GEOVAX LABS, INC. FORWARD-LOOKING STATEMENTS
In addition to historical information, the information included in this Form 10-Q contains forward-looking statements. Forward-looking statements involve numerous risks and uncertainties, including but not limited to the risk factors set forth under the heading "Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , and should not be relied upon as predictions of future events. Certain such forward-looking statements can be identified by the use of forward-looking terminology such as ''believes,'' ''expects,'' ''may,'' ''will,'' ''should,'' ''seeks,'' ''approximately," ''intends,'' ''plans,'' ''pro forma,'' ''estimates,'' or ''anticipates'' or other variations thereof or comparable terminology, or by discussions of strategy, plans, or intentions. Such forward-looking statements are necessarily dependent on assumptions, data, or methods that may be incorrect or imprecise and may be incapable of being realized. The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:
? whether we can raise additional capital as and when we need it;
? whether we are successful in developing our products;
? whether we are able to obtain regulatory approvals in
other countries for sale of our products;
? whether we can compete successfully with others in our market; and
? whether we are adversely affected in our efforts to raise cash by the
volatility and disruption of local and national economic, credit and capital
markets and the economy in general. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect our management's analysis only. We assume no obligation to update forward-looking statements. OverviewGeoVax is a clinical-stage biotechnology company developing human vaccines against infectious diseases and cancer using a novel patented Modified VacciniaAnkara (MVA) Virus Like Particle (VLP) vaccine platform (GV-MVA-VLPTM). In this platform, MVA, a large virus capable of carrying several vaccine antigens, expresses proteins that assemble into VLP immunogens in the person being vaccinated. The GeoVax MVA-VLP derived vaccines elicit durable immune responses in the host similar to a live-attenuated virus, while providing the safety characteristics of a replication-defective vector. Our current development programs are focused on preventive vaccines against novel coronavirus (COVID-19), Human Immunodeficiency Virus (HIV), Zika Virus, hemorrhagic fever viruses (Ebola,Sudan , Marburg, Lassa), and malaria, as well as therapeutic vaccines for chronic Hepatitis B infections and cancers. We believe our technology and vaccine development expertise are well-suited for a variety of human infectious diseases and we intend to pursue further expansion of our product pipeline. 11
-------------------------------------------------------------------------------- Our corporate strategy is to improve the health of patients worldwide by advancing our vaccine platform, using its unique capabilities to design and develop an array of products addressing unmet medical needs in the areas of infectious diseases and oncology. We intend to advance products through to human clinical testing, and to seek partnership or licensing arrangements for commercialization. We also leverage third party resources through government, academic and corporate research collaborations and partnerships for preclinical and clinical testing. We have not generated any revenues from the sale of any such products, and we do not expect to generate any such revenues for at least the next several years. Our product candidates will require significant additional research and development efforts, including extensive preclinical and clinical testing. All product candidates that we advance to clinical testing will require regulatory approval prior to commercial use and will require significant costs for commercialization. We may not be successful in our research and development efforts, and we may never generate sufficient product revenue to be profitable.
Critical Accounting Policies and Estimates
This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States . The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates and adjusts the estimates as necessary. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions. For a description of critical accounting policies that affect our significant judgments and estimates used in the preparation of our financial statements, refer to Item 7 in Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 2 to our Consolidated Financial Statements contained in our Annual Report on Form 10-K for the year endedDecember 31, 2019 . There have been no significant changes to our critical accounting policies from those disclosed in our 2019 Annual Report.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is contained in Note 3 to the condensed consolidated financial statements included in this Quarterly Report.
Liquidity and Capital Resources
Our principal uses of cash are to finance our research and development activities. Since inception, we have funded these activities primarily from government grants and clinical trial assistance, and from sales of our equity securities. AtJune 30, 2020 , we had cash and cash equivalents of$710,682 and total assets of$957,943 , as compared to$283,341 and$468,880 , respectively, atDecember 31, 2019 . AtJune 30, 2020 , we had a working capital deficit of$1,847,550 , compared to$1,568,929 atDecember 31, 2019 . Our current liabilities atJune 30, 2020 include$1,972,073 of accrued management salaries and director fees, payment of which is still being deferred as discussed further below. Net cash used in operating activities was$925,493 and$773,809 for the six-month periods endedJune 30, 2020 and 2019, respectively. Generally, the variances between periods are due to fluctuations in our net losses, offset by non-cash charges such as depreciation and stock-based compensation expense, and by net changes in our assets and liabilities. Our net losses generally fluctuate based on expenditures for our research activities, partially offset by government grant revenues. As ofJune 30, 2020 , there is$650,051 in approved grant funds available for use throughSeptember 2021 and approximately$184,100 of upcoming billable fees pursuant to collaborative arrangements. Of these amounts, we expect that approximately$400,800 will be used by us to reimburse third parties who will provide services covered by our grants. See "Results of Operations - Grant and Collaboration Revenues" below for additional details concerning our government grants. Members of our executive management team are deferring receipt of portions of their salaries and members of our board of directors are deferring receipt of all of their fees in order to help conserve the Company's cash resources. As ofJune 30, 2020 , the accumulated deferrals totaled$1,972,073 . We expect the ongoing deferrals of approximately$26,600 per month for the management salaries to continue until such time as a significant financing event (as determined by the board of directors) is consummated. As of the date hereof, we have no agreements as to how and when these obligations will be satisfied, but such action may require payment of cash and/or issuance of equity securities. 12 -------------------------------------------------------------------------------- NIAID has funded the costs of conducting all of our human clinical trials (Phase 1 and Phase 2a) to date for our preventive HIV vaccines, withGeoVax incurring certain costs associated with manufacturing the clinical vaccine supplies and other study support. We expect that NIAID will also fund the cost of the planned Phase 1 trial (HVTN 132) to further evaluate the safety and immunogenicity of adding "protein boost" components to our vaccine, GOVX-B11. We expect HVTN 132 to commence patient enrollment in late 2020. Additionally, we are party to a collaboration withAmerican Gene Technologies International, Inc. (AGT) whereby AGT intends to conduct a Phase 1 human clinical trial with our combined technologies, with the ultimate goal of developing a functional cure for HIV infection. We expect that AGT will begin the Phase 1 trial during 2020. A similar effort is underway with a consortium led by researchers at theUniversity of California ,San Francisco (UCSF), using our vaccine as part of a combinational therapy to induce remission in HIV-positive individuals. We also expect this program to enter clinical trials during 2020. However, each of these programs could be delayed as a result of the ongoing COVID-19 pandemic.
Net cash used in investing activities was
Net cash provided by financing activities was$1,352,834 and$734,791 for the six-month periods endedJune 30, 2020 and 2019, respectively. Net cash provided by financing activities during the 2020 period relates to the sale of shares of our Series J convertible preferred stock for net proceeds of$300,000 ,$170,200 of PPP loan proceeds (see discussion below),$888,500 of net proceeds from our bridge financing (see discussion below), and$5,866 in principal repayments toward the GRA Note. Net cash provided by financing activities during the 2019 period relates to the sale of shares of our Series G convertible preferred stock for net proceeds of$740,000 and$5,209 in principal repayments toward the GRA Note. OnApril 17, 2020 , we received a$170,200 bank loan backed by theUnited States Small Business Administration pursuant to the Paycheck Protection Program (PPP) provisions of the CARES Act. The loan bears an annual interest rate of one percent and is dueApril 17, 2022 . No payments of principal or interest will be due until 180 days after the disbursement date. CommencingNovember 17, 2020 , monthly payments of$9,578.16 will be due. Amounts due may be prepaid without penalty. We intend to apply to the lender to have the principal amount reduced upon providing qualifying information regarding eligible expenses. OnJune 26 2020 , we entered into a Securities Purchase Agreement with two institutional investors, pursuant to which we received gross proceeds of$1,050,000 in exchange for the issuance of:(i) 5% Original Issue Discount Senior Secured Convertible Debentures (the "Convertible Debentures") in the aggregate principal amount of$1,200,000 ; and (ii) five-year warrants (the "June 2020 Warrants") to purchase an aggregate of 2,400,000 shares of the our common stock at an exercise price of$0.50 per share. Net proceeds after deducting the original issue discount, finder's fee and other debt issuance costs was$888,500 . The Convertible Debentures are secured by substantially all of the Company's assets. The Convertible Debentures mature in twelve months, bear interest at a rate of 5% per annum, and are convertible into our common stock after six months at an initial conversion price of$0.50 per share. Interest is payable quarterly in cash, or if certain conditions are met, we may pay accrued interest in shares of our common stock. The Convertible Debentures may be prepaid at any time for the first 90 days at face value plus accrued interest. From day 91 through day 180, the Convertible Debentures may be prepaid in an amount equal to 110% of the principal amount plus accrued interest. From day 181 through day 365, it may be prepaid in an amount equal to 120% of the principal amount plus accrued interest. The Convertible Debentures will convert into common stock upon our consummation of a public offering of common stock with gross proceeds of$6,000,000 or more, and which results in the listing of our common stock on a national securities exchange. The conversion price is equal to the lower of (i)$0.50 per share or (ii) 80% of the offering price. As ofJune 30, 2020 , we had an accumulated deficit of$43.9 million . We expect for the foreseeable future we will continue to operate at a loss. The amount of the accumulated deficit will continue to increase, as it will be expensive to continue our research and development efforts. We will continue to require substantial funds to continue our activities and cannot predict the outcome of our efforts. We have received a "going concern" opinion from our independent registered public accounting firm reflecting substantial doubt about our ability to continue as a going concern. We believe that our existing cash resources, combined with funding from existing government grants and collaborative arrangements, will be sufficient to fund our planned operations into the fourth quarter of 2020. We will require additional funds to continue our planned operations beyond that date. We are currently seeking sources of capital through additional government grant programs and clinical trial support, and we plan to conduct at least one additional offering of our equity securities. Additional funding may not be available on favorable terms or at all and if we fail to obtain additional capital when needed, we may be required to delay, scale back, or eliminate some or all of our research and development programs as well as reduce our general and administrative expenses. 13 --------------------------------------------------------------------------------
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that are likely or reasonably likely to have a material effect on our financial condition or results of operations.
Results of Operations Net Loss We recorded a net loss of$455,204 for the three-month period endedJune 30, 2020 , as compared to$654,148 for the three-month period endedJune 30, 2019 . For the six-month period endedJune 30, 2020 , we recorded a net loss of$1,050,898 , as compared to$1,355,602 for the six-month period endedJune 30, 2019 . Our net losses will typically fluctuate due to the timing of activities and related costs associated with our vaccine research and development activities and our general and administrative costs, as described in more detail below.
Grant and Collaboration Revenues
During the three-month and six-month periods endedJune 30, 2020 , we recorded grant and collaboration revenues of$440,602 and$1,156,579 , respectively, as compared to$209,941 and$574,173 , respectively, during the comparable periods of 2019. Grant Revenues - Our grant revenues relate to grants and contracts from agencies of theU.S. government in support of our vaccine development activities. We record revenues associated with these grants as the related costs and expenses are incurred. The difference in our grant revenues from period to period is dependent upon our expenditures for activities supported by the grants and fluctuates based on the timing of the expenditures. Additional detail concerning our grant revenues and the remaining funds available for use as ofJune 30, 2020 is presented in the table below. Grant Revenues Recorded During the Periods: Unused Funds Three Months Ended June 30, Six Months Ended June 30, Available at 2020 2019 2020 2019 June 30, 2020
Lassa Fever -
- 18,625 - 82,292 -
Zika - NIH SBIR Grant - 14,494 - 162,461 -
Total $ 301,493 $ 184,938 $ 955,514 $ 539,257 $ 650,051
Collaboration Revenues - In addition to the grant revenues above, during the
three-month and six-month periods ended June 30, 2020 we recorded revenues
associated with several research collaborations with third parties of $139,109
and $201,065 , respectively, as compared to $25,003 and $34,916 , respectively,
during the comparable periods of 2019. These amounts primarily represent amounts
paid to us by the other parties for materials and other costs associated with
joint studies. As of June 30, 2020 , there is approximately $184,100 of upcoming
billable fees pursuant to collaborative arrangements.
Research and Development Expenses
Our research and development expenses were
Our research and development expenses can fluctuate considerably on a period-to-period basis, depending on the timing of expenditures related to our government grants and other research projects, and other factors. Research and development expenses increased by$263,412 , or 26%, from the six-month period of 2019 to 2020 primarily due to the timing and amount of expenditures related to our government grants. Our research and development costs do not include costs incurred by the HIV Vaccine Trials Network (HVTN) in conducting clinical trials of our preventive HIV vaccines; those costs are funded directly to the HVTN by NIAID. 14
-------------------------------------------------------------------------------- We do not disclose our research and development expenses by project, since our employees' time is spread across multiple programs and our laboratory facility is used for multiple vaccine candidates. We track the direct cost of research and development expenses related to government grant revenue by the percentage of assigned employees' time spent on each grant and other direct costs associated with each grant. Indirect costs associated with grants are not tracked separately but are applied based on a contracted overhead rate negotiated with theNIH . Therefore, the recorded revenues associated with government grants approximate the costs incurred. We do not provide forward-looking estimates of costs and time to complete our research programs due to the many uncertainties associated with vaccine development. Due to these uncertainties, our future expenditures are likely to be highly volatile in future periods depending on the outcomes of the trials and studies. As we obtain data from pre-clinical studies and clinical trials, we may elect to discontinue or delay vaccine development programs to focus our resources on more promising vaccine candidates. Completion of preclinical studies and human clinical trials may take several years or more, but the length of time can vary substantially depending upon several factors. The duration and the cost of future clinical trials may vary significantly over the life of the project because of differences arising during development of the human clinical trial protocols, including the number of patients that ultimately participate in the clinical trial; the duration of patient follow-up that seems appropriate in view of the results; the number of clinical sites included in the clinical trials; and the length of time required to enroll suitable patient subjects.
General and Administrative Expenses
Our general and administrative expenses were$427,292 and$929,637 for the three-month and six-month periods endedJune 30, 2020 , as compared to$412,650 and$922,714 during the comparable periods of 2019. General and administrative costs include officers' salaries, legal and accounting costs, patent costs, and other general corporate expenses. General and administrative expense for the three-month and six-month periods of 2020 included stock-based compensation expense of$12,000 and$18,000 , respectively; as compared to$93,851 and$235,755 , respectively, for the comparable periods of 2019 (see discussion under "Stock-Based Compensation Expense" below). Excluding stock-based compensation expense, general and administrative expenses were$415,292 and$911,637 during the three-month and six-month periods endedJune 30, 2020 , respectively, as compared to$318,799 and$686,959 , respectively during the comparable periods of 2019, representing an increase of$224,678 , or 33%, from the six-month period of 2019 to the comparable period of 2020. The overall increase in general and administrative expense from 2019 to 2020 is primarily attributable to higher legal and patent costs. We expect that our general and administrative costs may increase in the future in support of expanded research and development activities and other general corporate activities.
Stock-Based Compensation Expense
The table below shows the components of stock-based compensation expense for the three-month and six-month periods endedJune 30, 2020 and 2019. In general, stock-based compensation expense is allocated to research and development expense or general and administrative expense according to the classification of cash compensation paid to the employee, consultant or director to whom the stock compensation was granted. Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Stock option expense $ -$ 26,664 $ -$ 53,316 Stock issued for services 12,000 78,509 18,000 205,080
Total stock-based compensation expense
As a result of the reverse stock splits enacted inApril 2019 and inJanuary 2020 , we made adjustments and retroactive restatements to all of our outstanding stock options such that the balances inJanuary 2020 were negligible. We therefore recorded no stock-based compensation expense related to our stock option plan for the three-month or six-month periods endedJune 30, 2020 . If we make grants under our 2020 Stock Incentive Plan, we will incur related compensation expenses. During the three-month and six-month periods endedJune 30, 2020 we recorded stock-based compensation expense of$12,000 and$18,000 , respectively, associated with common stock issued for a consulting agreement, as compared to$78,509 and$205,080 , respectively, during the same periods of 2019, associated with common stock issued for consulting and financial advisory services. Other Income (Expense) Interest income for the three-month and six-month periods endedJune 30, 2020 was$60 and$812 , respectively, as compared to$881 and$2,105 , respectively, for comparable periods of 2019. The variances between periods are primarily attributable to cash available for investment and interest rate fluctuations. Interest expense for the three-month and six-month periods endedJune 30, 2020 was$7,153 and$8,295 , respectively, as compared to$1,093 and$2,221 , respectively, for comparable periods of 2019. Interest expense relates to the Convertible Debentures, GRA Note, PPP Loan, and financing costs associated with insurance premiums. 15
--------------------------------------------------------------------------------
© Edgar Online, source
