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    CBLI   US23284M1009

CYTOCOM, INC.

(CBLI)
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STATERA BIOPHARMA, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

10/06/2022 | 06:03am EST

OVERVIEW

We are a clinical-stage biopharmaceutical company developing multiple product candidates to address unmet medical needs. Following the closing of the Merger, we have been developing novel immunotherapies targeting autoimmune, inflammatory, emerging viruses and cancers based on a proprietary, multi receptor platform, or the AIMS platform, designed to restore the body's immune system and restore homeostasis. These therapies are designed to elicit directly within patients a robust and durable response of antigen-specific killer T-cells and antibodies, thereby activating essential immune defenses against autoimmune, inflammatory, infectious diseases and cancers. We believe that our technologies can meaningfully leverage the human immune system for prophylactic and therapeutic purposes by eliciting killer T-cell response levels not achieved by other known immunotherapy approaches. Our immunomodulatory technology designed to restore the balance between the cellular (Th1) and the humoral (Th2) immune systems. Immune balance is regulated through T-helper cells that produce cytokines. The Th1 lymphocytes help fight pathogens within cells like cancer and viruses through interferon-gamma and macrophages. The Th2 lymphocytes target external pathogens like cytotoxic parasites, allergens and toxins through the activation of B-cells and antibody production to effect dendritic cells, which are natural activators of killer T cells, also known as cytotoxic T -cells, or CD8+ T cells. Furthermore, the Statera Biopharma technology antagonizes the toll-like receptors (TLR4 and TLR9) to inhibit proinflammatory cytokines like IL-6.

Our proprietary platform of Toll-like receptor drug candidates also have applications in mitigation of radiation injury and neutropenia and anemia. Our most advanced product candidate in this field is Entolimod, an immune-stimulatory agent, which we are developing as a radiation countermeasure and other indications in radiation oncology.

Prior to the closing of the Merger, we conducted business in the U.S. directly and in Russia through two subsidiaries: one of which is wholly owned, BioLab 612 (which was dissolved in November 2020), and one of which is owned in collaboration with a financial partner, Panacela. As of the closing of the Merger, we also now conduct business through Old Cytocom and its subsidiaries, ImQuest Life Sciences Inc, ImQuest BioSciences Inc., ImQuest Pharmaceuticals, Inc., and Lubrinovation Inc. In addition, we conduct business with a former subsidiary, Incuron, which will pay us a 2% royalty on future commercialization, licensing, or sale of certain technology we sold to Incuron. We also partner in a joint venture, GPI, with Everon.

The Company is developing therapies designed to directly elicit within patients a robust and durable response of antigen-specific killer T-cells and antibodies, thereby activating essential immune defenses against autoimmune, inflammatory, infectious diseases, and cancers. Statera has clinical or preclinical programs for Crohn's disease (STAT-201), hematology (STAT-601 (Entolimod)), pancreatic cancer (STAT-401) and COVID-19 (STAT-205).

In the next 12 months, the Company expects to initiate several clinical trials, including a pivotal Phase 3 trial for its lead drug candidate, STAT-201, in pediatric Crohn's disease, as well as studies of STAT-205 in 'long haul' COVID-19, STAT-401 in pancreatic cancer, and the TLR5 agonist entolimod as a treatment for anemia and neutropenia in cancer patients.



Recent Developments



Default under Loan Agreement


On March 25, 2022, we received a letter (the "Default Letter") from Avenue Venture Opportunities Fund, L.P. ("Avenue") regarding alleged events of default with respect to the Loan and Security Agreement, dated as of April 26, 2021, between the Company and Avenue (the "Avenue Facility"). In the Default Letter, Avenue alleges that certain events of default under the Avenue Facility have occurred and continue to exist. Specifically, Avenue alleges that the Company is in violation of certain provisions of the Avenue Facility as a result of the Company's failure to:



  ? timely deliver monthly financial statements for certain periods;


  ? obtain Avenue's consent to repurchase certain securities from stockholders;


  ? pay principal and interest when due, including on March 1, 2022; and


  ? maintain unrestricted cash and cash equivalents in one or more accounts
    subject to control agreements in favor of Avenue in amount of at least $5
    million.



In the Default Letter, Avenue purported to exercise its rights to suspend further loans or advances to the Company under the Avenue Facility and to accelerate the amount due under the Avenue Facility, which it asserts to be approximately $11.2 million, inclusive of fees of penalties. Avenue further states in the Default Letter that interest will continue to accrue on the outstanding amounts at the default rate of 5.0%. In furtherance of the allegations set forth in the Default Letter, Avenue foreclosed on approximately $4.8 million of the Company's cash.



Nasdaq Noncompliance


On March 23, 2022, we received written notice from the Listing Qualifications staff of the Nasdaq Stock Market LLC ("NASDAQ") indicating that because the minimum bid price of the Company's common stock has closed below $1.00 per share for the last 30 consecutive business days, the Company no longer meets the requirements of Listing Rule 5550(a)(2), which requires the Company to maintain a minimum bid price of $1.00 per share (the "Bid Price Rule"). The NASDAQ Listing Rules provide the Company with a compliance period of 180 calendar days in which to regain compliance with the Bid Price Rule. Accordingly, the Company will regain compliance if at any time during this 180-day period the closing bid price of the Company's common stock is at least $1.00 for a minimum of ten consecutive business days.

On March 25, 2022, Randy Saluck and Lea Verny, each a member of the board of directors of the Company, resigned from their positions as members of board, effective immediately. At the time of their resignations, Mr. Saluck and Ms. Verny each served on the audit, nominating and corporate governance and compensation committees of the Board. As a result of these resignations, the Company is no longer in compliance with NASDAQ governance rules requiring that its board of directors be comprised of a majority of independent directors, requiring that the audit committee of the board of directors be comprised of at least three independent directors, and requiring that the compensation committee of the board of directors be comprised of at least two independent directors. In accordance with NASDAQ's rules, the Company is granted a cure period to regain compliance with the rules pertaining to the composition of the board, the audit committee of the board and the compensation committee of the board, respectively, which cure period will expire upon the earlier of the Company's next annual stockholders' meeting or March 24, 2023; provided, however, that if the Company's next annual stockholders' meeting occurs no later than 180 days following the date of the resignations, then the cure period will expire 180 days following the date of such resignations. The Company intends to appoint new independent directors to fill the vacancies prior to the expiration of such cure period in order to regain compliance with such Nasdaq Listing Rules.

On March 28, 2022, Taunia Markvicka resigned from the board of directors. She continued to serve as the Company's Chief Operating Officer until her termination in April 2022.





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Underwritten Confidentially Marketed Public Offering

As previously disclosed, on March 24, 2022, the Company closed an underwritten confidentially marketed public offering (the "CMPO") in accordance with a final prospectus supplement and accompanying base prospectus relating to the securities offered in the offering filed with the SEC on March 23, 2022. The Company sold 12,555,555 units (the "Units"), at a price to the public of $0.45 per Unit for aggregate gross proceeds of approximately $5.7 million, prior to deducting underwriting discounts, commissions, and other offering expenses. Each Unit consisted of one share of Common Stock, one warrant with a one-year term that expires on March 23, 2023 to purchase one share of Common Stock at an exercise price of $0.45 per share (the "One-Year Warrants"), and one warrant with a five-year term that expires on March 23, 2027 to purchase one share of our Common Stock at an exercise price of $0.5625 per share (the "Five-Year Warrants"). The shares of Common Stock, the One-Year Warrants, and the Five-Year Warrants were immediately separable and were issued separately. In addition, the Company granted the underwriters a 45-day option to purchase up to an additional 1,883,333 shares of Common Stock at the public offering price of $0.43 per share less the underwriting discount per share, solely to cover over-allotments, if any (the "Overallotment Option"). In connection with the offering, the underwriters partially exercised the Overallotment Option to purchase an additional 1,883,333 One-Year Warrants and 1,883,333 Five-Year Warrants at the public offering price of $0.01 per One-Year Warrant and $0.01 per Five-Year Warrant, less the underwriting discount per warrant.

The securities were offered and sold by the Company under a prospectus supplement and accompanying prospectus filed with the SEC pursuant to an effective shelf registration statement on Form S-3, which was filed with the SEC on May 21, 2020 and subsequently declared effective on May 29, 2020 (File No. 333-238578). The net proceeds received by the Company were $4.81 million, all of which proceeds were foreclosed upon by Avenue in connection with Avenue's assertion that the Company is in default under its obligations to Avenue.

EF Hutton, a division of Benchmark Investments, LLC ("EF Hutton"), acted as underwriter and sole book-running manager in connection with the CMPO. In connection with the CMPO, the Company entered into an underwriting agreement with EF Hutton under which the Company paid EF Hutton an aggregate cash fee equal to 9.0% of the aggregate gross proceeds of the CMPO, a non-accountable expense reimbursement of 1.0% of the aggregate gross proceeds of the CMPO, and $100,000 for the reimbursement of certain of EF Hutton's accountable expenses.



Registered Direct Offering


As previously disclosed, on February 6, 2022, the Company entered into a Securities Purchase Agreement (the "EF Hutton Purchase Agreement") with a certain institutional investor for the sale by the Company of 2,000,000 shares (the "Registered Direct Shares") of the Company's common stock together with warrants to purchase an aggregate of 2,000,000 shares of Common Stock (the "Registered Direct Warrants"), at a combined price of $1.00 per Registered Direct Share and accompanying warrant, in a registered direct offering. The closing of the sale of the securities under the Purchase Agreement occurred on February 9, 2022. The gross proceeds to the Company from the transaction were approximately $2 million, before deducting the placement agent's fees and other estimated offering expenses, and excluding proceeds to the Company, if any, from the future exercise of the Registered Direct Warrants. The Shares were offered and sold by the Company under a prospectus supplement and accompanying prospectus filed with the SEC pursuant to an effective shelf registration statement on Form S-3, which was filed with the SEC on May 21, 2020 and subsequently declared effective on May 29, 2020 (File No. 333-238578). The net proceeds received by the Company were $1.67 million.

Each Registered Direct Warrant sold in the offering is exercisable for one share of Common Stock at an initial exercise price of $1.00 per share (the "Initial Exercise Price"). The Registered Direct Warrants may be exercised at any time until February 9, 2027. The Warrants are exercisable for cash, but they may be exercised on a cashless exercise basis if, at the time of exercise, there is no effective registration statement registering, or no current prospectus available for, the issuance or resale of the shares of Common Stock issuable upon exercise of the Registered Direct Warrants. The exercise of the Registered Direct Warrants is subject to a beneficial ownership limitation, which will prohibit the exercise thereof, if upon such exercise the holder of the Registered Direct Warrants, its affiliates and any other persons or entities acting as a group together with the holder or any of the holder's affiliates would hold 4.99% (or, upon election of a purchaser prior to the issuance of any shares, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of the Registered Direct Warrant held by the applicable holder, provided that the holders may increase or decrease the beneficial ownership limitation (up to a maximum of 9.99%) upon 60 days advance notice to the Company, which 60 day period cannot be waived.

EF Hutton acted as placement agent on a "reasonable best efforts" basis, in connection with the offering of the Registered Direct Shares and the Registered Direct Warrants. In connection with such offering, the Company entered into a Placement Agency Agreement, dated as of February 6, 2022, by and between the Company and EF Hutton pursuant to which EF Hutton received aggregate cash fee of 9.0% of the aggregate gross proceeds of the offering, a non-accountable expense reimbursement of 1.0% of the aggregate gross proceeds in the offering, and $75,000 for the reimbursement of certain of EF Hutton's accountable expenses.




Forbearance Agreement



On March 25, 2022, the Company received the Letter from Avenue regarding alleged events of default with respect to the Loan Agreement. In the Letter, Avenue alleges that certain events of default under the Loan Agreement have occurred and continue to exist. Specifically, Avenue alleged that the Company was in violation of certain provisions of the Loan Agreement as a result of which, Avenue purported to exercise its rights to suspend further loans or advances to the Company under the Loan Agreement and to accelerate the amount due under the Loan Agreement, which it asserts to be approximately $11.2 million, inclusive of fees of penalties. Avenue further states in the letter that interest will continue to accrue on the outstanding amounts at the default rate of 5.0%. In furtherance of the allegations set forth in the Letter, Avenue foreclosed on approximately $4.8 million of the Company's cash.

In response to the Letter, on April 18, 2022, Avenue and the Company entered into a Forbearance Agreement regarding the Loan Agreement. Pursuant to the Forbearance Agreement, the parties agreed that from the effective date of the Loan Agreement until May 31, 2022 (the "Forbearance Period"), it will refrain and forbear from exercising certain remedies arising out of the events of default or any other present or future event of default under the Loan Agreement or supplement. Under the Forbearance Agreement, Avenue shall not seize, sweep, or by any means take control of, directly or indirectly, any funds from any of the Company's bank accounts; and (ii) during the Forbearance Period, the Loans may be prepaid in whole or in part at any time, subject to the repayment and prepayment terms of the Loan Agreement. In addition to the terms of the Forbearance Agreement, certain terms of the Loan Agreement were amended, including changing the Agreement Effective Date to April 18, 2022, and revisions to certain definitions of Agreement terminology.

On March 25, 2022, Avenue exercised certain of its remedies under the Loan Agreement with respect to the events of default, by sweeping cash from Company's accounts, totaling $4,827,290.22, which Avenue applied to the then-outstanding Obligations under the Loan Agreement. The principal balance outstanding under the Loan Agreement, before giving effect to the Forbearance Agreement, is $5,711,049.14, plus accrued and unpaid interest, fees and expenses.




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COVID-19 Pandemic


The COVID-19 pandemic has continued to affect most countries around the world, including the United States, where a national emergency was declared in 2020. The continued spread of COVID-19 in the United States and worldwide, as well as the government-ordered shutdowns and shelter-in-place orders imposed to counter the pandemic, led to severe disruptions to the global economy, especially in the year ended December 31, 2020. In this connection, on March 20, 2020, the Governor of the State of New York announced that 100% of the workforce of all businesses, excluding essential services, must stay home. During the effectiveness of this order, we implemented a work-from-home policy for all employees based in our then Buffalo, New York headquarters. In the first quarter of 2022, we gave notice to terminate our Buffalo lease, effective February 28, 2022. Our employees in Buffalo now work-from-home. None of our other offices, including our new headquarters in Fort Collins, Colorado, had been required to shut down due to COVID-19, and we generally experienced few effects from the COVID-19 pandemic during 2021.

Nevertheless, we are continuing to monitor the situation and will take such further action as may be required by federal, state or local authorities, or that we determine are in the best interests of our employees. The extent to which COVID-19 may impact our business, research and development efforts, preclinical studies, clinical trials, prospects for regulatory approval of our drug candidates, and operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the effectiveness of vaccination efforts, ultimate geographic spread of the disease, the duration of the outbreak, the impact of any new variants of the virus, the extent and duration of travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. Furthermore, if we or any of the third parties with whom we engage were to experience renewed shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively impacted, which could have a material adverse effect on our business, financial condition and results of operations.




Continuing Capital Needs



We are a clinical-stage company and we have generated insignificant revenue from product sales to date. Our ability to generate revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates. Since inception, we have incurred significant operating losses. For the years ended December 31, 2021 and 2020, we incurred net losses of $101.9 million and $12.1 million, respectively. As of December 31, 2021, we had an accumulated deficit of $129.5 million.

We expect to incur significant expenses and operating losses for the foreseeable future as we advance our lead candidates through clinical trials, progress our pipeline candidates from discovery through pre-clinical development, and seek regulatory approval and pursue commercialization of our candidates. In addition, if we obtain regulatory approval for any of our candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales, and distribution. In addition, we may incur expenses in connection with the in-license or acquisition of additional technology to augment or enable development of future candidates. Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that Old Cytocom, our predecessor for accounting purposes, did not incur as a private company prior to the Merger.

As a result, we will need additional financing to support our continuing operations. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity and debt financings or other sources, which may include collaborations with third parties. We do not expect that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements beyond the second quarter of 2022.

Adequate additional financing may not be available to us on acceptable terms, or at all. Our inability to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategy. We will need to generate significant revenue to achieve profitability, and we may never do so. For these reasons, our financial statements contain a paragraph in substantial doubt is expressed about our ability to continue as a going concern within one year of the date of financial statements.

Financial Overview

Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with GAAP. Such financial statements reflect the historical results of Old Cytocom prior to the completion of the Merger, and do not include the historical results of the Company prior to the completion of the Merger. All share and per share disclosures have been adjusted to reflect the exchange of shares in the Merger. Under GAAP, the Merger is treated as a "reverse merger" under the purchase method of accounting. For accounting purposes, Old Cytocom is considered to have acquired Cleveland BioLabs, Inc. See Note 3, Merger with Old Cytocom to the financial statements included in Item 8 of this Annual Report on Form 10-K, for further details on the Merger and its U.S. GAAP accounting treatment.

The preparation of these financial statements requires us to make estimates and judgments that affect our reported amounts of assets, liabilities, revenues, and expenses. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses, income taxes, stock-based compensation, investments, and in-process research and development. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates.

Our revenue, operating results, and profitability have varied, and we expect that they will continue to vary on a quarterly basis, primarily due to the timing of work completed under new and existing grants, development contracts, and collaborative relationships. Additionally, we expect that as a result of the Merger, our business, financial condition, results of operations and cash flows will be materially different in future periods than in the past. Accordingly, our past results are not likely to be indicative of our future performance




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Revenue

The Company generates revenue from (i) its Clinical Research Organization services ("CRO services") provided by its ImQuest subsidiary, and (ii) grant awards from the National Institutes of Health for multiple studies in research. We have no products approved for sale. Other than the sources of revenue described above, we do not expect to receive any revenue from any candidates that we develop until we obtain regulatory approval and commercializes such products, or until we potentially enter into collaborative agreements with third parties for the development and commercialization of such candidates.

At the inception of a contract for CRO services, once the contract is determined to be within the scope of Accounting Standards Codification ("ASC") 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

There is no explicit guidance within ASC 606 to account for grant revenue, and since the Company is a for-profit entity, it must look to other Financial Accounting Standards Board guidance in order to account for funds received from grants. The Company has determined it is appropriate to apply ASC 450 - Contingencies.

Under ASC 450, the recognition of a gain contingency occurs at the earlier of when the gain has been realized or the gain is realizable. The gain is realized when the Company performs the research under the grant and submits the expense reimbursements to the NIH and is approved under the terms of the grant the funds are then received. The Company determined ASC 450 is appropriate because the realization of the gain is contingent on whether the Company meets the performance requirement. Once the Company performs the research, submits the financial report for approval, and the cash disbursement occurs, the contingency is thus resolved, and the recognition of grant revenue is realized.

Research and Development Expenses

Research and development ("R&D") costs are expensed as incurred. Advance payments are deferred and expensed as performance occurs. R&D costs include the cost of our personnel (which consists of salaries, benefits and incentive and stock-based compensation), out-of-pocket pre-clinical and clinical trial costs usually associated with contract research organizations, drug product manufacturing and formulation, and a pro-rata share of facilities expense and other overhead items.

Advertising and Marketing Costs

Advertising costs are expensed as incurred and included in operating expenses on the statements of operations. The Company incurred advertising and marketing expense for the years ended December 31, 2021 and 2020 of $79,439 and $2,406, respectively.

General and Administrative Expenses

General and administrative ("G&A") functions include executive management, finance and administration, government affairs and regulations, corporate development, human resources, and legal and compliance. The specific costs include the cost of our personnel consisting of salaries, incentive and stock-based compensation, out-of-pocket costs usually associated with attorneys (both corporate and intellectual property), bankers, accountants, and other advisors and a pro-rata share of facilities expense and other overhead items.



Other Income and Expenses


Other recurring income and expenses primarily consists of interest income on our investments, changes in the market value of our derivative financial instruments, and foreign currency transaction gains or losses.




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Critical Accounting Estimates


The condensed consolidated financial statements include estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations. These significant accounting estimates include the inputs to level 3 valuation techniques for valuing the identified intangible assets in the ImQuest acquisition, valuation allowances associated with deferred tax assets, and revenue recognition in accordance with ASC 606.

Following is a discussion about the critical accounting estimates and assumptions impacting our consolidated financial statements. For a description of our significant accounting policies, see Note 2. Of these policies, the following are considered critical to an understanding of our consolidated financial statements as they require the application of the most subjective and the most complex judgments: Acquisitions (Note 3); Fair Value (Note 13); Revenues (Note 2); Asset Impairments (Note 12); and Tax Assets and Liabilities and Income Tax Contingencies (Note 18).



Merger


We accounted for the Merger using the purchase method of accounting, which requires, among other things, that most assets acquired and liabilities assumed be recognized at their estimated fair value as of the acquisition date. For further detail on purchase accounting, see Note 3. Intangible assets are often the most significant fair values within business combinations. For further information on our process to estimate the fair value of intangible assets, see Asset Impairments below.



Revenues


Gross product revenues may be subject to a variety of deductions, which generally are estimated and recorded in the same period that the revenues are recognized. Such variable consideration may be represented by chargebacks, rebates, sales allowances and sales returns. These deductions may represent estimates of the related obligations and, as such, knowledge and judgment would be required when estimating the impact of these revenue deductions on gross sales for a reporting period. Historically, adjustments to these estimates to reflect actual results or updated expectations, have not been material to our overall business. Until such time as we sell products, product-specific rebates will have no impact on product revenue growth trends. Accordingly, until that time, our ratios, factors, assessments, experiences or judgments will be indicative or accurate estimates of our future experience, and our results will not be materially affected.



Asset Impairments


We review all of our long-lived assets for impairment indicators throughout the year. We perform impairment testing for indefinite-lived intangible assets and goodwill at least annually and for all other long-lived assets whenever impairment indicators are present. When necessary, we record charges for impairments of long-lived assets for the amount by which the fair value is less than the carrying value of these assets. Our impairment review processes are described in Note 12. Examples of events or circumstances that may be indicative of impairment include:



  ? A significant adverse change in legal factors or in the business climate that
    could affect the value of the asset. For example, a successful challenge of
    our patent rights would likely result in generic competition earlier than
    expected.


  ? A significant adverse change in the extent or manner in which an asset is used
    such as a restriction imposed by the FDA or other regulatory authorities that
    could affect our ability to manufacture or sell a product.


  ? An expectation of losses or reduced profits associated with an asset. This
    could result, for example, from the introduction of a competitor's product
    that impacts projected revenue growth, as well as the lack of acceptance of a
    product by patients, physicians and payers. For In-Process R&D ("IPR&D")
    projects, this could result from, among other things, a change in outlook
    based on clinical trial data, a delay in the projected launch date or
    additional expenditures to commercialize a product.



Identifiable Intangible Assets

We use an income approach, specifically the discounted cash flow method to determine the fair value of intangible assets, other than goodwill. We start with a forecast of all the expected net cash flows associated with the asset, which incorporates the consideration of a terminal value for indefinite-lived assets, and then we apply an asset-specific discount rate to arrive at a net present value amount. Some of the more significant estimates and assumptions that impact our fair value estimates include: the amount and timing of the projected net cash flows, which includes the expected impact of competitive, legal and/or regulatory forces on the projections and the impact of technological advancements and risk associated with IPR&D assets, as well as the selection of a long-term growth rate; the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and the tax rate, which seeks to incorporate the geographic origin of the projected cash flows. While all intangible assets other than goodwill can face events and circumstances that can lead to impairment, those that are most at risk of impairment include IPR&D assets and newly acquired or recently impaired indefinite-lived brand assets. IPR&D assets are high-risk assets, given the uncertain nature of R&D. Newly acquired and recently impaired indefinite-lived assets are more vulnerable to impairment as the assets are recorded at fair value and are then subsequently measured at the lower of fair value or carrying value at the end of each reporting period. As such, immediately after acquisition or impairment, even small declines in the outlook for these assets can negatively impact our ability to recover the carrying value and can result in an impairment charge.



Goodwill


Our goodwill impairment review work as of December 31, 2021 concluded that none of our goodwill was impaired and we do not believe the risk of impairment is significant at this time. In our review, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Qualitative factors that we consider include, for example, macroeconomic and industry conditions, overall financial performance and other relevant entity-specific events. If we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we then perform a quantitative fair value test. When we are required to determine the fair value of a reporting unit, we typically use the income approach. The income approach is a forward-looking approach to estimating fair value and relies primarily on internal forecasts. Within the income approach, we use the discounted cash flow method. We start with a forecast of all the expected net cash flows for the reporting unit, which includes the application of a terminal value, and then we apply a reporting unit-specific discount rate to arrive at a net present value amount. Some of the more significant estimates and assumptions inherent in this approach include: the amount and timing of the projected net cash flows, which includes the expected impact of technological risk and competitive, legal and/or regulatory forces on the projections, as well as the selection of a long-term growth rate; the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and the tax rate, which seeks to incorporate the geographic diversity of the projected cash flows. There are a number of future events and factors that may impact future results and that could potentially have an impact on the outcome of subsequent goodwill impairment testing. For a list of these factors, see the sections of this Annual Report on Form 10-K titled "Forward-Looking Statements" and "Item 1A. Risk Factors."




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YEAR ENDED DECEMBER 31, 2021 COMPARED TO YEAR ENDED DECEMBER 31, 2020



Revenue


Revenue increased from $0 for the year ended December 31, 2020 to $1,487,036 for the year ended December 31, 2021. This increase is due entirely to the revenues recorded after July 1, 2021 from sales of CRO services by ImQuest BioSciences. There were no CRO services revenues in 2020, as the ImQuest Merger only took place in June 2021. No revenues were generated from awards from the National Institutes of Health for multiple studies in research in the years ended December 31, 2021 or 2020.



Cost of Revenues


Cost of revenue increased from $0 for the year ended December 31, 2020 to $488,314 for the year ended December 31, 2021. This increase is due entirely to the cost of revenues recorded after July 1, 2021 from sales to CROs by ImQuest BioSciences. There was no cost of revenue in the corresponding period of 2020, as the ImQuest Merger only took place in June 2021.

Research and Development Expenses

R&D expenses increased from $5.26 million for the year ended December 31, 2020 to $11.83 million for the year ended December 31, 2021, representing an increase of $6.57 million, or 124.7%. Variances are noted in the table below. The net increase is primarily attributable to (i) an increase in payroll and benefits costs

as we began scaling up our development efforts, which rose from $593,738 for the year ended December 31, 2020 to $3,317,783 for the year ended December 31, 2021, and (ii) the cost of contractors hired for clinical trials, which rose from $470,881 to $6,378,080 for the years ended December 31, 2020 and 2021, respectively, offset by a decrease of patent expenses related primarily to the transfer of intellectual property to the Company by Immune Therapeutics, Inc., which fell from $3,948,533 for the year ended December 31, 2020 to $1,306,307 for the year ended December 31, 2021. The increase in payroll costs was attributable to (i) an increase in R&D-related headcount, which grew from five employees at December 31, 2020 to 12 at December 31, 2021, and (ii) the cost of $704,234 for stock-based compensation incurred for the year ended December 31, 2021 (compared to $155,115 for the corresponding period in 2020).

We anticipate working to reduce our payroll and benefits costs in fiscal 2022.



                                            Year ended December 31,
                                              2021            2020           Variance
STAT-201: Crohn's disease                 $  5,138,663     $   216,989     $   4,921,674

STAT-205: Acute and post-acute Covid-19 3,684,195 858,679 2,825,516 STAT-401: Pancreatic cancer

                  1,371,070           4,560         1,366,510
STAT-601: Entolimod for acute radiation        127,861               -           127,861
Other expenses                               1,508,443       4,183,601        (2,675,158 )

Total research & development expenses $ 11,830,232 $ 5,263,829 $ 6,566,403

General and Administrative Expenses

G&A expenses increased from $5.76 million for the year ended December 31, 2020 to $19.83 million for the year ended December 31, 2021, representing an increase of $13.88 million or 244%. Variances are noted in the table and discussed below.




                                                  Year ended December 31,
                                                    2021            2020           Variance
Payroll (including benefits)                    $ 11,946,750     $ 4,112,826     $  7,833,924
Stock listing and investor relations expenses      1,425,122         118,501        1,306,621
Professional fees                                  2,643,879         841,895        1,801,984
Consultants and contractors                        1,862,943         594,274        1,268,669
Insurance                                            640,378          14,526          625,852
Travel                                               131,406          51,527           79,879
Other G&A expenses                                 1,181,515          27,884        1,153,631

Total general & administrative expenses $ 19,831,993 $ 5,761,433 $ 14,070,560

Payroll (including benefits) incudes salaries, health benefits, the cost of stock-based compensation and related payroll costs. The increase in payroll expense was primarily attributable to the increase in the number of employees whose costs are accounted for as G&A expense, plus the cost of $6,245,271 for stock-based compensation incurred in the year ended December 31, 2021 ($1,528,613 in 2020). Employee headcount for G&A purposes at December 31, 2020 and 2021 was 16 and 23, respectively. Growth in headcount for G&A purposes between 2020 and 2021 reflects (i) the addition of four G&A employees in 2021 as result of the Merger and the ImQuest Merger, and (ii) the addition of 3 other G&A employees, several of whom were hired in senior executive roles to complete the Company's leadership team plus the addition of staff in finance, human resources, information technology and investor relations, offset by the transfer of two employees to R&D. We anticipate working to reduce our payroll and benefits costs in fiscal 2022.

Stock listing and investor relations expenses are made up of fees paid to maintain the listing the Company's stock on The NASDAQ Stock Market ($199,118 and $3,905 for the years ended December 31, 2021 and 2020, respectively), the costs of an investor relations program using outside consultants and databases ($431,430 and $99,546 for the years ended December 31, 2021 and 2020, respectively), costs incurred with advisors to raise new debt and equity required by the Company ($759,753 and $0 for the years ended December 31, 2021 and 2020, respectively), and the costs charged by stock transfer agents to maintain the Company's share registers ($34,821 and $15,050 for the years ended December 31, 2021 and 2020, respectively).




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Professional fees comprise fees paid for services to lawyers (other than lawyers who are engaged for services related to R&D), accountants, and the Company's firm of auditors. Fees paid to lawyers in the years ended December 31, 2021 and 2020 totaled $2,175,492 and $727,881, respectively. The increase in fees 2021 arose primarily from costs to close the Merger and the ImQuest Merger, and legal fees incurred in 2021 to defend lawsuits related to the Merger.

Fees paid to accountants in the years ended December 31, 2021 and 2020 totaled $225,784 and $63,500, respectively. The increase in fees 2021 arose primarily from the use of outside accounting consultants to assist with the compilation of reports and filings required under securities laws to complete the Merger and the ImQuest Merger, and to prepare the Company's income tax filings in 2021.

Fees paid to the audit firms engaged by the Company in the years ended December 31, 2021 and 2020 totaled $235,853 and $25,800, respectively. The audit services were required filings required under securities laws to complete the Merger and ImQuest Merger. Audit services only commenced in the fourth quarter of 2020.

Consultants and contractors are individuals and firms hired by the Company to provide certain investment banking and advisory services, to assist the Company with the implementation of a new enterprise resource planning (ERP) system, to provide valuation reports required to complete the accounting for the Merger and to assist with other general matters. Fees paid to consultants and contractors in the years ended December 31, 2021 and 2020 totaled $1,862,943 and $594,274, respectively. The increase was attributable primarily to services required to complete the Merger in 2021.

Insurance expenses comprise fees and premiums paid to insurance companies from which the Company purchased policies to protect against loss or damage to its assets and intellectual property, to protect itself against claims for damage caused to third parties by its clinical trials or products used in trials or sold to customers, coverage for workers' compensation payable for injuries suffered by its employees, and losses incurred by its directors and officers in certain circumstances in the performance of their duties. Insurance premiums and costs in the years ended December 31, 2021 and 2020 totaled $640,378 and $14,526, respectively. The increase was attributable primarily to additional insurance added in 2021 to protect the Company against claims for damage caused to third parties by its clinical trials or products used in trials or sold to customers, and losses incurred by its directors and officers in certain circumstances in the performance of their duties.

Travel. The Company maintains offices in a number of locations in the United States. As a result of the Merger, new offices were added in 2021 in Colorado, California, Maryland and New York, requiring an increase in travel between locations. Travel expenses increased accordingly between the years ended December 31, 2020 and 2021 from $51,527 to $131,406, respectively.

Other G&A expenses comprise costs to operate and lease office space, non-capital expenditures incurred for office furniture and equipment, telecommunication and internet expenses, postage and courier costs, and bank charges. Other G&A expenses increased year over year primarily as a result of the addition of new office locations and employees in 2021 in Colorado, California, Maryland and New York.




Impairment Loss



Impairment Loss expenses increased from $0 million for the year ended December 31, 2020 to $67.6 million for the year ended December 31, 2021, representing an increase of $67.6 million




Other Income and Expenses



Other expense of ($3,531,363) in the year ended December 31, 2021 was made up of interest and other expense of ($4,560,147), offset by a gain on extinguishment of debt of $1,028,784. Interest and other expense in 2021 comprised interest expense ($1,286,885), the cost of stock issued for services ($1,294,986), and accruals for legal settlements arising out of the Merger ($2,127,835), offset by miscellaneous income of $149,650. The gain on extinguishment of debt resulted from an agreement by a lender to accept stock in the Company in lieu of payment of interest that had been accrued.

Other expense of ($1,592,193) in the year ended December 31, 2020 was made up of interest expense ($130,693), loan origination fees ($1,000,000), and a loss on settlement of debt of $(461,500).

The year-over-year increase in interest expense was caused by a $15 million increase in notes payable in April 2021 and interest expense on a note payable acquired through the ImQuest merger.

Liquidity and Capital Resources

At December 31, 2021, we had cash and cash equivalents, including restricted cash, of $6.84 million, which represents an increase of $6.3 million over the prior year end. This increase was caused primarily by the capital we raised in 2021 from sales of stock ($7.3 million), the issuance of debt ($14.7 million) and cash acquired from the Merger and the ImQuest Merger ($13.6 million), offset in part by cash used in operations ($28.2 million). As discussed above, we are a clinical-stage company, we have generated only insignificant revenues to date, we have incurred cumulative net losses and we expect to incur significant expenses and operating losses for the foreseeable future as we advance our lead candidates through clinical trials, progress our pipeline candidates from discovery through pre-clinical development, and seek regulatory approval and pursue commercialization of our candidates. We do not have commercial products other than CRO services, we have limited capital resources, and our contracts and grants with the Department of Defense were completed in 2020, meaning that we are currently generating limited revenues and cash from operations. We do not expect our cash and cash equivalents will be sufficient to fund our projected operating requirements or allow us to fund our operating plan, in each case, beyond the second quarter of 2022. We will need to raise between $2 million and $4 million in order to satisfy our working capital and debt service needs in the next several months. If we are not able to raise these funds we may be unable to meet our payroll costs. Historically, we have funded our operations through the sale of equity and debt securities, as well as the receipt of funded grants. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity and debt financings or other sources, which may include collaborations with third parties, the sale or license of drug candidates, the sale of certain of our tangible and/or intangible assets, the sale of interests in our subsidiaries or joint ventures, obtaining additional government research funding, or entering into other strategic transactions. However, we can provide no assurance that we will be able to raise cash in sufficient amounts, when needed or at acceptable terms.

If we are unable to raise adequate capital and/or achieve profitable operations, future operations might need to be scaled back or discontinued. The matters discussed above raise substantial doubt as to our ability to continue as a going concern within one year after the date that these consolidated financial statements are issued. The financial statements included elsewhere in this Annual Report on Form 10-K do not include any adjustments relating to the recoverability of the carrying amount of recorded assets and liabilities that might result from the outcome of these uncertainties.

Since the end of the fiscal year, as previously disclosed, in February 2022 and March 2022 we sold securities in a registered direct offering and a confidentially marketed public offering to institutional investors, resulting in net proceeds to us of $6.45 million. We are also party to an equity line-of-credit arrangement with GEM Global Yield LLC SCS under which we have a limited ability to sell additional shares of our common stock for cash (see " - Sources of Liquidity").




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Cash Flows


The following table provides information regarding our cash flows for the years ended December 31, 2021 and 2020:




                                                       For the Year ended December 31,
                                                   2021              2020           Variance

Cash flows used in operating activities $ (28,193,283 ) $ (5,082,144 ) $ (23,111,139 ) Cash flows provided by (used in) investing activities

                                        13,462,989           (9,637 )      13,472,626

Cash flows provided by financing activities 20,987,808 5,684,000 15,303,808 Increase in cash and cash equivalents

              6,250,863          592,219         5,658,644
Cash and cash equivalents at beginning of
period                                               593,869            1,650           592,219
Cash, restricted cash and cash equivalents
at end of period                               $   6,844,732     $    593,869     $   6,250,863




Operating Activities


Net cash used in operating activities increased by $23.1 million to $28.2 million for the year ended December 31, 2021 from $5.1 million for the year ended December 31, 2020. Net cash used in operating activities for the year ending December 31, 2021 consisted of a reported net loss of $101.9 million, which was further increased by $1.1 million of changes in operating assets and liabilities, partially decreased by $72.6 million of net non-cash operating activities. The $1.1 million of changes in operating assets and liabilities was due primarily to decreases in Accounts receivable, Short term investments, Prepaid expenses, Contract asset, Contract liability and Liabilities of discontinued operations, offset by increases in Other current assets, Due from subsidiary, Deferred revenue, Stock issuances due, and Investment in subsidiary.

Net cash used in operating activities for the year ended December 31, 2020 of $5.1 million consisted of a reported net loss of $12.1 million, which was offset by $7.1 million of net non-cash operating activities and $0.14 million of changes in operating assets and liabilities. The $0.4 million of changes in operating assets and liabilities was due primarily to a decrease in other current assets.




Investing Activities



Net cash provided by investing activities increased to $13.5 million for the year ended December 31, 2021 from $(0.01) million for the year ended December 31, 2020, reflecting the $13.6 million acquisition of net assets primarily through the Merger and the ImQuest Merger, offset by the purchase of $0.1 million of property and equipment.



Financing Activities


Net cash provided by financing activities increased to $21.0 million for the year ended December 31, 2021 from $5.7 million for the year ended December 31, 2020 due to the issuance of $14.7 million of long-term notes payable and $7.3 million from the issuance of common and preferred stock, offset by note repayments and payment of deferred debt issuance costs totaling $1.2 million during the year ended December 31, 2021.

Impact of Exchange Rate Fluctuations

Our reported financial results are affected by changes in foreign currency exchange rates between the U.S. dollar and the Russian ruble. Between the closing date of the Merger on July 27, 2021 and December 31, 2021, this rate fluctuated by 0.26%. For calendar year 2020, our results were not affected by any such fluctuations. Translation gains or losses result primarily from the impact of exchange rate fluctuations on the reported U.S. dollar equivalent of ruble-denominated cash and cash equivalents, and short-term investments. Variances in the exchange rate for these items have not been realized; as such the resulting gains or losses (a loss of $0.01 million for the year ended December 31, 2021) are recorded as other comprehensive income or loss in the equity section of the balance sheet.




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Sources of Liquidity



Avenue Facility


At the effective time of the Merger, the Company became party to the Avenue Facility.

Under the terms of the Avenue Facility, Avenue agreed to make a term loan to Old Cytocom in the aggregate principal amount of $15,000,000. The loan bears interest at a variable rate of interest equal to the sum of (i) the greater of (A) the Prime Rate and (B) 3.25% plus (ii) 7.74%. Repayment of the loan owed under the Avenue Facility is secured by a security interest in substantially all of Old Cytocom's assets, including equipment, fixtures, inventory, deposit accounts and personal property, as well as the securities it holds in its wholly owned subsidiaries.

The $15 million aggregate loan amount was deposited by Avenue into a controlled account in May 2021. Old Cytocom transferred $10 million into its general operating account, which was assigned to the Company at the time of the closing of the Merger, and accordingly, the Company's assets are subject to a security interest in favor of Avenue. According to the terms of the Avenue Facility, the Company had the right to transfer the $5 million in the controlled account into its general operating account upon the Company raising at least $20 million in additional capital in the form of subordinated indebtedness or equity from a follow-on transaction entered into after the Merger. As of December 31, 2021, the Company had used all $10.0 million of the Avenue Facility. As the Company had not succeeded in raising the $20 million in additional capital in the form of subordinated indebtedness or equity from a follow-on transaction as of January 31, 2022, Avenue withdrew the $5 million in the controlled account as a partial repayment of the Avenue Facility. The Company is required to make only monthly interest payments, calculated as described above, until April 2022. Thereafter, the Company will be required to make monthly payments of principal in equal installments until the maturity date of May 1, 2024.

The Avenue Facility documents contain customary representations and warranties of Old Cytocom, as well as various affirmative and negative covenants. Among such covenants are requirements that the Company:



?   provide notice of certain events;
?   deliver monthly financial statements to Avenue, until the Company has a
    market capitalization of at least $250 million and maintains at least a
    minimum of $4 million in unrestricted cash, after which it will only need to
    provide quarterly statements;
?   execute regular compliance certificates;
?   provide copies of all board of directors materials and minutes of meetings to
    Avenue;
?   maintain its existence and comply with all applicable laws;
?   may not become indebted for borrowed money, the deferred purchase price for
    property or enter into any leases that would be capitalized in accordance
    with GAAP, subject to certain exceptions, including indebtedness for the
    acquisition of supplies, subordinated indebtedness and certain other items;
?   maintain a minimum of $5 million in unrestricted cash and cash equivalents in
    accounts subject to control agreements with Avenue;
?   may not create, incur or assume any liens on its property;
?   may not undergo any fundamental or change-in-control transactions or sell all
    its assets;
?   may not make any loans or investments, subject to certain exceptions;
?   may not enter into any transactions with related parties;
?   may not prepay any other indebtedness; or
?   may not create, acquire or sell any subsidiaries.



The Avenue Facility documents also grant certain additional rights to Avenue. Under the Avenue Facility, Avenue has a preemptive right to purchase up to $1 million of Company equity securities on the same terms, conditions and prices offered by the Company to any investor in connection with any equity or debt financing until October 16, 2022. Additionally, Avenue has the right to convert up to $3 million of outstanding principal into shares of Company common stock. The number of shares issuable upon conversion will be determined by dividing the amount of indebtedness being converted by 120% of the 5-day volume weighted average price (VWAP) of Company common stock prior to the date of the issuance of the Avenue Warrant.

As of December 31, 2021, there was $17,295,116 in outstanding principal and interest under the Avenue Facility, and no unused further borrowing capacity. We paid an aggregate of $1,144,792 in interest to Avenue during the fiscal year ended December 31, 2021.




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As discussed above under " - Recent Developments," on March 25, 2022, we received the Default Letter from Avenue regarding alleged events of default with respect to the Avenue Facility. In the Default Letter, Avenue alleges that certain events of default under the Avenue Facility have occurred and continue to exist. Specifically, Avenue alleges that the Company is in violation of certain provisions of the Avenue Facility as a result of the Company's failure to:



  ? timely deliver monthly financial statements for certain periods;


  ? obtain Avenue's consent to repurchase certain securities from stockholders;


  ? pay principal and interest when due, including on March 1, 2022; and


  ? maintain unrestricted cash and cash equivalents in one or more accounts
    subject to control agreements in favor of Avenue in amount of at least $5
    million.



In the Default Letter, Avenue purported to exercise its rights to suspend further loans or advances to the Company under the Avenue Facility and to declare accelerate the amount due under the Avenue Facility, which it asserts to be approximately $11.2 million, inclusive of fees of penalties. Avenue further states in the Default Letter that interest will continue to accrue on the outstanding amounts at the default rate of 5.0%. In furtherance of the allegations set forth in the Default Letter, Avenue foreclosed on approximately $4.8 million of the Company's cash.

As mentioned above, the Company entered into a Forbearance Agreement on April 18, 2022 regarding the Avenue Facility with Avenue. Pursuant to the Forbearance Agreement, the parties agreed that they will refrain and forbear from exercising certain remedies arising out of the events of default or any other present or future event of default under the Loan Agreement or supplement during the Forbearance Period. Additionally, the parties agreed that Avenue shall not seize, sweep, or by any means take control of, directly or indirectly, any funds from any of the Company's bank accounts; and (ii) during the Forbearance Period, the Loans may be prepaid in whole or in part at any time, subject to the repayment and prepayment terms of the Loan Agreement. In addition to the terms of the Forbearance Agreement, certain terms of the Loan Agreement were amended, including changing the Agreement Effective Date to April 18, 2022, and revisions to certain definitions of Agreement terminology.



GEM Agreement


At the effective time of the Merger, the Company also became party to that certain Amended and Restated Share Purchase Agreement, dated as of July 27, 2021, by and among GEM Global Yield LLC SCS, GEM Yield Bahamas Limited (such entities together, "GEM") and the Company, as successor to Old Cytocom (the "GEM Agreement").

Under the GEM Agreement, the Company may elect to issue and sell to GEM up to $75 million of its common stock (up to a maximum of approximately 2.98 million shares if the Company does not obtain the approval of its stockholders for the issuance of additional shares). Upon the election of the Company to make such a sale, it will deliver a draw-down notice to GEM, and, if all applicable conditions are satisfied, GEM will purchase newly issued shares for the amount specified in the draw-down notice. The purchase price of the shares to be sold is set at 90% of the recent average daily closing price of the Company's common stock on the Nasdaq Capital Market or other market on which the stock may be listed. The Company is not permitted to make a draw-down request in an amount that exceeds 400% of the average daily trading volume of the Company's stock for the 30 trading days preceding the draw-down date. Each draw down is subject to certain closing conditions, including (i) the continued accuracy of the representations and warranties made in the GEM Agreement, (ii) a registration statement registering the resale of the shares sold under the GEM Agreement having been declared effective by the SEC, (ii) the absence of any law, order, ruling or injunction prohibiting the consummation of the transactions contemplated by the GEM Agreement, (iii) the Company's common stock not being suspended from trading by the Nasdaq Capital Market or other market on which the shares are then listed, (iv) the absence of any litigation commenced, or governmental investigation commenced or threated, against the Company in connection with the GEM Agreement transactions and (v) with respect to the first draw down only, the delivery by the Company's counsel of a negative assurance letter and delivery by the Company's independent auditors of a comfort letter. However, the Company will be permitted to make a draw-down request for the sale of up to $15 million of shares in the period immediately following the effective time of the Merger without having to have an effective resale registration statement in effect. The resale of the shares sold pursuant to this initial drawdown request will not be required to be registered immediately. Upon the Company's issuance of shares in connection with any draw-down purchase made by GEM, the Company will be required to pay GEM, in cash or additional shares of stock, a commitment fee in an amount equal to 2% of the amount purchased in such drawdown.

The GEM Agreement terminates on the earliest to occur of (i) three years from the effective time of the Merger, (ii) May 21, 2026 or (iii) the date on which GEM has purchased $75 million in the aggregate of Company stock. Upon payment of $1.5 million to GEM, the Company may terminate the GEM Agreement following the settlement in full of the issuance of the shares made for the first $15 million draw-down purchase.

The GEM Agreement contains customary representations and warranties of the Company, as well as various affirmative and negative covenants. Among such covenants are requirements that the Company:

? comply with applicable laws, including the securities laws; ? file a registration statement with the SEC to register the resale of the

shares sold under the GEM Agreement and undertake best efforts to maintain

the effectiveness of the registration statement; ? keep reserved an adequate number of shares for issuance under the GEM

    Agreement; and
?   not enter into any other agreement that would restrict or impair the

Company's ability to perform under the GEM Agreement, including any other

    equity line arrangement.



On November 1, 2021, in accordance with the GEM Agreement the Company sold and issued to GEM 1.84 million shares of its common stock at a price of $2.04 per share, for which it received payment of $3,750,000. As of December 31, 2021, 1.15 million shares remained available for sale under the GEM Agreement.



Material Cash Requirements


The Company's material cash requirements include the following contractual obligations:

As of December 31, 2021, the Company had $15.2 million of debt outstanding. This balance is composed of a $15.0 million note payable to Avenue Venture of which $4.4 million is short-term and $10.6 is long-term note payable and $0.2 million is another short-term note payable. See Note 7, "Note Payable" & Note 8, "Note Payable, net of current portion" to the Consolidated Financial Statements for additional information. Avenue has since declared us in default under the Avenue Facility and purported to accelerate the balance due under the facility.

As of December 31, 2021, the Company had $1.5 million of future lease commitments. See Note 9 "Leases" to the Consolidated Financial Statements for additional detail on future lease commitments.





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