10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2022

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: 001-40591

 

HCW Biologics Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

82-5024477

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

 

 

2929 N. Commerce Parkway

Miramar, Florida

33025

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (954) 842–2024

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange
on which registered

 

Common Stock, par value $0.0001 per share

HCWB

The Nasdaq Stock Market LLC

 

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. Yes ☒ No ☐

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). Yes ☒ No ☐

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

 

 

 

 

Non-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 ☐ No

As of May 12, 2022, the registrant had 35,796,457 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 


 

Table of Contents

 

 

 

Page

 

PART I.

FINANCIAL INFORMATION

1

 

Item 1.

Financial Statements

1

 

 

Unaudited condensed interim financial statements as of and for the three months ended March 31, 2021 and March 31, 2022:

 

 

 

Balance sheets

1

 

 

Statements of operations

2

 

 

Statements of changes in redeemable preferred stock and stockholders’ (deficit) equity

3

 

 

Statements of cash flows

4

 

 

Notes to financial statements

5

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

11

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

18

 

Item 4.

Controls and Procedures

18

 

PART II.

OTHER INFORMATION

19

 

Item 1.

Legal Proceedings

19

 

Item 1A.

Risk Factors

19

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

19

 

Item 3.

Defaults Upon Senior Securities

19

 

Item 4.

Mine Safety Disclosures

19

 

Item 5.

Other Information

19

 

Item 6.

Exhibits

20

 

Signatures

21

 

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

HCW Biologics Inc.

Condensed Balance Sheets

 

 

 

December 31,

 

 

March 31,

 

 

 

2021

 

 

2022

 

 

 

 

 

 

(unaudited)

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

11,730,677

 

 

$

18,117,074

 

Short-term investments

 

 

24,983,520

 

 

 

16,969,298

 

Accounts receivable, net

 

 

133,000

 

 

 

553,007

 

Prepaid expenses

 

 

2,196,557

 

 

 

2,020,545

 

Other current assets

 

 

1,436,616

 

 

 

245,617

 

Total current assets

 

 

40,480,370

 

 

 

37,905,541

 

Investments

 

 

11,522,050

 

 

 

11,351,310

 

Property and equipment, net

 

 

1,119,091

 

 

 

1,012,402

 

Other assets

 

 

393,318

 

 

 

686,414

 

Total assets

 

$

53,514,829

 

 

$

50,955,667

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

223,664

 

 

$

743,120

 

Accrued liabilities and other current liabilities

 

 

2,097,925

 

 

 

674,296

 

Total current liabilities

 

 

2,321,589

 

 

 

1,417,416

 

Other liabilities

 

 

 

 

 

139,597

 

Total liabilities

 

 

2,321,589

 

 

 

1,557,013

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock:

 

 

 

 

 

 

Common, $0.0001 par value; 250,000,000 shares authorized
   and
35,768,264 shares issued at December 31, 2021; 250,000,000 shares
   authorized and
35,779,489 shares issued at March 31, 2022

 

 

3,577

 

 

 

3,578

 

Additional paid-in capital

 

 

81,827,006

 

 

 

82,089,626

 

Accumulated deficit

 

 

(30,637,343

)

 

 

(32,694,550

)

Total stockholders’ equity

 

 

51,193,240

 

 

 

49,398,654

 

Total liabilities and stockholders’ equity

 

$

53,514,829

 

 

$

50,955,667

 

 

See accompanying notes to the unaudited condensed interim financial statements.

 

1


 

HCW Biologics Inc.

Condensed Statements of Operations

(Unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

 

2021

 

 

2022

 

 

Revenues:

 

 

 

 

 

 

 

Revenues

 

$

 

 

$

3,117,545

 

 

Cost of revenues

 

 

 

 

 

(1,328,076

)

 

Net revenues

 

 

 

 

 

1,789,469

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

$

2,329,812

 

 

$

1,789,678

 

 

General and administrative

 

 

1,082,360

 

 

 

1,880,601

 

 

Total operating expenses

 

 

3,412,172

 

 

 

3,670,279

 

 

Loss from operations

 

 

(3,412,172

)

 

 

(1,880,810

)

 

Interest and other income (loss), net

 

 

568,176

 

 

 

(176,397

)

 

Net loss

 

$

(2,843,996

)

 

$

(2,057,207

)

 

Less: cumulative preferred dividends earned in the period

 

 

(477,358

)

 

 

 

 

Net loss available for distribution to common stockholders

 

$

(3,321,354

)

 

$

(2,057,207

)

 

Net loss per share, basic and diluted

 

$

(0.69

)

 

$

(0.06

)

 

Weighted average shares outstanding, basic and diluted

 

 

4,839,871

 

 

 

35,778,032

 

 

 

See accompanying notes to the unaudited condensed interim financial statements.

 

2


 

HCW Biologics Inc.

Condensed Statements of Changes in Redeemable Preferred Stock and Stockholders’ (Deficit) Equity

For the Three Months Ended March 31, 2021 and 2022

(Unaudited)

 

 

 

Redeemable Preferred Stock

 

 

 

Stockholders’ Deficit

 

 

 

Series A

 

 

Series B

 

 

Series C

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balance, December 31, 2020

 

 

6,316,691

 

 

$

6,140,792

 

 

 

12,012,617

 

 

$

13,680,306

 

 

 

5,439,112

 

 

$

11,294,301

 

 

 

 

4,793,393

 

 

$

480

 

 

$

 

 

$

(16,718,877

)

 

$

(16,718,397

)

Issuance of Class A
   Common Stock upon
   exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

88,702

 

 

 

8

 

 

 

13,377

 

 

 

 

 

 

13,385

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

641

 

 

 

 

 

 

641

 

6% cumulative dividends on
   redeemable preferred
   stock

 

 

 

 

 

95,992

 

 

 

 

 

 

213,971

 

 

 

 

 

 

167,395

 

 

 

 

 

 

 

 

 

 

(14,018

)

 

 

(463,340

)

 

 

(477,358

)

Accretion of issuance costs

 

 

 

 

 

 

 

 

 

 

 

3,929

 

 

 

 

 

 

10,200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,843,996

)

 

 

(2,843,996

)

Balance, March 31, 2021

 

 

6,316,691

 

 

$

6,236,784

 

 

 

12,012,617

 

 

$

13,898,206

 

 

 

5,439,112

 

 

$

11,471,896

 

 

 

 

4,882,095

 

 

$

488

 

 

$

 

 

$

(20,026,213

)

 

$

(20,025,725

)

 

 

 

 

 

Redeemable Preferred Stock

 

 

 

Stockholders’ Equity

 

 

 

Series A

 

 

Series B

 

 

Series C

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance, December 31, 2021

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

35,768,264

 

 

$

3,577

 

 

$

81,827,006

 

 

$

(30,637,343

)

 

$

51,193,240

 

Issuance of Class A
   Common Stock upon
   exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,225

 

 

 

1

 

 

 

2,272

 

 

 

 

 

 

2,273

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

260,348

 

 

 

 

 

 

260,348

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,057,207

)

 

 

(2,057,207

)

Balance, March 31, 2022

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

35,779,489

 

 

$

3,578

 

 

$

82,089,626

 

 

$

(32,694,550

)

 

$

49,398,654

 

 

 

See accompanying notes to the unaudited condensed interim financial statements.

3


 

HCW Biologics Inc.

Condensed Statements of Cash Flows

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(2,843,996

)

 

$

(2,057,207

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

158,806

 

 

 

142,785

 

Stock-based compensation

 

 

 

 

 

260,348

 

Gain on extinguishment of debt

 

 

(567,311

)

 

 

 

Unrealized loss on investments, net

 

 

 

 

 

185,122

 

Reduction in the carrying amount of right-of-use asset

 

 

 

 

 

209

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

1,200,000

 

 

 

(420,007

)

Prepaid expenses and other assets

 

 

(150,356

)

 

 

1,380,215

 

Accounts payable and other liabilities

 

 

713,055

 

 

 

(1,071,084

)

Operating lease liability

 

 

 

 

 

(12,543

)

Net cash used in operating activities

 

 

(1,489,802

)

 

 

(1,592,162

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(23,279

)

 

 

(23,554

)

Proceeds for sale or maturities of short-term investments

 

 

 

 

 

7,999,840

 

Net cash (used in) provided by investing activities

 

 

(23,279

)

 

 

7,976,286

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of common stock

 

 

13,385

 

 

 

2,273

 

Offering Costs

 

 

(100,000

)

 

 

 

Net cash (used in) provided by financing activities

 

 

(86,615

)

 

 

2,273

 

Net changes in cash and cash equivalents

 

 

(1,599,696

)

 

 

6,386,397

 

Cash and cash equivalents at the beginning of the period

 

 

8,455,834

 

 

 

11,730,677

 

Cash and cash equivalents at the end of the period

 

$

6,856,138

 

 

$

18,117,074

 

Non-cash operating, investing and financing activities:

 

 

 

 

 

 

Cumulative dividends earned and accrued in the reporting period

 

$

477,358

 

 

$

 

PPP loan forgiveness

 

$

567,311

 

 

$

 

Offering costs

 

$

200,000

 

 

$

 

Operating lease liabilities arising from obtaining right-of-use assets

 

$

 

 

$

306,509

 

 

See accompanying notes to the unaudited condensed interim financial statements.

 

4


 

HCW Biologics Inc.

Notes to Condensed Financial Statements

(Unaudited)

1. Organization and Summary of Significant Accounting Policies

Organization

HCW Biologics Inc. (the “Company”) is a biopharmaceutical company focused on discovering and developing novel immunotherapies to lengthen health span by disrupting the link between chronic, low-grade inflammation and age-related diseases. The Company believes age-related low-grade chronic inflammation, or “inflammaging,” is a significant contributing factor to several chronic diseases and conditions, such as cancer, cardiovascular disease, diabetes, neurodegenerative diseases, and autoimmune diseases. The Company is located in Miramar, Florida and was incorporated in the state of Delaware in April 2018.

Reverse Stock Split

In June 2021, the Company’s board of directors and stockholders approved an amendment to the Company’s certificate of incorporation to effect a 3-for-7 reverse stock split for all issued and outstanding common stock, redeemable preferred stock, and stock options, that was effective on June 25, 2021 (the “Reverse Stock Split”). The number of authorized shares and the par values of the common stock and redeemable preferred stock were not adjusted as a result of the Reverse Stock Split. The accompanying condensed interim financial statements and notes to the condensed interim financial statements give retroactive effect to the Reverse Stock Split for all periods presented.

Liquidity

As of March 31, 2022, the Company had not generated any revenue from commercial product sales of its internally-developed immunotherapeutic products for the treatment of cancer and other age-related diseases. In the course of its development activities, the Company has sustained operating losses and expects to continue to incur operating losses for the foreseeable future. Since inception, substantially all the Company’s activities have consisted of research, development, establishing large-scale cGMP production for clinical trials, and raising capital. The Company's total revenues to date have been generated principally from the Wugen License and manufacturing and supply arrangement with Wugen. In the three months ended March 31, 2022, the Company recognized revenues of $3.1 million from manufacturing and supply of materials for Wugen.

 

On July 19, 2021, the Company’s registration statement on Form S-1 for its initial public offering (“IPO”) was declared effective by the Securities and Exchange Commission (the “SEC”). On July 22, 2021, the Company closed its IPO with the sale of 7,000,000 shares of common stock, at a public offering price of $8.00 per share, resulting in net proceeds of approximately $49.2 million, after deducting underwriting discounts and commissions and estimated offering expenses paid by the Company. The IPO met the provisions for mandatory conversion of all shares of redeemable preferred stock according to the designations for these securities. As a result of the conversion, the Company issued 23,768,416 shares of common stock to the former holders of redeemable preferred stock. In addition, as a result of conditions for mandatory conversion, the Company was relieved of its obligation to pay $2.8 million in cumulative dividends that were accrued and unpaid on the conversion date.

As of March 31, 2022, the Company had cash and cash equivalents of $18.1 million, short-term investments of $17.0 million held in U.S. government-backed securities, and long-term investments of $9.8 million held in U.S. government-backed securities. Since inception to March 31, 2022, the Company incurred cumulative net losses of $30.0 million. Management expects to incur additional losses in the future to conduct product research and development and recognizes the need to raise additional capital to fully implement its business plan. The Company intends to raise capital through the issuance of additional equity financing and/or third-party collaboration funding. However, if such financing is not available at adequate levels, the Company will need to reevaluate its operating plan and may be required to delay the development of some of its products.

5


 

Summary of Significant Accounting Policies

Basis of Presentation

Unaudited Interim Financial Information

 

The accompanying unaudited condensed interim financial statements as of March 31, 2022 and for the three months ended March 31, 2021 and 2022 have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to Article 10 of Regulation S-X of the Securities Act of 1933, as amended (the “Securities Act”). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. These unaudited condensed interim financial statements include only normal and recurring adjustments that the Company believes are necessary to fairly state the Company’s financial position and the results of its operations and cash flows. The results for the three months ended March 31, 2022 are not necessarily indicative of the results expected for the full fiscal year or any subsequent interim period. The condensed balance sheet at December 31, 2021 has been derived from the audited financial statements at that date but does not include all disclosures required by U.S. GAAP for complete financial statements. Because all of the disclosures required by U.S. GAAP for complete financial statements are not included herein, these unaudited condensed interim financial statements and the notes accompanying them should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2021 which appear in the Company’s Annual Report on Form 10-K (No. 333-256510) filed for the year ended December 31, 2021 with the Securities and Exchange Commission (the "SEC") on March 29, 2022 and in other filings with the SEC.

Revenue Recognition

The Company accounts for revenues in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“Topic 606”). To determine revenue recognition for arrangements that fall within the scope of Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that it will collect the consideration it is entitled to in exchange for the goods or services transferred to the customer.

At contract inception, the Company assesses the goods or services promised within each contract, determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. To date, the Company's revenues have been generated solely from the Wugen License. The Wugen License includes licenses of intellectual property, cost reimbursements, upfront signing fees, milestone payments and royalties on future licensee’s product sales. In addition, the Company and Wugen have an agreement for supply of materials.

License Grants:

For out-licensing arrangements that include a grant of a license to the Company’s intellectual property, the Company considers whether the license grant is distinct from the other performance obligations included in the arrangement. For licenses that are distinct, the Company recognizes revenues from nonrefundable, upfront payments and other consideration allocated to the license when the license term has begun and the Company has provided all necessary information regarding the underlying intellectual property to the customer, which generally occurs at or near the inception of the arrangement.

Milestone and Contingent Payments:

At the inception of the arrangement and at each reporting date thereafter, the Company assesses whether it should include any milestone and contingent payments or other forms of variable consideration in the transaction price using the most likely amount method. If it is probable that a significant reversal of cumulative revenue would not occur upon resolution of the uncertainty, the associated milestone value is included in the transaction price. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of each such milestone and any related constraint and, if necessary, adjusts its estimate of the overall transaction price. Since milestone and contingent payments may become payable to the Company upon the initiation of a clinical study or filing for or receipt of regulatory approval, the Company reviews the relevant facts and circumstances to determine when the Company should update the transaction price, which may occur before the triggering event. When the Company updates the transaction price for milestone and contingent payments, the Company allocates the changes in the total transaction price to each performance obligation in the agreement on the same basis as the initial allocation. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment, which may result in recognizing revenue for previously satisfied performance obligations in such period. The Company’s licensees will generally pay milestones payments subsequent to achievement of the triggering event.

6


 

Materials Supply:

The Company provides clinical and research grade materials so that licensees may develop products based on the licensed molecules. The Company plans to enter into commercialization supply agreements when licensees enter the commercial stage of their company. The amounts billed are recognized as revenue as the performance obligations are satisfied by the Company, once the Company determines that a contract exists.

On June 18, 2021, the Company entered into a master services agreement ("MSA") for the supply of materials for clinical development of licensed products. On March 14, 2022, the Company entered into statements-of-work ("SOWs") contemplated under the MSA for all current and historical purchases of clinical and research grade materials. The Company determined that upon entering into the SOWs all requirements were met to qualify as a contract under Topic 606. No contract existed in prior reporting periods and all amounts received for the supply of materials were recorded as deferred revenue. The manufacturing of the clinical and research materials supplied by the Company each represents a single performance obligation that is satisfied over time. The Company recognizes revenue using an input method based on the costs incurred relative to the total expected cost, which determines the extent of the Company's progress toward completion. As part of the accounting for these arrangements, the Company must develop estimates and assumptions that require judgement to determine the progress towards completion. The Company reviews its estimate of the progress toward completion based on the best information available to recognize the cumulative progress toward completion as of the end of each reporting period, and makes revisions to such estimates, if facts and circumstances change during each reporting period.

For the three months ended March 31, 2022, the Company recognized $3.1 million in revenue related to sale of development supply materials.

Deferred Revenue

Deferred revenue represents amounts billed, or in certain cases, yet to be billed to the Company’s customer for which the related revenues have not been recognized because one or more of the revenue recognition criteria has not been met. The Company had deferred revenue of $239,000 and nil as of March 31, 2021 and 2022, respectively. All deferred revenue balances are current liabilities and reported within Accrued liabilities and other current liabilities.

Investments

The Company holds a minority interest in Wugen which is accounted for using the measurement alternative whereby the investment is recorded at cost less impairment, adjusted for observable price changes in orderly transactions for an identical or similar investment of the same investee. No impairment has been recognized. As of March 31, 2021 and 2022, the Company included $1.6 million for the investment in Wugen in Investments in the accompanying condensed balance sheet.

The Company invests net proceeds of its IPO in bills and notes issued by the U.S. Treasury which are classified as trading securities. As of March 31, 2022, the Company held $17.0 million in U.S. Treasury bills included in Short-term investments and $9.8 million in U.S. Treasury notes included in Investments in the accompanying condensed balance sheet.

Operating Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in Other assets, Accrued Liabilities and other current liabilities, and Other liabilities on its balance sheets. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The Company has a lease agreement with lease and non-lease components, which are accounted for separately.

Net Loss Per Share

Basic loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during each period. Diluted loss per share of common stock includes the effect, if any, from the potential exercise of stock options and unvested shares of restricted stock, which would result in the issuance of incremental shares of common stock. For diluted net loss per share, the weighted-average number of shares of common stock is the same for basic net loss per share due to the fact that when a net loss exists, dilutive securities are not included in the calculation as the impact is anti-dilutive.

7


 

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (“Topic 842”), which requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. The Company adopted Topic 842 as of January 1, 2022. Effective March 1, 2022, the Company entered into noncancelable operating leases for its current location with a two-year term. These are the only leases in scope of Topic 842 or above the Company's capitalization threshold.

 

2. Accrued Liabilities and Other Current Liabilities

As of December 31, 2021, the Company had a balance of $2.1 million in Accrued liabilities and other current liabilities, consisting of $1.8 million related to deferred revenue, $48,750 related to manufacturing materials, $51,000 related to legal fees, and $50,000 for other expenses. On January 8, 2021, the Company received full loan forgiveness of $567,311 for obligations related to the PPP loan. The Company accounted for the PPP loan as debt, and the loan forgiveness was accounted for as a debt extinguishment.

As of March 31, 2022, the Company had a balance of $674,000 in Accrued liabilities and other current liabilities, consisting of $229,000 related to salary and benefits, $167,000 related to short term lease liability, and $278,000 related to other current liabilities which were primarily accrued legal fees and clinical fees.

3. Redeemable Preferred Stock

On July 22, 2021, the Company closed on its IPO, and the requirements for mandatory conversion were met. All outstanding shares of Series A, Series B, and Series C Preferred Stock converted into an equal number of shares of common stock. As a result, the rights, preferences, and terms ascribed to these shares are no longer applicable. Cumulative dividends of $2.8 million accrued as of the conversion date were forfeited and such forfeiture was recognized through Additional paid-in capital.

At December 31, 2021 and March 31, 2022, the Company has 10,000,000 shares of preferred stock authorized and no shares issued.

4. Net Loss Per Share

The following table summarizes the computation of the basic and diluted net loss per share:

 

 

 

Three Months Ended March 31,

 

 

 

 

2021

 

 

2022

 

 

Numerator:

 

 

 

 

 

 

 

Net loss

 

$

(2,843,996

)

 

$

(2,057,207

)

 

Less: cumulative preferred dividends earned in the period

 

 

(477,358

)

 

 

 

 

Net loss available for distribution to common stock holders

 

$

(3,321,354

)

 

$

(2,057,207

)

 

Denominator:

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

4,839,871

 

 

 

35,778,032

 

 

Net loss per share, basic and diluted

 

$

(0.69

)

 

$

(0.06

)

 

 

The following table summarizes the outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because their inclusion would be anti-dilutive:

 

 

 

At March 31,

 

 

 

2021

 

 

2022

 

Redeemable Preferred Stock

 

 

23,768,416

 

 

 

 

Common stock options

 

 

653,345

 

 

 

1,745,630

 

Potentially diluted securities

 

 

24,421,761

 

 

 

1,745,630

 

 

5. Fair Value of Financial Instruments

The carrying amount of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, U.S. government-backed securities with maturity dates up to one year, accounts payable and accrued liabilities, approximate fair value due to their short-term maturities.

 

8


 

Money market funds included in cash and cash equivalents and U.S. government-backed securities are measured at fair value based on quoted prices in active markets, which are considered Level 1 inputs. No transfers between levels occurred during the periods presented. The following table presents the Company’s assets which were measured at fair value at December 31, 2021 and March 31, 2022:

 

 

 

At December 31, 2021:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

9,506,499

 

 

$

 

 

$

 

 

$

9,506,499

 

Treasury bills

 

 

24,983,520

 

 

 

 

 

 

 

 

 

24,983,520

 

Treasury notes

 

 

9,922,300

 

 

 

 

 

 

 

 

 

9,922,300

 

Total

 

$

44,412,319

 

 

$

 

 

$

 

 

$

44,412,319

 

 

 

 

At March 31, 2022:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

16,294,805

 

 

$

 

 

$

 

 

$

16,294,805

 

Treasury bills

 

 

16,969,298

 

 

 

 

 

 

 

 

 

16,969,298

 

Treasury notes

 

 

9,751,560

 

 

 

 

 

 

 

 

 

9,751,560

 

Total

 

$

43,015,663

 

 

$

 

 

$

 

 

$

43,015,663

 

 

6. Income Taxes

The Company computes its quarterly income tax expense/(benefit) by using a forecasted annual effective tax rate and adjusts for any discrete items arising during the quarter. The Company did not have a provision for income taxes (current or deferred tax expense) as of December 31, 2021 and March 31, 2022. The Company will continue to maintain a 100% valuation allowance on total deferred tax assets. The Company believes it is more likely than not that the related deferred tax asset will not be realized. As a result, the Company’s effective tax rate will remain at 0.00% because no items either estimated or discrete items would impact the tax provision.

7. Commitments and Contingencies

Operating Leases

The Company has operating leases for approximately 12,250 square feet of space located in Miramar, Florida. The leases have a two-year term which commenced on March 1, 2022 and will terminate on February 29, 2024. Upon the commencement of the leases, the Company used its incremental borrowing rate of 6.0% to determine the amounts to recognize for a ROU asset and a lease liability. There are no obligations under finance leases.

The components of the lease expense for the three months ended March 31, 2022 were as follows:

 

 

 

Three Months Ended
March 31,

 

 

 

2022

 

Operating lease cost

 

$

13,929

 

 

Supplemental cash flow information related to lease was as follows:

 

 

 

Three Months Ended
March 31,

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

Operating cash flows

 

$

13,929

 

Right-of-use assets obtained in exchange for lease obligations: