What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-15 compared with 2022-11-14 · 428 added, 363 removed, 340 unchanged (70% of the section changed)

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Our actual results could differ materially from those anticipated in these forward-looking statements

as a result of various factors, including those set forth in the section titled “Item 1A.

Risk Factors.”

as a result of various factors, including those set forth in the section within Part II-Other Information - titled “Item 1A.

in the following discussion to “we”, “us”, “our” and the “Company” refer to Ensysce Biosciences,

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to “LACQ” refer to Leisure Acquisition Corp., a Delaware corporation, prior to the Closing.

Biosciences, Inc.

is a clinical stage pharmaceutical company seeking to develop innovative solutions for severe pain relief while reducing

the fear of and the potential for opioid misuse, abuse and overdose.

We have a 79.2%-owned subsidiary, EBIR,

a clinical stage pharmaceutical company that is developing a compound utilized in Ensysce’s overdose protection program for the

treatment of respiratory diseases.

is a clinical stage pharmaceutical company seeking to develop innovative solutions for severe pain relief while reducing the fear of

and the potential for addiction, opioid misuse, abuse and overdose.

We have also incorporated a 79.2%-owned subsidiary, EBIR, Inc.

known as Covistat, Inc.), a clinical stage pharmaceutical company that is developing a compound utilized in our overdose protection program

for the treatment of COVID-19.

Our lead product candidate, PF614, is an extended release TAAP prodrug of oxycodone.

TAAP modification

of prescription drugs removes the ability to crush, chew or manipulate and inject to achieve the medication more quickly than by swallowing.

of prescription drugs removed the ability to crush, chew or manipulate and inject to achieve the effect of the medication more quickly

than by swallowing.

MPAR™ adds a layer of overdose protection to each TAAP product.

inception in 2003, we have devoted substantially all our efforts and financial resources to organizing and staffing our company, business

our inception in 2003, we devoted substantially all of our efforts and financial resources to organizing and staffing our company, business

planning, raising capital, discovering product candidates and securing related intellectual property rights and conducting research and

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We may never be able to develop or commercialize a marketable product.

lead product candidate, PF614, is in Phase 1b clinical development, PF614-MPAR™ is in Phase 1 clinical development and nafamostat

lead product candidate, PF614, is in Phase 2 clinical development, PF614-MPAR™ is in Phase 1b clinical development and nafamostat

is proceeding towards Phase 2 clinical development.

Our other product candidates and research initiatives are in preclinical or earlier

Our other product candidates and our research initiatives are in preclinical or earlier

stages of development.

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and marketing activities.

have incurred significant operating losses since inception.

As of September 30, 2022, we had an accumulated deficit of $105.4 million.

We expect to continue to incur net losses for the foreseeable future, and we expect our clinical development expenses, and general and

administrative expenses to continue to increase.

We expect that our expenses and capital requirements will increase substantially in

connection with our ongoing development activities, particularly if and as we:

have incurred significant operating losses since inception and we expect to continue to incur net losses for the foreseeable future.

We expect that our expenses and capital requirements will increase substantially in connection with our ongoing development activities,

particularly if and as we:

continue preclinical studies

and continue existing and initiate new clinical trials for PF614, PF614-MPAR™ and nafamostat, our lead product candidates being

tested for chronic pain and infectious disease;

and continues existing and initiates new clinical trials for PF614, PF614-MPAR™ and nafamostat, our lead product candidates

being tested for chronic pain and infectious disease;

advance the development

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quality control, medical, scientific and other technical personnel to support our clinical operations;

seek regulatory approvals

seek regulatory approval

for any product candidates that successfully complete clinical trials;

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add operational, financial

and management information systems and personnel, including personnel to support our research and development programs, any future

commercialization efforts and our transition to operating as a public company.

expect to incur additional costs associated with operating as a public company, including significant legal, accounting, insurance, investor

relations and other expenses that we did not incur as a private company.

and management information systems and personnel, including personnel to support our research and development programs and any future

commercialization efforts.

have incurred and expect to continue to incur costs associated with operating as a public company, including significant legal, accounting,

insurance, investor relations and other expenses.

We may never become profitable.

require substantial additional funding to support our continuing operations and pursue our growth strategy.

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of our equity holders.

Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting

or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or

declaring dividends.

If we raise additional funds through collaborations or other strategic transactions with third parties, we may have

to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates, or grant licenses on

terms that may not be favorable to us.

We may be unable to raise additional funds or enter into such other agreements or arrangements

when needed on favorable terms, or at all.

If we fail to raise capital or enter into such agreements as and when needed, we may have

to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates or delay

our pursuit of potential in-licenses or acquisitions.

financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability

to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends.

raise additional funds through collaborations or other strategic transactions with third parties, we may have to relinquish valuable

rights to our technologies, future revenue streams, research programs or drug candidates, or grant licenses on terms that may not be

favorable to us.

We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable

terms, or at all.

If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale

back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential

in-licenses or acquisitions.

of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased

expenses or when or if we will be able to achieve or maintain profitability.

Even if we are able to generate product sales, we may not

become profitable.

If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to

continue our operations at planned levels and be forced to reduce or terminate our operations.

Combination Transaction

January 31, 2021, LACQ executed a definitive merger agreement among it, Merger Sub and Former Ensysce, providing for, among other things,

and subject to terms and conditions therein, the Business Combination.

On June 30, 2021, the Business Combination was consummated.

In connection with the Business Combination,

the stockholders of Former Ensysce exchanged their interests for shares of the combined company’s common stock at an exchange ratio

Immediately following the Business Combination, the stockholders of Former Ensysce owned approximately 71.8% of the outstanding

common stock of the combined company.

Former Ensysce’s existing equity incentive plans were terminated, with awards issued under the

existing equity incentive plans exchanged for awards issued under the Company’s 2021 Omnibus Incentive Plan.

We received net proceeds of approximately

$7.8 million at the closing of the Business Combination.

We continue to operate under our management team, led by our Chief Executive

Lynn Kirkpatrick.

On July 2, 2021, the combined company’s common stock began trading on Nasdaq under the ticker symbol

of Ensysce’s Operating Results

Even if we generate product sales, we may not become profitable.

If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations

at planned levels and be forced to reduce or terminate our operations.

have generated limited revenues, have incurred significant operating losses since our inception and expect to continue to incur operating

losses for the foreseeable future.

These factors raise substantial doubt about our ability to continue as a going concern.

viability is dependent on our ability to raise additional capital to finance our operations.

expect to incur substantial expenses in the foreseeable future for the development and potential commercialization of our product candidates

and ongoing internal research and development programs.

At this time, we cannot reasonably estimate the nature, timing, or aggregate

amount of costs for our development, potential commercialization, and internal research and development programs.

However, in order to

complete our current and future preclinical studies and clinical trials, and to complete the process of obtaining regulatory approval

for our product candidates, as well as to build the sales, marketing and distribution infrastructure that we believe will be necessary

to commercialize our product candidates, if approved, we may require substantial additional funding in the future.

Promissory Notes

September 24, 2021, we entered into the SPA for an aggregate financing of $15.0 million with institutional investors.

A first closing

under the SPA occurred on September 24, 2021 and a second closing under the SPA occurred on November 5, 2021.

At the first closing, the

Company issued to the investors (i) senior secured convertible promissory notes in the aggregate principal amount of $5.3 million for

an aggregate purchase price of $5.0 million (collectively, the “ First Closing Notes ”) and (ii) warrants to purchase

18,058 shares of the Company’s common stock in the aggregate at an exercise price of $152.60 per share.

At the second closing,

the Company issued to the institutional investors referenced above, (i) senior secured convertible promissory notes in the aggregate

principal amount of $10.6 million (collectively, the “ Second Closing Notes ”, together with the First Closing Notes,

the “ 2021 Notes ”) for an aggregate purchase price of $10.0 million and (ii) warrants to purchase 36,116 shares of

the Company’s common stock in the aggregate at an exercise price of $152.60 per share.

The 2021 Notes were satisfied on October

June 30, 2022, we entered into an $8.0 million convertible financing agreement with institutional investors (the “2022 Notes”).

The agreement provided for two closings, each for notes payable of $4.24 million (resulting in gross cash proceeds of $4.0 million).

Funds were received for the first closing on July 1, 2022 and for the second closing on August 9, 2022.

The remaining amount of principal

and interest on the 2022 Notes was repaid in the first quarter of 2023.

However, we remain obligated under the 2022 Notes to pay additional

cash as true-up payments for interest or redemption amounts that we paid in shares of common stock that were valued below $24.07 or the

lower conversion price of $9.01 in effect between January 12, 2023 and May 12, 2023.

The true-up payments compensate for the difference

between the value of a share and the conversion price in effect at the time of redemption, multiplied by the number of shares paid.

true-up payments are due (in cash) on May 12, 2023.

connection with each of the first and second closings of the 2022 Notes we also issued warrants to purchase 38,894 shares of the Company’s

common stock.

The warrants have an exercise price of $24.07and are exercisable for five years following issuance of the 2022 Notes.

issuance of these warrants required us to reduce the conversion price of the 2021 Notes and the exercise price of the outstanding warrants

associated with the 2021 Notes to $187.20.

proceeds of the 2022 Notes are being used for working capital purposes subject to certain customary restrictions are secured by the Company’s

rights to its patents and licenses.

We are restricted from issuing certain additional debt or equity without the prior written consent

of the holders for certain specified periods set forth in the 2022 Notes.

If, at any time while the 2022 Notes are outstanding, we carry

out one or more capital raises in excess of $5.0 million, the holder has the right to require us to use up to 20% of the gross proceeds

of such transaction to redeem all or a portion of the convertible notes for an amount in cash equal to the cash Mandatory Redemption

Amount (i.e., 108% of outstanding principal and unpaid interest).

In connection with a financing which occurred in December 2022, we

repaid $0.7 million of principal on the 2022 Notes and paid an additional $0.1 million of interest and premium payments.

Underwriting Agreement

December 7, 2022, we entered into an underwriting agreement (the “ Underwriting Agreement ”) with Lake Street Capital

Management, LLC (the “ Underwriter ”), pursuant to which we agreed to issue and sell (i) 190,000 shares (the “ Firm

Shares ”) of the Company’s common stock, par value $0.0001 per share (the “ Common Stock ”), (ii) pre-funded

warrants (the “ Pre-Funded Warrants ”) to purchase 51,666 shares of Common Stock and (iii) warrants to purchase 483,333

shares of Common Stock (the “ Common Warrants ” and, collectively with the Pre-Funded Warrants, the “ Warrants ”)

to the Underwriter in a public offering (the “ Offering ”).

In addition, under the terms of the Underwriting Agreement,

the Company granted the Underwriter the option, for 45 days from the closing of the Offering, to purchase up to 28,500 additional shares

of Common Stock and Common Warrants to purchase up to an additional 72,500 shares of Common Stock (the “ Option Shares ”

and, together with the Firm Shares, the “ Shares ”).

lieu of a purchase of Common Stock that would otherwise result in an investor’s beneficial ownership exceeding 4.99% (or, at the

election of the investor, 9.99%) of the outstanding Common Stock, a Pre-Funded Warrant was offered, each of which enables the investor

to purchase one share of Common Stock at an exercise price of $0.0001.

Each Pre-Funded Warrant will be exercisable upon issuance and

will expire when exercised in full (all Pre-Funded Warrants were exercised immediately upon issuance).

Each Pre-Funded Warrant is being

sold with a Common Warrant to purchase two shares of Common Stock.

The public purchase price of one share of Common Stock and accompanying

Common Warrant to purchase two shares of Common Stock is $16.80 and the combined purchase price of one Pre-Funded Warrant and accompanying

Common Warrant to purchase two shares of Common Stock is $16.80.

The Underwriter agreed to purchase the Firm Shares from the Company

pursuant to the Underwriting Agreement at a price of $15.62 per share.

Common Warrant is exercisable immediately at an exercise price of $16.80 per share and will expire five years following the date of issuance.

The Offering closed on December 9, 2022 and we received aggregate gross proceeds of approximately $4.1 million from the Offering.

Offering was made under a registration statement on Form S-1 filed with the Securities and Exchange Commission (Registration No.

connection with the Offering, the Company’s directors and executive officers signed lock-up agreements by which they agreed not

to sell or transfer any Common Stock without first obtaining the written consent of the Underwriter, subject to certain exceptions, for

a period of 90 days after the date of the final prospectus relating to the Offering.

Securities Purchase Agreement

February 2, 2023, we entered into a definitive Securities Purchase Agreement (the “ Purchase Agreement ”) with

certain institutional investors (the “ Purchasers ”), pursuant to which the Company agreed to issue and sell

in a registered direct offering (the “ Offering ”), priced “at-the-market” under the rules of The

Nasdaq Stock Market, an aggregate of 297,619 shares (the “ Shares ”) of common stock of the Company, par value

$0.0001 per share (the “ Common Stock ”), at an offering price of $10.08 per share, for gross proceeds of approximately

$3.0 million before the deduction of placement agent fees and offering expenses.

The closing of the Offering occurred on February 6,

The Shares were offered by the Company pursuant to a shelf registration statement on Form S-3 (File No.

333-269157), which was

initially filed with the Securities and Exchange Commission (the “ Commission ”) on January 9, 2023 and was declared

effective by the Commission on January 17, 2023 (the “Registration Statement”), and a related prospectus.

a concurrent private placement (the “ Private Placement ”), the Company issued to the Purchasers, for each share

of Common Stock purchased in the Offering, a common warrant to purchase one share of Common Stock (the “ Common Warrants ”).

The Common Warrants are exercisable immediately upon issuance and terminate five and one-half years following issuance.

The Common Warrants

have an exercise price of $8.58 per share and are exercisable to purchase an aggregate of up to 297,619 shares of Common Stock and expire

on August 7, 2028.

A holder of a Common Warrant will not have the right to exercise any portion of its warrants if the holder, together

with its affiliates, would beneficially own in excess of 4.99% (or 9.99% at the election of the holder prior to the date of issuance)

of the number of shares of Common Stock outstanding immediately after giving effect to such exercise (the “ Beneficial Ownership

Limitation ”);

provided, however, that upon 61 days’ prior notice to the Company, the holder may increase or decrease

the Beneficial Ownership Limitation, provided that in no event shall the Beneficial Ownership Limitation exceed 9.99%.

Wainwright & Co.

acted as the exclusive placement agent (the “ Placement Agent ”) for the Offering.

warrants (the “ Placement Agent Warrants ”) to purchase up to 20,833 shares of Common Stock to the Placement

Agent (including its designees).

These warrants have an exercise price equal to $12.60 per share and are exercisable for five years from

the commencement of sales in the Offering.

The Common Warrants and Placement Agent Warrants and the shares of our Common Stock issuable

upon the exercise of the Common Warrants and Placement Agent Warrants are not being registered under the Securities Act of 1933, as amended

(the “ Securities Act ”), are not being offered pursuant to the Registration Statement, and are being offered

pursuant to the exemption provided in Section 4(a)(2) under the Securities Act and Rule 506(b).

the Purchase Agreement, we agreed not to issue, enter into any agreement to issue or announce the issuance or proposed issuance of any

shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock for a period of 30 days following

the closing of the Offering.

Our officers and directors agreed, subject to limited exceptions, for a period of 90 days after the closing

of the Offering, to not offer, sell, contract to sell, hypothecate, pledge or otherwise dispose of, directly or indirectly, or establish

or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Securities

Exchange Act of 1934, as amended, with respect to, any shares of Common Stock or securities convertible, exchangeable or exercisable

into, shares of Common Stock beneficially owned, held or thereafter acquired by them.

closing of the Offering and the Private Placement was subject to satisfaction of customary closing conditions set forth in the Purchase

The representations, warranties and covenants contained in the Purchase Agreement were made solely for the benefit of the

parties to the Purchase Agreement.

In addition, such representations, warranties and covenants (i) are intended as a way of allocating

the risk between the parties to the Purchase Agreement and not as statements of fact, and (ii) may apply standards of materiality in

a way that is different from what may be viewed as material by stockholders of, or other investors in, the Company.

Accordingly, the

Purchase Agreement is filed with this report only to provide investors with information regarding the terms of transaction, and not to

provide investors with any other factual information regarding the Company.

Moreover, information concerning the subject matter of the

representations and warranties may change after the date of the Purchase Agreement, which subsequent information may or may not be fully

reflected in public disclosures.

of Our Operating Results

have generated limited revenue since our inception and we do not expect to generate any revenue from the sale of products in the near

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payments from such collaboration or license agreements, or a combination thereof.

have received funding under federal grants from the National Institutes of Health (“NIH”) through the National Institute

on Drug Abuse (“NIDA”).

In September 2018, we were awarded a research and development grant related to the development of

our MPAR TM overdose prevention technology (the “MPAR Grant”).

In September 2019, we were awarded a second research

and development grant related to the development of our TAAP/MPAR TM abuse deterrent technology for Opioid Use Disorder (“OUD”)

(the “OUD Grant”).

Grant funds are awarded annually through a Notice of Award which contains certain terms and conditions

including, but not limited to, complying with the grant program legislation, regulation and policy requirements, complying with conditions

on expenditures of funds with respect to other applicable statutory requirements such as the federal appropriations acts, periodic reporting

requirements, and budget requirements.

have received funding under federal grants from the NIH through NIDA.

In September 2018, we were awarded a research and development grant

related to the development of our MPAR TM overdose prevention technology (the “MPAR Grant”).

In September 2019,

we were awarded a second research and development grant related to the development of our TAAP/MPAR TM abuse deterrent technology

for Opioid Use Disorder (“OUD”) (the “OUD Grant”).

Grant funds are awarded annually through a Notice of Award

which contains certain terms and conditions including, but not limited to, complying with the grant program legislation, regulation and

policy requirements, complying with conditions on expenditures of funds with respect to other applicable statutory requirements such

as the federal appropriations acts, periodic reporting requirements, and budget requirements.

and Development Expenses

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expenses incurred under

agreements with contract research organizations (“ CROs ”) that are primarily engaged in the oversight and conduct

of our drug discovery efforts and preclinical studies, clinical trials and contract manufacturing organizations (“ CMOs ”)

that are primarily engaged to provide preclinical and clinical drug substance and product for our research and development programs;

agreements with CROs that are primarily engaged in the oversight and conduct of our drug discovery efforts and preclinical studies,

clinical trials and CMOs that are primarily engaged to provide preclinical and clinical drug substance and product for our research

and development programs;

other costs related to

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recognize external development costs as incurred.

Any advance payments that we make for goods or services to be received in the future

for use in research and development activities are recorded as prepaid expenses.

Any advance payments we make for goods or services to be received in the future for

use in research and development activities are recorded as prepaid expenses.

Such amounts are expensed as the related goods are delivered

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We use internal

resources primarily to conduct our research and development as well as for managing our preclinical development, process development,

manufacturing and clinical development activities.

These employees work across multiple programs and, therefore, we do not track our

costs by program and cannot state precisely the total costs incurred for each of our clinical and preclinical programs on a project-by-project

resources primarily to manage our preclinical development, process development, manufacturing and clinical development activities.

employees work across multiple programs and, therefore, we do not track our costs by program and cannot state precisely the total costs

incurred for each of our clinical and preclinical programs on a project-by-project basis.

and development activities are central to our business model.

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clinical trials.

As a result, we expect that our research and development expenses will increase substantially over the next several

years as we continue our existing, and commences additional, planned clinical trials for PF614, PF614-MPAR™ and nafamostat, as

well as conduct other preclinical and clinical development, including submitting regulatory filings for our other product candidates.

We also expect our discovery research efforts and our related personnel costs to increase and, as a result, we expect our research and

development expenses, including costs associated with stock-based compensation, to increase above historical levels.

In addition, we

may incur additional expenses related to milestone and royalty payments payable to third parties with whom we may enter into license,

acquisition and option agreements to acquire the rights to future product candidates.

As a result, we expect that our research and development expenses will remain elevated as we continue our existing,

and commence additional, planned clinical trials for PF614, PF614-MPAR™ and nafamostat, as well as conduct other preclinical and

clinical development, including submitting regulatory filings for our other product candidates, subject to our ability to obtain financing.

We also expect our related personnel costs to increase and, as a result, we expect our research and development expenses, including costs

associated with stock-based compensation, to remain elevated.

In addition, we may incur additional expenses related to milestone and

royalty payments payable to third parties with whom we may enter license, acquisition and option agreements to acquire the rights to

future product candidates.

this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical

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delivery of clinical-grade and commercial-grade drug formulations that can be used in our clinical trials and for commercial launch;

maintaining, defending and enforcing patent claims and other intellectual property rights;

and changing government regulation;

commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others;

a continued acceptable safety profile of our product candidates following approval, if any, of our product candidates.

obtaining, maintaining,

defending and enforcing patent claims and other intellectual property rights;

significant and changing

government regulation;

launching commercial sales

of our product candidates, if and when approved, whether alone or in collaboration with others;

maintaining a continued

acceptable safety profile of our product candidates following approval, if any, of our product candidates.

changes in the outcome of any of these variables with respect to the development of our product candidates in preclinical and clinical

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administrative costs as incurred.

anticipate that our general and administrative expenses, excluding non-cash expenses to recognize the fair value of warrants, will increase

in the future as we increase our headcount to support the continued development of our product candidates.

We also anticipate that we

will continue to incur significant accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well

as investor and public relations expenses as a public company.

Additionally, if and when we believe a regulatory approval of a product

candidate appears likely, we anticipate an increase in payroll and other employee-related expenses as a result of our preparation for

commercial operations, especially as it relates to the sales and marketing of that product candidate.

anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support the continued

development of our product candidates, subject to our ability to obtain financing.

We also anticipate that we will continue to incur

significant accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public

relations expenses.

Additionally, if and when we believe a regulatory approval of a product candidate appears likely, we anticipate an

increase in payroll and other employee-related expenses as a result of our preparation for commercial operations, especially as it relates

to the sales and marketing of that product candidate.

Income (Expense)

in fair value of derivative liabilities

2018 and 2021, we entered into a series of notes that were determined to have embedded derivative instruments in the form of a contingent

The notes were recognized at the value of proceeds received after allocating issuance proceeds to the bifurcated contingent

The notes were subsequently measured at amortized cost using the effective interest method to accrete interest over their

term to bring the notes’ initial carrying value to their principal balance at maturity.

The bifurcated put option was initially

measured at fair value and subsequently measured at fair value with changes in fair value recognized as a component of other expenses

in the consolidated statements of operations.

on issuance of convertible notes

elected the fair value option to account for the 2021 Notes as we believe the fair value option provides users of the financial statements

with greater ability to estimate the outcome of future events as facts and circumstances change, particularly with respect to changes

in the fair value of the common stock underlying the conversion option.

The 2022 Notes are accounted for under ASC 480 – Distinguishing

Liabilities from Equity, due to share settlement features contained within the notes.

As a result, the 2022 Notes are recorded as

liabilities at fair value upon initial recognition and at the balance sheet date.

We use a discounted cash flow model and a Monte Carlo

simulation to estimate the fair value of the notes, both of which rely on unobservable Level 3 inputs.

The loss on issuance of convertible

notes represents the difference between the gross proceeds received and the calculated fair value on the issuance date of the notes.

costs for convertible notes

issuance costs for convertible notes represent the original issue discount (expensed immediately due to the initial recognition at fair

value of both the 2021 and 2022 Notes noted above), legal and accounting fees incurred in connection with the issuance of the 2021 and

in fair value of convertible notes

elected the fair value option to account for the 2021 Notes and 2022 Notes as we believe the fair value option provides users of the

financial statements with greater ability to estimate the outcome of future events as facts and circumstances change, particularly with

respect to changes in the fair value of the common stock underlying the conversion option.

We use a discounted cash flow model and a

Monte Carlo analysis to estimate the fair value of the notes, both of which rely on unobservable Level 3 inputs.

Changes in the fair

value of the notes are recognized through earnings for each reporting period.

in fair value of liability classified warrants

elected the fair value option to account for the 2021 Notes as we believe the fair value option provides users of the financial statements

with greater ability to estimate the outcome of future events as facts and circumstances change, particularly with respect to changes

in the fair value of the common stock underlying the conversion option.

The 2022 Notes are accounted for under ASC 480 – Distinguishing

Liabilities from Equity, due to share settlement features contained within the notes.

We use a discounted cash flow model and a Monte

Carlo simulation to estimate the fair value of the notes, both of which rely on unobservable Level 3 inputs.

Changes in the fair value

of the notes are recognized through earnings for each reporting period.

of liability classified warrants

warrants issued with the 2021 Notes and 2022 Notes are liability classified due to certain cash settlement features.

We use a Black-Scholes

option pricing model to estimate the fair value of the warrants.

Changes in the fair value of the warrants are recognized through earnings

for each reporting period.

option pricing model to estimate the fair value of the warrants at issuance.

This represents the immediate expense upon initial recognition

of the liability that is included in the statement of operations.

The liability is subsequently remeasured each reporting period as described

further below.

in fair value of liability classified warrants

use a Black-Scholes option pricing model to estimate the fair value of the liability classified warrants.

Changes in the fair value of

the warrants are recognized through earnings for each reporting period.

on debt conversions

conversions on the 2021 Notes and 2022 Notes occur, we calculate the difference between the conversion price and the average of the high

and low stock price on the date of conversion.

The resulting difference is either a loss if the conversion price was below the average

of the high and low stock price on the date of conversion or a gain if the conversion price was above the average of the high and low

conversions on the 2021 Notes occurred, we calculated the difference between the conversion price and the average of the high and low

stock price on the date of conversion.

expense consists of interest accrued on our financed directors and officers insurance as well as imputed interest on the commitment fees

related to the share subscription facility.

The resulting difference is either a loss if the conversion price was below the average of the

high and low stock price on the date of conversion or a gain if the conversion price was above the average of the high and low stock

price on the date of conversion.

expense consists of interest accrued on our financed directors’ and officers’ insurance as well as imputed interest on the

commitment fees related to the share subscription facility.

Interest expense related to the 2021 Notes and 2022 Notes is included in

the estimate of fair value of the convertible notes.

for Income Taxes

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available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

As of September 30,

2022, we continue to maintain a full valuation allowance against all of our deferred tax assets based on our evaluation of all available

As of March 31, 2023

and December 31, 2022, we continue to maintain a full valuation allowance against all of our deferred tax assets based on our evaluation

of all available evidence.

in 2022, the Tax Cuts and Jobs Act, or the Tax Act, eliminated the option to deduct research and development expenditures currently and

requires taxpayers to capitalize and amortize them over five or fifteen years pursuant to Internal Revenue Code Section 174.

not impacted our effective tax rate or our cash tax payable in 2023;

however, if the requirement to capitalize Section 174 expenditures

is not modified, it may also impact our effective tax rate and our cash tax liability in future years.

file income tax returns in the United States federal tax jurisdiction and state jurisdictions and may become subject to income tax audit

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of Operations

of the three months ended September 30, 2022 and 2021:

Three Months Ended September 30,

Federal grants

Operating expenses:

Research and development

General and administrative

(14,686,396 )

Total operating expenses

(11,644,935 )

Loss from operations

(16,886,795 )

Other income (expense):

Issuance costs for convertible notes

Loss on issuance of convertible notes

Change in fair value of convertible notes

Issuance of liability classified warrants

Change in fair value of liability classified warrants

Loss on debt conversions

Interest expense

Other income and expense, net

Total other income (expense), net

$ (9,855,565 )

$ (17,199,474 )

Net loss attributable to noncontrolling interests

Deemed dividend related to warrants down round provision

Net loss attributable to common stockholders

$ (9,897,612 )

$ (17,163,526 )

grant funding

from federal grants for the three months ended September 30, 2022 and 2021 totaled $0.3 million and $1.2 million, respectively, representing

a decrease of $0.9 million.

Differences are due to the timing of research activities eligible for funding as well as the grant period.

We expect funding from federal grants to generally increase in the future due to the timing of preclinical and clinical development activities

under the grants.

and development expenses

and development expenses for the three months ended September 30, 2022 and 2021 were $4.8 million and $1.7 million, respectively, representing

an increase of $3.0 million.

The increase was primarily the result of increased external research and development costs related to clinical

and pre-clinical programs for PF614 and PF614-MPAR™.

We do not currently track expenses on a program-by-program basis.

future research and development expenses to approximate current levels.

and administrative expenses

and administrative expenses for the three months ended September 30, 2022 and 2021 were $1.7 million and $16.4 million,

respectively, representing an decrease of $14.7 million.

The decrease was primarily a result of non-cash expenses incurred in the

comparable prior period in connection with the valuation of issued warrants.

We expect future general and administrative expenses to

approximate current levels.

income and expense

costs for convertible notes increased due to both tranches of the 2022 Notes being issued during the period while only one tranche

of the 2021 Notes was issued during the similar prior period.

The loss on issuance of the convertible notes was due to the current

share price at issuance (of the 2022 Notes) exceeding the conversion price.

Changes in fair value of convertible notes and liability

classified warrants for the 2022 period relate to both the 2021 Notes and 2022 Notes compared to only changes related to the 2021

Notes in the prior period.

Loss on debt conversions is driven by the difference between the conversion price of the 2021 Notes and

2022 Notes and the average of the high and low stock price on the date of conversion.

There was no corresponding activity in the

of the nine months ended September 30, 2022 and 2021

following table summarizes our results of operations for the nine months ended September 30, 2022 and 2021:

Nine Months Ended September 30,

of the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

Federal grants

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General and administrative

(11,540,080 )

Total operating expenses

Loss from operations

(18,021,309 )

(17,863,686 )

Other income (expense):

Issuance costs for convertible note

Change in fair value of derivative liabilities

Loss on issuance of convertible notes

Change in fair value of convertible notes

Issuance of liability classified warrants

Change in fair value of liability classified warrants

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Interest expense

Loss on extinguishment of debt

Other income and expense, net

Total other income (expense), net

$ (18,729,609 )

$ (19,108,777 )

Total other income/(expenses), net

Net loss attributable to noncontrolling interests

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grant funding

from federal grants for the nine months ended September 30, 2022 and 2021 totaled $1.1 million and $1.9 million, respectively, representing

an decrease of $0.8 million.

Differences are due to the timing of research activities eligible for funding as well as the grant period.

We expect funding from federal grants to generally increase in the future due to the timing of preclinical and clinical development activities

under the grants.

from federal grants for the three months ended March 31, 2023 and 2022 totaled $0.8 million and $0.6 million, respectively.

The difference

is due to the timing of research activities eligible for funding.

We expect funding from federal grants to fluctuate in the future due

to the timing of preclinical and clinical development activities under the grants.

and development expenses

and development expenses for the nine months ended September 30, 2022 and 2021 were $13.4 million and $2.5 million, respectively, representing

an increase of $10.9 million.

The increase was primarily the result of increased external research and development costs related to clinical

programs for PF614 and preclinical programs for PF614-MPAR™.

and development expenses for the three months ended March 31, 2023 and 2022 were $1.8 million and $3.1 million, respectively, representing

a decrease of $1.3 million.

The decrease was primarily the result of changes in timing of external research and development costs related

to clinical and pre-clinical programs for PF614 and PF614-MPAR™.

We do not currently track expenses on a program-by-program basis.

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and administrative expenses

and administrative expenses for the nine months ended September 30, 2022 and 2021 were $5.7 million and $17.3 million, respectively,

representing a decrease of $11.5 million.

The decrease was primarily a result of non-cash expenses incurred in the comparable prior

period in connection with the valuation of issued warrants.

We expect future general and administrative expenses to approximate current

and administrative expenses for the three months ended March 31, 2023 and 2022 were $1.6 million and $2.3 million, respectively, representing

a decrease of $0.7 million.

The decrease was primarily a result of reduced stock-based compensation, liability insurance and employee

bonus expenses in the 2023 period.

We expect future general and administrative expenses to approximate current levels.

income and expense

in the fair value of derivative liabilities during the nine months ended September 30, 2021 resulted from the decreased likelihood of

realization of the embedded derivative instrument in convertible notes payable, resulting in a gain of $0.7 million during the nine months

ended September 30, 2021.

All outstanding liabilities were settled in connection with the conversion of outstanding note payables on

June 30, 2021.

costs for convertible notes increased due to both tranches of the 2022 Notes being issued during the period while only one tranche of

the 2021 Notes was issued during the similar prior period.

The loss on issuance of the convertible notes was due to the current share price at issuance (of the 2022 Notes)

exceeding the conversion price.

Changes in fair value of convertible notes and liability classified warrants

for the 2022 period relate to both the 2021 Notes and 2022 Notes compared to only changes related to the 2021 Notes in the prior period.

Loss on debt conversions is driven by the difference between the conversion price of the 2021 Notes and 2022 Notes and the average of

the high and low stock price on the date of conversion.

There was no corresponding activity in the 2021 period.

in fair value of the 2022 Notes (outstanding in 2023) and the 2021 Notes (outstanding in 2022) are due to the significant fluctuations

in the Company’s share price as well as the balance outstanding for the respective Notes for the relevant period.

The change in

fair value of liability classified warrants for the three months ended March 31, 2023 are primarily the result of the warrants outstanding

for both the 2021 Notes and 2022 Notes compared to only changes related to the warrants associated with the 2021 Notes in the prior period,

as well as fluctuations associated with the Company’s decreasing share price.

Loss on debt conversions is driven by the difference

between the conversion price of the 2021 Notes and the average of the high and low stock price on the date of conversion.

corresponding activity in the 2023 period associated with the 2022 Notes due to the accounting under ASC 480.

and capital resources

of liquidity and capital

of September 30, 2022, we had $4.5 million of cash and cash equivalents.

Since inception, we have generated limited revenues and have

incurred significant operating losses and negative cash flows from our operations, and we anticipate that we will continue to incur losses

for at least the foreseeable future.

We have not yet commercialized any of our product candidates and we do not expect to generate revenue

from sales of any product candidates for several years, if at all.

As of September 30, 2022, we had an accumulated deficit of $105.4

of March 31, 2023, we had $1.4 million of cash and cash equivalents.

On May 12, 2023, we completed a public offering with gross

proceeds of $7.0 million, before deducting placement agent fees and other offering expenses, for the sale of an aggregate of 1.8

million shares of common stock (or pre-funded warrants in lieu thereof) at a combined offering price of $3.887 per share, including

warrants to purchase up to 3.6 million shares at an exercise price of $3.637 per share.

Since inception, we have generated limited

revenues and have incurred significant operating losses and negative cash flows from our operations, and we anticipate that we will

continue to incur losses for the foreseeable future.

We have not yet commercialized any of our product candidates and we do not

expect to generate revenue from sales of any product candidates for several years, if at all.

have funded our operations to date primarily with proceeds from the sale of common equity, funding under federal research grants and

borrowings under promissory notes.

To fund future operations, we will likely need to raise additional capital.

borrowings under convertible promissory notes.

To fund future operations, we will need to raise additional capital.

The amount and timing

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efforts and related general and administrative support.

We anticipate that we will continue to fund our operations through public or

private equity or debt financings or other sources which may include potential collaboration agreements.

We cannot make assurances that

anticipated additional financing will be available to us on favorable terms, if at all.

remaining funding under two approved federal research grants totals $5.8 million, covering the period through August 31, 2023.

to the terms and conditions of the two grants, we are required to submit progress reports to NIDA on an annual basis and a final research

performance progress report within 120 days of the performance period end date.

Additionally, the grants limit the use of funds to activities

that are clearly severable and independent from activities that involve human subjects until the receipt by NIDA of (i) Institutional

Review Board (“ IRB ”) approval, (ii) federal-wide assurance from the Office for Human Research Protections, (iii) a

Data and Safety Monitoring Plan, (iv) certification that all key personnel have completed education on the protection of human subjects

and (v) a Clinical Trials Dissemination Plan.

We must also comply with the data sharing policies of NIDA and the NIH Public Access Policy,

that require submission of final peer-reviewed journal manuscripts that arise from the use of grants to PubMed Central immediately upon

acceptance for publication.

grant has to be repaid.

We anticipate that we will fund our operations through public or private equity

or debt financings or other sources, which may include potential collaboration agreements with third parties.

We cannot make assurances

that anticipated additional financing will be available to us on favorable terms, if at all, or that we will enter into any collaborations.

funding under two approved federal research grants totaled $3.9 million at March 31, 2023 and is expected to be utilized by August 31,

Pursuant to the terms and conditions of the two grants, we are required to submit progress reports to NIDA on an annual basis and

a final research performance progress report within 120 days of the performance period end date.

Additionally, the grants limit the use

of funds to activities that are clearly severable and independent from activities that involve human subjects until the receipt by NIDA

of (i) Institutional Review Board (“ IRB ”) approval, (ii) federal-wide assurance from the Office for Human Research

Protections, (iii) a Data and Safety Monitoring Plan, (iv) certification that all key personnel have completed education on the protection

of human subjects and (v) a Clinical Trials Dissemination Plan.

We must also comply with the data sharing policies of NIDA and the NIH

Public Access Policy, that require submission of final peer-reviewed journal manuscripts that arise from the use of grants to PubMed

Central immediately upon acceptance for publication.

grant must be repaid.

To receive the remaining funding for each respective study covered by a grant, we must meet certain milestones.

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benefit of public health.

to the GEM Agreement, we are entitled to draw down up to $60.0 million of gross proceeds (“ Aggregate Limit ”) from

GEM Global in exchange for shares of our common stock, subject to meeting the terms and conditions of the GEM Agreement.

This share subscription

facility is available for a period of 36 months from the closing date of the Merger.

A draw down is subject to limitations on the amount

that is drawn under the facility and must comply with certain conditions precedent including the listing of our shares on a principal

market (which includes Nasdaq), having the necessary number of shares that are issuable pursuant to the draw down registered under an

effective registration statement, and other notice and timing requirements.

Upon our valid exercise of a draw down, pursuant to delivery

of a notice and in accordance with other conditions, GEM Global is required to pay, in cash, a per-share amount equal to 90% of the average

closing bid price of the shares of our common stock recorded by Nasdaq during the 30 consecutive trading days commencing on the first

trading day that is designated on the draw down notice.

In no event may our draw down requests exceed 400% (“ Draw Down Limit ”)

of the average daily trading volume for the 30 trading days immediately preceding the date we deliver the draw down notice.

to utilize this share subscription facility is restricted while the 2021 Notes or 2022 Notes are outstanding.

have not used the GEM facility to date.

Pursuant to the GEM Agreement, we are entitled to draw down up to $60.0 million of gross proceeds

(“ Aggregate Limit ”) from GEM Global in exchange for shares of our common stock, subject to meeting the terms and conditions

of the GEM Agreement.

This share subscription facility is available for a period of 36 months from the closing date of the Merger (expires

on July 1, 2024).

A draw down is subject to limitations on the amount that is drawn under the facility and must comply with certain conditions

precedent including the listing of our shares on a principal market (which includes Nasdaq), having the necessary number of shares that

are issuable pursuant to the draw down registered under an effective registration statement, and other notice and timing requirements.

Upon our valid exercise of a draw down, pursuant to delivery of a notice and in accordance with other conditions, GEM Global is required

to pay, in cash, a per-share amount equal to 90% of the average closing bid price of the shares of our common stock recorded by Nasdaq

during the 30 consecutive trading days commencing on the first trading day that is designated on the draw down notice.

In no event may

our draw down requests exceed 400% (“ Draw Down Limit ”) of the average daily trading volume for the 30 trading days

immediately preceding the date we deliver the draw down notice.

We may not be able to utilize the facility before it expires.

to utilize this share subscription facility is restricted while financing commitments to which we are subject remain outstanding.

the public listing of the Company’s shares following the closing of the Merger, GEM Global became entitled to a commitment fee

in the form of cash or freely tradeable shares of our common stock in an amount equal to 2% of the Aggregate Limit or $1.2 million

to be paid in two tranches.

The commitment fee for the first tranche, which is equal to 67% of the commitment fee, or $800,000, was

discharged with 46,062 shares of common stock transferred from related parties in July 2022.

The commitment fee for the second

tranche, which is equal to the remaining 33% of the commitment fee, or $400,000, becomes payable in January 2023.

in the form of cash or freely tradeable shares of our common stock in an amount equal to 2% of the Aggregate Limit or $1.2 million to

be paid in two tranches.

The commitment fee for the first tranche, which is equal to 67% of the commitment fee, or $800,000, was discharged

with 3,838 shares of common stock transferred from related parties in July 2022.

The commitment fee for the second tranche, which was

equal to the remaining 33% of the commitment fee, or $400,000, was paid in January 2023 through the issuance of 44,444 shares of registered

common stock.

Additionally,

we issued a warrant with a 36-month term at the closing of the Merger granting GEM Global the right to purchase 55,306 shares of our

common stock (an amount equal to 4% of the total number of our common stock outstanding as of the closing date of the Merger (subject

to adjustments described below), calculated on a fully diluted basis), at a strike price per share equal to $200.20, which was the closing

bid price for such common stock on the first day of trading on Nasdaq.

The strike price was reduced to $4.04 per share at September 30,

2022 because of a pricing adjustment per the GEM Agreement.

The warrant can be exercised on a cashless basis in part or in whole at any

time during the term.

Any failure by us to timely transfer the shares under the warrant pursuant to GEM Global’s exercise will

entitle GEM Global to compensation in addition to other remedies.

The number of shares underlying the warrant as well as the strike price

is subject to adjustments for recapitalizations, reorganizations, change of control, stock split, stock dividend, reverse stock splits,

and issuances of additional common shares at a price per share less than the exercise price.

GEM Agreement contains certain negative covenants restricting us from securing a share subscription line similar to the financing provided

under the GEM Agreement and requiring prompt notice of events constituting an alternate transaction.

An “alternate transaction”

includes an issuance of common stock at a price less than the then current market price, an “at-the-market” offering of securities,

and an issuance of options, warrants, or similar rights of subscription or the issuance of convertible equity or debt securities.

“ Risks Related to Our Business, Financial Condition and Capital Requirements ” for additional information.

Pursuant to the terms of the GEM Agreement, we are required to indemnify GEM Global for any losses it incurs as a result of a breach

by us or of our representations and warranties and covenants under the GEM Agreement or for any misstatement or omission of a material

fact in a registration statement registering those shares pursuant to the GEM Agreement.

Also, GEM Global is entitled to be reimbursed

for legal or other costs or expenses reasonably incurred in investigating, preparing, or defending against any such loss.

we issued a warrant with a 36-month term at the closing of the Merger granting GEM Global the right to purchase 4,608 shares of our common

stock (an amount equal to 4% of the total number of our common stock outstanding as of the closing date of the Merger (subject to adjustments

described below), calculated on a fully diluted basis), at a strike price per share equal to $2,402.40, which was the closing bid price

for such common stock on the first day of trading on Nasdaq.

The strike price was reduced to $8.58 per share as of March 31, 2023 because

of a pricing adjustment per the GEM Agreement which is reflected on the consolidated statement of operations as a deemed dividend.

warrant can be exercised on a cashless basis in part or in whole at any time during the term.

Any failure by us to timely transfer the

shares under the warrant pursuant to GEM Global’s exercise will entitle GEM Global to compensation in addition to other remedies.

The number of shares underlying the warrant as well as the strike price is subject to adjustments for recapitalizations, reorganizations,

change of control, stock split, stock dividend, reverse stock splits, and issuances of additional common shares at a price per share

less than the exercise price.

to the terms of the GEM Agreement, we are required to indemnify GEM Global for any losses it incurs as a result of a breach by us or

of our representations and warranties and covenants under the GEM Agreement or for any misstatement or omission of a material fact in

a registration statement registering those shares pursuant to the GEM Agreement.

Also, GEM Global is entitled to be reimbursed for legal

or other costs or expenses reasonably incurred in investigating, preparing, or defending against any such loss.

September 24, 2021, we entered into a Securities Purchase Agreement for an aggregate financing of $15.0 million with institutional investors.

The Company issued to

the investors (i) 2021 Notes in the aggregate principal amount of $15.9 million for an aggregate purchase price of $15.0 million and

(ii) warrants to purchase 54,174 shares of the Company’s common stock in the aggregate at an exercise price of $152.60 per share.

The Company issued to the investors (i) 2021 Notes in the aggregate principal amount of $15.9 million for an aggregate purchase price

of $15.0 million and (ii) warrants to purchase 4,512 shares of the Company’s common stock in the aggregate at a current exercise

price of $187.20 per share.

The 2021 Notes were satisfied on October 11, 2022.

June 30, 2022, we entered into a Securities Purchase Agreement for an aggregate financing of $8.0 million with institutional investors.

issued to the investors (i) 2022 Notes in the aggregate principal amount of $8.48 million for an aggregate purchase price of $8.0

million and (ii) warrants to purchase 466,789 shares of the Company’s common stock in the aggregate at an exercise price of

$14.17 per share.

The first funding of $4.0 million occurred on July 1, 2022 and the second funding of $4.0 million occurred on

August 9, 2022.

The Company issued to the investors (i) 2022 Notes in the aggregate principal amount of $8.48 million for an aggregate purchase price

of $8.0 million and (ii) warrants to purchase 38,894 shares of the Company’s common stock in the aggregate at a current exercise

price of $24.07 per share.

The first funding of $4.0 million occurred on July 1, 2022 and the second funding of $4.0 million occurred

on August 9, 2022 At March 31, 2023, the outstanding principal of the Notes were satisfied and a remaining balance of $0.6 million owed

to the institutional investors was reflected in Accrued Expenses and Other Liabilities.

following table summarizes our cash flows for each of the periods presented:

Nine Months Ended September 30,

Three Months Ended March 31,

Net cash used in operating activities

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Net cash provided by investing activities

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Net cash provided by (used in) financing activities

Net decrease in cash and cash equivalents

$ (1,731,937 )

the nine months ended September 30, 2022 and 2021, we used cash in operating activities of $14.6 million and $4.5 million, respectively.

The increase primarily resulted from the clinical advancement of our product candidates, the timing of vendor invoicing and payments,

and increased costs related to operating as a public company.

the nine months ended September 30, 2022, net cash provided by investing activities was $4,500 from the sale of certain property and

the nine months ended September 30, 2022, net cash provided by financing activities was $6.8 million, primarily consisting of proceeds

from the issuance of the 2022 Notes, net repayment of financed insurance premiums and cash payment of convertible notes.

During the nine

months ended September 30, 2021, net cash provided by financing activities was $11.1 million, primarily consisting of proceeds from Business

Combination and convertible note financing.

$ (3,823,784 )

the three months ended March 31, 2023 and 2022, we used cash in operating activities of $3.6 million and $3.4 million, respectively.

The increase primarily resulted from the timing of vendor invoicing and payments.

the three months ended March 31, 2023, there were no investing activities.

the three months ended March 31, 2023, net cash provided by financing activities was $1.9 million, primarily consisting of proceeds from

2023 Offering, net of transaction costs and the repayment of financed insurance premiums and cash payment of convertible notes.

the three months ended March 31, 2022, net cash used in financing activities was $0.4 million, primarily consisting of repayment of financed

insurance premiums.

primary use of cash is to fund operating expenses, primarily related to our research and development activities.

4 unchanged sentences

and clinical trials of our product candidates.

In addition, upon the completion of the Business Combination, we have incurred, and will

continue to incur, additional costs associated with operating as a public company, including significant legal, accounting, insurance,

investor relations and other expenses that we did not incur as a private company.

The timing and amount of our operating expenditures

will depend largely on our ability to:

In addition, we have incurred, and will continue to incur, additional costs associated

with operating as a public company, including significant legal, accounting, insurance, investor relations and other expenses.

and amount of our operating expenditures will depend largely on our ability to:

advance preclinical development

20 unchanged sentences

have generated limited revenues and have incurred significant operating losses since our inception.

As of September 30, 2022, had

an accumulated deficit of $105.4 million.

We expect to continue to incur significant and increasing expenses and operating losses for

the foreseeable future.

the completion of the Business Combination and public listing of our common stock on Nasdaq, we had access to up to $60.0 million from

a share subscription facility under the GEM agreement.

The 2021 Notes and 2022 Notes limit our ability to execute certain debt

and equity financings, including under the GEM Agreement, while the 2021 Notes or 2022 Notes are outstanding.

Without the availability of proceeds through the share subscription facility, existing cash resources are not sufficient to allow us

to fund current planned operations through the next 12 months following the filing of this Quarterly Report on Form 10-Q, which raises

substantial doubt about the Company’s ability to continue as a going concern.

As of March 31, 2023, had an accumulated

deficit of $113.1 million.

We expect to continue to incur significant expenses and operating losses for the foreseeable future.

the certainty of available proceeds through the GEM facility, or capital raised through other financing transactions, existing cash resources

are not sufficient to allow us to fund current planned operations through the next 12 months following the filing of this Quarterly Report

on Form 10-Q, which raises substantial doubt about the Company’s ability to continue as a going concern.

of the numerous risks and uncertainties associated with research, development and commercialization of biologic product candidates, we

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from these estimates under different assumptions or conditions.

our significant accounting policies are described in more detail in Note 3 to our unaudited interim consolidated financial statements

appearing elsewhere in this Quarterly Report on Form 10-Q, we believe that the following accounting policies are those most critical

to the judgments and estimates used in the preparation of our consolidated financial statements.

our significant accounting policies are described in more detail in Note 3 to our audited consolidated financial statements included

in our 2022 Annual Report on Form 10K, we believe that the following accounting policies are those most critical to the judgments and

estimates used in the preparation of our consolidated financial statements.

Research and Development Expenses

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service when it has not yet been invoiced or otherwise notified of actual costs.

The majority of our service providers invoice us in

arrears for services performed, on a pre-determined schedule or when contractual milestones are met;

Many of our service providers invoice us in arrears

for services performed, on a pre-determined schedule or when contractual milestones are met;

however, some require advance payments.

1 unchanged sentence

known to us at that time.

We periodically confirm the accuracy of the estimates with the service providers and makes adjustments if necessary.

Examples of estimated accrued research and development expenses include fees paid to:

We periodically confirm the accuracy of the estimates with the service providers and adjust if necessary.

of estimated accrued research and development expenses include fees paid to:

vendors, including research

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measure all stock-based awards granted to employees, directors and non-employees based on their fair value on the date of the grant and

recognize the corresponding compensation expense of those awards over the requisite service period, which is generally the vesting period

of the respective award.

recognize the corresponding compensation expense of those awards using the accelerated attribution method over the requisite service

period, which is generally the vesting period of the respective award.

Forfeitures are accounted for as they occur.

We grant stock options and restricted stock awards that are subject

to either service or performance-based vesting conditions.

Compensation expense related to awards to employees and non-employees with

performance-based vesting conditions is recognized based on the grant date fair value over the requisite service period using the accelerated

attribution method to the extent achievement of the performance condition is probable.

We estimate the probability that certain performance

criteria will be met and do not recognize compensation expense until it is probable that the performance-based vesting condition will

classify stock-based compensation expense in our statements of operations in the same manner in which the award recipient’s payroll

costs are classified or in which the award recipient’s service payments are classified.

We grant stock options

and restricted stock awards that are subject to either service or performance-based vesting conditions.

Compensation expense related

to awards with performance-based vesting conditions is recognized based on the grant date fair value over the requisite service period

using the accelerated attribution method over the requisite service period to the extent achievement of the performance condition is

classify stock-based compensation expense in our statements of operations in the same way the award recipient’s payroll costs are

classified or in which the award recipient’s service payments are classified.

estimate the fair value of each stock option grant using the Black-Scholes option-pricing model, which uses as inputs the fair value

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Value of Liabilities

elected the fair value option to account for the 2021 Notes as we believe the fair value option provides users of the

financial statements with greater ability to estimate the outcome of future events as facts and circumstances change, particularly

with respect to changes in the fair value of the common stock underlying the conversion option.

The Company determined that the 2022 Notes should be recorded at estimated

fair value on its issuance date and adjusted to its estimated fair value as of each reporting date.

We use a Monte Carlo simulation

model to estimate the fair value of the 2021 Notes and 2022 Notes, which relies on unobservable Level 3 inputs.

Changes in the fair value of the

notes are recognized through earnings for each reporting period.

We issued warrants in connection with the issuance

of both the 2021 and 2022 Notes.

The warrants were liability classified due to certain cash settlement features.

The Company uses a Black-Scholes

model to estimate the fair value of the warrants.

Changes in the fair value of the warrants are recognized through earnings for each reporting

elected the fair value option to account for the 2021 Notes as we believe the fair value option provides users of the financial statements

with greater ability to estimate the outcome of future events as facts and circumstances change, particularly with respect to changes

in the fair value of the common stock underlying the conversion option.

We use a Monte Carlo simulation to estimate the fair value of

the conversion feature of the notes, which relies on unobservable Level 3 inputs.

We use a discounted cash flow model to estimate the

fair value of the debt component of the 2021 Notes.

Changes in the fair value of the notes are recognized through other income (expense)

for each reporting period.

July and August 2022, the Company issued the 2022 Notes.

The 2022 Notes are accounted for under ASC 480 – Distinguishing Liabilities

from Equity, due to share settlement features contained within the notes.

As a result, the 2022 Notes are recorded as liabilities

at fair value at the balance sheet date with changes in the fair value of the notes recognized in other income (expense) for each reporting

The fair value estimate of the 2022 Notes was based on a discounted cash flow model and a Monte Carlo simulation, which represent

Level 3 measurements.

Significant assumptions include the discount rate used in the discounted cash flow model and the expected premium

for conversion used in the Monte Carlo simulation.

issued warrants in connection with the issuance of both the 2021 and 2022 Notes.

The warrants were liability classified due to certain

cash settlement features.

The Company uses a Black-Scholes model to estimate the fair value of the warrants.

Changes in the fair value

of the warrants are recognized in other income (expense) for each reporting period.

Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis