STATERA BIOPHARMA, INC. This management's discussion and analysis of financial condition and results of operations and other portions of this quarterly report on Form 10-Q contain forward-looking statements that involve risks and uncertainties. All statements other than statements of current or historical fact contained in this quarterly report, including statements regarding our future financial position, business strategy, new products, budgets, liquidity, cash flows, projected costs, regulatory approvals, or the impact of any laws or regulations applicable to us and plans and objectives of management for future operations are forward-looking statements. The words "anticipate," "believe," "continue," "should," "estimate," "expect," "intend," "may," "plan," "project," "will," and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements on our current expectations about future events. While we believe these expectations are reasonable, such forward-looking statements are inherently subject to risks and uncertainties, many of which are beyond our control. Our actual future results may differ materially from those discussed here for various reasons. We discuss many of these risks in Item 1A under the heading "Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . Factors that may cause such differences include, but are not limited to, the substantial doubt expressed about our ability to continue as a going concern, the outcome of any legal proceedings that have been or may be instituted against the Company related to the merger agreement or the Merger; unexpected costs, charges or expenses resulting from the Merger; our need for additional financing to meet our business objectives; our history of operating losses; our ability to successfully develop, obtain regulatory approval for, and commercialize our products in a timely manner; our plans to research, develop and commercialize our product candidates; our ability to attract collaborators with development, regulatory and commercialization expertise; our plans and expectations with respect to future clinical trials and commercial scale-up activities; our reliance on third-party manufacturers of our product candidates; the size and growth potential of the markets for our product candidates, and our ability to serve those markets; the rate and degree of market acceptance of our product candidates; regulatory requirements and developments inthe United States , theEuropean Union and foreign countries; the performance of our third-party suppliers and manufacturers; the success of competing therapies that are or may become available; our ability to attract and retain key scientific or management personnel; our historical reliance on government funding for a significant portion of our operating costs and expenses; government contracting processes and requirements; the exercise of significant influence over our company by our largest individual stockholder; the impact of the novel coronavirus ("COVID-19") pandemic on our business, operations and clinical development; the geopolitical relationship betweenthe United States and theRussian Federation as well as general business, legal, financial and other conditions within theRussian Federation ; our ability to obtain and maintain intellectual property protection for our product candidates; our potential vulnerability to cybersecurity breaches; and other factors discussed below and in our otherSEC filings, including our Annual Report on Form 10-K for the year endedDecember 31, 2021 . Given these uncertainties, you should not place undue reliance on these forward-looking statements. The forward-looking statements included in this quarterly report are made only as of the date hereof. We do not undertake any obligation to update any such statements or to publicly announce the results of any revisions to any of such statements to reflect future events or developments. This management's discussion and analysis of financial condition and results of operations should be read in conjunction with our financial statements and the related notes included elsewhere in this filing and with our historical consolidated financial statements and the related notes thereto in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . OVERVIEW We are a clinical-stage biopharmaceutical company developing multiple product candidates to address unmet medical needs. Prior to the closing of the Merger, we focused exclusively on developing novel approaches to activate the immune system. Our proprietary platform of Toll-like immune receptor activators has applications in mitigation of radiation injury and radiation oncology. We combine our proven scientific expertise and our depth of knowledge about our products' mechanisms of action into a passion for developing drugs to save lives. Our most advanced product candidate in this field is entolimod, an immune-stimulatory agent, which we are developing as a radiation countermeasure and other indications in radiation oncology. Following the closing of the Merger, as a result of the integration ofCytocom's business, we are also now developing novel immunotherapies targeting autoimmune, inflammatory, infectious diseases and cancers based on a proprietary, multi receptor platform, or the AIMS platform, designed to rebalance the body's immune system and restore homeostasis. These therapies are designed to elicit directly within patients a robust and durable response of antigen-specific killer T cells and antibodies, thereby activating essential immune defenses against autoimmune, inflammatory, infectious diseases, and cancers. We believe that our technologies can meaningfully leverage the human immune system for prophylactic and therapeutic purposes by eliciting killer T-cell response levels not achieved by other published immunotherapy approaches. Our immunomodulatory technology restores the balance between the cellular (Th1) and the humoral (Th2) immune systems. Immune balance is regulated through T-helper cells that produce cytokines. The Th1 lymphocytes help fight pathogens within cells like cancer and viruses through interferon-gamma and macrophages. The Th2 lymphocytes target external pathogens like cytotoxic parasites, allergens, toxins through the activation of B-cells and antibody production to effect to dendritic cells, which are natural activators of killer T cells, also known as cytotoxic T -cells, or CD8+ T cells. Furthermore, theCytocom technology antagonizes the toll-like receptors to inhibit proinflammatory cytokines. Prior to the closing of the Merger, we conducted business in theU.S. directly and inRussia through two subsidiaries, one of which is wholly owned, BioLab 612 (which was dissolved inNovember 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. , andLubrinovation 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, withEveron Biosciences, Inc ("Everon"). The Company is developing therapies designed to directly elicit within patients a robust and durable response of antigen-specific killer T-cells and antibodies, thereby activating essential immune defenses against autoimmune, inflammatory, infectious diseases, and cancers. Statera has clinical or preclinical programs for Crohn's disease (STAT-201), hematology (Entolimod), pancreatic cancer (STAT-401) and COVID-19 (STAT-205). In the next 12 months, the Company expects to initiate several clinical trials, including a pivotal Phase 3 trial for its lead drug candidate, STAT-201, in pediatric Crohn's disease, as well as studies of STAT-205 in 'long haul' COVID-19, STAT-401 in pancreatic cancer, and the TLR5 agonist entolimod as a treatment for anemia and neutropenia in cancer patients. 19
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Table of Contents Recent Developments Nasdaq Noncompliance OnOctober 6, 2022 , the Company had a hearing before theNasdaq Hearings Panel (the "Panel"), the Company presented its plan to evidence full compliance with NASDAQ'S filing requirement and all other applicable requirements for continued listing on NASDAQ and request an extension of time to do so. The Company is taking definitive steps to evidence compliance with the NASDAQ listing criteria as soon as possible; however, there can be no assurance that the Panel will grant the Company's request for continued listing or that the Company will satisfy the NASDAQ listing criteria within any extension period that may be provided to the Company by the Panel. OnOctober 11, 2022 , the Company was notified by the Staff of NASDAQ that the Company's common stock would be subject to delisting due to the Company's non-compliance with the minimum Stockholders' Equity requirement set forth in Nasdaq Listing Rule 5550(b)(1) and non-compliance with Listing Rule 5250(e)(2)(D) regarding notifying Nasdaq of the Company's intention to issue additional shares. Each of these matters serve as an additional and separate basis for delisting the Company's securities from NASDAQ. The Panel will consider these matters in their decision regarding the Company's continued listing on NASDAQ. OnOctober 26, 2022 , the Company received a determination from the Panel granting the Company's request for the continued listing of its common stock on Nasdaq, subject to the Company's satisfaction of certain interim milestones and, ultimately, the Company's compliance with all applicable criteria for continued listing on Nasdaq, including the$1.00 bid price and$2.5 million stockholders' equity requirements as set forth in Nasdaq Listing Rules 5550(a)(1) and 5550(b)(2), respectively, by no later thanJanuary 31, 2023 . The Company is taking definitive steps to timely evidence compliance with the terms of the Panel's decision; however, there can be no assurance that it will be able to do so. Forbearance Agreement OnApril 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 untilMay 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 toApril 18, 2022 , and revisions to certain definitions of Agreement terminology. Bankruptcy Petition OnAugust 16, 2022 , certain former employees of the Company and certain third-party vendors of the Company (collectively, "Petitioning Creditors") filed an involuntary petition in theUnited States Bankruptcy Court for the District of Colorado (No. 22-13051-JGR) against the Company seeking relief under Chapter 11 of the United States Bankruptcy Code. The Company believes the involuntary petition is improper and wrongfully filed and is seeking dismissal of the petition. Lay Sciences OnSeptember 2, 2022 , the Company entered a Binding Letter of Intent ("LOI") withLay Sciences, Inc. ("Lay"), pursuant to which the Company will manufacture and test IgY polyclonal antibody products created by Lay. The LOI provides for an exclusivity period of ninety (90) days (the "Exclusivity Period") for negotiating and finalizing a definitive agreement (the "Definitive Agreement"). During the Exclusivity Period, which begins from the date of the LOI, Lay will not engage in activities with any third party in relation to the acquisition of the Company. Pursuant to the LOI, (i) Lay shall complete technology transfer to the Company and (ii) the Company shall (A) assist Lay in testing its current and future products for activity and purity. In consideration of the manufacturing right granted to the Company by Lay, the Company shall (i) issue 500,000 shares of preferred stock of the Company to Lay and (ii) pay up to$500,000 to Lay within 30 days of the execution of the LOI. As of the date of this filing, the Company hasn't issued any shares of preferred stock or paid any cash consideration. 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 nine months endedSeptember 30, 2022 and 2021, we incurred net losses of$14.6 million and$24.6 million , respectively. As ofSeptember 30, 2022 , we had an accumulated deficit of$144.1 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 OldCytocom , 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 fourth 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. 20
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Table of Contents
Financial Overview
Our discussion and analysis of our financial condition and results of operations
are based on our financial statements, which have been prepared in accordance
with GAAP. The preparation of these financial statements requires us to make
estimates and judgments that affect our reported amounts of assets, liabilities,
revenues, and expenses.
On an ongoing basis, we evaluate our estimates and judgments, including those
related to accrued expenses, income taxes, stock-based compensation,
investments, and in-process research and development. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities and the
reported amounts of revenues and expenses that are not readily apparent from
other sources. Actual results may differ from these estimates.
Our revenue, operating results, and profitability have varied, and we expect
that they will continue to vary on a quarterly basis, primarily due to the
timing of work completed under new and existing grants, development contracts,
and collaborative relationships. Additionally, we expect that as a result of the
Merger, our business, financial condition, results of operations and cash flows
will be materially different in future periods than in the past. Accordingly,
our past results are not likely to be indicative of our future performance.
Revenue
The Company generates revenue from its Clinical Research Organization services
("CRO services") provided by its ImQuest subsidiary. We have no products
approved for sale. Other than the sources of revenue described above, we do not
expect to receive any revenue from any candidates that we develop until we
obtain regulatory approval and commercializes such products, or until we
potentially enter into collaborative agreements with third parties for the
development and commercialization of such candidates.
At the inception of a contract for CRO services, once the contract is determined
to be within the scope of ASC 606, the Company assesses the goods or services
promised within each contract and determines those that are performance
obligations and assesses whether each promised good or service is distinct. The
Company then recognizes as revenue the amount of the transaction price that is
allocated to the respective performance obligation when (or as) the performance
obligation is satisfied.
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.
Sales and Marketing Expenses
Sales and marketing costs are expensed as incurred and included in operating
expenses on the statements of operations. The Company incurred sales and
marketing expense for the nine months ended
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.
Interest and Other Expenses
Other recurring income and expenses primarily consists of interest expense and related financing expenses.
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.
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Three Months Ended
Revenue Revenue increased from$0.2 million for the three months endedSeptember 30, 2021 to$0.7 million for the three months endedSeptember 30, 2022 . This increase is due entirely to increased revenues from sales of CRO services by ImQuest BioSciences for the three months endedSeptember 30, 2022 . Cost of Revenues Cost of revenue increased from$0.1 million for the three months endedSeptember 30, 2021 to$0.2 million for the three months endedSeptember 30, 2022 . This increase is due entirely to increased cost of revenues recorded from sales to CROs by ImQuest BioSciences for the three months endedSeptember 30, 2022 .
Research and Development Expenses
R&D expenses decreased from$3.4 million for the three months endedSeptember 30, 2021 to$0.2 million for the three months endedSeptember 30, 2022 , representing a decrease of$3.2 million , or 93.2%. Variances are noted in the table below. The net decrease is primarily attributable to a decrease in other expenses for the three months endedSeptember 30, 2022 to$0.2 million , compared to$0.9 million for the three months endedSeptember 30, 2021 primarily due to a decrease in R&D employees, and decreased spending on specific R&D programs for the three months endedSeptember 30, 2022 to$0.1 million , compared to$2.5 million for the three months endedSeptember 30, 2021 primarily due to decreases in third-party spending on specific R&D programs. Three Months Ended September 30, 2022 2021 Variance STAT-201: Crohn's disease $ -$ 1,642,041 $ (1,642,041 ) STAT-205: Acute and post-acute Covid-19 42,644 419,596 (376,952 ) STAT-401: Pancreatic cancer - 384,025 (384,025 ) STAT-601: Entolimod for acute radiation 19,837 49,022 (29,185 ) Other expenses 168,123
940,293 (772,170 )
Total research and development expenses
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General and Administrative Expenses
G&A expenses decreased from$6.3 million for the three months endedSeptember 30, 2021 to$1.8 million for the three months endedSeptember 30, 2022 , representing a decrease of$4.5 million or 71.4%. Variances are noted in the table and discussed below. Three Months Ended September 30, 2022 2021 Variance Payroll (including benefits) $ 822,855$ 3,632,142 $ (2,809,287 ) Stock listing expenses 79,178 835,145 (755,967 ) Professional fees 163,910 554,159 (390,249 ) Consultants and contractors 62,200 427,551 (365,351 ) Insurance 375,964 149,267 226,697 Other G&A expenses 299,500 708,060 (408,560 ) Total general & administrative expenses$ 1,803,607 $ 6,306,323 $ (4,502,716 ) Payroll (including benefits) incudes salaries, health benefits and related payroll costs. The decrease in payroll expense was primarily attributable to a reduction of costs of$1.6 million for stock-based compensation incurred in the third quarter of 2022 over the comparative cost in the same period in 2021, and a reduction of costs of$1.2 million related to reduced employee headcount. Stock listing expenses are made up of fees paid to maintain the listing of the Company's common stock on The NASDAQ, the costs of an investor relations program using outside consultants and databases, costs incurred with advisors to raise new debt and equity required by the Company, and the costs charged by stock transfer agents to maintain the Company's share registers. The decreased costs in the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 primarily reflect stock sale commissions incurred in 2021. Professional fees comprise fees paid for services to lawyers (other than lawyers who are engaged for services related to R&D), accountants, and the Company's firm of auditors. Fees paid to lawyers in the three months endedSeptember 30, 2022 and 2021 totaled$0.16 million and$0.5 million , respectively. The decrease in fees arose primarily from increased services in the three months endedSeptember 30, 2021 related to the Merger. Consultants and contractors are individuals and firms hired by the Company to provide certain investment banking and advisory services, to assist the Company with the implementation of a new enterprise resource planning ("ERP") system, to provide valuation reports required to complete the accounting for the Merger and to assist with other general matters. Fees paid to consultants and contractors in the three months endedSeptember 30, 2022 and 2021 totaled$0.1 million and$0.4 million , respectively. The decrease in costs was attributable primarily to increased services in the three months endedSeptember 30, 2021 to complete the Merger. Insurance expenses comprise fees and premiums paid to insurance companies from which the Company purchased policies to protect against loss or damage to its assets and intellectual property, to protect itself against claims for damage caused to third parties by its clinical trials or products used in trials or sold to customers, coverage for workers' compensation payable for injuries suffered by its employees, and losses incurred by its directors and officers in certain circumstances in the performance of their duties. Insurance premiums and costs in the three months endedSeptember 30, 2022 and 2021 totaled$0.4 million and$0.15 million , respectively. The increase was attributable primarily to additional insurance added in 2021 to protect the Company against claims for damage caused to third parties by its clinical trials or products used in trials or sold to customers, and losses incurred by its directors and officers in certain circumstances in the performance of their duties. 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 decreased year over year primarily as a result increased costs in 2021 as a result of the addition of new office locations and employees in 2021 inColorado ,California, Maryland , andNew York . Other Income and Expenses Interest and other expense of$1.8 million in the three months endedSeptember 30, 2022 was made up of a$1.425 million commitment fee to GEM, interest expense of$0.33 million interest expense, and$0.05 million other expense related to a loss on disposal of assets.
Interest and other expense of
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Nine Months Ended
Revenue Revenue increased from$0.2 million for the nine months endedSeptember 30, 2021 to$2.4 million for the nine months endedSeptember 30, 2022 . This increase is due entirely to the revenues from sales of CRO services by ImQuest BioSciences as a result of the ImQuest acquisition which took place inJune 2021 . Cost of Revenues Cost of revenue increased from$0.1 million for the nine months endedSeptember 30, 2021 to$0.7 million for the nine months endedSeptember 30, 2022 . This increase is due entirely to the cost of revenues recorded from sales to CROs by ImQuest BioSciences as a result of the ImQuest acquisition which took place inJune 2021 .
Research and Development Expenses
R&D expenses decreased from$6.3 million for the nine months endedSeptember 30, 2021 to$4.4 million for the nine months endedSeptember 30, 2022 , representing a decrease of$1.8 million , or 29.1%. Variances are noted in the table below. The net decrease is primarily attributable to decreased spending on specific R&D programs for the nine months endedSeptember 30, 2022 of$1.6 million due to a reduction in services provided by third-party vendors. Nine Months Ended September 30, 2022 2021 Variance STAT-201: Crohn's disease$ 639,060 $ 2,260,325 $ (1,621,265 ) STAT-205: Acute and post-acute Covid-19 599,459 2,041,271 (1,441,812 ) STAT-401: Pancreatic cancer 184,294 690,957 (506,663 ) STAT-601: Entolimod for acute radiation 192,489 49,022 143,467 Other expenses 2,831,234 1,233,361 1,579,873 Total research and development expenses$ 4,446,536 $ 6,274,936 $ 1,828,400 24
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Table of Contents
General and Administrative Expenses
G&A expenses decreased from$15.0 million for the nine months endedSeptember 30, 2021 to$8.2 million for the nine months endedSeptember 30, 2022 , representing a decrease of$6.8 million or 45.3%. Variances are noted in the table and discussed below. Nine Months Ended September 30, 2022 2021 Variance Payroll (including benefits)$ 4,315,702 $ 9,265,652 $ (4,949,950 ) Stock listing expenses 410,388 1,220,052 (809,664 ) Professional fees 1,015,093 2,036,307 (1,021,214 ) Consultants and contractors 552,515 1,238,114 (685,599 ) Insurance 816,551 409,637 406,914 Other G&A expenses 1,100,142
811,324 288,818
Total general and administrative expenses
Payroll (including benefits) incudes salaries, health benefits and related payroll costs. The decrease in payroll expense was primarily attributable to a reduction of costs of$5.7 million for stock-based compensation incurred in the nine months of 2022 over the comparative cost in the same period in 2021, partially offset by the increase in costs related to the increased employee headcount. Growth in headcount for G&A purposes between 2021 and 2022 reflects (i) the addition of four employees in 2021 as result of the Merger and the ImQuest Merger, and (ii) the addition of seven new employees in total, several of whom were hired in senior executive roles to complete the Company's leadership team plus the addition of staff in finance, human resources, information technology and investor relations, offset by the transfer of two employees to R&D. Stock listing expenses are made up of fees paid to maintain the listing of the Company's common stock on The NASDAQ, the costs of an investor relations program using outside consultants and databases, costs incurred with advisors to raise new debt and equity required by the Company, and the costs charged by stock transfer agents to maintain the Company's share registers. The decreased costs in the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 reflect stock sale commissions incurred in 2021, partially offset by increased public company costs following the Merger in 2022. Professional fees comprise fees paid for services to lawyers (other than lawyers who are engaged for services related to R&D), accountants, and the Company's firm of auditors. Fees paid to lawyers in the nine months endedSeptember 30, 2022 and 2021 totaled$0.6 million and$1.7 million , respectively. The decrease in fees arose primarily from increased services in the nine months endedSeptember 30, 2021 related to the Merger and the ImQuest Merger.
Fees paid to the audit firms engaged by the Company in the nine months
ended
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 nine months ended September 30, 2022 and 2021 totaled $0.6 million and
$1.2 million , respectively. The decrease in costs was attributable primarily to
increased services in the nine months ended September 30, 2021 to complete the
Merger.
Insurance expenses comprise fees and premiums paid to insurance companies from
which the Company purchased policies to protect against loss or damage to its
assets and intellectual property, to protect itself against claims for damage
caused to third parties by its clinical trials or products used in trials or
sold to customers, coverage for workers' compensation payable for injuries
suffered by its employees, and losses incurred by its directors and officers in
certain circumstances in the performance of their duties. Insurance premiums
and costs in the nine months ended September 30, 2022 and 2021 totaled
$0.8 million and $0.4 million , respectively. The increase was attributable
primarily to additional insurance added in 2021 to protect the Company against
claims for damage caused to third parties by its clinical trials or products
used in trials or sold to customers, and losses incurred by its directors and
officers in certain circumstances in the performance of their duties.
Other G&A expenses comprise costs to operate and lease office space, non-capital
expenditures incurred for office furniture and equipment, telecommunication and
internet expenses, postage and courier costs, and bank charges. Other G&A
expenses increased year over year primarily as a result of the addition of new
office locations and employees in 2021 in Colorado , California, Maryland , and
New York .
Other Income and Expenses
Interest and other expense of $3.6 million in the nine months ended September
30, 2022 was made up of a $1.5 million of interest expense, $1.425 million
commitment fee, $0.3 million of debt prepayment fees, $0.35 million for shares
issued for services, and $0.05 million related to a loss on disposal of assets.
Interest and other expense of
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Table of Contents
Liquidity and Capital Resources
AtSeptember 30, 2022 , we had cash and cash equivalents of$0.5 million , which represents a decrease of$6.3 million since the end of our last fiscal year. This decrease was caused by our capital raise in the first quarter of 2022, offset by our net cash used in operations of$4.0 million during the nine months endedSeptember 30, 2022 and$8.8 million repayment of debt. As discussed above, we are a clinical-stage company, have generated only insignificant revenues to date, and have incurred cumulative net losses and expect to incur significant expenses and operating losses for the foreseeable future as we advance our lead candidates through clinical trials, progress our pipeline candidates from discovery through pre-clinical development, and seek regulatory approval and pursue commercialization of our candidates. We do not have commercial products other than CRO services, we have limited capital resources, 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 fourth quarter of 2022. As a result, we will need additional financing to support our continuing operations. Historically, we have funded our operations through the sale of equity and debt securities, as well as the receipt of funded grants. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity and debt financings or other sources, which may include collaborations with third parties, the sale or license of drug candidates, the sale of certain of our tangible and/or intangible assets, the sale of interests in our subsidiaries or joint ventures, obtaining additional government research funding, or entering into other strategic transactions. However, we can provide no assurance that we will be able to raise cash in sufficient amounts, when needed or at acceptable terms. We do not expect that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements beyond the fourth quarter of 2022. If we are unable to raise adequate capital and/or achieve profitable operations, future operations might need to be scaled back or discontinued. The financial statements included elsewhere in this Quarterly Report on Form 10-Q do not include any adjustments relating to the recoverability of the carrying amount of recorded assets and liabilities that might result from the outcome of these uncertainties.
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