefully consider the risks described below andThere have been no material changes from the risk factors previously disclosed in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on April 8, 2022 (the “Annual Report”), and the risk factors previously disclosed in our Quarterly Reports on Form 10-Q subsequently filed after the Annual Report. Our business, prospects, financial condition, or operating results could be harmed by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial. The trading price of our securities could decline due to any of these risks, and, as a result, you may lose all or part of your investment.
We may not be able to continue as a going concern and holders of our common stock could suffer a total loss of their investment.
We do not have sufficient cash on hand and available liquidity to meet our obligations through the twelve months following the date the condensed consolidated financial statements are issued. The Company’s estimated cash and cash equivalents were $1,325,300 as of October 31, 2022. We will need to obtain financing in order to fund our operations past September 2022. Any failure or delay to secure such financing could force us to delay, limit or terminate our operations, make reductions in our workforce, liquidate all or a portion of our assets and/or seek protection (“Bankruptcy Protection”) under Chapters 7 or 11 of the United States Bankruptcy Code.
In the event we pursue Bankruptcy Protection, we will be subject to the risks and uncertainties associated with such proceedings.
In the event we file for relief under the United States Bankruptcy Code, our operations, our ability to develop and execute our business plan and our continuation as a going concern will be subject to the risks and uncertainties associated with bankruptcy proceedings, including, among others: our ability to execute, confirm and consummate a plan of reorganization; the additional, significant costs of bankruptcy proceedings and related fees; our ability to obtain sufficient financing to allow us to emerge from bankruptcy and execute our business plan post-emergence, and our ability to comply with terms and conditions of that financing; our ability to continue our operations in the ordinary course; our ability to maintain our relationships with our consumers, business partners, counterparties, employees and other third parties; our ability to obtain, maintain or renew contracts that are critical to our operations on reasonably acceptable terms and conditions; our ability to attract, motivate and retain key employees; the ability of third parties to use certain limited safe harbor provisions of the United States Bankruptcy Code to terminate contracts without first seeking Bankruptcy Court approval; the ability of third parties to force us to into Chapter 7 proceedings rather than Chapter 11 proceedings and the actions and decisions of our stakeholders and other third parties who have interests in our bankruptcy proceedings that may be inconsistent with our operational and strategic plans. Any delays in our bankruptcy proceedings would increase the risks of our being unable to reorganize our business and emerge from bankruptcy proceedings and may increase our costs associated with the bankruptcy process or result in prolonged operational disruption for the Company. Also, we would need the prior approval of the bankruptcy court for transactions outside the ordinary course of business during the course of any bankruptcy proceedings, which may limit our ability to respond timely to certain events or take advantage of certain opportunities. Because of the risks and uncertainties associated with any bankruptcy proceedings, we cannot accurately predict or quantify the ultimate impact of events that could occur during any such proceedings. There can be no guarantees that if we seek Bankruptcy Protection we will emerge from Bankruptcy Protection as a going concern or that holders of our common stock will receive any recovery from any bankruptcy proceedings.
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In the event we are unable to pursue Bankruptcy Protection under Chapter 11 of the United States Bankruptcy Code, or, if pursued, successfully emerge from such proceedings, it may be necessary to pursue Bankruptcy Protection under Chapter 7 of the United States Bankruptcy Code for all or a part of our businesses.
In the event we are unable to pursue Bankruptcy Protection under Chapter 11 of the United States Bankruptcy Code, or, if pursued, successfully emerge from such proceedings, it may be necessary for us to pursue Bankruptcy Protection under Chapter 7 of the United States Bankruptcy Code for all or a part of our businesses. In such event, a Chapter 7 trustee would be appointed or elected to liquidate our assets for distribution in accordance with the priorities established by the United States Bankruptcy Code. We believe that liquidation under Chapter 7 would result in significantly smaller distributions being made to our stakeholders than those we might obtain under Chapter 11 primarily because of the likelihood that the assets would have to be sold or otherwise disposed of in a distressed fashion over a short period of time rather than in a controlled manner and as a going concern.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 6. EXHIBITS.
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101.SCH |
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101.CAL |
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101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
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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 |
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# In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Exchange Act or deemed to be incorporated by reference into any filing under the Exchange Act or the Securities Act of 1933 except to the extent that the Company specifically incorporates it by reference.
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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.
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Date: | KIROMIC BIOPHARMA, INC. |
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| /s/ Pietro Bersani |
| Name: Pietro Bersani |
| Title: Chief Executive Officer |
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/s/ Michael Nagel
Name: Michael Nagel
Title: Independent Director
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