Unless the context otherwise requires, all references in this section to the "Company," "we," "us," or "our" refer to the business of RenovoRx, Inc. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited interim condensed financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our final prospectus, dated August 25, 2021, filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (the "Securities Act").

This discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, that reflect our plans, estimates, and beliefs that involve risks and uncertainties, including those described in the section titled "Special Note Regarding Forward Looking Statements." Our actual results and the timing of selected events could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those set forth under the section titled "Risk Factors" included elsewhere in this report.





Overview


We are a late-stage clinical biopharmaceutical company focused on developing therapies for the local treatment of solid tumors. Our therapy platform, RenovoRx Trans-Arterial Micro-Perfusion, or RenovoTAMP™ utilizes approved chemotherapeutics with validated mechanisms of action and well-established safety and side effect profiles with the goal of increasing their efficacy, improving their safety, and widening their therapeutic window. RenovoTAMP combines our patented FDA cleared delivery system, RenovoCath®, with small molecule chemotherapeutic agents that can be forced across the vessel wall using pressure, targeting these anti-cancer drugs locally to the solid tumors. Our first product candidate, RenovoGemTM, is a drug and device combination consisting of intra-arterial gemcitabine and RenovoCath. FDA has determined that RenovoGem will be regulated as, and if approved we expect will be reimbursed as, a new oncology drug product. We have secured FDA Orphan Drug Designation for RenovoGem in our first two indications: pancreatic cancer and cholangiocarcinoma, or CCA. We have completed Phase 1/2 and observational registry studies in locally advanced pancreatic cancer, or LAPC, demonstrating safety and a median overall survival rate of 27.9 months in patients treated with RenovoGem and radiation versus expected survival rate (historical control) of 12-15 months in patients only receiving intravenous (IV) systemic chemotherapy dosed at 1,000mg/m2. RenovoGem is currently being evaluated in a Phase 3 registration Investigational New Drug, or IND, clinical trial and we expect to report data from a planned interim data readout in the second half of 2022. As we prepared the FDA Pre-Investigational New Drug, or Pre-IND, application for our second indication, hilar cholangiocarcinoma (cancer that occurs in the bile ducts that lead out of the liver and join with the gallbladder, also called hilar cholangiocarcinoma, or HCCA), we discovered an alternative approach to treat this patient population with our therapy platform that we believe may be more efficient. We have launched animal studies to explore this alternative approach and will file the Pre-IND application for our second indication once we have validated the preferable approach for our therapy for HCCA patients. We anticipate completing these preclinical studies for the alternative treatment pathway for HCCA during the first half of 2022 and launching the appropriate study in 2023. In addition, we may evaluate RenovoGem in other indications, potentially including locally advanced lung cancer, locally advanced uterine tumors, and glioblastoma, and develop other chemotherapeutic agents for intra-arterial delivery via RenovoCath.

Since our inception, we have devoted substantially all of our efforts to developing our cancer therapy platform and product candidates, raising capital and organizing and staffing our company. To date, we have financed our operations with proceeds from the issuance of convertible preferred stock and convertible notes. Through July 31, 2021, we have financed our operations primarily through issuance of convertible preferred stock with net proceeds of $11.8 million, including $5.0 million through the issuance of convertible notes and a loan of $140,000 pursuant to the Paycheck Protection Program under the CARES Act, which was forgiven in February 2021. In August 2021, we completed our IPO with aggregate gross proceeds of $16.7 million. We paid underwriting discounts and commissions of $1.3 million, and we also incurred expenses of $0.8 million in connection with the offering. As a result, the net offering proceeds to us, after deducting underwriting discounts and commissions and offering expenses, were $14.6 million.

We have incurred significant operating losses and generated negative cash flows from operations since our inception. As of September 30, 2021, we had cash and cash equivalents of $17.7 million. We also had net losses of $1.5 million and $4.0 million for the three and nine months ended September 30, 2021, respectively and $1.1 million and $2.9 million for the three and nine months ended September 30, 2020, respectively. As of September 30, 2021, we had an accumulated deficit of $18.9 million. We expect to continue to incur significant expenses, increasing operating losses and negative cash flows from operations in 2021 and for the foreseeable future. We do not expect to generate revenues from product sales unless and until we successfully complete development and obtain regulatory approval for one or more product candidates. We expect that our expenses will increase substantially in connection with our ongoing research and development activities, particularly as we:





  ? Advance clinical development of RenovoGem and our platform technology by
    continuing to enroll patients in our ongoing TIGeR-PaC Phase 3 clinical trial,
    expanding the number of clinical trials including our planned clinical trial
    in HCCA, and advancing RenovoGem through preclinical and clinical development
    in additional indications;

  ? Hire additional research, development, engineering, and general and
    administrative personnel;

  ? Maintain, expand, enforce, defend, and protect our intellectual property
    portfolio; and

  ? Expand our operational, financial and management systems and increase
    personnel, including personnel to support our clinical development,
    manufacturing and commercialization efforts and our operations as a public
    company.




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In addition to the variables described above, if and when any of our product candidates successfully complete development, we will incur substantial additional costs associated with establishing a sales, marketing, medical affairs and distribution infrastructure to commercialize products for which we may obtain marketing approval, regulatory filings, marketing approval, and post-marketing requirements, in addition to other commercial costs. We cannot reasonably estimate these costs at this time.

As a result, we will need significant additional funding to support our continuing operations. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through equity issuances, debt financings and collaborations, licenses or other similar arrangements. We currently have no credit facility or committed sources of capital. To the extent that we raise additional capital through the future sale of equity or debt, the ownership interests of our stockholders will be diluted and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. If we raise additional funds through the issuance of debt securities, these securities could contain covenants that would restrict our operations. We may require additional capital beyond our currently anticipated amounts and additional capital may not be available on reasonable terms, or at all. If we raise additional funds through collaboration arrangements or other strategic transactions in the future, we may have to relinquish valuable rights to our technologies or future revenue streams or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate development or future commercialization efforts.





Impact of COVID-19


In December 2019, a novel strain of coronavirus, which causes the disease known as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 has spread globally. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The ongoing COVID-19 pandemic has caused significant disruption in the international and U.S. economies and financial markets. The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity and financial transactions, labor shortages, supply chain interruptions and overall economic and financial market instability.

In response to public health directives and orders and to help minimize the risk of the virus to employees, we have taken precautionary measures, including implementing work-from home and/or hybrid work policies for our employees. The COVID-19 pandemic also has negatively affected, and we expect will continue to negatively affect, our clinical studies. For example, we have faced challenges in conducting our Phase 3 clinical trial, including recruiting subjects and accommodating patient visits. Additionally, our service providers and their operations may be disrupted, temporarily closed or experience worker or supply shortages, which could result in additional disruptions or delays in shipments of purchased materials or the continued development of our product candidates. To date, we have not suffered material supply chain disruptions.

We are not able to estimate the duration of the pandemic and the potential impact on our business. As the global pandemic of COVID-19 continues to evolve, it could continue to result in significant long-term disruption of global financial markets, reducing our ability to raise additional capital when needed and on acceptable terms, if at all, which could negatively affect our liquidity. The extent to which the COVID-19 pandemic impacts our clinical development and regulatory efforts will depend on future developments that are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, vaccine and infection rates, new travel restrictions, quarantines and social distancing requirements in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the virus. We will continue to monitor the COVID-19 situation closely.

Components of Our Results of Operations





Revenue


We have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products for several years, if at all. If our development efforts for our current or future product candidates are successful and result in marketing approval or collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from collaboration or license agreements.





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Operating Expenses



Research and Development



Research and development expenses consist of costs related to the research and development of our platform technology. Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors. We outsource a substantial portion of our clinical trial activities, utilizing the service of third-party clinical trial sites and contract research organizations to assist us with the execution of our clinical trials. In addition, we have FDA 510(k) clearance for the RenovoCath delivery device, which comprises part of the RenovoGem product. Accordingly, we are able to charge our clinical trial sites for the RenovoCath delivery device. To date, payments from clinical trial sites in consideration for RenovoCath delivery devices have been adequate to cover our direct manufacturing costs. Any payments we receive from clinical trial sites as consideration for use of RenovoCath delivery devices offset our research and development expenses. We expect our research and development expenses to increase for the foreseeable future as we continue the development of our product candidates and enroll subjects in our ongoing clinical Phase 3 trial, initiate future clinical trials and pursue regulatory approval of our product candidates. It is difficult to predict with any certainty the duration and costs of completing our current or future clinical trials of our product candidates or if, when or to what extent we will achieve regulatory approval and generate revenue from the commercialization and sale of our product candidates. The duration, costs and timing of clinical trials and other development of our product candidates will depend on a variety of factors, including uncertainties in clinical trial enrollment, timing and extent of future clinical trials, development of new product candidates and significant and changing government regulation. We may never succeed in achieving regulatory approval for any of our product candidates.

Our research and development expenses include:





  ? expenses incurred under agreements with clinical trial sites, contract
    research organizations, and consultants that conduct our clinical trials,

  ? costs of acquiring and developing clinical trial materials,

  ? personnel costs, including salaries, benefits, bonuses, and stock-based
    compensation for employees engaged in preclinical and clinical research and
    development,

  ? costs related to compliance with regulatory requirements,

  ? travel expenses, and

  ? facilities, insurance, and other allocated expenses which include direct and
    allocated expenses for rent, insurance and other general overhead costs.



Research and development costs are expensed as incurred. Costs for certain development activities, such as clinical trials and preclinical studies, are recognized based on evaluation of progress to completion of specific tasks using data such as subject enrollment, clinical site activations or information provided to us by third party vendors.

Due to the impact of the COVID-19 pandemic and work-from-home policies and other operational limitations mandated by federal, state, and local governments as a result of the pandemic, certain of our research and development activities have been delayed and may be further delayed until such operational limitations are lifted.





General and Administrative



General and administrative expenses consist of salaries, benefits, and stock-based compensation for personnel in executive, finance and administrative functions, professional services and associated costs related to accounting, tax, audit, legal, intellectual property and other matters, consulting costs, conferences, travel and allocated expenses for rent, insurance and other general overhead costs. Following the listing of our common stock on Nasdaq, we expect to continue to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations of the SEC and Nasdaq listing standards and increased expenses in the areas of insurance, professional services and investor relations. As a result, we expect our general and administrative expenses to increase for the foreseeable future. General and administrative expenses are expensed as incurred.





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Other Income (Expenses), Net



Interest Income (Expense) Net


Interest expense consists of charges relating to the amortization of the debt discount and debt issuance costs as well as interest on amounts outstanding on our convertible notes. In March 2020, we completed the offering of $3.0 million of convertible notes, the 2020 Convertible Notes, that provided for the automatic conversion into shares of our common stock and warrants at the closing of our IPO at a 20% discount to the public offering price of the units. In April 2021, we completed the offering of $2.0 million of convertible notes, the 2021 Convertible Notes, that provided for the automatic conversion into shares of our common stock and warrants at the closing of our IPO at a 12.5% discount to the public offering price of the units.

Interest income is earned from cash deposited in our money market account.





Other Income, Net


Other income, net primarily represents the mark-to-market adjustment on the derivative liability resulting from the 2020 and 2021 Convertible Notes. Upon the completion of our IPO in August 2021, the 2020 and 2021 Convertible Notes were converted into units consisting of (a) one share of common stock and (b) one five-year warrant to purchase one share of common stock at an exercise price equal to $10.80 per share.

Gain (Loss) on Loan Extinguishment

The gain (loss) on loan extinguishment represents the loss from the conversion and settlement of our 2020 and 2021 Convertible Notes as well as the gain on loan extinguishment from the forgiveness and cancellation of our PPP loan.





Income Tax Expense


We account for income taxes using the asset and liability method. Under this method, deferred income tax assets and liabilities are recorded based on the estimated future tax effects of differences between the financial statement and income tax basis of existing assets and liabilities. Deferred income tax assets and liabilities are recorded net and classified as noncurrent on the balance sheets. A valuation allowance is provided against our deferred income tax assets when their realization is not reasonably assured.

We are subject to income taxes in the federal and state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. In accordance with the authoritative guidance on accounting for uncertainty in income taxes, we recognize tax liabilities for uncertain tax positions when it is more likely than not that a tax position will not be sustained upon examination and settlement with various taxing authorities. Liabilities for uncertain tax positions are measured based upon the largest amount of benefit that is more-likely-than-not (greater than 50%) of being realized upon settlement. Our policy is to recognize interest and/or penalties related to income tax matters in income tax expense.

On March 27, 2020, the CARES Act was enacted. The CARES Act includes several significant provisions for corporations, including the usage of net operating losses, interest deductions and payroll benefits. Corporate taxpayers may carryback net operating losses, or NOLs, originating during 2018 through 2020 for up to five years.





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Results of Operations



The following table summarizes the significant components of our results of operations for the periods presented (in thousands):





                                       Three Months Ended          Nine Months Ended
                                          September 30,              September 30,
                                        2021          2020         2021          2020
Statements of Operations Data:
Operating expenses:
Research and development             $      767     $    727     $   1,938     $  1,934
General and administrative                  628          183         1,377          631
Total operating expenses                  1,395          910         3,315        2,565
Loss from operations                     (1,395 )       (910 )      (3,315 )     (2,565 )
Other income (expense), net
Interest expense, net                      (208 )       (186 )        (835 )       (355 )
Other income, net                           170            -           119            -
Gain (loss) on loan extinguishment          (78 )          -            62            -
Total other expense, net                   (116 )       (186 )        (654 )       (355 )
Net loss                             $   (1,511 )   $ (1,096 )   $  (3,969 )   $ (2,920 )

Comparison of the Three Months Ended September 30, 2021 and 2020

The following table summarizes our results of operations for the three months ended September 30, 2021 and 2020 (in thousands, except percentages):





                                Three Months Ended
                                   September 30,               Change
                                 2021          2020         $          %
                                    (unaudited)

Operating expenses: Research and development $ 767 $ 727 $ 40 6 % General and administrative

           628          183        445       243 %
Total operating expenses           1,395          910        485        53 %
Loss from operations              (1,395 )       (910 )     (485 )      53 %
Other income (expense), net
Interest expense, net               (208 )       (186 )      (22 )      12 %
Other income, net                    170            -        170       100 %
Loss on loan extinguishment          (78 )          -        (78 )     100 %
Total other expense, net            (116 )       (186 )       70       (38 )%
Net loss                      $   (1,511 )   $ (1,096 )   $ (415 )      38 %




Research and Development


Research and development expenses were $0.8 million for the three months ended September 30, 2021, an increase of 6%, compared to $0.7 million for the prior year quarter. This increase was due to an increase in clinical development personnel costs, including an allocation of executive-level clinical support from general and administrative of $0.1 million. The increase was partially offset by reduced spending in leased software costs.

General and Administrative Expenses

General and administrative expenses were $0.6 million for the three months ended September 30, 2021, an increase of 243%, or $0.4 million, compared to $0.2 million for the prior year quarter. This increase was primarily due to higher professional and consulting costs related to preparing for our IPO in August 2021 of $0.2 million, including salaries and related benefits of $0.1 million, and insurance costs primarily related to the purchase of Directors and Officers Liability Insurance of $0.1 million.





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Interest Expense, Net


Interest expense, net for the three months ended September 30, 2021, includes both the amortization of the discount and debt issuance costs, including the interest associated with the 2020 and 2021 Convertible Notes of $0.2 million. Interest expense, net for the three months ended September 30, 2020, includes both the amortization of the discount and debt issuance costs, including the interest associated with the 2020 Convertible Notes of $0.2 million.





Other Income, Net


Other income, net for the three months ended September 30, 2021 was $0.2 million and primarily includes the mark-to-market adjustment on the derivative liability resulting from the 2020 and 2021 Convertible Notes. There was no other income or expense, net for the three months ended September 30, 2020.





Loss on Loan Extinguishment


The loss on loan extinguishment, representing the unamortized debt discount on our 2020 and 2021 Convertible Notes, of $0.1 million during the three months ended September 30, 2021 resulted from the conversion of the 2020 and 2021 Convertible Notes into units (consisting of (a) one share of common stock and (b) one five-year warrant to purchase one share of common stock) upon the completion of our IPO in August 2021.

Comparison of the Nine Months Ended September 30, 2020 and 2021

The following table summarizes our results of operations for the nine months ended September 30, 2021 and 2020 (in thousands, except percentages):





                                Nine Months Ended
                                  September 30,                Change
                                2021          2020          $           %
                                   (unaudited)

Operating expenses: Research and development $ 1,938 $ 1,934 $ 4 - % General and administrative 1,377 631 746 118 % Total operating expenses 3,315 2,565 750 29 % Loss from operations

             (3,315 )     (2,565 )       (750 )      29 %
Other income (expense), net
Interest expense, net              (835 )       (355 )       (480 )     135 %
Other income, net                   119            -          119       100 %
Gain on loan extinguishment          62            -           62       100 %
Total other expense, net           (654 )       (355 )       (299 )      84 %
Net loss                      $  (3,969 )   $ (2,920 )   $ (1,049 )      36 %




Research and Development


Research and development expenses were $1.9 million for the nine months ended September 30, 2021 and 2020. Increases in research and development expenses consisted of clinical development personnel costs and related benefits, as well as the allocation of executive-level clinical support from general and administrative of $0.1 million. These increases were offset by lower leased software costs and payments received from clinical sites for the use of RenovoCath delivery devices in our Phase 3 clinical trial of $0.1 million.

General and Administrative Expenses

General and administrative expenses were $1.4 million for the nine months ended September 30, 2021, an increase of 118%, or $0.7 million, compared to $0.6 million for the prior year period. This increase was due to higher professional and consulting services costs of $0.6 million related to preparing for our IPO in August 2021, including an increase in spending in personnel costs of $0.2 million and insurance costs of $0.1 million related to the purchase of Directors and Officers Liability Insurance. These increases were partially offset by a $0.1 million decrease in expense as a result of allocating executive-level clinical support costs to research and development expense.





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Interest Expense, Net


Interest expense, net for the nine months ended September 30, 2021 includes both the stated interest on the 2020 and 2021 Convertible Notes of 5% per annum, or $0.1 million, as well as the amortization of the discount and debt issuance costs associated with the 2020 and 2021 Convertible Notes of $0.7 million. Interest expense for the nine months ended September 30, 2020 includes both the stated interest on the 2020 Convertible Notes of 5% per annum, or $0.1 million, as well as the amortization of the debt discount and debt issuance costs of $0.3 million.





Other Income, Net



Other income, net for the nine months ended September 30, 2021 was $0.1 million and represents the mark-to-market adjustment on the derivative liabilities resulting from the 2020 and 2021 Convertible Notes. There was no other income, net for the nine months ended September 30, 2020.

On March 1, 2021, the Company entered into an amendment to the 2020 Convertible Notes which extended the maturity date of the 2020 Convertible Notes from March 31, 2021 to October 30, 2021 and provided for the conversion of the 2020 Convertible Notes into shares of the Company's common stock upon a Qualified Financing that is an IPO. No other terms to the 2020 Convertible Notes were amended. This amendment was accounted for as a troubled debt restructuring pursuant to FASB ASC Topic 470-60, "Troubled Debt Restructurings by Debtors." As the future undiscounted cash flows of the 2020 Convertible Notes were greater than their carrying amount, the carrying amount was not adjusted and no gain was recognized as a result of the modification of terms.





Gain on Loan Extinguishment


The gain on loan extinguishment of $0.1 million during the nine months ended September 30, 2021 represents a loss of $0.1 million on the automatic conversion of the 2020 and 2021 Convertible Notes upon completion of our IPO offset by the forgiveness and cancellation of our PPP loan of $0.1 million.

Liquidity and Capital Resources

For the three and nine months ended September 30, 2021 we incurred net losses of $1.5 million and $4.0 million, respectively. As of September 30, 2021, we had an accumulated deficit of $18.9 million. We expect to incur additional losses and increased operating expenses in future periods. Since our inception, our primary sources of liquidity have been the sale and issuance of convertible preferred stock, convertible notes and common stock, including in our IPO, and from the exercise of warrants.

As of September 30, 2021 and December 31, 2020, we had $17.7 million and $1.8 million in cash and cash equivalents, respectively. During the nine months ended September 30, 2021, we used $3.4 million of cash in operations. Our primary requirements for liquidity have been to fund our clinical trial activity and general corporate and working capital needs. In August 2021, we completed our IPO for aggregate gross proceeds of $16.7 million. We paid underwriting discounts and commissions of $1.3 million, and we also incurred expenses of $0.8 million in connection with the offering. As a result, the net offering proceeds to us, after deducting underwriting discounts and commissions and offering expenses, were $14.6 million. In February 2021, we received notification and confirmation from Silicon Valley Bank that our PPP loan of $0.1 million, has been forgiven in its entirety and automatically cancelled by the U.S. Small Business Administration.

Based on our current operating plan, we expect that our current cash and cash equivalents as of September 30, 2021 will be sufficient to fund our operating, investing and financing cash flow needs for at least 12 months from the issuance date of these interim financial statements. We intend to raise additional capital through equity offerings and/or debt financings. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our clinical trials or other operations. If any of these events occur, our ability to achieve our operational goals would be adversely affected. Our future capital requirements and the adequacy of available funds will depend on many factors, including those described in "Risk Factors." Depending on the severity and direct impact of these factors on us, we may be unable to secure additional financing to meet our operating requirements on terms favorable to us, or at all.





Sources of Liquidity


Since our inception, we have not generated any revenue from product sales and we have incurred significant operating losses and negative cash flows from our operations. We do not have any products that have achieved regulatory marketing approval and we do not expect to generate revenue from sales of any product candidates for several years, if ever.





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We have financed our operations primarily through the issuance and sale of convertible preferred stock and convertible debt. Through the date of this report, we have raised an aggregate of $17.0 million of gross proceeds from private placements of our equity and convertible debt securities, net proceeds of $14.6 million from our IPO in August 2021 and $2.7 million in proceeds from the exercise of warrants and of the underwriter's exercise of its over-allotment option to purchase common stock warrants. We also received $0.1 million from a loan under the PPP which was forgiven in February 2021. As of September 30, 2021, we had cash and cash equivalents of $17.7 million and an accumulated deficit of $18.9 million.





Cash Flows


Our primary uses of cash are to fund our operations including research and development and general and administrative expenses. We will continue to incur operating losses in the future and expect that our research and development and general and administrative expenses will continue to increase as we continue our research and development efforts with respect to clinical development of our product candidates and further develop our platform. We expect that we will use a substantial portion of the net proceeds of this offering, in combination with our existing cash and cash equivalents, for these purposes and for the increased expenses associated with being a public company. Cash used to fund operating expenses is impacted by the timing of when we pay expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.





The following table summarizes our cash flows for the periods indicated (in
thousands):



                                          Nine Months Ended
                                            September 30,
                                          2021          2020
                                             (unaudited)
Net cash provided by (used in):
Operating activities                    $  (3,358 )   $ (2,558 )
Investing activities                          (15 )          -
Financing activities                       19,303        2,746

Increase in cash and cash equivalents $ 15,930 $ 188

Net Cash Used in Operating Activities

Cash used in operating activities for the nine months ended September 30, 2021 reflected a net loss of $4.0 million and a net change in our operating assets and liabilities of $0.1 million, offset by non-cash charges of $0.5 million consisting primarily of amortization of a debt discount and gain/loss on loan/convertible debt extinguishments. Net cash used in operating activities for the nine months ended September 30, 2020 reflected a net loss of $2.9 million and non-cash charges of $0.4 million representing amortization of debt discount and stock-based compensation expense.

Net Cash Used in Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2021 consisted of capital expenditures made for leasehold improvements to our new office space. There were no investment activities in the comparable nine months ended September 30, 2020.

Cash Provided by Financing Activities

Net cash provided by financing in the nine months ended September 30, 2021 was $19.3 million, consisting of net proceeds of $14.6 million from the issuance of common stock in our IPO, $2.0 million from the issuance of convertible notes and $2.8 million from exercise of warrants and stock options. Net cash provided by financing activities in the nine months ended September 30, 2020 was $2.7 million, consisting of $2.6 million in proceeds from the issuance of convertible notes and $0.2 million in proceeds from the PPP loan and the exercise of the Series A-1 warrants and stock options.

Contractual Obligations and Other Commitments

As of the date of this report, we have no contractual obligations or other commitments. In August 2021, the 2020 and 2021 Convertible Notes, including accrued interest, of $5.3 million were converted to common shares upon the completion of our IPO. In February 2021, the Company received notification and confirmation from Silicon Valley Bank that its PPP loan of $0.1 million, had been forgiven in its entirety and automatically cancelled by the U.S. Small Business Administration. There have been no other significant changes in our contractual obligations or other commitments as of September 30, 2021.





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Critical Accounting Policies and Significant Judgments and Estimates

The accompanying management's discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed interim financial statements and the related disclosures, which have been prepared in accordance with accounting principles generally accepted in the United States or GAAP. The preparation of these unaudited condensed interim financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts in our unaudited condensed interim financial statements and accompanying notes. 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 that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. While our significant accounting policies are described in the notes to our financial statements included elsewhere in this report, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results because they require us to make estimates, assumptions and judgments about matters that are inherently uncertain.

A critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective, or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes: (i) we are required to make assumptions about matters that are highly uncertain at the time of the estimate? and (ii) different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations.





Clinical Trial Expenses


We make payments in connection with our Phase 3 clinical trial under contracts with clinical trial sites and contract research organizations that support conducting and managing clinical trials. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. Generally, these agreements set forth the scope of work to be performed at a fixed fee, unit price or on a time and materials basis. A portion of the obligation to make payments under these contracts depends on factors such as the successful enrollment or treatment of patients or the completion of other clinical trial milestones.

Expenses related to clinical trials are accrued based on estimates and/or representations from service providers regarding work performed, including actual level of patient enrollment, completion of patient studies and progress of the clinical trials. Other incidental costs related to patient enrollment or treatment are accrued when reasonably certain. If the amounts we are obligated to pay under clinical trial agreements are modified (for instance, as a result of changes in the clinical trial protocol or scope of work to be performed), the accruals are adjusted accordingly. Revisions to contractual payment obligations are charged to expense in the period in which the facts that give rise to the revision become reasonably certain.





Stock-Based Compensation


We calculate the fair value of stock options using the Black-Scholes option pricing model, which incorporates various assumptions including the fair value of our common stock, volatility, expected life, and risk-free interest rate. Compensation related to service-based awards is recognized starting on the grant date on a straight-line basis over the vesting period, which is generally four years.

Determining the grant date fair value of options using the Black-Scholes option pricing model requires management to make assumptions and judgments. If any of the assumptions used in the Black-Scholes model change significantly, stock-based compensation for future awards may differ materially compared with the awards granted previously. The assumptions and estimates are as follows:

Fair Value of Common Stock-Given the absence of a public trading market prior to the Company's IPO, our Board of Directors considered numerous objective and subjective factors to determine the fair value of our common stock at each grant date. These factors included but were not limited to: (i) contemporaneous third-party valuations of common stock; (ii) the prices for preferred stock sold to outside investors; (iii) the rights and preferences of preferred stock relative to common stock; (iv) the lack of marketability of our common stock; (v) developments in the business; and (vi) the likelihood of achieving a liquidity event, such as an IPO or sale of the business, given prevailing market conditions. The methodology to determine the fair value of our common stock included estimating the fair value of the enterprise using the "backsolve" method, which is a market approach that assigns an implied enterprise value by accounting for all share class rights and preferences based on the latest round of financing. The total equity value implied was then applied in the context of an option pricing model to determine the value of each class of our shares.





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Expected Term-The expected term represents the period that the stock-based awards are expected to be outstanding. We determine the expected term using the simplified method. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the options. For stock options granted to non-employees, the expected term equals the remaining contractual term of the option from the vesting date.

Expected Volatility-Given the absence of a public trading market, the expected volatility was estimated by taking the average historic price volatility for industry peers, consisting of several public companies in our industry that are either similar in size, stage, or financial leverage, over a period equivalent to the expected term of the awards.

Risk-Free Interest Rate-The risk-free interest rate is calculated using the average of the published interest rates of U.S. Treasury zero-coupon issues with maturities that are commensurate with the expected term.

Dividend Rate-The dividend yield assumption is zero as we have no plans to make dividend payments.

The determination of the fair value of our common stock after our IPO on August 30, 2021 is determined by the closing price of our common stock on the date of grant.

Convertible Instruments and Embedded Derivatives

We evaluate all our agreements to determine whether such instruments have derivatives or contain features that qualify as embedded derivatives. We account for certain redemption features that are associated with the terms of convertible notes as liabilities at fair value and adjust the instruments to their fair value at the end of each reporting period. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in other income (expense), net in the statements of operations. Derivative instrument liabilities are classified in the balance sheets as current or non-current based on whether net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. As of December 31, 2020, our derivative financial instruments were related to the 2020 and 2021 Convertible Notes, which contained certain redemptive features. On August 30, 2021, we completed our IPO which triggered the automatic conversion of all outstanding Convertible Notes and accrued interest into shares of common stock.

Emerging Growth Company and Smaller Reporting Company Status

We are an "emerging growth company" as defined in the JOBS Act. Under the JOBS Act, companies have extended transition periods available for complying with new or revised accounting standards. We have elected this exemption to delay adopting new or revised accounting standards. We will remain an emerging growth company until the earlier of (1) December 31, 2026, (2) the last day of the fiscal year in which we have total annual gross revenues of at least $1.07 billion, (3) the date on which we are deemed to be a "large accelerated filer" as defined in Rule 12b-2 under the Exchange Act, or (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. An emerging growth company may take advantage of specified reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. As an emerging growth company,





  ? we may present only two years of audited financial statements, plus unaudited
    interim condensed financial statements for any interim period, and related
    Management's Discussion and Analysis of Financial Condition and Results of
    Operations;

  ? we may avail ourselves of the exemption from the requirement to obtain an
    attestation and report from our auditors on the assessment of our internal
    control over financial reporting pursuant to the Sarbanes-Oxley Act;

  ? we may provide reduced disclosure about our executive compensation
    arrangements; and

  ? we do not require stockholder non-binding advisory votes on executive
    compensation or golden parachute arrangements.



We have elected to take advantage of certain reduced disclosure obligations in this Quarterly Report on Form 10-Q and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.

We are also a "smaller reporting company," meaning that the market value of our stock held by non-affiliates plus the proposed aggregate amount of gross proceeds to us as a result of this offering is less than $700.0 million and our annual revenue is less than $100.0 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (1) the market value of our stock held by nonaffiliates is less than $250.0 million or (2) our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700.0 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, like emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation

Recently Issued and Adopted Accounting Pronouncements

A description of recently issued and adopted accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2, Summary of Significant Accounting Policies to our interim financial statements included elsewhere in this report.

Off-Balance Sheet Arrangements

During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

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