Canton Strategic Holdings, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA THARIMMUNE, INC. INDEX TO FINANCIAL STATEMENTS Page AUDITED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID: 89 ) F-2 Report of Independent Registered Public Accounting Firm (PCAOB ID: 199) F-3 Consolidated Balance Sheets as of December 31, 2023 and 2022 F-4 Consolidated Statements of Operations for the Years Ended December 31, 2023 and 2022 F-5 Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Years Ended December 31, 2023 and 2022 F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022 F-7 Notes to Consolidated Financial Statements F-8 F- 1 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Tharimmune, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheet of Tharimmune, Inc. (the Company) as of the year ended December 31, 2023, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2023, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. The financial statements of Tharimmune, Inc. as of December 31, 2022, and for the year then ended were audited by other auditors. As described in Note 2, these financial statements have been revised to retrospectively apply the reverse stock split on all issued and outstanding common shares and per share amounts. We have audited the adjustments that were applied to revise the 2022 financial statements. In our opinion, such adjustments are appropriate and have been properly applied. However, we were not engaged to audit, review or apply procedures to the 2022 financial statements of the Company other than with respect to such adjustments and, accordingly, we do not express an opinion or any for of assurance on the 2022 financial statements taken as a whole. Substantial Doubt about the Company’s Ability to Continue as a Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company’s limited operating history, recurring negative cash flows from operations and the Company’s need for substantial additional funding to support future operating activities raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts of disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. We have served as the Company’s auditor since 2023. /s/ Rosenberg Rich Baker Berman P.A. Somerset, New Jersey February 23, 2024 F- 2 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Tharimmune, Inc. (formerly Hillstream BioPharma, Inc.): Opinion on the Financial Statements We have audited, before the effects of the adjustments to retrospectively apply the reverse stock split described in Note 2, the accompanying consolidated balance sheet of Tharimmune, Inc. (formerly Hillstream BioPharma, Inc.) (“Company”) as of December 31, 2022, and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). The 2022 financial statements before the effects of the adjustments discussed in Note 2 are not presented herein. In our opinion, the financial statements, before the effects of the adjustments to retrospectively apply the reverse stock split described in Note 2, present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the reverse stock split described in Note 2 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by Rosenberg Rich Baker Berman, P.A. Going Concern Uncertainty The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred recurring losses and negative cash flows from operations and is dependent on additional financing to fund operations. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. We served as the Company’s auditor from 2020 to 2023. /s/ Mayer Hoffman McCann P.C. Los Angeles, California May 19, 2023 F- 3 THARIMMUNE, INC. CONSOLIDATED BALANCE SHEETS December 31, December 31, 2023 2022 ASSETS Current assets Cash $ 10,935,352 $ 6,510,534 Prepaid expenses and other current assets 11,041 178,094 Total current assets 10,946,393 6,688,628 Total assets $ 10,946,393 $ 6,688,628 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 908,577 $ 954,505 Accrued expenses 906,469 190,468 Total current liabilities 1,815,046 1,144,973 Total liabilities 1,815,046 1,144,973 Commitments and contingencies (see Note 9) - - Stockholders’ equity Preferred stock, $ 0.0001 par value, 10,000,000 shares authorized, no shares issued and outstanding as of December 31, 2023 and December 31, 2022 - - Common stock, $ 0.0001 par value, 250,000,000 shares authorized, 11,743,309 shares and 464,213 shares issued and 11,739,676 shares and 460,580 shares outstanding as of December 31, 2023 and December 31, 2022, respectively 1,175 46 Additional paid-in capital 33,903,663 20,998,006 Accumulated deficit ( 24,703,526 ) ( 15,384,432 ) Treasury stock, at cost, 3,633 shares held in treasury as of December 31, 2023 and December 31, 2022 ( 69,965 ) ( 69,965 ) Total stockholders’ equity 9,131,347 5,543,655 Total liabilities and stockholders’ equity $ 10,946,393 $ 6,688,628 The accompanying notes are an integral part of these consolidated financial statements. F- 4 THARIMMUNE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS 2023 2022 For the Years Ended December 31, 2023 2022 Operating expenses Research and development $ 3,559,635 $ 2,278,424 General and administrative 5,895,585 4,603,514 Total operating expenses 9,455,220 6,881,938 Loss from operations ( 9,455,220 ) ( 6,881,938 ) Other income (expense) Interest expense ( 16,505 ) ( 1,591,244 ) Interest income 152,631 - Total other income (expense), net 136,126 ( 1,591,244 ) Net loss $ ( 9,319,094 ) $ ( 8,473,182 ) Net loss per share: Basic and diluted $ ( 7.14 ) $ ( 18.72 ) Weighted average number of common shares outstanding: Basic and diluted 1,305,437 452,686 The accompanying notes are an integral part of these consolidated financial statements. F- 5 THARIMMUNE, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022 Additional Common Stock Paid-in Accumulated Treasury Stock Shares Amount Capital Deficit Shares Amount Total Balance, December 31, 2021 254,307 $ 25 $ 2,226,323 $ ( 6,911,250 ) - $ - $ ( 4,684,902 ) Net loss - - - ( 8,473,182 ) - - ( 8,473,182 ) Exercise of stock options 9,621 1 24,388 - - - 24,389 Stock based compensation - - 800,696 - - - 800,696 Stock issuance pursuant to services agreement 1,270 - 100,000 - - - 100,000 Initial public offering, net of issuance costs of $ 2,054,918 150,000 15 12,945,067 - - - 12,945,082 Conversion of related-party convertible notes 49,015 5 4,901,532 - - - 4,901,537 Purchase of treasury stock at cost - - - - 3,633 ( 69,965 ) ( 69,965 ) Balance, December 31, 2022 464,213 46 20,998,006 ( 15,384,432 ) 3,633 ( 69,965 ) 5,543,655 Balance 464,213 46 20,998,006 ( 15,384,432 ) 3,633 ( 69,965 ) 5,543,655 Net loss - - - ( 9,319,094 ) - - ( 9,319,094 ) Stock based compensation - - 831,862 - - - 831,862 Public offerings, net of issuance costs of $ 1,925,076 2,037,000 204 11,715,545 - - - 11,715,749 Public offerings, net of issuance costs 2,037,000 204 11,715,545 - - - 11,715,749 Exercise of pre-funded warrants 9,175,000 918 8,257 - - - 9,175 Reverse stock-split adjustment 39,188 4 ( 4 ) - - - - Stock issuance pursuant to service agreements 27,908 3 349,997 - - - 350,000 Balance, December 31, 2023 11,743,309 $ 1,175 $ 33,903,663 $ ( 24,703,526 ) 3,633 $ ( 69,965 ) $ 9,131,347 Balance 11,743,309 $ 1,175 $ 33,903,663 $ ( 24,703,526 ) 3,633 $ ( 69,965 ) $ 9,131,347 The accompanying notes are an integral part of these consolidated financial statements. F- 6 THARIMMUNE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS 2023 2022 For the Years Ended December 31, 2023 2022 Cash flows from operating activities: Net loss $ ( 9,319,094 ) $ ( 8,473,182 ) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of debt discount - 1,569,003 Stock based compensation 831,862 800,696 Stock issuance pursuant to services agreement 350,000 100,000 Interest and original issuance discount on promissory notes - 14,645 (Increase) decrease in operating assets: Prepaid expenses and other current assets 167,053 ( 107,424 ) Increase (decrease) in operating liabilities: Accounts payable ( 45,928 ) ( 141,170 ) Accrued interest - 7,237 Due to founder - ( 200,000 ) Accrued expenses 716,001 ( 127,755 ) Net cash used in operating activities ( 7,300,106 ) ( 6,557,950 ) Net cash provided by (used in) investing activities - - Cash flows from financing activities: Exercise of stock options - 24,389 Purchase of treasury stock at cost - ( 69,965 ) Proceeds from issuance of common stock upon initial public offering, net of underwriting discounts and issuance costs - 13,645,643 Proceeds from issuance of common stock upon public offering, net of underwriting discounts and issuance costs 12,234,929 - Payment of deferred offering costs ( 519,180 ) ( 521,294 ) Exercise of pre-funded warrants 9,175 - Proceeds from insurance premium financing liability 716,775 917,472 Repayment of insurance premium financing liability ( 716,775 ) ( 917,472 ) Proceeds from promissory notes - 125,000 Repayments on promissory notes - ( 139,645 ) Net cash provided by financing activities 11,724,924 13,064,128 Net increase in cash 4,424,818 6,506,178 Cash, beginning of period 6,510,534 4,356 Cash, end of period $ 10,935,352 $ 6,510,534 Cash paid for interest expense $ 16,505 $ 22,241 Supplemental disclosure of non-cash financing activities: Issuance of common stock for prepaid marketing and investor related consulting services $ 100,000 $ - Conversion of related party convertible notes: Related party convertible notes principal converted to common stock upon initial public offering $ - $ 3,734,446 Related party convertible notes accrued interest converted to common stock upon initial public offering $ - $ 186,858 Redemption liability converted to common stock upon initial public offering $ - $ 980,233 The accompanying notes are an integral part of these consolidated financial statements. F- 7 THARIMMUNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 December 31, 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 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 and Licensed Technology to, among other things, Develop, have Developed, make, have made, use, sell, import, export and commercialize TH104 and TH10) and to practice the Licensed Technology in connection with the foregoing, throughout the world (each as defined in the Avior License Agreement. 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 consolidated financial statements have been prepared on the basis that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. During the year ended December 31, 2023, the Company incurred operating losses in the amount of approximately $ 9.5 million, expended approximately $ 7.3 million in net cash used in operating activities, and had an accumulated deficit of approximately $ 24.7 million as of December 31, 2023. Through December 31, 2023, the Company has primarily financed its operations through public and private offerings of equity securities. The Company received net proceeds from its initial public offering (“IPO”) on January 14, 2022 of approximately $ 12.5 million. Additionally, the Company closed a public offering (the “May Offering”) of its common stock on May 2, 2023. Net proceeds to the Company from the offering were approximately $ 2.1 million. The Company recently closed an additional public offering (the “November Offering”) of its common stock on November 30, 2023. Net proceeds to the Company from the offering were approximately $ 8.7 million. Also see Note 5 to the consolidated financial statements for details regarding the May and November Offerings. The shares of the Company’s common stock began trading on The Nasdaq Capital Market on January 12, 2022 under the ticker symbol “HILS” and effective as of September 25, 2023, are traded under the ticker symbol “THAR.” F- 8 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 consolidated financial statements are issued. The accompanying 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. Note 2 – Summary of Significant Accounting Policies Basis of Presentation These accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Company operates in one segment. Reverse Stock Split On November 17, 2023, the Company effectuated a reverse split of shares of its common stock at a ratio of 1-for-25 pursuant to an amendment to the Company’s Certificate of Incorporation, as amended, filed with the Delaware Secretary of State and approved by the Company’s board of directors and stockholders. The par value of the Company’s common stock was not adjusted as a result of the reverse split. All issued and outstanding common stock share and per share amounts contained in the consolidated financial statements have been retroactively adjusted to reflect this reverse split for all periods presented. Principles of Consolidation The 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. F- 9 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. Areas of the consolidated financial statements where estimates may have the most significant effect include research and development expense recognition, valuation of common shares and share-based compensation, 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 $ 250,000 per depositor. At various times during the year, bank account balances may have been in excess of federally insured limits. The Company has not experienced losses in such accounts. The Company believes that it is not subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. 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. 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 $ 61,000 of prepaid expenses at December 31, 2022 related to a manufacturing services agreement. Stock-Based Compensation The Company recognizes compensation costs resulting from the issuance of stock-based awards to employees, non-employees, and directors as an expense in the 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. F- 10 Treasury Stock The Company’s board of directors authorized the repurchase of up to $ 1 million of shares of the Company’s common stock, from time to time, until December 31, 2022, in the open market or through privately-negotiated transactions, at such times and at such prices as the Company’s management may decide. Treasury stock purchases are accounted for under the cost method whereby the entire cost of the acquired common stock is recorded as treasury stock. 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 of $ 1,569,003 was charged to interest expense during the year ended December 31, 2022. 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 consolidated financial statements for further details. Fair Value Measurements The Company applies FASB ASC Topic 820, Fair Value Measurement (“ASC 820”), which establishes a framework for measuring fair value and clarifies the definition of fair value within that framework. ASC 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 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 consolidated financial instruments. The redemption feature of the debt instruments is recorded at fair value. See Note 4 to the 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. F- 11 Deferred Offering Costs Deferred offering costs consists primarily of legal, accounting, underwriters’ fees, printing, and filing fees that are incurred prior to an offering of the Company’s common stock and are initially capitalized and then subsequently reclassified to additional paid-in capital upon completion of the offering. If an offering is not completed, any associated offering costs will be expensed immediately upon termination of the offering. Insurance Premium Financing Liability In January 2022, the Company entered into an insurance premium financing agreement for $ 1,207,200 , with a term of 10 months and an annual interest rate of 3.5 %. The Company made a down payment of $ 289,728 and was required to make monthly principal and interest payments of $ 93,225 over the term of the agreement, which was repaid in full in November 2022. In January 2023, the Company entered into an insurance premium financing agreement for $ 955,700 , with a term of nine months and an annual interest rate of 5.25 %. The Company made a down payment of $ 238,925 and was required to make monthly principal and interest payments of $ 81,394 over the term of the agreement, which was repaid in full in October 2023. 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 equal to 3% of employee contributions. Total company contributions to the plan were $ 19,336 and $ 10,696 for the years ended December 31, 2023 and 2022, respectively. Income Taxes The Company accounts for income taxes using the asset-and-liability method in accordance with FASB ASC Topic 740, Income Taxes (“ASC 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 full 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 December 31, 2023 and 2022, the Company had no unrecognized uncertain income tax positions, and therefore no amounts have been recognized in the consolidated financial statements. Net Loss per Share 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 loss per share gives effect to common stock equivalents; however, potential common shares are excluded if their effect is anti-dilutive. F- 12 Potentially dilutive securities not included in the computation of loss per share for the years ended December 31, 2023 and 2022 included options to purchase 90,758 and 65,153 shares of common stock, respectively. Other potentially dilutive securities also not included in the computation of loss per share for the years ended December 31, 2023 and 2022 included warrants to purchase 7,500 shares of the Company’s common stock related to the IPO and for the year ended December 31, 2023, warrants to purchase an additional 6,360 shares of the Company’s common stock related to the public offering which closed on May 2, 2023. All common share amounts as of December 31, 2023 and 2022 and per share amounts for the years ended December 31, 2023 and 2022 have been retroactively adjusted to reflect a 1-for-25 reverse stock split of the Company’s common stock effectuated on November 17, 2023. 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 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 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 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. The Company adopted this guidance effective January 1, 2024 and the adoption of ASU 2020-06 did not have a material impact on its consolidated financial statements. 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 5 % per annum, computed on the basis of the actual number of days elapsed and a year of 365 days. Unless earlier converted into shares of the Company’s common stock or preferred stock (collectively, the “Equity Securities”), the principal and accrued interest was to be due and payable by the Company on demand by the Holders at any time after the earlier of (i) the Maturity Date (as defined in each Agreement) and (ii) the closing of the Next Equity Financing. “Next Equity Financing” means the next sale, or series of related sales, by the Company of its Equity Securities pursuant to which the Company received gross proceeds of not less than $ 5.0 million for Notes issued in 2017 and through November 2020 and $ 7.5 million for Notes issued after November 2020 (including the aggregate amount of debt securities converted into Equity Securities upon conversion or cancellation of the Notes). The Company’s IPO qualified as a Next Equity Financing. F- 13 In general, the stated maturity date was two years from the date of issuance, except for the Notes issued in December 2020 and thereafter (in the aggregate principal amount of approximately $ 2.1 million) which had a stated maturity date of three years . For Notes issued in 2017 and through September 2018, the default interest rate of 20 % was added to the Notes for the period after the stated maturity date. 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) 80% of the price paid per share for Equity Securities by the investors in the Next Equity Financing, or (ii) an equity valuation of $ 25 million ($ 50 million for Notes issued after December 2020) . On January 14, 2022, all outstanding Notes and accrued interest were converted into an aggregate of 49,015 shares of the Company’s common stock as the IPO qualified as a Next Equity Financing. 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 $ 2.4 million. Amortization of debt discount for the Notes recorded as interest expense was approximately $ 1.6 million for the year ended December 31, 2022. This amount contains amortization charged to interest expense of approximately $ 34,000 up to the date of the IPO and the full amount of the unamortized debt discount of approximately $ 1.5 million charged to interest expense on the date of the IPO. Accrued interest expense associated with the Notes at the date of the IPO was approximately $ 187,000 and was converted into common stock upon completion of the IPO. 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, further described in Note 3 to the 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 $ 980,000 as of the date of the IPO was converted into common stock in connection with the related-party convertible debt to which it related. 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 250,000,000 shares. On November 17, 2023, the Company effectuated a reverse split of shares of its common stock at a ratio of 1-for-25 pursuant to an amendment to the Company’s Certificate of Incorporation filed with the Delaware Secretary of State and approved by the Company’s board of directors and stockholders. The par value of the Company’s common stock was not adjusted as a result of the reverse stock split. On January 14, 2022, the Company closed the IPO pursuant to which it issued 150,000 shares of its common stock at a public offering price of $ 100.00 per share. The gross proceeds to the Company from the IPO were $ 15.0 million, prior to deducting underwriting discounts of approximately $ 1.1 million and commissions and other offering expenses of approximately $ 1.0 million. Other offering expenses include deferred offering costs of approximately $ 547,000 that were capitalized and additional costs incurred prior to the date of the IPO. The net proceeds to the Company from the IPO were approximately $ 12.5 million. The Company granted the underwriters a 45-day option to purchase up to an additional 22,500 shares of common stock at the public offering price less discounts and commissions, to cover over-allotments; however, this option expired unexercised. Additionally, and as a result of the completion of the IPO, all of the Company’s convertible debt and accrued interest was converted into an aggregate of 49,015 shares of the Company’s common stock pursuant to the terms of the Notes. Outstanding principal of approximately $ 3.7 million, accrued interest of approximately $ 187,000 , and a redemption liability of approximately $ 980,000 were converted to common stock as the IPO qualified as a Next Equity Financing. In addition, the Company issued warrants in connection with the IPO. See Note 6 to the consolidated financial statements for a discussion of the warrants issued. F- 14 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 1,270 shares of its common stock with a per share value of $ 78.75 and a total value of $ 100,000 as compensation expense. The agreement automatically renews annually and upon renewal, a payment of $ 100,000 of shares of the Company’s common stock is issued. On February 16, 2023, the agreement was renewed and on the effective date of August 22, 2023, an additional 2,801 shares of the Company’s common stock were issued with a per share value of $ 35.70 (as calculated based on the trailing 10-day average closing value of the Company’s common stock prior to the renewal date) representing compensation expense of $ 100,000 . On June 9, 2022, the Company’s Board of Directors authorized the repurchase of up to $ 1,000,000 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 could 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 year ended December 31, 2022, the Company purchased 3,633 shares of its common stock, respectively, for a total purchase cost of approximately $ 70,000 . 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 $ 75 million. On May 2, 2023, the Company closed a public offering pursuant to which it issued 212,000 shares of its common stock at a public offering price of $ 12.50 per share. The gross proceeds to the Company from the public offering were approximately $ 2.7 million, prior to deducting underwriting discounts and commissions of approximately $ 186,000 and other offering expenses of approximately $ 417,000 . The net proceeds to the Company from the public offering were approximately $ 2.1 million. The Company granted the underwriters a 45-day option to purchase up to an additional 795,000 shares of common stock at the public offering price less discounts and commissions, to cover over-allotments; however, this option expired unexercised. On July 26, 2023, pursuant to the research and development collaboration and license agreement with Applied Biomedical Science Institute (“ABSI”), further described in Note 9 to the consolidated financial statements, the Company issued 25,107 shares of its common stock with a per share value of $ 9.95 , representing total compensation expense of $ 250,000 (as calculated based on the trailing 10-day average closing value of the Company’s common stock prior to the agreement date). On November 30, 2023, the Company closed a public offering pursuant to which it issued 1,825,000 shares of its common stock at a public offering price of $ 1.00 per share and pre-funded warrants to purchase up to 8,175,000 shares of the Company’s common stock, exercisable at an exercise price of $ 0.001 per share, to those purchasers whose purchase of common stock in the offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99 % (or, at the election of the purchaser, 9.99 %) of the Company’s outstanding common stock immediately following the consummation of the offering. The gross proceeds to the Company from the public offering were approximately $ 10 million, prior to deducting underwriting discounts, commissions, and other expenses of approximately $ 1.3 million. The net proceeds to the Company from the public offering were approximately $ 8.7 million. The Company granted the underwriters a 45-day option to purchase up to an additional 1,500,000 shares of common stock and/or pre-funded warrants, to cover over-allotments. The underwriter exercised the option to purchase 1,000,000 pre-funded warrants to purchase shares of the Company’s common stock for gross proceeds of $ 1 million, prior to deducting underwriting discounts and commissions of approximately $ 70,000 . F- 15 Note 6 – Stock Based Compensation Incentive Plans and Options Under the Company’s 2017 Stock Incentive Plan (the “2017 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 3,788 shares of the Company’s common stock may be issued pursuant to the 2017 Plan. The Company has granted options to acquire 3,712 shares of common stock at $ 330 per share under the 2017 Plan, and 76 shares remain available for issuance. As of December 31, 2023 and 2022, there were options outstanding to acquire 3,712 shares of common stock. As of December 31, 2023 and 2022, all such options were fully vested, and the weighted average remaining contractual life for such options was approximately 4.2 and 5.2 years, respectively. In July 2019, the Company authorized an additional plan, the 2019 Stock Incentive Plan (the “2019 Plan”). The Company initially reserved 11,363 shares of its common stock for issuance pursuant to the 2019 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 Plan by 22,980 shares. In January 2021, the Company approved an increase in the number of shares reserved for issuance under the 2019 Plan by 22,980 shares. On May 31, 2021, the Company approved an increase in the number of shares reserved for issuance under the 2019 Plan by 18,687 shares. As of December 31, 2023 and 2022, a total of 156,060 shares were authorized for issuance under the 2019 Plan. As of December 31, 2023 and 2022, the Company has granted options to acquire 156,060 and 135,455 shares of common stock under the 2019 Plan, respectively, and had 0 and 20,605 shares of common stock remain available for issuance under the 2019 Plan, respectively. There are stock options outstanding to acquire 82,046 and 61,440 shares of common stock with weighted-average exercise prices of $ 73.66 and $ 95.09 and weighted average contractual terms of 7.8 years and 8.4 years at December 31, 2023 and 2022, respectively. On August 17, 2023, the Company authorized a new plan, the Tharimmune, Inc. 2023 Omnibus Incentive Plan (the “2023 Plan”). 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 2,600,000 shares of the Company’s common stock may initially be issued pursuant to the 2023 Plan. During the year ended December 31, 2023, the Company granted options to acquire 5,000 shares of common stock under the 2023 Plan, and 2,595,000 shares of common stock remain available for issuance under the 2023 Plan at December 31, 2023. There are stock options outstanding to acquire 5,000 shares of common stock with a weighted-average exercise price of $ 3.94 and a weighted-average contractual term of 9.9 years at December 31, 2023. The following table summarizes stock-based activities under the 2017, 2019, and 2023 Stock Incentive Plans: Schedule of Stock Option Activity Weighted Weighted Shares Average Average Underlying Exercise Contractual Options Price Terms Outstanding at December 31, 2021 36,139 $ 106.73 7.9 years Granted 39,203 $ 84.43 Exercised ( 9,621 ) $ 2.53 Forfeited/cancelled ( 568 ) $ 132.00 Outstanding at December 31, 2022 65,153 $ 108.48 8.2 years Granted 25,605 $ 8.62 Outstanding at December 31, 2023 90,758 $ 80.30 7.8 years Exercisable options at December 31, 2023 75,279 $ 76.16 7.7 years Vested and expected to vest at December 31, 2023 90,758 $ 80.30 7.8 years F- 16 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. Forfeitures are accounted for as they occur. Stock options granted during the years ended December 31, 2023 and 2022 were valued using the Black-Scholes option-pricing model with the following weighted-average assumptions: Schedule of Options Weighted Average Assumptions For the years ended December 31, 2023 2022 Expected volatility 95.10 % - 103.3 % 94.5 % - 104.0 % Risk-free interest rate 3.99 % - 4.53 % 1.69 % - 3.39 % Expected dividend yield 0 % 0 % Expected life of options in years 5.0 5.0 – 7.0 Estimated fair value of options granted $ 3.07 - $ 7.22 $ 19.38 - $ 80.10 The weighted-average grant date fair value of stock options granted during the years ended December 31, 2023 and 2022 was approximately $ 6.41 and $ 67.39 , respectively. The weighted-average fair value of stock options vested during the years ended December 31, 2023 and 2022 was approximately $ 23.11 and $ 31.19 , respectively. Included in the above table are performance-based stock options granted in 2019 to purchase 9,242 shares of the Company’s common stock at an exercise price of $ 1.98 per share, which vested upon completion of the Company’s IPO in 2022. Total stock-based compensation expense included in the accompanying consolidated statements of operations was as follows: Schedule of Stock Based Compensation Expense 2023 2022 For the years ended December 31 2023 2022 Research and development $ 404,895 $ 341,389 General and administrative 426,967 459,307 Total stock-based compensation $ 831,862 $ 800,696 As of December 31, 2023, the total unrecognized compensation expense related to non-vested options was approximately $ 1.2 million and is expected to be recognized over the remaining weighted-average service period of approximately 2.0 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 $ 125.00 per share, were not exercisable within the first six months after issuance, and may, under certain circumstances, be exercised on a cashless basis. The exercise price of the warrants is subject to standard antidilutive provision adjustments for stock splits, stock combinations, or similar events affecting the Company’s common stock. The Company has determined that these warrants should be classified as equity instruments since they do not require the Company to repurchase the underlying common stock and do not require the Company to issue a variable amount of common stock. In addition, these warrants are indexed to common stock and do not have any unusual antidilution rights. In connection with the May 2, 2023 public offering as described in Note 5 to the consolidated financial statements, the Company issued warrants to designees of the underwriter (the “Representative’s Warrants”) to purchase 6,360 shares of the Company’s common stock (which is equal to 3 % of the number of shares sold in the public offering) at an initial exercise price of $ 15.625 per share, subject to adjustment. The Representative’s Warrants are exercisable at any time and from time to time, in whole or in part, during the four and one half year period commencing 180 days from the commencement of sales of the shares of common stock in the public offering. F- 17 In connection with the November 30, 2023 public offering as described in Note 5 to the consolidated financial statements, the Company issued pre-funded warrants to purchase 8,175,000 shares of the Company’s common stock at an exercise price of $ 0.001 (the “Pre-Funded Warrants”). The Pre-Funded Warrants were issued to those purchasers whose purchase of common stock in the November Offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99 % (or, at the election of the purchaser, 9.99 %) of outstanding common stock immediately following the consummation of the offering. The Pre-Funded Warrants were immediately exercisable and could be exercised at any time until exercised in full. The Company also granted the underwriters a 45-day option to purchase up to an additional 1,500,000 shares of common stock and/or prefunded warrants. The underwriters exercised the option to purchase 1,000,000 pre-funded warrants at an initial exercise price of $ 0.001 per share, subject to adjustment (the “Underwriters Pre-Funded Warrants”). These pre-funded warrants were immediately exercisable and could be exercised at any time until exercised in full. The underwriters received warrants to purchase 300,000 shares of common stock with an initial exercise price of $ 1.25 , exercisable beginning May 27, 2024, and expiring May 2, 2028 (the “Underwriters Warrants”). As of December 31, 2023, all of the Pre-Funded Warrants and the Underwriters Pre-Funded Warrants have been exercised. Terms of the warrants outstanding at December 31, 2023 are as follows: Schedule of Warrants Initial Exercise Warrants Warrants Warrants Issuance Date Exercise Date Expiration Date Price Issued Exercised Outstanding January 14, 2022 July 10, 2022 January 11, 2027 $ 125.00 7,500 - 7,500 May 2, 2023 November 2, 2023 May 2, 2028 $ 15.625 6,360 - 6,360 November 30, 2023 November 30, 2023 May 2, 2028 $ 0.001 8,175,000 8,175,000 - November 30, 2023 November 30, 2023 May 2, 2028 $ 0.001 1,000,000 1,000,000 - November 30, 2023 May 27, 2024 May 2, 2028 $ 1.250 300,000 - 300,000 Note 7 – Income Taxes The Company does not have any significant current income taxes due because of the losses generated in each year. Deferred income taxes represent the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes. The Company’s deferred tax assets relate primarily to its net operating loss carryforwards and other balance sheet basis differences. In accordance with FASB ASC 740, the Company recorded a valuation allowance to fully offset the gross deferred tax asset because it is not more likely than not that the Company will realize future benefits associated with these deferred tax assets at December 31, 2023 and 2022. The valuation allowance increased by approximately $ 2.8 million and $ 2.3 million for the years ended December 31, 2023 and 2022, respectively. The significant components of the Company’s deferred tax assets and liabilities as of December 31, 2023 and 2022 were as follows: Schedule of Significant Components of Company’s Deferred Tax Assets Deferred tax asset (liabilities) related to: 2023 2022 December 31, Deferred tax asset (liabilities) related to: 2023 2022 Federal net operating loss carryforward $ 3,017,000 $ 1,951,000 State net operating loss carryforward 1,021,000 660,000 Capitalized costs 1,261,000 512,000 Acquired in-process research and development 319,000 163,000 Research and development credit 243,000 81,000 Stock compensation 733,000 534,000 Accrued expenses and other 84,000 - Total deferred tax assets 6,678,000 3,901,000 Valuation allowance ( 6,678,000 ) ( 3,901,000 ) Deferred tax asset, net of valuation allowance $ - $ - The income tax benefit for the years ended December 31, 2023 and 2022 differ from the amounts computed by applying the U.S. federal income tax rate of 21 % to loss before income tax benefit as a result of non-deductible expenses, tax credits generated, and increases in the Company’s valuation allowance. F- 18 Schedule of Effective Income Tax Expense 2023 2022 For the years ended December 31, 2023 2022 Income tax benefit at the federal statutory rate $ ( 1,957,000 ) $ ( 1,779,000 ) Permanent differences and other 34,000 257,000 State income taxes ( 661,000 ) ( 515,000 ) Research and development credit ( 238,000 ) ( 76,000 ) Other 45,000 40,000 Change in valuation allowance 2,777,000 2,073,000 Effective income tax expense $ - $ - A valuation allowance is required to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of the available evidence, both positive and negative, the Company determined that valuation allowances of approximately $ 6.7 million and $ 3.9 million at December 31, 2023 and 2022, respectively, were necessary to reduce the deferred tax assets to the amount that will more likely than not be realized. At December 31, 2023 and 2022, the Company had available net operating loss carryforwards of approximately $ 14.4 million and $ 9.3 million, respectively, for federal income tax purposes, all of which were generated after 2017 and can be carried forward indefinitely under the Tax Cuts and Jobs Act. At December 31, 2023 and 2022, the Company had approximately $ 243,000 and $ 81,000 of federal research and development (“R&D”) tax credit carryforwards. If not utilized, the federal R&D credits will begin to expire in 2038. The Company also had $ 14.9 million and $ 10.3 million of state net operating losses that will begin to expire in 2037. Sections 382 and 383 of the Internal Revenue Code, and similar state regulations, contain provisions that may limit the NOL carryforwards available to be used to offset income in any given year upon the occurrence of certain events, including changes in the ownership interests of significant stockholders. In the event of a cumulative change in ownership in excess of 50% over a three-year period, the amount of the NOL carryforwards that the Company may utilize in any one year may be limited. Although the Company has not undertaken a formal analysis, it is likely that such an ownership change occurred during 2021. The Tax Cuts and Jobs Act of 2017 (“TCJA”) has modified the IRC 174 expenses related to research and development for the tax years beginning after December 31, 2021. Under the TCJA, the Company must now capitalize the expenditures related to research and development activities and amortize over five years for U.S. activities and 15 years for non-U.S. activities using a mid-year convention. Therefore, the capitalization of research and development costs in accordance with IRC 174 results in a gross deferred tax asset of $ 4,487,000 . Note 8 – Related-Party Transactions As described in Note 3 to the 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. In addition to the above Notes, the Company had amounts due to the founder and CEO that totaled $ 200,000 at December 31, 2021 for accrued compensation, which was paid in full in April 1, 2022. On January 4, 2022 and January 6, 2022, the Company issued unsecured promissory notes in the aggregate principal amount of approximately $ 139,000 (including an original issuance discount of an aggregate of approximately $ 14,000 ) to three related-party investors. The notes were to accrue interest at a rate of 12 % per annum and mature upon the earlier of (i) June 30, 2022, and (ii) the closing of a subsequent equity financing. “Subsequent equity financing” means the next sale (or series of related sales) by the Company of its equity securities following the date of the notes pursuant to which the Company receives gross proceeds of not less than $ 5.0 million. The notes were repaid in full on January 21, 2022 following the Company’s IPO on January 14, 2022 as the IPO was considered a subsequent Equity Financing. F- 19 Additionally, on April 18, 2022, the founder and CEO exercised options to purchase up to 9,621 shares of the Company’s common stock at a weighted-average exercise price of $ 2.53 per share for a total of approximately $ 24,000 . Note 9 – Commitments and Contingencies Small Molecule Analogues On December 30, 2019, the Company acquired a series of small molecule analogues pursuant to an Asset Purchase Agreement (“APA”). Pursuant to the APA, the Company is required to make a payment of $50,000 upon raising of at least $2.0 million in funding, and up to approximately $1.75 million based upon successfully meeting clinical and sales milestones. The Company included, in accounts payable at both December 31, 2023 and 2022, the $ 50,000 required initial payment. Milestone based payments, if any, will be expensed as incurred. 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 $ 150,000 , which was paid in January 2023. In addition, the Company shall fund the discovery and characterization study performed by Minotaur as set forth in the Minotaur Agreement. Pursuant to the Minotaur Agreement, the Company shall pay Minotaur a milestone payment of $ 1,000,000 for each first Product (as defined in the Minotaur Agreement) directed against a target and first regulatory approval in the U.S. In addition, the Company shall pay a low single digit royalty on net sales until the later of (i) ten years after the First Commercial Sale (as defined in the Minotaur Agreement) of such Product in such country and (ii) the expiration of the last-to-expire Valid Claim (as defined in the Minotaur Agreement) of a Collaboration Patent (as defined in the Minotaur Agreement) or MINT Patent (as defined in the Minotaur Agreement) covering the manufacture, use, or sale of such Product. The Taurus Agreement contains single digit payments on net product sales and certain development milestone payments tied to the advancement through clinical trials and final regulatory approval. 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- 20 Pursuant to the ABSI Agreement: (i) the Company issued ABSI 25,107 shares of its common stock which is equal to $ 250,000 based on the ten day trailing volume weighted-average price of the Company’s common stock prior to the date of issuance (see Note 5 to the consolidated financial statements for details of the July 27, 2023 issuance of the Company’s common stock to ABSI); (ii) in the event the Company closes a financing pursuant to which it receives more than $ 10 million in Net Proceeds (as defined in the ABSI Agreement), the Company shall pay ABSI a mid six digit amount; (iii) upon the achievement of certain milestones as set forth in the ABSI Agreement, the Company shall pay ABSI up to an aggregate of $ 8,250,000 ; (iv) after the second anniversary of the ABSI Effective Date, the Company shall pay ABSI a low five digit amount for the first year and a mid five digit amount thereafter during the Royalty Term (as defined in the ABSI Agreement); and (v) during the Royalty Term for each Product, the Company shall pay ABSI a quarterly royalty on the Net Sales (as defined in the ABSI Agreement) with royalties at percentages which range from the low to mid single digits, with high Net Sales being subject to lower royalty rates, subject to adjustment as set forth in the ABSI Agreement. In addition, in the event the Company transfers all or substantially all of its rights to a Product to a third party, the Company shall pay to ABSI the percentage of Net Proceeds attributable to the transfer of the Product. Specifically, the Company shall pay ABSI amounts at percentages which range from the mid single digit to low double digits depending on the Company Expenses (as defined in the ABSI Agreement), with higher Company Expenses being subject to lower rates. 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. During the year ended December 31, 2023, the Company paid milestone fees of $ 500,000 to ABSI in accordance with the terms of the agreement, which included a non-cash common stock equity grant of $ 250,000 . 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 $ 24,250,000 upon the occurrence of various development milestones (the “Development Milestone Payments”). Furthermore, the Company 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, the Company 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, the Company shall have a fully paid, 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, the Company 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 the Company 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. F- 21 During the year ended December 31, 2023, the Company paid milestone fees of $ 380,000 to Avior in accordance with the terms of the agreement. Employment Agreements On June 1, 2021, the Company entered into an Amended and Restated Employment Agreement with the Company’s CEO, as amended periodically (the “Amended and Restated Employment Agreement”). The term of the Amended and Restated Employment Agreement commenced upon the closing of the Company’s IPO in January 2022 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 $ 485,000 , which may be increased from time to time, and shall be eligible to receive an annual cash bonus equal to 55 % of his then base salary based upon the achievement of Company and individual performance targets established by the Company’s board of directors. In addition, in the first year in which the Company’s market capitalization (as defined in the Amended and Restated Employment Agreement) equals or exceeds (i) $250 million, the CEO shall receive a cash payment of $150,000; (ii) $500 million, the CEO shall receive a cash payment of $350,000; and (iii) $1.0 billion, the CEO shall receive a cash payment of $750,000. Furthermore, following the date of the Company’s IPO, the CEO was issued an option to purchase 30,303 shares of the Company’s common stock at an exercise price of $ 100.00 per share, which options shall vest over a 48-month period commencing 12 months after the date of grant. This shall be in addition to any additional equity-based compensation awards the Company may grant the CEO from time to time. On January 1, 2023, in lieu of half of his 2023 salary, the CEO was issued options to purchase up to 20,605 shares of the Company’s common stock at an exercise price of $ 9.75 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 of the COO Employment Agreement (as defined below) except, the CEO shall (i) receive a base salary of $ 500,000 per year, which may be increased by the Board; and (ii) be eligible to receive an annual bonus equal to 60 % of his then base salary based upon the achievement of Company and individual targets to be established by the Board, in its sole discretion. In addition, in the event the CEO’s employment is terminated by the Company other than as a result of his death or Disability and other than for Cause, or if the CEO terminates his employment for Good Reason, then, in addition to the Accrued Compensation, the Company shall continue to pay the CEO’s base salary and provide health benefits for a period of 18 months following the termination date (each as defined in the CEO Employment Agreement). In addition, all Restricted Shares and Stock Options that have not vested as of the date of termination shall be forfeited and outstanding unvested time-based equity awards shall be accelerated in accordance with the applicable vesting schedule as if the CEO had been in service for an additional 12 months as of the termination date. 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 $ 400,000 per year, which may be increased by the Board; (ii) be eligible to receive an annual bonus equal to 50 % of his then base salary based upon the achievement of Company and individual targets to be established by the Board, in its sole discretion; (iii) shall be eligible to receive equity-based compensation awards as determined by the Company; (iv) receive reimbursement of reasonable business expenses; and (v) receive such other benefits that the Company may make available to its senior executives from time to time along with vacation, sick and holiday pay in accordance with the Company’s policies established and in effect from time to time. Note 10 – Subsequent Events Except as noted below, there were no material subsequent events that required recognition or additional disclosure in these consolidated financial statements. In January 2024, the Company entered into an insurance premium financing agreement for $ 492,450 , with a term of 10 months and an annual interest rate of 7.5 %. The Company made a down payment of $ 98,490 and is required to make monthly principal and interest payments of $ 40,763 over the term of the agreement, which matures in November 2024. F- 22 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.