ORAGENICS, INC. The following information should be read in conjunction with the Consolidated Financial Statements, including the notes thereto, included elsewhere in this Form 10-K. This discussion contains certain forward-looking statements that involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those discussed in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth herein and elsewhere in this Form 10-K. OverviewOragenics, Inc. is a development-stage company dedicated to fighting infectious diseases including coronaviruses and multidrug-resistant organisms. Its lead product is an intranasal immunization vaccine candidate to prevent COVID-19 and variants of the SARS-CoV-2 virus. The NT-CoV2-1 program leverages coronavirus spike protein research licensed from theNational Institute of Health and theNational Research Council of Canada with a focus on reducing viral transmission and offering a more patient-friendly intranasal administration. Our lantibiotics program features a novel class of antibiotics against bacteria that have developed resistance to commercial antibiotics.
Our SARS-CoV-2 Vaccine Product Candidate - NT-CoV2-1
Following ourMay 2020 acquisition of one hundred percent (100%) of the total issued and outstanding common stock ofNoachis Terra, Inc. ("Noachis Terra") we are focused on the development and commercialization of a vaccine product candidate to provide long-lasting immunity from the novel Severe Acute Respiratory Syndrome coronavirus ("SARS-CoV-2"), which causes the coronavirus disease 2019 ("COVID-19"). Noachis Terra is a party to a worldwide, nonexclusive intellectual property and biological materials license agreement with theNational Institute of Allergy and Infectious Diseases ("NIAID"), an institute within theNational Institutes of Health ("NIH"), relating to certain research, patent applications and biological materials involving pre-fusion stabilized coronavirus spike proteins and their use in the development and commercialization of a vaccine to provide specific, long lasting immunity from SARS-CoV-2. Since the acquisition we have conducted testing in animal models, including SARS-CoV-2 challenge studies in hamsters, using specific formulations for intramuscular administration (ourTerra CoV -2 vaccine candidate) and intranasal administration (our NT-CoV2-1 vaccine candidate), both based on the NIAID pre-fusion stabilized spike protein antigens. Following consideration of a number of factors, including but not limited to the competitive landscape, we determined to bring the intranasal vaccine candidate NT-CoV2-1, into further development due to the greater differentiation versus current COVID-19 vaccines and the potential benefits of intranasal over intramuscular administration. We believe these benefits could include a higher reduction of transmission of SARS-CoV-2 and would offer a needle-free delivery option. We therefore are currently focusing our development efforts on our more highly differentiated NT-CoV2-1 vaccine candidate. Coronaviruses are a family of viruses that can lead to upper-respiratory infections in humans. Recent clinical reports also suggest that the SARS-CoV-2 virus can affect other body-systems, including the nervous, cardiovascular, gastrointestinal and renal systems. Among the recent iterations of coronaviruses to move from animal to human carriers is SARS-CoV-2 (often referred to as COVID-19), which, beginning inWuhan, China , in late 2019, caused a global pandemic due to its rapid spread and the relatively high mortality rate (as compared to the seasonal influenza). In late January of 2022, theWorld Health Organization's estimates indicate the number of worldwide COVID-19 infections have exceeded 365 million and the number of deaths directly attributed to COVID-19 have exceeded 5.6 million. Pfizer/-BioNTech received FDA approval for their COVID-19 vaccines in August of 2021 and the Moderna vaccine inJanuary 2022 . The Janssen vaccine is currently available inthe United States under Emergency Use Authorizations ("EUA") by the FDA. We believe given the size of the worldwide pandemic that even with additional vaccines projected to be available in the months ahead, there will be demand for the highly differentiated NT-CoV2-1 vaccine, once development is successfully completed. We intend to combine the research, patent applications and biological materials covered by our NIAID license with our existing clinical research and manufacturing capabilities to respond rapidly to this ongoing, global, public health crisis. We believe our NT-CoV2-1 vaccine holds the possibility of playing an important role in addressing this crisis. Coronaviruses, such as SARS-CoV-2, possess signature protein spikes on their outer capsule. The NIAID license covers patents and data on a vaccine candidate that were created based on a stabilized pre-fusion spike trimeric protein. By stabilizing the spike protein in the pre-fusion state, the number of immunogenic centers is increased thereby allowing for a greater likelihood of successful antibody binding, resulting in an improved immunogenic response. The genetic code, acquired from theNIH , for the stabilized pre-fusion spike protein was provided toAragen Bioscience, Inc. ("Aragen") for the purpose of insertion of the spike protein gene sequence into a Chinese Hamster Ovary ("CHO") cell line. Aragen is a leading contract research organization focused on accelerating pre-clinical biologics product development, has extensive experience building CHO cell lines for recombinant proteins, such as monoclonal antibodies. Aragen has successfully inserted theNIH pre-fusion spike protein gene sequence into a CHO cell line and is currently developing both the analytical tests and identifying preliminary cell line growth conditions to optimize the spike protein titers. Currently, "mini-pool" production and analytical development is underway. The process to transfer to full-scale manufacture has begun. 74
TheNIH's pre-clinical study shows that this spike protein, adjuvanted with the mouse specific TLR-4-agonist Sigma Adjuvant System ("SAS", a TLR-4 agonist) that induces T cell activation), generates neutralizing antibody titers in both a pseudovirus neutralization assay and a plaque reduction neutralization titer (PRNT) assay. Recently released information indicated that pretreatment of mice with theNIH -created COVID-19 spike protein in combination with the SAA adjuvant completely inhibited viral growth in the nasal cavities and lungs of infected animals compared to unvaccinated control animals. InOctober 2020 , we received feedback to our Type B Pre-IND Meeting Request from the FDA. The response indicated that the FDA broadly supported our planned approach to the pre-clinical program that would support the clinical development of the Terra CoV-2 vaccine. Due to our focus on our intranasal vaccine product we expect to meet with the FDA in connection with our IND filing. We also entered into a material transfer agreement withBiodextris Inc. for the use of three intranasal mucosal adjuvants in ourTerra CoV -2 and NT-CoV2-1 vaccine candidates. BDX100, BDX300 and BDX301 are proteosome-based adjuvants comprised of proteins and lipopolysaccharides with improved attributes including enhanced immune response, manufacturing efficiency and the benefits of intranasal vaccine administration. The agreement allows for the future collaboration regarding the intranasal delivery of vaccine during clinical development with the opportunity to enter into a commercial agreement upon regulatory approval of the intranasal vaccine. The NT-CoV2-1 vaccine containing Inspirevax's intranasal mucosal adjuvant BDX301 has been studied in pre-clinical animal studies, including hamster viral challenge studies and mouse immunogenicity studies. A rabbit toxicology study has been initiated and is required for regulatory approval prior to the Phase 1 clinical study. We believe the NT-CoV2-1 vaccine has the potential to lead to a higher reduction of transmission of SARS-CoV-2 and offers a needle-free delivery option. This vaccine could also permit cost effective storage and distribution at refrigerated temperatures, which should facilitate distribution. OnJuly 26, 2021 , we entered into a licensing agreement with the NRC that enables us to pursue the rapid development of next-generation vaccines against the SARS-CoV-2 virus and its variants. The license was subsequently extended to include the Omicron variant. In addition, we broadened the non-exclusive field of use to include all diseases caused by coronaviruses and any genetic variants thereof. The NRC technologies, in combination with theU.S. NIH elements found in our NT-CoV2-1 vaccine candidates, provide us with a platform that can generate cell lines for high-yield production of spike protein antigens for existing and emerging variants of concern. This platform should allow production of cell lines within six to eight weeks of spike gene sequence availability, compared with six to nine months for traditional production of such cell lines. The NRC technologies, developed with support from the NRC's Pandemic Response Challenge Program, are expected to expedite the evaluation of SARS-CoV-2 antigen candidates in pre-clinical and clinical studies. We began pre-clinical studies in June of 2021 through our collaboration and material transfer agreement with the NRC. We initiated an immunogenicity study in mice to evaluate several adjuvant candidates. OnAugust 30, 2021 , we announced the successful completion of these mouse immunogenicity studies that supported further development using either the intramuscular or intranasal routes of administration. A hamster challenge study was initiated in September of 2021 to assess inhibition of viral replication using adjuvants specific for intramuscular and intranasal administration. In December of 2021, we announced that both formulations generated robust immune responses and reduced the SARS-CoV-2 viral loads to undetectable levels in the nasal passages and lungs five days following a viral challenge. By contrast, hamsters in the control groups that had received saline or adjuvants alone had no detectable immune response and substantial viral loads. The vaccines delivered by intranasal and intramuscular routes generated immune responses as measured by multiple assays. Through assessment of a variety of factors including evolving variants and available vaccines in use, we have determined to focus our development efforts on the intranasal delivery of our vaccine product candidate, NT-CoV2-1, which is more highly differentiated than the currently available and late-stage COVID-19 vaccines. As a result, we expect to file an IND application with the FDA in the third quarter of 2022 and immediately upon receipt of approval from the FDA to commence a Phase 1 clinical study with NT-CoV2-1, the protocol for which is currently under development. We expect to use our currently available cash resources to continue to advance the development of NT-CoV2-1 through IND-enabling studies, including immunogenicity, viral challenge studies, toxicology studies, and the Phase 1 trial with further clinical development being contingent upon the receipt of additional funding, including non-dilutive government grant funding which we continue to pursue or partnering or out-licensing opportunities. 75
Our Antibiotic Product Candidate - Oragenics Derived Compound (ODC-x)
Members of our scientific team discovered that a certain bacterial strain of Streptococcus mutans, produces Mutacin 1140 (MU1140), a molecule belonging to the novel class of antibiotics known as lantibiotics. Lantibiotics, such as MU1140, are highly modified peptide antibiotics made by a small group of Gram-positive bacterial species. Over 60 lantibiotics have been discovered, to date. We believe lantibiotics are generally recognized by the scientific community to be potent antibiotic agents. In nonclinical testing, MU1140 has shown activity against all Gram-positive bacteria against which it has been tested, including those responsible for a number of healthcare associated infections, or HAIs. A high percentage of hospital-acquired infections are caused by highly antibiotic-resistant bacteria such as methicillin-resistant Staphylococcus aureus (MRSA) or multidrug-resistant Gram-negative bacteria. We believe the need for novel antibiotics is increasing as a result of the growing resistance of target pathogens to existing FDA approved antibiotics on the market.
Lantibiotics have been difficult to investigate for their clinical usefulness as therapeutic agents in the treatment of infectious diseases due to a general inability to produce or synthesize sufficient quantities of pure amounts of these molecules. Traditional fermentation methods can only produce minute amounts of the lantibiotic.
InJune 2012 , we entered into a worldwide exclusive channel collaboration agreement with Precigen, Inc (formerly known asIntrexon Corporation ),ILH Holdings, Inc. (n/k/aEleszto Genetika, Inc. ("EGI"), for the development and commercialization of the native strain of MU1140 and related homologs to use its advanced transgene and cell engineering platforms. In September of 2021, we and EGI, mutually terminated the amended and restated worldwide exclusive channel collaboration agreement datedMarch 1, 2021 (the "Lantibiotic ECC") pursuant to which we were pursuing the development of OG716 as a lead product candidate for the treatment of C. diff. As a result of the mutual termination of the Lantibiotic ECC, we ceased pre-clinical development of our product candidate OG716 and other compounds covered by the Lantibiotic ECC, all licenses provided pursuant to the Lantibiotic ECC between the parties were terminated and there are no continuing obligations between the parties, except as to confidentiality. We made no payments to EGI in connection with the mutual termination. Each party retained all right and title to their own respective intellectual property. The termination of the Lantibiotic ECC was to enable us to focus on our continuing independent research and development efforts relative to lantibiotics in order to identify new compounds to pursue. The timing of the filing of an IND regarding any future lantibiotic candidate is subject to our having sufficient available human, material and financing capital, which includes research subjects, both animal and human, given all of our anticipated needs and expected requirements in connection with our ongoing research and development initiatives. We expect to continue to advance our lantibiotics program to an IND filing based on the availability of both human and financial capital. Based upon the current funding we expect to continue to focus on the identification of new potential product lantibiotic candidates, efficient and cost-effective improvements in the manufacturing processes and pre-clinical studies required to support a first in human Phase 1 clinical study. We recently announced that we were awarded a small business innovation research grant in the amount of$250,000 ("Computer-aided Design for Improved Lantibiotics", R41GM136034) for the Company's continued research and development of lantibiotics, including its collaborative program with theBiomolecular Sciences Institute atFlorida International University (FIU). The grant provides the Company with funding to develop novel lantibiotics for the treatment of ESKAPE pathogens (defined as Enterococcus faecium, Staphylococcus aureus, Klebsiella pneumoniae, Acinetobacter baumannii, Pseudomonas aeruginosa, and
Enterobacter spp.). Product Candidates. Through our wholly-owned subsidiary, Noachis Terra, we began the research and development stage for our newTerra CoV -2 and NT-CoV2-1 vaccine product candidate. We hold a nonexclusive, worldwide intellectual property license agreement for certain research, patent applications and biological materials relating to the use of pre-fusion coronavirus spike proteins for the development and commercialization of a vaccine against SARS-CoV-2. Additionally, we are developing semi-synthetic lantibiotic analogs that may be effective against systemic Gram-positive multidrug infections, and analogs that may be effective in treating Gram-negative infections. We seek to protect our product candidates through patents and patent applications pursuant to the terms of our license agreements. 76 Product/Candidate Description Application Status NT-CoV2-1 Intranasal vaccine candidate Broad, Pre-clinical (plasmid + adjuvant) to provide community-based long lasting immunity against vaccine immunity SARS-CoV-2 against SARS-CoV-2 Terra CoV-2 Intramuscular vaccine candidate Broad, Pre-clinical (plasmid + adjuvant) to provide community-based long lasting immunity against vaccine immunity SARS-CoV-2 against SARS-CoV-2
Antibiotics Semi-synthetic analogs of Healthcare-associated Pre-clinical
MU1140: Member of lantibiotic infections
class of antibiotics
Recent Developments
On February 25, 2022 we held our annual meeting of shareholders for 2020 at
which time our shareholders approved: (i) the adoption of an amendment to our
Amended and Restated Articles of Incorporation to provide for a reduced quorum
requirement of one-third (1/3) of shares entitled to vote represented in person
or by a proxy, in order to constitute a meeting of shareholders; (ii) the
adoption of an amendment to our Amended and Restated Articles of Incorporation
which increased the number of authorized shares of our Common Stock from
200,000,000 shares of Common Stock to 250,000,000 shares of Common Stock; and
(iii) the adoption of our new 2021 Equity Incentive Plan.
On
Our Business Development Strategy
Success in the biopharmaceutical and product development industry relies on the continuous development of novel product candidates. The large majority of product candidates do not make it past all clinical trials which forces companies to look externally for innovation.
Accordingly, we expect from, time to time, to seek strategic opportunities through various forms of business development, which can include strategic alliances, licensing deals, joint ventures, collaborations, equity or debt-based investments, dispositions, mergers and acquisitions. We view these business development activities as a necessary component of our strategies, and we seek to enhance shareholder value by evaluating business development opportunities both within and complementary to our current business as well as new and separate from the development of our existing product candidates due to the experience we are acquiring. Financial Overview Grant Revenue The Company was awarded a small business innovation research grant during the third quarter of 2021in the amount of$250,000 ("Computer-aided Design for Improved Lantibiotics" R41GM136034) for the Company's continued research and development of lantibiotics, including its collaborative program with theBiomolecular Sciences Institute at FIU. The Company recognizes grant revenue as reimbursable grant costs are incurred up to the pre-approved award limits within the budget period. The costs associated with these reimbursements are reflected as a component of research and development expenses in the accompanying consolidated statement of operations.
Research and Development Expenses
Research and development consist of expenses incurred in connection with the discovery and development of our product candidates. These expenses consist primarily of employee-related expenses, which include salaries and benefits and attending science conferences; expenses incurred under our license agreements with third parties and under other agreements with contract research organizations, investigative sites and consultants that conduct our clinical trials and a substantial portion of our nonclinical studies; the cost of acquiring and manufacturing clinical trial materials; facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities and equipment, and depreciation of fixed assets; license fees, for and milestone payments related to, in-licensed products and technology; stock-based compensation expense; and costs associated with nonclinical activities and regulatory approvals. We expense research and development costs as incurred. 77 Our research and development expenses can be divided into (i) clinical research, and (ii) nonclinical research and development activities and (iii) manufacturing process development and analytical testing procedure development. Clinical research costs consist of clinical trials, manufacturing services, regulatory activities and related personnel costs, and other costs such as rent, utilities, depreciation and stock-based compensation. Nonclinical research and development costs consist of our research activities, nonclinical studies, related personnel costs and laboratory supplies, and other costs such as rent, utilities, depreciation and stock-based compensation and research expenses we incur associated with the development of our product candidates. While we are currently focused on advancing our product development programs, our future research and development expenses will depend on the clinical success of our product candidates, as well as ongoing assessments of each product candidate's commercial potential. In addition, we cannot forecast with any degree of certainty which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans, research expenses and capital requirements.
Our research and development expenses were
Our current product development strategy contemplates an expected increase in our research and development expenses in the future as we continue the advancement of our product development programs for our vaccine and lantibiotic product candidates, with greater near-term emphasis on our vaccine product candidate. The lengthy process of completing clinical trials; seeking regulatory approval for our product candidates; and expanding the potential claims we are able to make, requires expenditure of substantial resources. Any failure or delay in completing clinical trials, or in obtaining regulatory approvals, could cause a delay in generating product revenues and cause our research and development expenses to increase and, in turn, have a material adverse effect on our operations. Our current product candidates are not expected to be commercially available until we are able to obtain regulatory approval from
the FDA. Our plan is to budget and manage expenditures in research and development such that they are undertaken in a cost-effective manner yet still advance the research and development efforts. While we have some control under our Lantibiotic program and the License Agreements as to the planning and timing of our research and development and therefore the timing of when expenditures may be incurred for various phases of agreed upon projects, actual expenditures can vary from period to period. Subject to available capital, we expect overall research and development expenses to increase as a result of our vaccine product candidate and as our financial resources permit. Our research and development projects are currently expected to be taken to the point where they can be licensed or partnered with larger pharmaceutical companies.
General and Administrative Expenses
General and administrative expenses consist principally of salaries and related costs for personnel in executive, finance, business development, marketing, information technology, legal and human resources functions. Other general and administrative expenses include facility costs not otherwise included in research and development expenses, patent filing, and professional fees for legal, consulting, auditing and tax services.
We anticipate that our general and administrative expenses may remain flat, but be subject to variability for, among others, the following reasons:
? to support our research and development activities, which, subject to
available capital, we expect to expand as we continue the development of our
product candidates;
? the efforts we undertake from, time to time, to raise additional capital; and
? the increased payroll, and stock-based compensation, expanded infrastructure
and consulting, legal, accounting and investor relations costs associated with
being a public company.
Other Income (Expense)
Other income (expense) includes local business taxes, as well as interest income
and expense. Interest income consists of interest earned on our cash and cash
equivalents. The primary objective of our investment policy is capital
preservation. Interest expense consists primarily of interest and costs
associated with our indebtedness.
78
Income Taxes
At December 31, 2021 , the Company has federal and state tax net operating loss
carryforwards of $145,260,353 . Federal and state tax net operating loss
carryforwards generated prior to December 31, 2017 will expire through 2037 and
are not subject to taxable income limitations. Federal tax net operating loss
carryforwards generated subsequent to December 31, 2017 , do not expire but are
subject to taxable income limitation pursuant to the Tax Cuts and Jobs Act that
was enacted on December 22, 2017 . State of Pennsylvania tax net operating loss
carryforwards will expire through 2036. The Company also has federal research
and development tax credit carryforwards of $4,027,180 . The federal tax credit
carryforward will expire beginning in 2021 and continuing through 2041 unless
previously utilized.
Utilization of net operating loss carryforwards and research and development
credit carryforwards may be subject to a substantial annual limitation due to
ownership change limitations that may have occurred or, could occur in the
future in accordance with Section 382 of the Internal Revenue Code of 1986 ("IRC
Section 382") and with Section 383 of the Internal Revenue Code of 1986, as well
as similar state provisions. These ownership changes may limit the amount of net
operating loss carryforwards and research and development credit carryforwards
that can be utilized annually to offset future taxable income and taxes,
respectively. In general, an ownership change, as defined by IRC Section 382,
results from transactions increasing the ownership of certain stockholders or
public groups in the stock of a corporation by more than 50 percentage points
over a three-year period. The Company has completed several financings since its
inception, as well as the recent acquisition of Noachis Terra, which may result
in a change in ownership as defined by IRC Section 382, or could result in a
change in control in the future. In each period since our inception, we have
recorded a 100% valuation allowance for the full amount of our deferred tax
asset, as the realization of the deferred tax asset is uncertain. As a result,
we have not recorded any federal tax benefit in our statements of operations.
On December 22, 2017 , the Jobs Act was enacted, which reforms corporate tax
legislation in the United States and related laws. Any change in the Company's
reasonable estimates of the impact of the Jobs Act will be included in the
reporting period in which the change is identified in accordance with SAB Topic
5 EE.
At December 31, 2021 and 2020, we recorded a 100% valuation allowance against
our deferred tax assets of approximately $37,452,000 and $36,580,000 ,
respectively, as our management believes it is uncertain that they will be fully
realized. If we determine in the future that we will be able to realize all or a
portion of our net operating loss carryforwards, an adjustment to our net
operating loss carryforwards would increase net income in the period in which we
make such a determination.
Critical Accounting Estimates and Policies
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States ("US GAAP"). The preparation of financial statements in accordance with US GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures. There are certain critical estimates that we believe require significant judgment in the preparation of our financial statements. We consider an accounting estimate to be critical if:
? It requires us to make an assumption because information was not available at
the time or it included matters that were highly uncertain at the time, we
were making the estimate; and
? Changes in the estimate or different estimates that we could have selected may
have had a material impact on our financial condition or results of
operations.
The principal areas of estimation reflected in the consolidated financial statements are stock-based compensation, and valuation of warrants.
Stock-Based Payment Arrangements
Generally, all forms of stock-based payments, including stock option grants and warrants are measured at their fair value on the awards' grant date typically using a Black-Scholes pricing model. Stock-based compensation awards issued to non-employees for services rendered are recorded at the fair value of the stock-based payment. The expense resulting from stock-based payments are recorded in research and development expense or general and administrative expense in the statement of operations, depending on the nature of the services provided. Stock-based payment expense is recorded over the requisite service period in which the grantee provides services to us. To the extent the stock option grants or warrants do not vest at the grant date they are subject to
forfeiture. Stock-Based CompensationU.S. Generally Accepted Accounting Principles ("US GAAP") requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values as of the grant date. Stock-based compensation expense is recorded over the requisite service period in which the grantee provides services to us, to the extent the options do not vest at the grant date and are subject to forfeiture. For performance-based awards that do not include market-based conditions, we record share-based compensation expense only when the performance-based milestone is deemed probable of achievement. We utilize both quantitative and qualitative criteria to judge whether milestones are probable of achievement. For awards with market-based performance conditions, we recognize the grant-date fair value of the award over the derived service period regardless of whether the underlying performance condition is met. We account for forfeitures of stock-based awards as a component of compensation expense as the forfeitures occur. 79 Warrants
The Company used the Black Scholes Option Pricing Model in calculating the relative fair value of any warrants that have been issued.
New Accounting Pronouncements There are no additional accounting pronouncements issued or effective during the twelve months endedDecember 31, 2021 that have had or are expected to have an impact on our financial statements.
Recently Adopted Accounting Pronouncements
Income Taxes InDecember 2019 , the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning afterDecember 15, 2020 , with early adoption permitted. The Company's adoption of the provisions of ASU No. 2019-12, did not have an impact on its consolidated financial statements and related disclosures. Results of Operations: Year Ended December 31, 2021 2020 Increase/Decrease Percentage Grant revenue$ 86,987 $ - $ 86,987 100.00 % Operating expenses:
Research, and development 10,586,144 22,107,563 (11,521,419 ) -52.12 % General and administrative 5,271,861 4,533,893 737,968 16.28 % Total operating expenses 15,858,005 26,641,456 (10,783,451 ) -40.48 % Loss from continuing operations (15,771,018 ) (26,641,456 ) 10,870,438 -40.80 % Other income (expense): Interest income 75,847 89,294 (13,447 ) -15.06 % Interest expense (15,756 ) (10,685 ) (5,071 ) 47.46 % Local business tax (1,357 ) (2,400 ) 1,043 -43.46 % Other income 670 1,795 (1,125 ) -62.67 % Forgiveness of Paycheck Protection Program loan and accrued interest - 132,753 (132,753 ) N/A Total other income (expense), net 59,404 210,757 (151,353 ) -71.81 % Loss from continuing operations before income taxes (15,711,614 ) (26,430,699 ) 10,719,085 -40.56 % Income tax benefit - - - 0.00 % Net loss from continuing operations$ (15,711,614 ) $ (26,430,699 ) $ 10,719,085 -40.56 %
For the Years Ended
Grant Revenue. We recorded grant revenue of
80 Research and Development. Research and development expenses were$10,586,144 for the year endedDecember 31, 2021 compared to$22,107,563 for the year endedDecember 31, 2020 ; a decrease of$11,521,419 , or 52.1%. This decrease was primarily due to the acquisition ofNoachis Terra, Inc. in 2020 which was accounted for as in process R&D expenses and decreases in costs associated with our clinical trial work related to our oral mucositis product candidate under our ECC, reduction in costs associated with contingent consideration, salaries and salary related costs, and our lantibiotic ECC, of$9,955,699 ,$5,259,901 ,$678,517 ,$200,021 and$175,425 , respectively. These decreases were partially offset by an increase in costs associated with the advancement of ourTerra CoV -2 and NT-CoV2-1 vaccine programs of$4,790,276 . General and Administrative. General and administrative expenses were$5,271,861 for the year endedDecember 31, 2021 compared to$4,533,893 for the year endedDecember 31, 2020 ; an increase of$737,968 , or 16.3%. This increase was primarily due to increases in non-employee stock-based compensation, filing fees, board fees, and insurance costs of$439,188 ,$402,587 ,$215,749 , and$205,523 , respectively. These increases were partially offset by decreases in salary and salary related costs and consulting costs of$446,773 , and$69,778 , respectively. Other Income (Expense). Other income (expense) was$59,404 for the year endedDecember 31, 2021 compared to$210,757 for the year endedDecember 31, 2020 ; a net change of$151,353 . The net change was primarily attributable to the forgiveness of the Payroll Protection Plan loan and accrued interest of$132,753 which occurred in 2020, a decrease in interest income, and an increase in interest expense of$132,753 ,$13,447 , and$5,071 , respectively.
Liquidity and Capital Resources
Since our inception, we have funded our operations primarily through the sale of equity securities in our initial public offering, the sale of equity securities and warrants in private and public offerings, debt financing, warrant exercises and grants. As ofDecember 31, 2021 , we had an accumulated deficit of$(171,274,128) and we have yet to achieve profitability. We incurred net losses of$(15,711,614) and$(26,430,699) for the years endedDecember 31, 2021 and 2020, respectively. We expect to incur significant and increasing operating losses for the foreseeable future as we seek to advance our product candidates through nonclinical testing and clinical trials to ultimately obtain regulatory approval and eventual commercialization. We will need to raise additional capital to fund our operations. We anticipate that our cash resources as ofDecember 31, 2021 , will be sufficient to fund our operations as presently structured through the end of 2022. There can be no assurance that additional capital will be available to us on acceptable terms, if at all. Adequate additional funding may not be available to us on acceptable terms, or at all. We expect that research and development expenses will increase along with general and administrative costs, as we grow and operate our business. The following table sets forth the primary sources and uses of cash for each of the periods indicated: Years endedDecember 31, 2021 2020
Net cash used in operating activities
(43,876 ) -
Net cash provided by financing activities 23,140,216 16,324,445
Net decrease in cash and cash equivalents
During the years endedDecember 31, 2021 and 2020, our operating cash flows from operations used cash of$(13,470,212) and$(16,952,864) , respectively. The use of cash in all periods primarily resulted from our net losses adjusted for non-cash items and changes in operating assets and liabilities. We had working capital surplus of$26,262,129 and$16,640,534 as ofDecember 31, 2021 and
2020, respectively.
Additional details of our financing activities for the periods reflected in this report are provided below:
Financings
The
OnMay 10, 2017 we entered into a securities purchase agreement with three accredited investors, to purchase up to$3,000,000 of Series A Convertible Preferred Stock (the "Series A Preferred Stock Financing"). The sale of the Preferred Stock took place in two separate closings and at the first closing which occurred onMay 10, 2017 , we received gross proceeds of approximately$1,302,000 . The second closing occurred onJuly 25, 2017 and we received gross proceeds of approximately$1,698,000 , which was the balance of the Preferred Stock Financing. The full$3,000,000 of Preferred Stock, and after giving effect to the reverse stock split, is convertible into one million two hundred thousand shares of our Common Stock, based on a fixed conversion price of$2.50 per share on an as-converted basis. In addition, and after giving effect to the reverse stock split, we issued warrants to purchase an aggregate of 462,106 shares of Common Stock at the first closing and we issued an aggregate of 602,414 shares of Common Stock at the second closing. The warrants have a term of seven years from the date of issuance are non-exercisable until 6 months after issuance, have an exercise price of$3.10 per share. Proceeds from the Series A Preferred Stock Financing (including the exercise of any warrants for cash) was used for general corporate purposes, including working capital. 81
OnJuly 27, 2017 , we entered into an agreement to amend the warrants issued in connection with the Series A Preferred Stock Financing to provide notification and objection requirements with respect to the change of control provisions. The change of control provisions in the warrants had previously caused the warrants to be treated as a derivative liability as opposed to being treated as equity on our balance sheet. The warrants have been replaced by amended and restated warrants containing such notification and objection requirements (the "Amended and Restated Common Stock Purchase Warrants") so that the Amended and Restated Common Stock Purchase Warrants are now treated as equity on our balance sheet. All other terms of the original warrants remain unchanged by the Amended and Restated Common Stock Purchase Warrants. In connection with the Series A Preferred Financing, we filed a Certificate of Designations of Preferences, Rights and Limitations of Series A Preferred Stock with the Secretary of State of theState of Florida , effectiveMay 10, 2017 . The number of shares of Preferred Stock designated as Series A Preferred Stock
was 12,000,000. In connection with the issuance and sale of the Series A Preferred Stock and common stock warrants that were issued commensurate with the issuance of the Series A Preferred Stock, we granted certain demand registration rights and piggyback registration rights with respect to the shares of our Common Stock issuable upon conversion of the Preferred Stock and exercise of the Warrants, pursuant to a Registration Rights Agreement. Except as otherwise required by law, the Series A Preferred Stock have no voting rights. However, as long as any shares of Series A Preferred Stock are outstanding, we shall not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series A Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series A Preferred Stock or alter or amend the Certificate of Designation, (b) amend its articles of incorporation or other charter documents in any manner that adversely affects any rights of the holders of Series A Preferred Stock, (c) increase the number of authorized shares of Series A Preferred Stock, or (d) enter into any agreement with respect to any of the foregoing. Upon any liquidation, dissolution or winding-up by us, whether voluntary or involuntary that is not a Fundamental Transaction (as defined in the Certificate of Designation), the holders of Series A Preferred Stock shall be entitled to receive out of the assets, the greater of (i) the product of the number of shares of Series A Preferred Stock then held by such holder, multiplied by the Original Issue Price; and (ii) the amount that would be payable to such holder in the Liquidation in respect of Common Stock issuable upon conversion of such shares of Series A Preferred Stock if all outstanding shares of Series A Preferred Stock were converted into Common Stock immediately prior to the Liquidation. The Series A Preferred Stock is classified as permanent equity.
The
OnNovember 8, 2017 , we completed a private placement of$3,300,000 of Series B Non-Voting, Convertible Preferred Stock (the "Series B Convertible Preferred Stock") pursuant to a Securities Purchase Agreement with four existing shareholderswho are accredited investors including an entity affiliated with a director of the Company (the "Series B Preferred Stock Financing"). The full$3,300,000 of Series B Convertible Preferred Stock is convertible, after giving effect to the reverse stock split into one million three hundred and twenty thousand shares of our Common Stock, based on a conversion of one share of Series B Preferred Stock into two shares of Common Stock. The purchase price per share of the Series B Preferred Stock is represented by$2.50 per share of the Common Stock on an as converted basis. In addition, and after giving effect to the reverse stock split, we issued to the investors in the private placement accompanying common stock purchase warrants to purchase an aggregate of 1,064,518 shares of Common Stock. The warrants have a term of seven years from the date of issuance, and are non-exercisable until six (6) months after issuance, and after giving effect to the reverse stock split, have an exercise price of$3.10 per share. In connection with the Series B Preferred Financing, we filed a Certificate of Designation and Rights of Series B Convertible Preferred Stock with the Secretary of State of theState of Florida , effectiveNovember 8, 2017 . The number of shares of Preferred Stock designated as Series B Preferred Stock
was 6,600,000. Except as otherwise required by law, the Series B Preferred Stock have no voting rights. However, as long as any shares of Series B Preferred Stock are outstanding, we shall not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series B Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series B Preferred Stock or alter or amend the Certificate of Designation, (b) amend its articles of incorporation or other charter documents in any manner that adversely affects any rights of the holders of Series B Preferred Stock, (c) increase the number of authorized shares of Series B Preferred Stock, or (d) enter into any agreement with respect to any of the foregoing. 82 The Series B Preferred Stock shall rank (i) on par with the Common Stock and Series A Preferred Stock and junior to Series C Preferred Stock as to dividend rights and (ii) junior to Series C Preferred Stock, on par with Series A Preferred Stock and senior to the Common Stock as to distribution of assets upon liquidation, dissolution or winding-up by us, whether voluntary or involuntary. Upon any liquidation, dissolution or winding-up by us, whether voluntary or involuntary, the holders of Series B Preferred Stock shall be entitled to receive out of the assets, after payment to the holders of Series C Preferred Stock but on par with the holders of Series A Preferred Stock and in preference to the holders of the Common Stock, an amount of cash equal to the greater of (i) the product of the number of shares of Series B Preferred Stock then held by such holder, multiplied by the Original Issue Price; and (ii) the amount that would be payable to such holder in the Liquidation in respect of Common Stock issuable upon conversion of such shares of Series B Preferred Stock if all outstanding shares of Series B Preferred Stock were converted into Common Stock immediately prior to the Liquidation. The Series B Preferred Stock is classified as permanent equity.
The Series C Preferred Stock Issuance and Subsequent Redemption
Concurrently with the Series B Preferred Stock Financing, we exchanged the amount owed on an unsecured non-convertible promissory note including accrued interest and trade payables owed by us to the noteholder (collectively the "Debt") in the aggregate amount of approximately$3,400,000 for equity in the form of 100 shares of Series C, Non-Voting, Non-Convertible Preferred Stock (the "Series C Preferred Stock") with a stated value equal to the amount of the Debt. In connection therewith, we filed a Certificate of Designation and Rights of Series C Non-Convertible Preferred Stock with the Secretary of State of theState of Florida , to be effectiveNovember 8, 2017 . The number of shares of Preferred Stock designated as Series C Preferred Stock is 1,000.
In connection with the Precigen Debt Conversion Agreement, we filed a
Certificate of Designation and Rights of Series C Non-Convertible Preferred
Stock with the Secretary of State of the
OnJanuary 25, 2018 we paid a dividend on our Series C Preferred Stock of 1.733 shares of additional Series C Preferred Stock, onJanuary 31, 2019 we paid a dividend on our Series C Preferred Stock of 12.208 shares of additional Series C Preferred Stock and onJanuary 27, 2020 we paid a dividend on our Series C Preferred Stock of 19.542 shares of additional Series C Preferred Stock. OnFebruary 11, 2021 , we provided a notice of redemption, to the holder of the Company's Series C Preferred Stock to redeem all outstanding Series C Preferred Stock (which included the dividend of 26.697 shares paid onJanuary 28, 2021 and any accrued dividends due through the redemption date ofMarch 13, 2021 ). The Series C Preferred Stock redemption amount of approximately$5.6 million was paid onMarch 15, 2021 and all outstanding shares of Series C Preferred Stock were cancelled.
The
OnApril 6, 2018 , we entered into a securities purchase agreement with certain investors pursuant to which issued an aggregate of 900,000 shares of our common stock, par value$0.001 per share, at$2.00 per share. In a concurrent private placement, we issued to the investorswho participated in the registered offering, warrants exercisable for one share of common stock for each share purchased in the registered offering for an aggregate of warrants to acquire 900,000 shares of common stock at an exercise price of$2.00 per share. Each warrant is exercisable beginning on the six-month anniversary of the date of its issuance and expires five years from the date of issuance.
The
OnJuly 17, 2018 , we closed an underwritten public offering of units for gross proceeds of approximately$13.8 million , which includes the full exercise of the underwriter's over-allotment option to purchase additional shares and warrants, prior to deducting underwriting discounts and commissions and offering expenses payable by us. The offering was comprised of Class A Units, priced at a public offering price of$1.00 per unit, with each unit consisting of one share of common stock and a seven-year warrant to purchase one share of common stock with an exercise price of$1.00 per share (each, a "Warrant" and collectively, the "Warrants"), and ClassB Units , priced at a public offering price of$1.00 per unit, with each unit comprised of one share of series D preferred stock (the "Series D Preferred Stock"), which is convertible into one share of common stock, and a Warrant. The conversion price of the Series D Preferred Stock issued in the transaction as well as the exercise price of the Warrants are fixed and do not contain any variable pricing features or any price based anti-dilutive features. The Series D Preferred Stock issued in this transaction included a beneficial ownership blocker but has no dividend rights (except to the extent that dividends are also paid on the common stock), liquidation preference or other preferences over common stock, and, with certain exceptions, has no voting rights. The securities comprising the units were immediately separable and have been issued separately. 83 At the closing of our underwritten public offering, a total of 4,436,000 shares of common stock, 9,364,000 shares of Series D Preferred Stock convertible into 9,364,000 shares of common stock, and warrants to acquire 13,800,000 shares of common stock were issued inclusive of the underwriter's exercise of their over-allotment option to purchase 1,800,000 shares of common stock and warrants to acquire 1,800,000 shares of common stock at$1.00 per share. Since the closing of our underwritten public offering all of the shares of Series D Preferred Stock that were issued have been converted into shares of our common stock in accordance with the terms for conversion and of the warrants issued an aggregate of 10,265,500 Warrants were exercised for cash. In 2018, 9,505,500 shares of Company common stock were issued as a result of the exercise of such Warrants and in 2020, an additional 760,000 shares of Company common stock were issued as a result of the exercise of such Warrants and in 2021 360,000 shares of Company common stock were issued as a result of the exercise of such Warrants. Total proceeds from the exercise of the Warrants are$10,625,500 .
The
OnMarch 25, 2019 , we announced the closing of an underwritten public offering for gross proceeds of approximately$12.5 million , which included the partial exercise of the underwriter's over-allotment option to purchase additional shares and warrants, prior to deducting underwriting discounts and commissions and offering expenses. The offering was comprised of 16,666,668 shares of common stock, short-term warrants to purchase up to 8,333,334 shares of common stock, and long-term warrants to purchase up to 8,333,334 shares of common stock, at a price to the public of$0.75 per share and accompanying warrants. In connection with the public offering, we granted the underwriter a 30-day option to purchase up to 2,500,000 additional shares of common stock and/or short-term warrants to purchase 1,250,000 shares of common stock and long-term warrants to purchase 1,250,000 shares of common stock the public offering price, less underwriting discounts and commissions. The underwriter exercised its option to purchase the short-term warrants to purchase 1,250,000 shares of common stock and long-term warrants to purchase 1,250,000 shares of common
stock effective as of the closing.
Each short-term warrant had an exercise price of$0.75 per share of common stock, is immediately exercisable, and expired on the earlier of (1) the eighteen-month anniversary of the date of issuance and (2) twenty-one trading days following our release of top-line data related to our Phase 2 double blind, placebo controlled clinical trial of AG013. As a result of our announcement of top-line data on the Phase 2 clinical trial of AG013 onApril 15, 2020 , the short-term Warrants were subject to expiration onMay 14, 2020 . OnMay 14, 2020 9,545,334 of the Company's short-term warrants expired unexercised (exclusive of 38,000 shares previously exercised).
Each long-term warrant has an exercise price of
In 2020, 38,000 shares of Company common stock were issued as a result of the exercise of such short-term warrants and an additional 4,882,114 shares of Company common stock were issued as a result of the exercise of such long-term warrants and in 2021 2,112,573 shares of Company common stock were issued as a result of the exercise of such long-term warrants. Total proceeds from the exercise of the short-term and long-term warrants are$6,323,740 . 84
OnNovember 24, 2020 , we closed an underwritten public offering for gross proceeds of approximately$6.0 million , which included the full exercise of the underwriter's over-allotment option to purchase additional shares, prior to deducting underwriting discounts and commissions and offering expenses. The offering was comprised of 14,189,189 shares of common stock at a price to the public of$0.37 per share. We granted the underwriter a 45-day option to purchase up to 2,128,378 additional shares of our common stock at the public offering price, less underwriting discounts and commissions. The underwriter exercised its option in full to purchase 2,128,378 additional shares of common stock, which the indicated gross proceeds reflect. We intend to use the net proceeds of the offering primarily to continue funding our pre-clinical development of our SARS-CoV-2 vaccine candidates,Terra CoV -2 and NT-CoV2-1 and our lantibiotics program and for general corporate purposes, including research and development activities, capital expenditures and working capital. Dr.Frederick Telling who is a Director of the Company, participated in the offering through the purchase of 100,000 shares of the Company's common stock.Dr. Telling's participation was approved by the Company's Audit Committee.
OnDecember 29, 2020 , we closed a registered direct offering for gross proceeds of approximately$6.5 million , prior to deducting underwriting discounts and commissions and offering expenses. The offering was comprised of 14,444,444 shares of common stock at a price to the public of$0.45 per share. We intend to use the net proceeds of the offering primarily to continue funding our pre-clinical development of our SARS-CoV-2 vaccine candidates,Terra CoV -2 and NT-CoV2-1 and our lantibiotics program and for general corporate purposes, including research and development activities, capital expenditures and working capital.
At-the-Market Program ("ATM Program")
OnFebruary 1, 2021 , we entered into a Sales Agreement (the "Sales Agreement") with A.G.P./Alliance Global Partners , as sales agent (the "Sales Agent"), pursuant to which we may offer and sell through or to the Sales Agent shares of our Common Stock. During the three months endedMarch 31, 2021 , we issued an aggregate of 21,398,765 shares of Common Stock and received gross proceeds of an aggregate of approximately$27.8 million under our ATM Program. Any Shares offered and sold in the ATM Program were issued pursuant to our universal shelf registration statement on Form S-3 (the "Shelf Registration Statement"). The ATM Program will terminate upon (a) the election of the Agent upon the occurrence of certain adverse events, (b) 10 days' advance notice from one party to the other, or (c) the sale of the balance available under our existing Shelf Registration Statement of approximately$9.6 million . Under the terms of the Sales Agreement, the Sales Agent is entitled to a commission at a fixed rate of 3.0% of the gross proceeds from each sale of shares under the Sales Agreement. Other Financings
We enter into short term financing arrangements for the payment of our annual insurance premiums for our directors and officers and employment practices insurance.
OnJuly 24, 2021 , the Company entered into a short-term note payable for$600,169 bearing interest at 5.34% to finance a portion of the directors' and officers' liability insurance and employment practices liability insurance premiums. Principal and interest payments on this note beganAugust 24, 2021 and are made evenly based on a straight-line amortization over a 10-month period with the final payment being due onMay 24, 2022 . OnAugust 24, 2020 we entered into a short-term note payable for$413,784 bearing interest at 5.39% to finance a portion of the directors' and officers' liability insurance and employment practices liability insurance premiums. Principal and interest payments on this note beganAugust 24, 2020 and are made evenly based on a straight-line amortization over an 11-month period with the final payment being made onJune 28, 2021 . Future Capital Requirements Our capital requirements for 2022 will depend on numerous factors, including the success of our commercialization efforts and of our research and development, the resources we devote to develop and support our technologies and our success in pursuing strategic licensing and funded product development relationships with external partners. Subject to our ability to raise additional capital including through possible joint ventures and/or partnerships, we expect to incur substantial expenditures to further commercialize or develop our technologies including continued increases in costs related to research, nonclinical testing and clinical trials, as well as costs associated with our capital raising efforts and being a public company. We will require substantial funds to conduct research and development and nonclinical and Phase 1 and Phase 2 clinical testing of our licensed, patented technologies and to develop sublicensing relationships for the Phase 2 and 3 clinical testing and manufacture and marketing of any products that are approved for commercial sale. Our plans include seeking both equity and debt financing, alliances or other partnership agreements with entities interested in our technologies, or other business transactions that would generate sufficient resources to ensure continuation of our operations and research and development programs. 85 Our current available cash and cash equivalents, provide us with limited liquidity. We believe our existing cash and cash equivalents, will allow us to fund our operating plan through the fourth quarter of 2022. We expect to continue to seek additional funding for our operations. Any such required additional capital may not be available on reasonable terms, if at all. If we were unable to obtain additional financing, we may be required to reduce the scope of, delay or eliminate some or all of our planned clinical testing, research and development and commercialization activities, which could harm our business. The sale of additional equity or debt securities may result in additional dilution to our shareholders. If we raise additional funds through the issuance of debt securities or preferred stock, these securities could have rights senior to those of our common stock and could contain covenants that would restrict our operations. We also will require additional capital beyond our currently forecasted amounts. For example, as we continue to work on the development of our product candidates and enter into third party agreements in connection therewith, we will require additional capital.
Because of the numerous risks and uncertainties associated with research, development and commercialization of our product candidates, we are unable to estimate the exact amounts of our working capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:
? conduct pre-clinical research for our NT-CoV2-1 vaccine product candidate,
file an IND with the FDA and, if approved, engage in Phase 1 clinical trials;
? identifying and securing clinical sites for the conduct of human trials for
our product candidates;
? the determination to redeem all or any portion of our outstanding Series C
Preferred Stock;
? the number and characteristics of the product candidates we pursue;
? the scope, progress, results and costs of researching and developing our
product candidates, and conducting nonclinical and clinical trials including
the research and development expenditures we expect to make in connection with
agreements with third parties we put in place to advance our research and
development efforts;
? the timing of, and the costs involved in, obtaining regulatory approvals for
our product candidates;
? our ability to maintain current research and development licensing agreements
and to establish new strategic partnerships, licensing or other arrangements
and the financial terms of such agreements;
? our ability to achieve our milestones under our ECC agreement and licensing
arrangements and the payment obligations we may have;
? the costs involved in preparing, filing, prosecuting, maintaining, defending
and enforcing patent claims, including litigation costs and the outcome of
such litigation; and
? the timing, receipt and amount of sales of, or royalties on, our products and
future products, if any.
We have based our estimates on assumptions that may prove to be wrong. We may
need to obtain additional funds sooner or in greater amounts than we currently
anticipate. Potential sources of financing include strategic relationships,
public or private sales of our shares or debt and other sources. We may seek to
access the public or private equity markets when conditions are favorable due to
our long-term capital requirements. We do not have any committed sources of
financing at this time, and it is uncertain whether additional funding will be
available when we need it on terms that will be acceptable to us, or at all. If
we raise funds by selling additional shares of common stock or other securities
convertible into common stock, the ownership interest of our existing
stockholders will be diluted. If we are not able to obtain financing when
needed, we may be unable to carry out our business plan. As a result, we may
have to significantly limit our operations and our business, financial condition
and results of operations would be materially harmed.
86
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Tax Loss and Credit Carryforwards
AtDecember 31, 2021 , the Company has federal and state tax net operating loss carryforwards of$145,260,353 . Federal and state tax net operating loss carryforwards generated prior toDecember 31, 2017 will expire through 2037 and are not subject to taxable income limitations. Federal tax net operating loss carryforwards generated subsequent toDecember 31, 2017 , do not expire but are subject to taxable income limitation pursuant to the Tax Cuts and Jobs Act that was enacted onDecember 22, 2017 .State of Pennsylvania tax net operating loss carryforwards will expire through 2036. The Company also has federal research and development tax credit carryforwards of$4,027,180 . The federal tax credit carryforward will expire beginning in 2021 and continuing through 2041 unless previously utilized. Utilization of net operating loss carryforwards and research and development credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or, could occur in the future in accordance with Section 382 of the Internal Revenue Code of 1986 ("IRC Section 382") and with Section 383 of the Internal Revenue Code of 1986, as well as similar state provisions. These ownership changes may limit the amount of net operating loss carryforwards and research and development credit carryforwards that can be utilized annually to offset future taxable income and taxes, respectively. In general, an ownership change, as defined by IRC Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period. The Company has completed several financings since its inception which may result in a change in ownership as defined by IRC Section 382, or could result in a change in control in the future. OnDecember 22, 2017 , the Jobs Act was enacted, which reforms corporate tax legislation inthe United States and related laws. Any change in the Company's reasonable estimates of the impact of the Jobs Act will be included in the reporting period in which the change is identified in accordance with SAB Topic 5 EE. AtDecember 31, 2021 and 2020, we recorded a 100% valuation allowance against our deferred tax assets of approximately$37,452,000 and$36,580,000 , respectively, as our management believes it is uncertain that they will be fully realized. If we determine in the future that we will be able to realize all or a portion of our net operating loss carryforwards, an adjustment to our net operating loss carryforwards would increase net income in the period in which we make such a determination. Inflation Inflation affects the cost of raw materials, goods and services that we use. In recent years, inflation has been modest but has recently increased. High energy costs and fluctuations in commodity prices can affect the cost of all raw materials and components. Although we cannot precisely determine the effects of inflation on our business, it is management's belief that the effects on operating results will not be significant. We do not believe that inflation has had a material impact on our results of operations for the periods presented, except with respect to payroll-related costs and other costs arising from or related to government-imposed regulations.
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