UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________to ___________
Commission
File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
(Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
Number of common shares outstanding as of November 6, 2023 was .
2 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may be identified by such forward-looking terminology as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually achieve the plans, intentions or expectations disclosed in these forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in these forward-looking statements. Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including the risks and uncertainties inherent in our statements regarding:
● | our projected financial position and estimated cash burn rate; | |
● | our estimates regarding expenses, future revenues and capital requirements; | |
● | our ability to continue as a going concern; | |
● | our need to raise substantial additional capital to fund our operation; | |
● | the success, cost and timing of our clinical trials; | |
● | our dependence on third parties in the conduct of our clinical trials; | |
● | our ability to obtain the necessary regulatory approvals to market and commercialize our product candidates; | |
● | the impact of a health epidemic, on our business, our clinical trials, our research programs, healthcare systems or the global economy as a whole; | |
● | the potential that results of pre-clinical and clinical trials indicate our current product candidates or any future product candidates we may seek to develop are unsafe or ineffective; | |
● | the results of market research conducted by us or others; | |
● | our ability to obtain and maintain intellectual property protection for our current and future product candidates; | |
● | our ability to protect our intellectual property rights and the potential for us to incur substantial costs from lawsuits to enforce or protect our intellectual property rights; | |
● | the possibility that a third party may claim we or our third-party licensors have infringed, misappropriated or otherwise violated their intellectual property rights and that we may incur substantial costs and be required to devote substantial time defending against claims against us; | |
● | our reliance on third-party suppliers and manufacturers; | |
● | the success of competing therapies and products that are or become available; | |
● | our ability to expand our organization to accommodate potential growth and our ability to retain and attract key personnel; |
● | the potential for us to incur substantial costs resulting from product liability lawsuits against us and the potential for these product liability lawsuits to cause us to limit our commercialization of our product candidates; | |
● | market acceptance of our product candidates, the size and growth of the potential markets for our current product candidates and any future product candidates we may seek to develop, and our ability to serve those markets; and | |
● | the successful development of our commercialization capabilities, including sales and marketing capabilities. |
All of our forward-looking statements are as of the date of this Quarterly Report on Form 10-Q only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report on Form 10-Q or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”) could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Quarterly Report on Form 10-Q, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Quarterly Report on Form 10-Q that modify or impact any of the forward-looking statements contained in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q.
This Quarterly Report on Form 10-Q may include market data and certain industry data and forecasts, which we may obtain from internal company surveys, market research, consultant surveys, publicly available information, reports of governmental agencies and industry publications, articles and surveys. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. While we believe that such studies and publications are reliable, we have not independently verified market and industry data from third-party sources.
3 |
ITEM 1. FINANCIAL STATEMENTS
THARIMMUNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | $ | ||||||
Prepaid expenses and other current assets | ||||||||
Deferred offering costs | ||||||||
Total current assets | ||||||||
Total assets | $ | $ | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | $ | ||||||
Accrued expenses | ||||||||
Insurance premium financing liability | ||||||||
Total current liabilities | ||||||||
Total liabilities | ||||||||
Commitments and contingencies (see Note 8) | ||||||||
Stockholders’ equity | ||||||||
Preferred stock, $ | par value, shares authorized, shares issued and outstanding as of September 30, 2023 and December 31, 2022||||||||
Common stock, $ | par value, shares authorized, shares and shares issued and shares and shares outstanding as of September 30, 2023 and December 31, 2022, respectively||||||||
Additional paid-in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Treasury stock, at cost, | shares held in treasury as of September 30, 2023 and December 31, 2022( | ) | ( | ) | ||||
Total stockholders’ equity | ||||||||
Total liabilities and stockholders’ equity | $ | $ |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-1 |
THARIMMUNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Operating expenses | ||||||||||||||||
Research and development | $ | $ | $ | $ | ||||||||||||
General and administrative | ||||||||||||||||
Total operating expenses | ||||||||||||||||
Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Other income (expense) | ||||||||||||||||
Interest expense | ( | ) | ( | ) | ( | ) | ||||||||||
Interest income | ||||||||||||||||
Total other income (expense), net | ( | ) | ||||||||||||||
Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Net loss per share: | ||||||||||||||||
Basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
Weighted average number of common shares outstanding: | ||||||||||||||||
Basic and diluted |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-2 |
THARIMMUNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(UNAUDITED)
Common Stock | Additional Paid-in | Accumulated | Treasury Stock | |||||||||||||||||||||||||
Shares | Amount | Capital | Deficit | Shares | Amount | Total | ||||||||||||||||||||||
For the three months ended September 30, 2022: | ||||||||||||||||||||||||||||
Balance, June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
Net loss | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
Stock based compensation | - | - | ||||||||||||||||||||||||||
Purchase of treasury stock at cost | ( | ) | ( | ) | ||||||||||||||||||||||||
Balance, September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
For the nine months ended September 30, 2022: | ||||||||||||||||||||||||||||
Balance, December 31, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||
Net loss | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
Exercise of stock options | - | |||||||||||||||||||||||||||
Stock based compensation | - | - | ||||||||||||||||||||||||||
Stock issuance pursuant to services agreement | - | |||||||||||||||||||||||||||
Initial public offering, net of issuance costs of $ | - | |||||||||||||||||||||||||||
Conversion of related-party convertible notes | - | |||||||||||||||||||||||||||
Purchase of treasury stock at cost | ( | ) | ( | ) | ||||||||||||||||||||||||
Balance, September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
For the three months ended September 30, 2023: | ||||||||||||||||||||||||||||
Balance, June 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
Stock issuance pursuant to service agreements | - | |||||||||||||||||||||||||||
Net loss | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
Stock based compensation | - | - | ||||||||||||||||||||||||||
Balance, September 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
For the nine months ended September 30, 2023: | ||||||||||||||||||||||||||||
Balance, December 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
Public offering, net of issuance costs of $ | - | |||||||||||||||||||||||||||
Stock issuance pursuant to service agreements | - | |||||||||||||||||||||||||||
Net loss | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
Stock based compensation | - | - | ||||||||||||||||||||||||||
Balance, September 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-3 |
THARIMMUNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended September 30, | ||||||||
2023 | 2022 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Amortization of debt discount | ||||||||
Stock based compensation | ||||||||
Stock issuance pursuant to services agreement | ||||||||
Interest and original issuance discount on promissory notes | ||||||||
Increase in operating assets: | ||||||||
Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
Increase (decrease) in operating liabilities: | ||||||||
Accounts payable | ( | ) | ||||||
Accrued interest | ||||||||
Due to founder | ( | ) | ||||||
Accrued expenses | ( | ) | ( | ) | ||||
Net cash used in operating activities | ( | ) | ( | ) | ||||
Net cash provided by (used in) investing activities | ||||||||
Cash flows from financing activities: | ||||||||
Exercise of stock options | ||||||||
Purchase of treasury stock at cost | ( | ) | ||||||
Proceeds from issuance of common stock upon initial public offering, net of underwriting discounts and issuance costs | ||||||||
Proceeds from issuance of common stock upon public offering, net of underwriting discounts and issuance costs | ||||||||
Payment of deferred offering costs | ( | ) | ( | ) | ||||
Proceeds from insurance premium financing liability | ||||||||
Repayment of insurance premium financing liability | ( | ) | ( | ) | ||||
Proceeds from promissory notes | ||||||||
Repayments on promissory notes | ( | ) | ||||||
Net cash provided by financing activities | ||||||||
Net increase (decrease) in cash | ( | ) | ||||||
Cash, beginning of period | ||||||||
Cash, end of period | $ | $ | ||||||
Supplemental disclosure of non-cash financing activities: | ||||||||
Issuance of common stock for: | ||||||||
Prepaid marketing and investor related consulting services | $ | $ | ||||||
Research and development service licensing agreement Intangible license asset | $ | $ | ||||||
Conversion of related party convertible notes: | ||||||||
Related party convertible notes principal converted to common stock upon initial public offering | $ | $ | ||||||
Related party convertible notes accrued interest converted to common stock upon initial public offering | $ | $ | ||||||
Redemption liability converted to common stock upon initial public offering | $ | $ |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-4 |
THARIMMUNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 – Description of Business and Liquidity
Nature of Operations
Tharimmune, Inc. (formerly, Hillstream BioPharma, Inc.) (“Tharimmune” or the “Company”) was incorporated on March 28, 2017, as a Delaware C-corporation. At September 30, 2023, Tharimmune had one wholly-owned subsidiary, HB Pharma Corp. (“HB”).
Tharimmune is a clinical-stage biotechnology company developing therapeutic candidates in rare, inflammatory and oncologic conditions with high unmet need. On November 3, 2023, the Company entered into a patent license agreement (the “Avior Patent License Agreement”) with Avior Inc. d/b/a Avior Bio, LLC (“Avior”) pursuant to which it received an exclusive sublicensable right and license to Licensed Patent Rights (as defined in the Avior Patent License Agreement) and Licensed Technology (as defined in the Avior Patent License Agreement) to, among other things, Develop (as defined in the Avior Patent License Agreement), have Developed, make, have made, use, sell, import, export and commercialize AV104 (to be renamed TH104 and hereinafter referred to as TH104) and AV103 (to be renamed TH103 and hereinafter referred to as TH103) and to practice the Licensed Technology in connection with the foregoing, throughout the world. In February 2023, the U.S. Food and Drug Administration (“FDA”) approved an investigational new drug (“IND”) application for TH104. TH104 has a dual mechanism of action by affecting multiple receptors, known to suppress chronic, debilitating pruritis or “uncontrollable itching”. With respect to TH104, the Company intends to first seek approval for the treatment of moderate to severe chronic pruritis in patients with primary biliary cholangitis (“PBC”), an orphan rare form of liver disease with no known cure in which more than 70% of patients suffer from debilitating chronic pruritis, and with respect to TH103, it intends to develop the product candidate and potentially file an IND.
The Company is also developing an early-stage pipeline of novel therapeutic candidates targeting validated high value immuno-oncology (“IO”) targets including human epidermal growth factor (“EGF”) receptor 2 (“HER2”), human EGF receptor 3 (“HER3”) and programmed cell death protein 1 (“PD-1”). The Company is developing antibodies including bispecific antibodies, antibody drug conjugates (“ADCs”) and small molecular weight bovine-derived Picobodies™ or antibody “knob” domains which have the potential to target and bind more tightly to “undruggable” epitopes better than full sized antibodies. The Company is advancing TH3215, a bispecific against both HER2 and HER3 antibody which targets a novel “bridging epitope” encompassing multiple domains of the HER2 extracellular domain (“ECD”) as well as ligand-dependent and independent blocking of the ECD of HER3 into IND-enabling studies in 2024. In addition, the Company anticipates that TH0059, a HER2/HER3 bispecific ADC (“bsADC”), and TH1940, a PD-1 Picobody, will progress to enter IND-enabling studies in 2024.
The Company has deprioritized its previous preclinical candidate, HSB-1216, due to a strategic reprioritization of its vision to focus on therapeutics in high unmet need cancers focused on novel epitopes of certain antitumor drug targets.
Name Change
On September 21, 2023, Hillstream BioPharma, Inc. filed a Certificate of Amendment (the “Amendment”) to its Certificate of Incorporation, as amended (the “Certificate of Incorporation”), with the Secretary of State of the State of Delaware pursuant to which it changed its name to Tharimmune, Inc. effective as of September 25, 2023. The name change became effective with The Nasdaq Capital Market on September 25, 2023 and the Company’s common stock has since traded on The Nasdaq Capital Market under the new name and new ticker symbol, “THAR.”
Liquidity and Going Concern
The
accompanying condensed consolidated financial statements have been prepared on the basis that the Company is a going concern, which contemplates,
among other things, the realization of assets and satisfaction of liabilities in the normal course of business. For the nine months ended
September 30, 2023, the Company incurred operating losses in the amount of approximately $
F-5 |
Based on the Company’s limited operating history, recurring negative cash flows from operations, current plans and available resources, the Company will need substantial additional funding to support future operating activities. The Company has concluded that the prevailing conditions and ongoing liquidity risks faced raise substantial doubt about the Company’s ability to continue as a going concern for at least one year following the date these condensed consolidated financial statements are issued. The accompanying condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
The Company may seek to raise additional funding through the sale of additional equity or debt securities, enter into strategic partnerships, grants, or other arrangements or a combination of the foregoing to support its future operations, however, there can be no assurance that the Company will be able to obtain additional capital on terms acceptable to the Company, on a timely basis or at all. The failure to obtain sufficient additional funding could adversely affect the Company’s ability to achieve its business objectives and product development timelines and may result in the Company delaying or terminating clinical trial activities which could have a material adverse effect on the Company’s results of operations.
Other Risks and Uncertainties
There can be no assurance that the Company’s products, if approved, will be accepted in the marketplace, nor can there be any assurance that any future products can be developed or manufactured at an acceptable cost and with appropriate performance characteristics, or that such products will be successfully marketed, if at all. The Company is subject to risks common to biopharmaceutical companies including, but not limited to, the development of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, product liability, uncertainty of market acceptance of products and the need to obtain additional financing. The Company is dependent on third party suppliers. The Company’s products require approval or clearance from the FDA prior to commencing commercial sales in the United States. Approvals or clearances are also required in foreign jurisdictions in which the Company may license or sell its products. There can be no assurance that the Company’s products will receive all of the required approvals or clearances.
F-6 |
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
These accompanying unaudited condensed consolidated interim financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. These financial statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary for a fair statement of the balance sheet, operating results, and cash flows for the periods presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Operating results for the nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2023 or any other future period. Certain information and footnote disclosure normally included in the annual financial statements prepared in accordance with U.S. GAAP have been omitted in accordance with the SEC’s rules and regulations for interim reporting. The Company’s financial position, results of operations, and cash flows are presented in U.S. Dollars. These financial statements and related notes should be read in conjunction with the audited financial statements and related notes thereto for the year ended December 31, 2022 included in the Company’s amended Annual Report on Form 10-K/A filed with the SEC on May 22, 2023. The Company operates in one segment.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Tharimmune and its wholly-owned subsidiaries, HB and Farrington Therapeutics LLC. All significant intercompany balances and transactions have been eliminated in consolidation. On February 27, 2023, the Company filed a Certificate of Cancellation with the Delaware Secretary of State with respect to Farrington Therapeutics LLC.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Management bases its estimates on historical experience and on assumptions believed to be reasonable under the circumstances. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. Estimates are used in the following areas, among others: research and development expense recognition, valuation of common shares and stock options, allowances of deferred tax assets, valuation of debt related instruments, and cash flow assumptions regarding going concern considerations. Although management believes the estimates that have been used are reasonable, actual results could vary from the estimates that were used.
Concentration of Credit Risk
The
Company maintains cash balances with various financial institutions. Account balances at these institutions are insured by the Federal
Deposit Insurance Corporation up to $
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. Cash equivalents, if any, are stated at cost and consist primarily of money market accounts.
F-7 |
Research and Development
Research
and development costs are expensed as incurred. Research and development expenses include personnel costs associated with research and
development activities, including third party contractors to perform research, conduct clinical trials, and manufacture drug supplies
and materials. The Company accrues for costs incurred by external service providers, including contract research organizations and clinical
investigators, based on its estimates of service performed and costs incurred. These estimates include the level of services performed
by third parties, patient enrollment in clinical trials, administrative costs incurred by third parties, and other indicators of the
services completed. Approximately $
The Company recognizes compensation costs resulting from the issuance of stock-based awards to employees, non-employees, and directors as an expense in the condensed consolidated statements of operations over the requisite service period based on a measurement of fair value for each stock-based award. The fair value of each option grant to employees, non-employees and directors is estimated as of the date of grant using the Black-Scholes option-pricing model, net of actual forfeitures. The fair value is amortized as compensation cost on the straight-line basis over the requisite service period of the awards, which is generally the vesting period.
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. Prior to January 12, 2022, the Company was a private company and the Company’s common stock has only been publicly traded since that date. As a result, the Company has lacked company-specific historical and implied volatility information. Therefore, it has estimated its expected stock volatility based on the historical data regarding the volatility of a publicly traded set of peer companies. The expected term of stock options granted was between five and seven years. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award.
Common Stock Valuations
Prior to the IPO, the Company was required to periodically estimate the fair value of common stock with the assistance of an independent third-party valuation expert when issuing stock options and computing its estimated stock-based compensation expense and value of shares issued in acquiring product candidates. The assumptions underlying these valuations represented management’s best estimates, which involved inherent uncertainties and the application of significant levels of management judgment. In order to determine the fair value, the Company considered, among other things, contemporaneous valuations of the Company’s common stock; the Company’s business, financial condition and results of operations, including related industry trends affecting its operations; the likelihood of achieving various liquidity events; the lack of marketability of the Company’s common stock; the market performance of comparable publicly traded companies; and U.S. and global economic and capital market conditions. Since the closing of the Company’s IPO on January 14, 2022, the fair value of common stock has been determined by using the closing price of the Company’s common stock on The Nasdaq Capital Market.
Treasury Stock
The
Company’s board of directors authorized the repurchase of up to $
Debt Discount and Derivative Instruments
The initial fair value of the redemption feature relating to the convertible debt instruments was treated as a debt discount and was amortized over the term of the related debt using the straight-line method, which approximates the interest method. Amortization of debt discount was recorded as a component of interest expense. If a loan is paid in full, any unamortized debt discounts will be removed from the related accounts and charged to operations. As the convertible debt was converted into common stock at the date of the IPO, the unamortized debt discount was charged to interest expense.
F-8 |
The Company accounts for derivative instruments in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 815, Derivative and Hedging, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other financial instruments or contracts and requires recognition of all derivatives on the balance sheet at fair value. The Company’s derivative financial instrument consisted of an embedded feature contained in the Company’s convertible debt that was bifurcated and accounted for separately. See Note 3 to the condensed consolidated financial statements for further details.
Fair Value Measurements
The Company applies FASB ASC Topic 820, Fair Value Measurement (“ASC Topic 820”), which establishes a framework for measuring fair value and clarifies the definition of fair value within that framework. ASC Topic 820 defines fair value as an exit price, which is the price that would be received for an asset or paid to transfer a liability in the Company’s principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value hierarchy established in ASC Topic 820 generally requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect the assumptions that market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the entity’s own assumptions based on market data and the entity’s judgments about the assumptions that market participants would use in pricing the asset or liability and are to be developed based on the best information available in the circumstances.
The carrying value of the Company’s cash, prepaid expenses, accounts payable, and accrued expenses approximate fair value because of the short-term maturity of these financial instruments. The redemption feature of the debt instruments is recorded at fair value. See Note 4 to the condensed consolidated financial statements for further details.
The valuation hierarchy is composed of three levels. The classification within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The levels within the valuation hierarchy are described below:
Level 1 Inputs: Observable inputs such as quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2 Inputs: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for assets or liabilities recently traded in active markets, with similar underlying terms, as well as direct or indirect observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals, as well as quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3 Inputs: Unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market data exists for the assets or liabilities, that reflect the reporting entity’s own assumptions.
Deferred Offering Costs
Deferred
offering costs prior to the IPO consisted of legal, accounting, printing, and filing fees that the Company capitalized which were offset
against the proceeds from the IPO. Deferred offering costs prior to the additional public offering of the Company’s common stock
which closed on May 2, 2023 consisted of professional services incurred for filing of the Company’s Registration Statement on Form
S-3 using a “shelf” registration process for additional securities offerings. These deferred offering costs were offset against
the proceeds from the public offering of the Company’s common stock. See Note 5 to the condensed consolidated financial statements.
Deferred offering costs of $
F-9 |
Insurance Premium Financing Liability
Relating
to the directors’ and officers’ insurance premium with an effective date of January 2022, the Company entered into an insurance
premium financing agreement for $
Relating
to the directors’ and officers’ insurance premium with an effective date of January 2023, the Company entered into an insurance
premium financing agreement for $
Retirement Plan
The
Company has a 401(k) defined contribution plan which covers all employees that meet the plan’s eligibility requirements. Eligible
employees may contribute a percentage of their salary subject to certain limitations. The Company makes a discretionary match which is
currently up to 3% of employee contributions. Total Company contributions to the plan were $
Income Taxes
The Company accounts for income taxes using the asset-and-liability method in accordance with FASB ASC Topic 740, Income Taxes (“ASC Topic 740”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.
Deferred income taxes are recognized for the tax effect of temporary differences between the financial statement carrying amount of assets and liabilities and the amounts used for income tax purposes and for certain changes in valuation allowances. Valuation allowances are recorded to reduce certain deferred tax assets when, in management’s estimation, it is more-likely-than-not that a tax benefit will not be realized. A valuation allowance has been recognized for all periods since it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized in future periods.
The Company follows the guidance in FASB ASC Subtopic 740-10 in assessing uncertain tax positions. The standard applies to all tax positions and clarifies the recognition of tax benefits in the financial statements by providing for a two-step approach of recognition and measurement. The first step involves assessing whether the tax position is more-likely-than-not to be sustained upon examination based upon its technical merits. The second step involves measurement of the amount to be recognized. Tax positions that meet the more-likely-than-not threshold are measured at the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate finalization with the taxing authority. The Company recognizes the impact of an uncertain income tax position in the financial statements if it believes that the position is more-likely-than-not to be sustained by the relevant taxing authority. The Company will recognize interest and penalties related to tax positions in income tax expense. At September 30, 2023 and December 31, 2022, the Company had no unrecognized uncertain income tax positions, and therefore no amounts have been recognized in the condensed consolidated financial statements.
The Company reports loss per share in accordance with FASB ASC Subtopic 260-10, Earnings Per Share, which provides for calculation of basic and diluted earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income or loss available to common stockholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity. The calculation of diluted net earnings (loss) per share gives effect to common stock equivalents; however, potential common shares are excluded if their effect is anti-dilutive.
F-10 |
Potentially dilutive securities not included in the computation of loss per share for the three and nine months ended September 30, 2023 and 2022 included options to purchase and shares of common stock, respectively. Other potentially dilutive securities also not included in the computation of loss per share for the three and nine months ended September 30, 2023 and 2022 included warrants to purchase shares of the Company’s common stock related to the IPO and for the three and nine months ended September 30, 2023, an additional shares of the Company’s common stock related to the public offering which closed on May 2, 2023.
Reclassifications
Certain items have been reclassified on the September 30, 2022 condensed consolidated statement of cash flows for comparison purposes with the December 31, 2022 consolidated statement of cash flows, which is not presented herein, but should be referenced in conjunction with the condensed consolidated figures for September 30, 2022. Interest and the original issuance discount on promissory notes was added to the net cash used in operating activities and proceeds from promissory notes and repayments of promissory notes were added to net cash provided by (used in) financing activities.
Recently Adopted Accounting Pronouncements
The Company has evaluated all recent accounting pronouncements that were required to be adopted and believes that none of them will have a material effect on the Company’s financial position, results of operations, or cash flows.
Recent Accounting Pronouncements Not Yet Adopted
Debt with Conversion and Other Options and Derivatives and Hedging
The FASB issued Accounting Standards Update (“ASU”) 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), to reduce complexity in applying U.S. GAAP to certain financial instruments with characteristics of liabilities and equity. The guidance in ASU 2020-06 simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock. The guidance in FASB ASC Subtopic 470-20 applies to convertible instruments for which the embedded conversion features are not required to be bifurcated from the host contract and accounted for as derivatives. In addition, the amendments revise the scope exception from derivative accounting in FASB ASC Subtopic 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification. These amendments are expected to result in more freestanding financial instruments qualifying for equity classification (and, therefore, not accounted for as derivatives), as well as fewer embedded features requiring separate accounting from the host contract. The amendments in ASU 2020-06 further revise the guidance in FASB ASC Topic 260, Earnings Per Share, to require entities to calculate diluted earnings per share (“EPS”) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. The amendments in ASU 2020-06 are effective for public entities that meet the definition of an SEC filer, excluding smaller reporting companies (as defined by the SEC) for fiscal years beginning after December 15, 2021. For all other entities, including the Company, the amendments are effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company is currently evaluating the impact this standard will have on its condensed consolidated financial statements.
F-11 |
Note 3 – Convertible Notes - Related Parties
Commencing
in May 2017, the Company entered into Subordinated Convertible Promissory Note Agreements (the “Agreements”) with certain
lenders (together, the “Holders” or individually, the “Holder”), pursuant to which the Company issued Subordinated
Convertible Promissory Notes (individually the “Note” or together, the “Notes”) to the Holders, principally all
to the Chief Executive Officer (“CEO”) and founder of the Company, a member of the Company’s board of directors and
third parties that are family members of the founder and CEO. Interest on the unpaid principal balance accrued at a rate of
In
general, the stated maturity date was
The
Notes were to automatically convert into the type of Equity Securities issued in the Next Equity Financing upon closing. The number of
shares of such Equity Securities to be issued was equal to the quotient obtained by dividing the outstanding principal and unpaid accrued
interest due on the Note on the date of conversion by the lesser of (i)
Certain
embedded features contained in the Notes in the aggregate were embedded derivative instruments, which were recorded as a debt discount
and derivative liability at the issuance date at their estimated fair value for all Notes of approximately $
Accrued
interest expense associated with the Notes at the date of the IPO was approximately $
Note 4 – Redemption Liability
The
fair value of the redemption liability is calculated under Level 3 of the fair value hierarchy, determined based upon a probability-weighted
expected returns method (“PWERM”). This PWERM was determined to be the most appropriate method of estimating the value of
possible redemption or conversion outcomes over time, since the Company had not entered into a priced equity round through December 31,
2021. The significant assumptions utilized in these calculations are the possible exit scenarios (either a conversion of the principal
and accrued interest of the Notes in the event of a Next Equity Financing (see Note 3 to the condensed consolidated financial statements),
a repayment of the Notes and accrued interest in the event of a corporate transaction (as defined in the Notes) or a repayment of the
Notes and accrued interest at maturity), the pre-money valuation of the Company’s common stock, the probabilities of such exit
events occurring, and discounts/premiums available to the Holders at such measurement dates. The calculation of the redemption liability
prior to the IPO was based upon the actual incremental value derived by the Holders at the IPO date. The balance of approximately $
F-12 |
Note 5 – Common Stock
Pursuant
to an amendment to the Company’s Certificate of Incorporation filed in April 2019, the Company increased the number of authorized
shares of common stock to
On
January 14, 2022, the Company closed the IPO pursuant to which it issued
On
February 16, 2022, the Company entered into an agreement for marketing and investor related consulting services. Pursuant to the agreement,
compensation includes a monthly fee and an upfront issuance of shares of the Company’s common stock. On the effective date of February
16, 2022, the Company issued
On June 9, 2022, the Company’s Board of Directors authorized the repurchase of up to $ shares of the Company’s common stock until December 31, 2022. On June 10, 2022, the Company entered into a Repurchase Agreement (the “Repurchase Agreement”) with a financial institution pursuant to which such financial institution was able to purchase shares of the Company’s common stock upon the terms and conditions set forth in such agreement, including in accordance with the guidelines specified in Rules 10b5-1 and 10b-8 under the Securities Exchange Act of 1934, as amended. Shares of the Company’s common stock were able to be repurchased in open market or through privately-negotiated transactions. Pursuant to the Repurchase Agreement, the financial institution was to cease purchasing shares of the Company’s common stock upon the earlier of (i) the close of trading on December 31, 2022, (ii) the completion of repurchases up to the approved amount and (iii) the date upon which the Company gave notice of termination of the Repurchase Agreement to the financial institution. The Company determined the timing and amount of any repurchases based upon its evaluation of market conditions, applicable SEC guidelines and regulations, and other factors.
During
the three and nine months ended September 30, 2022, the Company purchased
On
March 17, 2023, the Company filed a Registration Statement on Form S-3 with the SEC using a “shelf” registration process
pursuant to which, the Company may sell, from time to time in one or more offerings, shares of common stock and preferred stock, various
series of debt securities and/or warrants to purchase any of such securities, either individually or as units comprised of a combination
of one or more of the other securities in one or more offerings up to a total dollar amount of $
F-13 |
On
May 2, 2023, the Company closed a public offering pursuant to which it issued
On
June 27, 2023, pursuant to the research and development collaboration and license agreement with Applied Biomedical Science Institute
(“ABSI”) as discussed in Note 8 to the condensed consolidated financial statements, on the effective date of the agreement,
the Company issued $
Incentive Plans and Options
Under the Company’s 2017 Stock Incentive Plan (the “2017 Stock Incentive Plan”) the Company may grant incentive stock options, non-statutory stock options, rights to purchase common stock, stock appreciation rights, restricted stock, performance shares, and performance units to employees, directors, and consultants of the Company and its affiliates. Up to shares of the Company’s common stock may be issued pursuant to the 2017 Stock Incentive Plan.
The Company has granted options to acquire shares of common stock at $ per share under the 2017 Stock Incentive Plan, and shares remain available for issuance. At both September 30, 2023 and December 31, 2022, there were options outstanding to acquire shares of common stock. As of both September 30, 2023 and December 31, 2022, all such options were fully vested, and the weighted average remaining contractual life for such options was approximately and years, respectively.
In July 2019, the Company authorized a new plan (the “2019 Stock Incentive Plan”). The Company initially reserved shares of its common stock for issuance pursuant to the 2019 Stock Incentive Plan in the form of incentive stock options, non-statutory stock options, rights to purchase common stock, stock appreciation rights, restricted stock, performance shares, and performance units to employees, directors, and consultants of the Company and its affiliates. On August 30, 2019, the Company approved an increase in the number of shares authorized for issuance under the 2019 Stock Incentive Plan by shares. In January 2021, the Company approved an increase in the number of shares reserved for issuance under the 2019 Stock Incentive Plan by shares. On May 31, 2021, the Company approved an increase in the number of shares reserved for issuance under the 2019 Stock Incentive Plan by shares. At both September 30, 2023 and December 31, 2022, a total of shares were authorized for issuance under the 2019 Stock Incentive Plan.
The Company has granted options to acquire and shares of common stock under the 2019 Stock Incentive Plan, and and shares of common stock remain available for issuance under the 2019 Stock Incentive Plan at September 30, 2023 and December 31, 2022, respectively. There are stock options outstanding to acquire and shares of common stock with weighted average exercise prices of $ and $ and weighted average contractual terms of years and years at September 30, 2023 and December 31, 2022, respectively.
F-14 |
Weighted | Weighted | |||||||||||
Shares | Average | Average | ||||||||||
Underlying | Exercise | Contractual | ||||||||||
Options | Price | Terms | ||||||||||
Outstanding at December 31, 2022 | $ | years | ||||||||||
Granted | $ | |||||||||||
Outstanding at September 30, 2023 | $ | years | ||||||||||
Exercisable options at September 30, 2023 | $ | years | ||||||||||
Vested and expected to vest at September 30, 2023 | $ | years |
The fair value of stock option awards is estimated at the date of grant using the Black-Scholes option-pricing model. The estimated fair value of each stock option is then expensed over the requisite service period, which is generally the vesting period (ranging between immediate vesting and four years). The determination of fair value using the Black-Scholes model is affected by the Company’s share price as well as assumptions regarding a number of complex and subjective variables, including expected price volatility, expected life, risk-free interest rate and forfeitures.
For the three months ended | For the nine months ended | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2023* | 2022 | 2023 | 2022 | |||||||||||||
Expected volatility | N/A | % | % | - | % | |||||||||||
Risk-free interest rate | N/A | % | % | - | % | |||||||||||
Expected dividend yield | N/A | % | % | % | ||||||||||||
Expected life of options in years |
N/A |
– | ||||||||||||||
Estimated fair value of options granted |
N/A | $ | $ |
$ - $ |
* | stock options were granted during the three months ended September 30, 2023. |
The weighted average grant date fair value of stock options granted during the three months ended September 30, 2022 was approximately $ . The weighted average grant date fair value of stock options granted during the nine months ended September 30, 2023 and 2022 was approximately $ and $ , respectively. The weighted average fair value of stock options vested during the three and nine months ended September 30, 2023 was approximately $ and $ , respectively, and during the three and nine months ended September 30, 2022 was approximately $ and $ , respectively.
Included in the above table are stock options granted in 2019 to purchase shares of the Company’s common stock at an exercise price of $ per share, which vested upon a specified performance condition. These stock options vested at the date of the Company’s IPO, which was the specified performance condition.
F-15 |
For the three months ended | For the nine months ended | |||||||||||||||
September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||||||||
Research and development | $ | $ | $ | $ | ||||||||||||
General and administrative | ||||||||||||||||
Total stock based compensation | $ | $ | $ | $ |
At September 30, 2023, the total unrecognized compensation expense related to non-vested options was approximately $ million and is expected to be recognized over the remaining weighted average service period of approximately years.
Warrants
In
connection with the IPO, the Company issued warrants to purchase such number of shares of the Company’s common stock equal to 5%
of the total shares of common stock issued in the IPO. The warrants are exercisable at $
In
connection with the May 2, 2023 public offering as described in Note 5 to the condensed consolidated financial statements, the Company
issued warrants to designees of the underwriter (the “Representative’s Warrants”) to purchase
Terms of the warrants outstanding at September 30, 2023 are as follows:
Initial | Exercise | Warrants | Warrants | Warrants | ||||||||||||||||||
Issuance Date | Exercise Date | Expiration Date | Price | Issued | Exercised | Outstanding | ||||||||||||||||
$ | ||||||||||||||||||||||
$ |
Note 7 – Related-party Transactions
As described in Note 3 to the condensed consolidated financial statements, the Company entered into the Notes with the Holders commencing in May 2017. The Holders of substantially all of the Notes were the Company’s founder and CEO, a member of the Company’s board of directors, and third parties that are family members of the founder and CEO. The Notes were converted into shares of the Company’s common stock on January 14, 2022 in connection with the closing of the IPO.
On
January 4, 2022 and January 6, 2022, the Company issued unsecured promissory notes in the aggregate principal amount of approximately
$
F-16 |
Note 8 – Commitments and Contingencies
Small Molecule Analogues
On
December 30, 2019,
Research Collaboration and Product License Agreement with Minotaur Therapeutics, Inc. (“Minotaur”) and Commercial License Agreement with Taurus Biosciences, LLC (“Taurus”)
The Company has entered into a research collaboration and product license agreement with Minotaur (as amended, the “Minotaur Agreement”) and a commercial license agreement with Taurus (the “Taurus Agreement”) for use of certain technology, including OmniAb antibodies, to advance Picobodies against novel, unreachable, and undruggable epitopes in high-value validated targets starting with PD-1. The Minotaur Agreement and Taurus Agreement are for the development of proprietary targeted biologics, including TH 1940, against PD-1. It is anticipated that the Company will collaborate with Minotaur under the license from Taurus to discover, develop, and advance biotherapeutics against high-value validated IO targets starting with PD-1.
The
Minotaur Agreement included an up-front payment of $
Research and Development Collaboration and License Agreement with Applied Biomedical Science Institute
On July 5, 2023 (the “ABSI Effective Date”), the Company entered into a Research and Development Collaboration and License Agreement (the “ABSI Agreement”) with ABSI pursuant to which ABSI granted the Company an exclusive royalty-bearing, sublicensable license to the ABSI Patents (as defined in the ABSI Agreement) and a non-exclusive, royalty-bearing, sublicensable license to the ABSI Know-How (as defined in the ABSI Agreement) to Exploit (as defined in the ABSI Agreement) the ABSI Products (as defined in the ABSI Agreement) for the treatment, diagnosis, prediction, detection or prevention of disease in humans and animals worldwide (the “Territory”).
Pursuant to the ABSI Agreement, the parties shall form a committee to manage the preclinical, investigational new drug enabling studies and such other activities as shall lead to the initiation of a Phase 1 clinical trial of the ABSI Product. The parties will collaborate on a Target-by-Target basis to identify and evaluate ABSI Products directed against such Target (as defined below) with a view to identifying or generating suitable Products (as defined in the ABSI Agreement) for the Company to Exploit. “Target” means ErB2 (Her2) and ErbB3. Upon completion of the Discovery Timeline (as defined in the ABSI Agreement) for a Target, subject to the terms and conditions of ABSI Agreement, the Company shall exclusively own any ABSI Products against such Target. In the event the committee determines that the discovery activities are unsuccessful with respect to a Target, the Company may propose an additional target, which, upon approval by ABSI, shall replace a failed Target.
F-17 |
Pursuant
to the ABSI Agreement: (i) the Company issued ABSI
On a Product by Product basis, upon the expiration of the last Royalty Term of such Product in the Territory, licenses granted to the Company with respect to such Product shall be deemed non-exclusive, fully paid, royalty-free, perpetual and irrevocable. The ABSI Agreement shall expire upon the expiration of the last Royalty Term of the last Product, unless such agreement is terminated earlier pursuant to its terms. The ABSI Agreement may also be terminated (i) by either the Company or ABSI for (A) a material breach of the ABSI Agreement or (B) bankruptcy, (ii) ABSI may terminate the ABSI Agreement upon the commencement of a Challenge Proceeding (as defined in the ABSI Agreement) or (iii) the Company may terminate the ABSI Agreement at any time upon 90 days prior written notice to ABSI. Upon termination or expiration of the ABSI Agreement other than as a result of a bankruptcy or Challenge Proceeding, all licenses granted to the Company pursuant to such agreement will terminate and all rights under such licenses shall revert to ABSI.
Employment Agreements
In
January 2019, the Company entered into a three-year employment agreement with its CEO which provided a specified base salary and bonus.
The employment agreement also provided the CEO with certain benefits while employed and if employment ceases. The Company accrued $
In
January 2020, the Company amended the employment agreement pursuant to which, in lieu of a cash base salary, the CEO was to be compensated
with stock options to purchase
Effective
January 1, 2021, the Company amended the employment agreement with its CEO to provide a revised base salary pre-funding (as defined in
the employment agreement). In lieu of cash base salary, the CEO was to be compensated with stock options to purchase
The amended employment agreement
also provided for a future base salary for the CEO after the Company received funding greater than $
F-18 |
On
June 1, 2021, the Company entered into an Amended and Restated Employment Agreement, as amended on September 24, 2021 (the “Amended
and Restated Employment Agreement”) with the Company’s CEO. The term of the Amended and Restated Employment Agreement commenced
upon the closing of the Company’s IPO and continues for a period of five years and automatically renews for successive one-year
periods at the end of each term unless either party provides written notice of their intent not to renew at least 60 days prior to the
expiration of the then effective term. Pursuant to the Amended and Restated Employment Agreement, the CEO will receive an annual base
salary of $
On January 1, 2023, in lieu of half of his 2023 salary, the CEO was issued options to purchase up to shares of the Company’s common stock at an exercise price of $ per share, which options vested immediately on the date of grant.
On
July 6, 2023, the Company entered into an amended and restated employment agreement (the “CEO Employment Agreement”) with
the CEO. The Employment Agreement has the same terms as the COO Employment Agreement (as defined below) except, the CEO shall (i) receive
a base salary of $
In
connection with the appointment of the Company’s Chief Operating Officer, on July 11, 2023 (the “Effective Date”),
the Company entered into an employment agreement (the “COO Employment Agreement”) with the COO. The COO Employment Agreement
shall continue for a period of five years and, thereafter, shall automatically renew for successive one year terms unless either party
provides the other party with written notice of non-renewal at least 60 days prior to the last day of the then current term. Pursuant
to the COO Employment Agreement, the COO shall: (i) receive a base salary of $
Note 9 – Subsequent Events
Except as noted below, there were no material subsequent events that required recognition or additional disclosure in these condensed consolidated financial statements.
F-19 |
Avior Patent License Agreement
On November 3, 2023 (the “Avior Effective Date”),
the Company entered into the Avior Patent License Agreement with Avior pursuant to which the Company received an exclusive sublicensable
right and license to Licensed Patent Rights and Licensed Technology to, among other things, Develop, have Developed, make, have made,
use, sell, import, export and commercialize TH104 and TH103 and to practice the Licensed Technology in connection with the foregoing,
throughout the world. Pursuant to the Avior Patent License Agreement, the Company shall pay Avior a mid six digit up front license fee
within ten days of the Avior Effective Date and an additional mid six digit license fee which shall be paid in four equal installments
within ten days of the end of each fiscal quarter following the Avior Effective Date. In addition, the Company shall pay Avior a high
single digit percentage of any upfront payments received by it as a result of the grant of any sublicenses with respect to TH104. The
Company shall also pay Avior milestone payments in the aggregate amount of $
2023 Omnibus Equity Incentive Plan
On August 17, 2023, the Board of Directors adopted the Tharimmune, Inc. 2023 Omnibus Equity Incentive Plan (the “2023 Plan”), which became effective upon approval by the stockholders on October 23, 2023. Under the Company’s 2023 Plan, the Company may grant incentive stock options, non-statutory stock options, rights to purchase common stock, stock appreciation rights, restricted stock, performance shares, and performance units to employees, directors, and consultants of the Company and its affiliates. Up to shares of the Company’s common stock may initially be issued pursuant to the 2023 Plan.
Both of the 2017 Stock Incentive Plan and 2019 Stock Incentive Plan (together, the “Prior Plans”) are currently maintained and the 2023 Plan is intended to succeed the Prior Plans with the intention that no further awards shall be issued under the Prior Plans. All outstanding awards under the Prior Plans will continue to be governed by the terms, conditions, and procedures set forth in the Prior Plans and any applicable award agreement.
F-20 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited interim condensed consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may 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 discussed in the section titled “Risk Factors” included in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2022, as may be amended, supplemented or superseded from time to time by other reports we file with the SEC. All amounts in this report are in U.S. dollars, unless otherwise noted.
Throughout this Quarterly Report on Form 10-Q, references to “we,” “our,” “us,” the “Company,” or “Tharimmune,” refer to Tharimmune, Inc. (formerly, Hillstream BioPharma, Inc.), individually, or as the context requires, collectively with its subsidiaries.
Overview
Tharimmune is a clinical-stage biotechnology company developing therapeutic candidates in rare, inflammatory and oncologic conditions with high unmet need. On November 3, 2023, we entered into a patent license agreement (the “Avior Patent License Agreement”) with Avior Inc. d/b/a Avior Bio, LLC (“Avior”) pursuant to which we received an exclusive sublicensable right and license to Licensed Patent Rights (as defined in the Avior Patent License Agreement) and Licensed Technology (as defined in the Avior Patent License Agreement) to, among other things, Develop (as defined in the Avior Patent License Agreement), have Developed, make, have made, use, sell, import, export and commercialize AV104 (to be renamed TH104 and hereinafter referred to as TH104) and AV103 (to be renamed TH103 and hereinafter referred to as TH103) and to practice the Licensed Technology in connection with the foregoing, throughout the world. See “Recent Developments” below for additional information. In February 2023, the U.S. Food and Drug Administration (“FDA”) approved an investigational new drug (“IND”) application for TH104. TH104 has a dual mechanism of action by affecting multiple receptors, known to suppress chronic, debilitating pruritis or “uncontrollable itching”. With respect to TH104, we intend to first seek approval for the treatment of moderate to severe chronic pruritis in patients with primary biliary cholangitis (“PBC”), an orphan rare form of liver disease with no known cure in which more than 70% of patients suffer from debilitating chronic pruritis, and with respect to TH103, we intend to develop the product candidate and potentially file an IND.
We are also developing an early-stage pipeline of novel therapeutic candidates targeting validated high value immuno-oncology (“IO”) targets including human epidermal growth factor (“EGF”) receptor 2 (“HER2”), human EGF receptor 3 (“HER3”) and programmed cell death protein 1 (“PD-1”). We are developing antibodies including bispecific antibodies, antibody drug conjugates (“ADCs”) and small molecular weight bovine-derived Picobodies™ or antibody “knob” domains which have the potential to target and bind more tightly to “undruggable” epitopes better than full sized antibodies. We are advancing TH3215, a bispecific against both HER2 and HER3 antibody which targets a novel “bridging epitope” encompassing multiple domains of the HER2 extracellular domain (“ECD”) as well as ligand-dependent and independent blocking of the ECD of HER3 into IND-enabling studies in 2024. In addition, we anticipate that TH0059, a HER2/HER3 bispecific ADC (“bsADC”), and TH1940, a PD-1 Picobody, will progress to enter IND-enabling studies in 2024.
4 |
We have deprioritized our previous preclinical candidate, HSB-1216, due to a strategic reprioritization of our vision to focus on therapeutics in high unmet need cancers focused on novel epitopes of certain antitumor drug targets.
Minotaur Research and Collaboration Agreement and Taurus License Agreement
On November 21, 2022, we entered into a research collaboration and product license agreement with Minotaur Therapeutics, Inc. (“Minotaur”) and a commercial license agreement with Taurus Biosciences, LLC (“Taurus”) for use of certain technology, including OmniAb antibodies, to advance Picobodies against novel, unreachable, and undruggable epitopes in high-value validated targets starting with PD-1. The research and collaboration agreement and product license agreement are for the development of proprietary targeted biologics including TH 1940, against PD-1. It is anticipated that we will collaborate with Minotaur under the license from Taurus to discover, develop and advance biotherapeutics against high-value validated IO targets starting with PD-1. We extended this agreement in July of 2023 with an additional target (HER3) and an oncology target.
Applied Biomedical Research Institute Research and Development Collaboration and License Agreement
On July 5, 2023 (the “ABSI Effective Date”), we entered into a Research and Development Collaboration and License Agreement (the “ABSI Agreement”) with Applied Biomedical Science Institute (“ABSI”) pursuant to which ABSI granted us an exclusive royalty-bearing, sublicensable license to the ABSI Patents (as defined in the ABSI Agreement) and a non-exclusive, royalty-bearing, sublicensable license to the ABSI Know-How (as defined in the ABSI Agreement) to Exploit (as defined in the ABSI Agreement) the ABSI Products (as defined in the ABSI Agreement) for the treatment, diagnosis, prediction, detection or prevention of disease in humans and animals worldwide (the “Territory”). Pursuant to the ABSI Agreement, the parties shall form a committee to manage the preclinical, investigational new drug enabling studies and such other activities as shall lead to the initiation of a Phase 1 clinical trial of the ABSI Product. The parties will collaborate on a Target-by-Target basis to identify and evaluate ABSI Products directed against such Target with a view to identifying or generating suitable Products (as defined in the ABSI Agreement) for our Company to Exploit. “Target” means ErB2 (Her2) and ErbB3. Upon completion of the Discovery Timeline (as defined in the ABSI Agreement) for a Target, subject to the terms and conditions of ABSI Agreement, we shall exclusively own any ABSI Products against such Target. In the event the committee determines that the discovery activities are unsuccessful with respect to a Target, we may propose an additional target, which, upon approval by ABSI, shall replace a failed Target.
5 |
As part of the ABSI Agreement, on the effective date of the agreement, we issued $250,000 of our common stock to ABSI. On the effective date of July 26, 2023, we issued 627,667 shares of our common stock with a per share value of $0.398 and a total value of $250,000 as compensation expense.
Recent Developments
On November 3, 2023 (the “Avior Effective Date”), we entered into the Avior Patent License Agreement with Avior pursuant to which we received an exclusive sublicensable right and license to Licensed Patent Rights and Licensed Technology to, among other things, Develop, have Developed, make, have made, use, sell, import, export and commercialize TH104 and TH103 and to practice the Licensed Technology in connection with the foregoing, throughout the world. Pursuant to the Avior Patent License Agreement, we shall pay Avior a mid six digit up front license fee within ten days of the Avior Effective Date and an additional mid six digit license fee which shall be paid in four equal installments within ten days of the end of each fiscal quarter following the Avior Effective Date. In addition, we shall pay Avior a high single digit percentage of any upfront payments received by us as a result of the grant of any sublicenses with respect to TH104. We shall also pay Avior milestone payments in the aggregate amount of $24,250,000 upon the occurrence of various development milestones (the “Development Milestone Payments”). Furthermore, we shall pay Avior certain fees based upon sales milestones. The payments for such sales milestones range from the low seven digits to the low eight digits with higher sales being subject to higher fees. Finally, we shall pay Avior royalties based on net sales. Such royalties range from low single digit percentages to mid single digit percentages with higher sales being subject to lower percentages. The Avior Patent License Agreement shall expire upon the expiration of the final payment obligation due to Avior as set forth in such agreement. Upon the expiration of the Avior Patent License Agreement, we shall have a fully paid-up, irrevocable, freely transferable and sublicensable worldwide license to the Licensed Patent Rights and Licensed Technology to Develop, have Developed, make, have made, use, have used sell, offer for sale, have sold, import, have imported, export, have exported, commercialize or have commercialized any and all Licensed Products and to practice the Licensed Technology worldwide. Pursuant to the Avior Patent License Agreement, we may terminate the agreement at any time without cause, upon 30 days’ prior written notice to Avior along with payment of the next unpaid Development Milestone Payment, if any. Furthermore, either we or Avior may terminate the Avior Patent License Agreement (i) on written notice to the other party if the other party materially breaches any provision of the Avior Patent License Agreement and fails to cure such breach within 30 days after the breaching party receives written notice thereof or (ii) on written notice in the event that either party (A) becomes insolvent or admits its inability to pay its debts generally as they become due; (B) becomes subject, voluntarily or involuntarily, to any proceeding under any domestic or foreign bankruptcy or insolvency law, which is not fully dismissed or vacated within 60 days; (C) is dissolved or liquidated or takes any corporate action for such purpose; (D) makes a general assignment for the benefit of creditors; or (E) has a receiver, trustee, custodian or similar agent appointed by order of any court of competent jurisdiction to take charge of or sell any material portion of its property or business. Upon termination of the Avior Patent License Agreement, the license granted pursuant to such agreement shall terminate and all rights in the Licensed Patent Rights and Licensed Products shall revert back to Avior.
Components of Results of Operations
Revenue
We did not recognize revenues for the three and nine months ended September 30, 2023 and 2022.
Research and Development Expenses
Research and development expenses include personnel costs associated with research and development activities, including third-party contractors to perform research, conduct clinical trials, and manufacture drug supplies and materials as well as stock-based compensation. Research and development expenses are charged to operations as incurred.
We accrue costs incurred by external service providers, including contract research organizations and clinical investigators, based on estimates of service performed and costs incurred. These estimates include the level of services performed by third parties, patient enrollment in clinical trials, administrative costs incurred by third parties, and other indicators of the services completed. Based on the timing of amounts invoiced by service providers, we may also record payments made to those providers as prepaid expenses that will be recognized as expense in future periods as the related services are rendered.
We have incurred research and development expenses related to the development of HSB-1216, which has been deprioritized. We expect that our research and development expenses will increase as we plan for and commence our clinical trials of TH3215 and TH1940.
We cannot determine with certainty the duration and costs of future clinical trials of our product candidates, TH3215 and TH1940, or any other product candidates we may develop or if, when or to what extent we will generate revenue from the commercialization and sale of any of our product candidates for which we obtain marketing approval. We may never succeed in obtaining marketing approval for any of our product candidates. The duration, costs and timing of clinical trials and development of our current and future product candidates will depend on a variety of factors, including:
● | the scope, rate of progress, expense and results of clinical trials of our current product candidates, as well as of any future clinical trials of our future product candidates and other research and development activities that we may conduct; |
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● | uncertainties in clinical trial design and patient enrollment rates; |
● | the actual probability of success for our product candidates, including their safety and efficacy, early clinical data, competition, manufacturing capability and commercial viability; |
● | significant and changing government regulations and regulatory guidance; and |
● | the timing and receipt of any marketing approvals. |
A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in our clinical trials due to slower than expected patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development.
General and Administrative Expenses
General and administrative expenses consist primarily of compensation and consulting related expenses, including stock-based compensation. General and administrative expenses also include professional fees and other corporate expenses, including legal fees relating to corporate matters; professional fees for accounting, auditing, tax, and consulting services; insurance costs; travel expenses and other operating costs that are not specifically attributable to research activities.
We expect that our general and administrative expenses will increase in the future as we increase our personnel headcount to support our continued research activities and development of our product candidates. We also incur expenses associated with being a public company, including expenses related to compliance with the rules and regulations of the SEC and Nasdaq, director and officer insurance expenses, corporate governance expenses, investor relations activities and other administrative and professional services.
Interest Income
Interest income consists of interest income from funds held in our cash accounts.
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Results of Operations
Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022
Three Months Ended September 30, | ||||||||||||
2023 | 2022 | Change | ||||||||||
Condensed Consolidated Statements of Operations Data: | ||||||||||||
Operating expenses: | ||||||||||||
Research and development | $ | 488,177 | $ | 831,844 | $ | (343,667 | ) | |||||
General and administrative | 1,356,893 | 1,295,642 | 61,251 | |||||||||
Total operating expenses | 1,845,070 | 2,127,486 | (282,416 | ) | ||||||||
Other expense: | ||||||||||||
Interest expense | (3,496 | ) | - | (3,496 | ) | |||||||
Interest income | 28,451 | - | 28,451 | |||||||||
Total other income (expense) | 24,955 | - | 24,955 | |||||||||
Net loss | $ | (1,820,115 | ) | $ | (2,127,486 | ) | $ | 307,371 |
Research and Development Expenses
Research and development expenses decreased by $343,667, or 41.3%, to $488,177 for the three months ended September 30, 2023 from $831,844 for the three months ended September 30, 2022. The decrease was the result of a decrease in expenses for pre-clinical activities of $198,484 and consulting expenses of $139,420 related to research and development team members as well as a decrease in stock based compensation expense of $5,763. The decrease for the three months ended September 30, 2023 was primarily the result of placing our now deprioritized product candidate, HSB-1216, on hold during the quarter.
General and Administrative Expenses
General and administrative expenses increased by $61,251, or 4.7%, to $1,356,893 for the three months ended September 30, 2023 from $1,295,642 for the three months ended September 30, 2022. The change in general and administrative expenses was primarily due to an increase of $176,572 in investor relations expenses and $108,011 in legal expenses. These increases were offset by a decrease of $248,132 in financial consulting expenses. The overall increase in general and administrative expenses during the three months ended September 30, 2023 was due to increased licensing agreements, increased investor relations costs, and increased salaries related to individuals that took a pay reduction in 2022.
Interest Expense
Interest expense increased by $3,496, or 100.0%, to $3,496 for the three months ended September 30, 2023 from $0 for the three months ended September 30, 2022. The increase in interest expense was primarily related to insurance premium financing liability.
Interest Income
Interest income increased by $28,451, or 100.0%, to $28,451 for the three months ended September 30, 2023 from $0 for the three months ended September 30, 2022. The increase in interest income was primarily from the funds held in our cash accounts.
Net Loss
Net loss decreased by $307,371, or 14.4%, to $1,820,115 for the three months ended September 30, 2023 from $2,127,486 for the three months ended September 30, 2022. The change in net loss was primarily related to the decrease in research and development expenses described above.
Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022
Nine Months Ended September 30, | ||||||||||||
2023 | 2022 | Change | ||||||||||
Condensed Consolidated Statements of Operations Data: | ||||||||||||
Operating expenses: | ||||||||||||
Research and development | $ | 2,566,910 | $ | 1,595,219 | $ | 971,691 | ||||||
General and administrative | 4,357,154 | 3,520,281 | 836,873 | |||||||||
Total operating expenses | 6,924,064 | 5,115,500 | 1,808,564 | |||||||||
Other expense: | ||||||||||||
Interest expense | (16,151 | ) | (1,591,244 | ) | 1,575,093 | |||||||
Interest income | 94,898 | - | 94,898 | |||||||||
Total other income (expense) | 78,747 | (1,591,244 | ) | 1,669,991 | ||||||||
Net loss | $ | (6,845,317 | ) | $ | (6,706,744 | ) | $ | (138,573 | ) |
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Research and Development Expenses
Research and development expenses increased by $971,691, or 60.9%, to $2,566,910 for the nine months ended September 30, 2023 from $1,595,219 for the nine months ended September 30, 2022. The increase was primarily the result of an increase in expenses for pre-clinical activities of $903,561 and stock based compensation expense of $72,114 related to research and development team members. The increase during the nine months ended September 30, 2023 was due to pre-clinical costs, which includes regulatory review of our now deprioritized product candidate, HSB-1216, associated subject studies, scale-up manufacturing costs, and costs under research and development collaboration agreements.
General and Administrative Expenses
General and administrative expenses increased by $836,873, or 23.8%, to $4,357,154 for the nine months ended September 30, 2023 from $3,520,281 for the nine months ended September 30, 2022. The increase in general and administrative expenses was primarily due to an increase of $958,988 in investor relations expenses, $191,960 in legal expenses, $87,920 in accounting expenses, and $80,226 in corporate taxes. These increases were offset by decreases of $193,201 in insurance expense, $87,660 in remuneration paid to our directors, and $204,450 in financial consulting expenses. The overall increase in general and administrative expenses during the nine months ended September 30, 2023 was due to increased licensing agreements, increased investor relations costs, and increased accounting fees.
Interest Expense
Interest expense decreased by $1,575,093, or 99.0%, to $16,151 for the nine months ended September 30, 2023 from $1,591,244 for the nine months ended September 30, 2022. The decrease in interest expense was primarily related to the unamortized debt discount charged to interest expense on the date of the closing of our IPO. See Note 3 to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Interest Income
Interest income increased by $94,898, or 100.0%, to $94,898 for the nine months ended September 30, 2023 from $0 for the nine months ended September 30, 2022. The increase in interest income was primarily from the funds held in our cash accounts.
Net Loss
Net loss increased by $138,573, or 2.1%, to $6,845,317 for the nine months ended September 30, 2023 from $6,706,744 for the nine months ended September 30, 2022. The change in net loss was primarily related to the increases in research and development and general and administrative expenses as described above.
Liquidity and Capital Resources
The accompanying condensed consolidated financial statements have been prepared on the basis that we are a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. For the nine months ended September 30, 2023, we incurred operating losses in the amount of approximately $6.9 million, expended approximately $5.9 million in cash in operating activities, and had an accumulated deficit of approximately $22.2 million as of September 30, 2023. We financed our working capital requirements through September 30, 2023 primarily through the issuance of common stock in our IPO which closed on January 14, 2022. Net proceeds to us from the IPO were approximately $13.0 million. In addition, we closed a public offering of shares of our common stock on May 2, 2023. Net proceeds to us from such offering were approximately $2.1 million.
Based on our limited operating history, recurring negative cash flows from operations, current plans and available resources, we will need substantial additional funding to support future operating activities. We have concluded that the prevailing conditions and ongoing liquidity risks faced by us raise substantial doubt about our ability to continue as a going concern for at least one year following the date the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q are issued. The accompanying condensed consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.
We may seek to raise additional funding through the sale of additional equity or debt securities, enter into strategic partnerships, grants or other arrangements or a combination of the foregoing to support our future operations; however, there can be no assurance that we will be able to obtain additional capital on terms acceptable to us, on a timely basis, or at all. The failure to obtain sufficient additional funding could adversely affect our ability to achieve our business objectives and product development timelines and may result in delaying or terminating clinical trial activities which could have a material adverse effect on our results of operations.
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Cash Flow Activities for the Nine Months Ended September 30, 2023 and 2022
The following table sets forth a summary of our cash flows for the periods presented.
Nine Months Ended September 30, | ||||||||
2023 | 2022 | |||||||
Net cash used in operating activities | $ | (5,884,679 | ) | $ | (5,665,274 | ) | ||
Net cash provided by financing activities | 2,063,206 | 13,257,585 | ||||||
Net increase (decrease) in cash | $ | (3,821,473 | ) | $ | 7,592,311 |
Cash Flows from Operating Activities
Cash used in operating activities for the nine months ended September 30, 2023 was $5,884,679 which consisted of net loss of $6,845,317, partially offset by $911,419 in non-cash charges and other adjustments to reconcile net loss to net cash used in operating activities and a $49,219 in net increase in operating accounts. The non-cash charges consist of stock based compensation of $661,419 and $250,000 of stock issuance pursuant to a services agreement. The net increase in operating activities was primarily due to an increase of $134,796 in prepaid expenses and other current assets offset by an increase of $184,190 in accounts payable.
Cash used in operating activities for the nine months ended September 30, 2022 was $5,665,274 which consisted of net loss of $6,706,744, partially offset by $2,282,342 in non-cash charges and other adjustments to reconcile net loss to net cash used in operating activities and $1,240,872 in net decrease in operating accounts. The non-cash charges consist of amortization of debt discount of $1,569,003, stock issuance pursuant to services agreement of $100,000, stock based compensation of $598,694, and interest and original issuance discount on promissory notes of $14,645. The net decrease in operating activities was primarily due to a decrease of $558,837 in accounts payable, a decrease in due to founder of $200,000, a decrease in accrued expenses of $138,352, an increase of $350,920 in prepaid expenses and other current assets offset by an increase of $7,237 in accrued interest.
Cash Flows from Financing Activities
Cash provided by financing activities for the nine months ended September 30, 2023 was $2,063,206. The net increase in financing activities was from net cash proceeds of $2,263,826 from the issuance of our common stock in connection with a public offering and $716,775 in proceeds received from insurance premium financing liability offset by deferred offering costs of $281,660 and $635,735 in repayments of insurance premium financing liability.
Cash provided by financing activities for the nine months ended September 30, 2022 was $13,257,585. The net increase in financing activities was from net cash proceeds of $13,645,643 from the issuance of our common stock in connection with our IPO, $917,472 in proceeds received from insurance premium financing liability, $125,000 from issuance of promissory notes, and $24,389 from exercise of stock options offset by deferred offering costs of $521,294, $731,833 in repayments of insurance premium financing liability, $139,645 repayments on promissory notes, and purchases of treasury stock at cost of $62,147.
Critical Accounting Policies and Use of Estimates
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Management bases its estimates on historical experience and on assumptions believed to be reasonable under the circumstances. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. Estimates are used in the following areas, among others: research and development expense recognition, valuation of common shares and stock options, allowances of deferred tax assets, valuation of debt related instruments, and cash flow assumptions regarding going concern considerations. Although management believes the estimates that have been used are reasonable, actual results could vary from the estimates that were used.
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Critical Accounting Policies
Research and development
Research and development costs are expensed as incurred. Research and development expenses include personnel costs associated with research and development activities, including third party contractors to perform research, conduct clinical trials and manufacture drug supplies and materials. We accrue for costs incurred by external service providers, including contract research organizations and clinical investigators, based on our estimates of service performed and costs incurred. These estimates include the level of services performed by third parties, patient enrollment in clinical trials, administrative costs incurred by third parties, and other indicators of the services completed.
Stock based compensation
Stock based compensation represents the cost related to stock based awards granted to our employees, directors and consultants, and our affiliates. We measure stock based compensation costs at the grant date, based on the estimated fair value of the award and recognize the cost over the requisite service period.
We recognize compensation costs resulting from the issuance of stock based awards to employees, non-employees and directors as an expense in the condensed consolidated statements of operations over the requisite service period based on a measurement of fair value for each stock based award. The fair value of each option grant to employees, non-employees and directors is estimated as of the date of grant using the Black-Scholes option-pricing model, net of actual forfeitures. The fair value is amortized as compensation cost on a straight-line basis over the requisite service period of the awards, which is generally the vesting period.
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. Prior to January 12, 2022, we were a private company and our common stock has only been publicly traded since that date. As a result, we lacked company-specific historical and implied volatility information. Therefore, we have estimated our expected stock volatility based on the historical data regarding the volatility of a publicly traded set of peer companies. The expected term of stock options granted was between five and seven years. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award.
Recently Issued and Adopted Accounting Standards
See Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
JOBS Act
On April 5, 2012, the Jumpstart Our Business Startups Act (the “JOBS Act”) was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
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We have chosen to take advantage of the extended transition periods available to emerging growth companies under the JOBS Act for complying with new or revised accounting standards until those standards would otherwise apply to private companies provided under the JOBS Act. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates for complying with new or revised accounting standards.
Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain of these exemptions, including, without limitation, (i) providing an auditor’s attestation report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended, and (ii) complying with the requirement adopted by the Public Company Accounting Oversight Board regarding the communication of critical audit matters in the auditor’s report on financial statements. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of our IPO; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act.
ITEM 4. CONTROLS AND PROCEDURES.
Our principal executive officer and principal financial officer evaluated the effectiveness of our “disclosure controls and procedures” as of September 30, 2023, the end of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is accumulated and communicated to a company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Based on the evaluation of our disclosure controls and procedures as of September 30, 2023, our Chief Executive Officer and our Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective. The material weaknesses that have been identified relate to (i) the design and implementation of appropriate segregation of duties to separate the roles of authorizing, initiating, and recording transactions or reviewing transactions for the completeness and accuracy of contracts with financial reporting implications and (ii) the Company lacking sufficient appropriate accounting and reporting knowledge to effectively perform review controls surrounding technical accounting matters. Effective internal control contemplates an appropriate level of review to ensure timely preparation and completeness and accuracy of the financial statements and disclosures.
Remediation Plans
We continue to work to strengthen internal control over financial reporting and management is committed to ensuring that such controls are designed and operating effectively. We are implementing processing and control improvements to address the above material weaknesses as follows:
● | we have initiated a procedure to remediate the material weakness by reviewing the material contracts on a quarterly basis with the accounting department and supporting staff; and |
● | we will use third party experts to review the accounting treatment for significant transactions and provide management with guidance on the treatment of the transactions. |
Changes in Internal Control
Except as set forth above, there were no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.
ITEM 1A. RISK FACTORS.
Risk factors that affect our business and financial results are discussed in Part I, Item 1A “Risk Factors,” in our Annual Report on Form 10-K/A for the year ended December 31, 2022 as filed with the SEC on May 22, 2023 (“Annual Report”), as supplemented by our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 as filed with the SEC on August 11, 2023 (the “Quarterly Report” and together with the Annual Report, the “Periodic Reports”). There have been no material changes in our risk factors from those previously disclosed in our Periodic Reports. You should carefully consider the risks described in our Periodic Reports, which could materially affect our business, financial condition or future results. The risks described in our Periodic Reports are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results. If any of the risks actually occur, our business, financial condition, and/or results of operations could be negatively affected.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
In July 2023, we issued 627,667 shares of our common stock pursuant to a license agreement.
In August 2023, we issued 70,028 shares of our common stock for services.
The foregoing issuances were exempt from registration under Section 4(a)(2) of the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
* | Filed herewith. |
** | Furnished herewith. |
# Pursuant to Item 601(b)(10) of Regulation S-K, certain confidential portions of this exhibit were omitted by means of marking such portions with an asterisk because such information is both not material and is the type that the Company treats as private or confidential.
+ Indicates a management contract or any compensatory plan, contract or arrangement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
THARIMMUNE, INC. | ||
Date: November 7, 2023 | By: | /s/ Randy Milby |
Randy Milby | ||
Chief Executive Officer | ||
(Principal Executive Officer) | ||
Date: November 7, 2023 | By: | /s/ Thomas Hess |
Thomas Hess | ||
Chief Financial Officer | ||
(Principal Financial and Accounting Officer) |
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