MAIA Biotechnology, Inc. 10-K

Item 7 . Management’s Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion together with our financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that are based on our current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those which we discuss under “Risk Factors” and elsewhere in this Annual Report on Form 10-K. See “Cautionary Note Regarding Forward-Looking Statements.” Overview We are a clinical stage biotechnology company engaged in the discovery, development and commercialization of therapies targeting cancer. Our initial disease target is lung cancer, a serious medical condition with an incidence of over 235,000 new cases in the US in 2021, representing 12.4% of all cancers, and over 131,000 deaths, or 21.7% of all cancers. Worldwide, lung cancer incidence is over 2,200,000 per year (ranking second only after breast cancer), and mortality over 1,800,000 (ranking first). Specifically, we are targeting Non-Small Cell Lung Cancer (NSCLC), which represents 85% of all lung cancers. We accomplished the following key milestones: • In November 2018, the Company in-licensed THIO from University of Texas Southwestern, in Dallas. The patent license is global and exclusive for the duration of the patients’ lives. • In 2019, the Company generated the first data for THIO demonstrating complete regression with no recurrence when administered in advance of atezolizumab (TecentriQ®; Genentech), in colorectal and lung cancer preclinical models. • In the First Quarter 2020, the Company filed a provisional patent application for THIO in sequential combination with checkpoint inhibitors, covering all tumor types. The patent was allowed in the US in the First Quarter 2021 and expires in 2041, excluding any patent term adjustment or patent extension. • In the first quarter 2021, the Company entered into a Drug Supply Agreement with Regeneron Pharmaceuticals, Inc. Under this agreement, Regeneron will provide cemiplimab (Libtayo Ò ; anti-PD-1 checkpoint inhibitor) at no charge for the THIO-101 trials, testing THIO administration for immune activation followed by cemiplimab in NSCLC. This drug supply agreement replaces direct drug purchase expense that we would be otherwise required to incur. In exchange, Regeneron received development exclusivity in NSCLC for the duration of the trial meaning we cannot conduct trials in NSCLC with another checkpoint inhibitor during the time of the trial. All other areas of study and development in any other tumor types remain open. • In the First Quarter 2021, the Company initiated our clinical supply manufacturing under Good Manufacturing Practices conditions to provide clinical supply for THIO-101 and other development needs. • In the first half of 2022, the Company completed a crossover round consisting of sales of 274,840 shares of our common stock at a price of $9.00 per shares for gross proceeds of approximately $2.4 million. • In the first quarter 2022, THIO received approval by the Bellberry Human Research Ethics Committee in Australia to initiate the THIO-101 Phase 2 clinical study. • In March 2022, the U.S. Food and Drug Administration (FDA) granted Orphan Drug Designation (ODD) to THIO for the treatment of hepatocellular carcinoma, and in May 2022, the FDA granted ODD to THIO for the treatment of small-cell lung cancer. The FDA’s Office of Orphan Products Development may grant orphan designation status to drugs and biologics that are intended for the treatment, diagnosis or prevention of rare diseases, or conditions that affect fewer than 200,000 people in the U.S. ODD provides certain benefits, including financial incentives, to support clinical development and the potential for up to seven years of market exclusivity for the drug for the designated orphan indication in the U.S. if the drug is ultimately approved for its designated indication. • In May 2022, the Company entered into a research and collaboration agreement with the Nationwide Children’s Hospital to evaluate the potential of THIO in combination with current standard-of-care therapies for brain cancer. The organizations are conducting preclinical studies to assess the efficacy and safety of THIO in combination with radiotherapy and immune checkpoint inhibitors in vitro and in vivo models. 83 • In July 2022, the Company completed our selection process for the clinical sites for our Phase 2 study in Australia and Europe and our application to start the Phase 2 study in Australia has been approved. In July 2022, the first patient was administered with THIO-101 in Australia. We have also submitted a similar application to conduct the same Phase 2 study in Europe. • On July 28, 2022, the Company’s shares of common stock began trading on the NYSE American under the symbol MAIA. On August 1, 2022, the Company sold 2,000,000 shares of common stock at $5.00 per share for gross proceeds of $10,000,000 in an initial public offering prior to deducting underwriting discounts, commissions, and other offering expenses. On August 3, 2022, the Company sold an additional 300,000 shares of common stock at $5.00 per share when the underwriter exercised the overallotment for net proceeds of $1,500,000 prior to deducting underwriting discounts, commissions, and other offering expenses. • In November 2022, the Company completed a pre-Investigational New Drug meeting with the FDA for the planned U.S. expansion of the THIO-101 Phase 2 trial evaluating THIO, an investigational telomere-targeting agent, in patients with advanced NSCLC. • In December 2022, regulatory authorities in three European countries, Hungary, Poland, and Bulgaria, approved the implementation of THIO-101, MAIA’s Phase 2 clinical trial. THIO-101 is a critical component of THIO’s clinical development process and it is of the utmost importance that we collaborate with leading cancer institutes in Australia and now in Europe, for a target total of 30 clinical trial sites in six countries. • In the first week of March 2023, the first two patients were dosed in Europe in MAIA’s Phase 2 clinical trial, THIO-101 evaluating THIO in patients with advanced NSCLC. Following regulatory clearances in Hungary, Poland, and Bulgaria, nine clinical sites have been activated in these three European countries. • On April 11, 2023, we announced positive topline data related to the completion of Part A, safety lead-in portion of the THIO-101 trial which showed that administration of THIO, at the highest dose of 360 mg/cycle in sequential combination with Regeneron’s anti-PD-1 therapy, Libtayo Ò was well tolerated with no dose-limiting toxicities or significant treatment-related adverse events reported. • On April 18, 2023, the Company published data in Hepatocellular Carcinoma (HCC) (liver cancer) models: as monotherapy, THIO achieved complete and durable responses in HCC, the dominant histology in primary liver cancer (90%), in in vivo models. When combined with Libtayo®, duration of response was further potentiated. Upon rechallenge with two times more cancer cells and no additional treatment, tumor growth was completely prevented. Administration of THIO alone and in combination with Libtayo® generated anti-cancer immune memory. • On April 20, 2023, the Company announced preliminary survival data from Part A of THIO-101. The first two patients enrolled in Part A of the study continue to be alive, approximately 10 and 9 months respectively, from treatment initiation. Both patients have advanced Stage IV metastatic disease and are heavily pretreated, receiving third and fourth line therapy respectively after previously failing treatment with an immune checkpoint inhibitor. They continue to be progression free following their last dose of THIO, 7 and 6 months respectively, with no new treatment. The current treatment options in patients with advanced relapsed or refractory NSCLC who failed two or more therapy regimens are limited and show minimal benefit. Furthermore, discontinuation of treatment is rapidly followed by physical decline and death, therefore seeing patients with such survival and no disease progression in this clinical setting, is noteworthy. In real-world clinical practice, observed survival in such heavily pretreated patients is 3-4 months. • On April 27, 2023, the Company closed a follow-on offering and sold 2,555,500 shares of common stock at a public offering price of $2.25 per share, for gross proceeds of approximately $5.75 million, before deducting underwriting discounts and offering expenses. The shares sold in the offering include the exercise in full by the underwriter of its option to purchase an additional 333,300 shares of common stock, in addition to the 2,222,200 shares of common stock which the underwriters initially agreed to purchase. • In July 2023, MAIA announced that the first 2 patients dosed with THIO continue to be alive for approximately 12.2 and 11.5 months respectively, from treatment initiation. They have remained free of disease progression for 10.2 and 8.5 months, respectively, without requiring any additional therapy. We also highlighted that out of the first 11 patients with post-baseline 84 scans, 82% (9 patients) met the disease control primary endpoint at first response assessment. For contrast, in similar heavily treated NSCLC patients, typical disease control rates are in the 25-35% range. • On August 23, 2023, our universal shelf registration statement on Form S-3 (File No. 333-273984) (the “Form S-3”) for possible future offerings was declared effective by the SEC. • On September 1, 2023, the Company entered into an “at-the-market” Sales Agreement (the “Sales Agreement”) with ThinkEquity LLC (the “Sales Agent”), pursuant to which the Company may offer and sell, from time to time, through the Sales Agent, shares of the Company’s common stock having an aggregate offering price of up to $7,000,000, subject to the terms and conditions of the Sales Agreement. The shares will be offered and sold pursuant to the Company’s prospectus supplement (the “Prospectus Supplement”), filed September 1, 2023 with the SEC to the prospectus forming a part of the Form S-3. We terminated the Sales Agreement on November 15, 2023. We sold 758,388 shares of our common stock through the Sales Agent for which the Company received net proceeds of approximately $1,238,688. • On September 28, 2023, the Company announced that its board of directors approved a share repurchase program pursuant to which the Company may repurchase up to $800,000 of the Company’s issued and outstanding shares of common stock through September 2024. The Company expects to fund repurchases by using cash on hand and expected cash flow to be generated in the future. As of December 31, 2023, no repurchases have been executed. • On October 3, 2023, the Company announced that the FDA has cleared its IND application for THIO to be evaluated in the U.S. as part of THIO-101, the Company’s ongoing global Phase 2 clinical study in patients with advanced NSCLC. THIO is being tested in sequential combination with Regeneron’s anti PD-1 monoclonal antibody cemiplimab (Libtayo®) to evaluate anti-tumor activity and immune response in NSCLC patients. • On October 10, 2023, the Company announced that 49 patients have been dosed in MAIA’s Phase 2 clinical trial, THIO-101, evaluating THIO in sequential combination with an immune checkpoint inhibitor in patients with advanced NSCLC. • On November 10, 2023, the Company announced that the FDA granted orphan drug designation as a treatment for glioblastoma. This is the third orphan drug designation granted following the receipt of orphan drug designations for hepatocellular carcinoma and small cell lung cancer in 2022. • On November 17, 2023, the Company announces the closing of a $4 million registered direct offering for the issuance and sale of an aggregate of 2,424,243 of its shares of common stock at a purchase price of $1.65 per share. In a concurrent private place, MAIA also issued and sold unregistered warrants to purchase up to an aggregate of 2,424,243 share of its common stock. • On February 14, 2024, the Company entered into an “at-the-market" Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC (“Wainwright”), to sell shares of common stock, par value $0.0001 per share (the “Shares”) having an aggregate sales price of up to $1,445,000, from time to time, through an “at-the-market offering” program under which H.C. Wainwright will act as sales agent. As of the date of this Annual Report, the Company has sold 507,754 shares of common stock at an average price of $1.47 per share, resulting in aggregate gross proceeds of approximately $745,250 . • On February 22, 2024, the Company announced completion of enrollment in Phase 2 THIO-101 go-to-market clinical trial. The trial reached the enrollment target of 41 patients for the 180mg/dose on February 19, 2024. As of the latest data available for the trial, 79 patients had received either 60mg (24 patients), 180mg (41 patients) or 360mg (14 patients). The original trial design targeted up to 182 patients, including all patients in the safety lead-in and 41 patients in each of the 3 tested doses (60mg, 180mg, and 360mg). Following the selection of 180 mg/cycle as the optimal dose in December 2023, all patients were subsequently enrolled at the 180mg/cycle dose and trial enrollment was completed ahead of schedule. • On March 6, 2024, Company announced interim efficacy data for THIO-101 Phase 2 trial in NSCLC. In the latest data available (January 8, 2024), the overall response rate (ORR), characterized as partial or complete response to therapy, was 38% (3 out of 8 patients) in the efficacy evaluable population for combination THIO 180mg + cemiplimab in third-line treatment for NSCLC patients who failed treatment with immune checkpoint inhibitors in prior lines of therapy, with or without chemotherapy. • On March 11, 2024, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain accredited investors (the “Investors”) for the issuance and sale in a private placement (the “Private Placement”) of (i) 2,043,587 shares (the “Investor Shares”) of the Company’s common stock, par value $0.0001 per share (“Common Stock”), and (ii) warrants (the “Investor Warrants”) to purchase up to 2,043,587 shares of the Company’s Common Stock, at a price per share of $1.17 for an aggregate purchase price of approximately $2.4 million. The Shares and the Warrants (and the 85 shares of common stock underlying the Warrants) sold in the Private Placement are being issued as restricted securities as defined in Rule 144 of the Securities Act of 1933, as amended and do not contain any registration rights. The Common Warrants are exercisable at a price per Share of $1.30, which price represents the greater of the book or market value of the stock on the date the Purchase Agreement was executed (subject to customary adjustments as set forth in the Investor Warrants, which do not include any provisions relating to price protection), are exercisable commencing six months following issuance and have a term of five years from the initial exercise date. In addition, in recognition of the past and continued future services provided by members of the Company’s board of directors (the “Board”) and to further align the interests of directors with those of the Company’s stockholders, the Board has determined it advisable and in the best interests of the Company and its stockholders to allow members of the Board to participate in the Private Placement and directors of the Company executed the Purchase Agreement to subscribe for (i) 452,731 shares of Common Stock (the “Director Shares,” together with the Investor Shares, the “Shares”) and (ii) common stock purchase warrants to purchase up to 452,731 shares of the Company’s Common Stock (the “Director Warrants,” together with the Investor Warrants, the “Warrants”) at a price per share of $1.17 for an aggregate purchase price of approximately $529,695 The Director Warrants are exercisable at a price of $1.30 per share, which price represents the greater of the book or market value of the stock on the date the Purchase Agreement was executed (subject to customary adjustments as set forth in the Director Warrants), are exercisable commencing six months following issuance and will have a term of five years from the initial exercise date. The Director Shares and Director Warrants (and any shares of Common Stock issuable upon exercise thereof) are being issued under the Company’s 2021 Equity Incentive Plan (the “Plan”) as an Unrestricted Stock Award (as defined in the Plan) and an Award of Options (as such terms are defined in the Plan), respectively. The Private Placement closed on March 14, 2024, and the combined gross proceeds from the Private Placement was approximately $2.92 million, prior to deducting offering expenses payable by the Company. Impact of the War in Ukraine on Our Operations The short and long-term implications of Russia’s invasion of Ukraine are difficult to predict at this time. The imposition of sanctions and counter sanctions may have an adverse effect on the economic markets generally and could impact our business, financial condition, and results of operations. Because of the highly uncertain and dynamic nature of these events, the Company terminated any planned research activities in Russia. Financial Operations Overview and Analysis For the Years Ended December 31, 2023 and 2022 Comparison of the Years Ended December 31, 2023 and 2022 Years Ended December 31, Change 2023 2022 Dollars Percentage Operating expenses: Research and development expenses $ 11,112,257 $ 8,933,314 $ 2,178,943 24% General and administrative expenses 9,070,124 6,143,527 2,926,597 48% Ratchet share expense — 1,099,360 (1,099,360 ) (100)% Total operating costs and expenses 20,182,381 16,176,201 4,006,180 25% Loss from operations (20,182,381 ) (16,176,201 ) (4,006,180 ) 25% Other income (expense): Interest expense (6,863 ) (6,967 ) 104 (1)% Interest income 34,490 1,870 32,620 1744% Australian research and development incentives 176,719 313,625 (136,906 ) (44)% Change in fair value of warrant liability 205,130 98,394 106,736 108% Other income (expense), net 409,476 406,922 2,554 1% Net loss (19,772,905 ) (15,769,279 ) (4,003,626 ) 25% Deemed dividend on warrant modifications — (450,578 ) 450,578 (100)% Net loss attributable to MAIA Biotechnology, Inc. shareholders $ (19,772,905 ) $ (16,219,857 ) $ (3,553,048 ) 22% 86 Operating Expenses Research and development expenses Research and development expenses increased by approximately $2,179,000 or 24%, from approximately $8,933,000 for the year ended December 31, 2022 to approximately $11,112,000 for the year ended December 31, 2023. The increase was primarily related to an increase in payroll expense of approximately $658,000 related to accrued severance booked for an Officer terminated in 2023, the increase in clinical expenses related to the clinical trial startup of THIO of approximately $331,000, an increase in Scientific pre-clinical research of approximately $529,000, and an increase in stock based compensation of approximately $696,000 related to accelerated vesting of stock options for a terminated Officer, offset by a decrease of other expenses related to research and development of approximately $35,000. General and administrative expenses General and administrative expenses increased by approximately $2,927,000 or 48% from approximately $6,144,000 for the year ended December 31, 2022 to approximately $9,070,000 for the year ended December 31, 2023. The increase was primarily attributable to an increases in payroll expense of approximately $562,000 related to accrued severance booked for an Officer terminated in 2023, the net increase in stock based compensation of approximately $74,000 related to accelerated vesting of stock options for a terminated Officer offset by the reduction of stock based compensation for the Board of Directors, a net increase in professional fees of approximately $74,000 related to an increase in legal fees offset by a reduction in audit fees, and an increase in other expenses of $2,217,000 related to an increase in Investor Relations expense incurred and Directors & Officers Insurance. Ratchet Expense Ratchet expense decreased by approximately $1,099,000 or 100% for the year ended December 31, 2023 due to the fact that the ratchet shares issuance was a one-time event in 2022 and thus no ratchet share issuance occurred in 2023. Other income (expense), net Other income (expense), net increased by approximately $3,000 from other income of approximately $407,000 for the year ended December 31, 2022 to other income of approximately $410,000 for the year ended December 31, 2023. The increase in other income (expense), net was primarily the result of approximately $107,000 of income for the change in fair value of the warrant liability, a decrease by approximately $137,000 of expense related to the Australian research and development incentives for the year ended December 31, 2023 offset by approximately $33,000 of net interest income for the year ended December 31, 2023. Liquidity and Capital Resources The following table presents selected financial information and statistics as of and for the years ended December 31, 2023 and 2022: Years Ended December 31, 2023 and 2022 As of December 31, 2023 2022 Balance Sheet Data: Cash 7,150,695 10,950,927 Working capital (1) 2,626,899 8,539,131 Total assets 7,566,852 12,022,040 Accrued bonus 786,999 1,094,582 Deferred compensation — — Total stockholders' equity 477,511 8,507,793 (1) We define working capital as current assets less current liabilities. Capital Resources Our Ability to Continue as a Going Concern As of December 31, 2023, our available cash totaled approximately $7,151,000 which represented a decrease of approximately $3,800,000 compared to December 31, 2022. As of December 31, 2023, we had working capital of approximately $2,627,000 which represents a decrease of approximately $5,912,000 compared to December 31, 2022. We have generated no revenues as of 87 December 31, 2023. The Company’s current operating plan indicates that it will continue to incur losses from operations and generate negative cash flows from operating activities given ongoing expenditures related to the completion of its ongoing clinical trials and the Company’s lack of revenue generating activities. Based on the Company’s cash reserves as December 31, 2023 of $7,150,695 million and current financial condition as of the date of the Annual Report on Form 10-K, the accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. To meet the Company’s future working capital needs, the Company will need to raise additional equity or enter into debt financing. While the Company has historically been able to raise additional capital through issuance of equity and/or debt financing, and while the Company has implemented a plan to control its expenses in order to satisfy its obligations due within one year from the date of issuance of these financial statements, the Company cannot guarantee that it will be able to raise additional equity, raise debt, or contain expenses. Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern within one year after these financial statements are issued. Sale of Common Stock On April 27, 2023, the Company sold 2,555,500 shares of the Company’s common stock at a price of $2.25 per share in an underwritten public offering. ThinkEquity served as the underwriter of the offering. The aggregate net proceeds of the offering were approximately $4.2 million, after deducting underwriting discounts and expenses. The shares of common stock were offered, issued and sold to the public pursuant to the Registration Statement on Form S-1, as amended from time to time (File No. 333-269606). In October and November 2023, the Company issued and sold an aggregate of 758,388 shares of common stock through ThinkEquity LLC (“ThinkEquity”), pursuant to the terms of an “at-the-market" Sales Agreement, dated September 1, 2023 (the “Sales Agreement”), by and between the Company and ThinkEquity, the Company’s sale agent thereunder, for which the Company received aggregate gross proceeds of approximately $1.7 million. On November 17, 2023, the Company issued and sold an aggregate of 2,424,243 shares of common stock in a registered direct offering pursuant to securities purchase agreements, for which the Company received aggregate gross proceeds of $4 million. H.C. Wainwright was the placement agent for the registered direct offering. On February 14, 2024, the Company entered into an “at-the-market" Offering Agreement with H.C. Wainwright & Co., LLC (“Wainwright”), to sell shares of common stock, par value $0.0001 per share (the “Shares”) having an aggregate sales price of up to $1,445,000, from time to time, through an “at-the-market offering” program under which H.C. Wainwright will act as sales agent. As of the date of this filing, the Company has sold 507,754 shares of common stock at an average price of $1.47 per share, resulting in aggregate gross proceeds of approximately $745,250. On March 11, 2024, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain accredited investors (the “Investors”) for the issuance and sale in a private placement (the “Private Placement”) of (i) 2,043,587 shares (the “Investor Shares”) of the Company’s common stock, par value $0.0001 per share (“Common Stock”), and (ii) warrants (the “Investor Warrants”) to purchase up to 2,043,587 shares of the Company’s Common Stock, at a price per share of $1.17 for an aggregate purchase price of approximately $2.4 million. The Shares and the Warrants (and the shares of common stock underlying the Warrants) sold in the Private Placement are being issued as restricted securities as defined in Rule 144 of the Securities Act of 1933, as amended and do not contain any registration rights. The Common Warrants are exercisable at a price per Share of $1.30, which price represents the greater of the book or market value of the stock on the date the Purchase Agreement was executed (subject to customary adjustments as set forth in the Investor Warrants, which do not include any provisions relating to price protection), are exercisable commencing six months following issuance and have a term of five years from the initial exercise date. In addition, in recognition of the past and continued future services provided by members of the Company’s board of directors (the “Board”) and to further align the interests of directors with those of the Company’s stockholders, the Board has determined it advisable and in the best interests of the Company and its stockholders to allow members of the Board to participate in the Private Placement and directors of the Company executed the Purchase Agreement to subscribe for (i) 452,731 shares of Common Stock (the “Director Shares,” together with the Investor Shares, the “Shares”) and (ii) common stock purchase warrants to purchase up to 452,731 shares of the Company’s Common Stock (the “Director Warrants,” together with the Investor Warrants, the “Warrants”) at a price per share of $1.17 for an aggregate purchase price of approximately $0.53 million The Director Warrants are exercisable at a price of $1.30 per share, which price represents the greater of the book or market value of the stock on the date the Purchase Agreement was executed (subject to customary adjustments as set forth in the Director Warrants), are exercisable commencing six months following issuance and will have a term of five years from the initial exercise date. The Director Shares and Director Warrants (and any shares of Common Stock issuable upon exercise thereof) are being issued under the Company’s 2021 Equity Incentive Plan (the “Plan”) as an Unrestricted Stock Award (as defined in the Plan) and an Award of Options (as such terms are defined in the Plan), respectively. The Private Placement closed on March 14, 2024 and the combined gross proceeds from the Private Placement was 88 approximately $2.92 million, prior to deducting offering expenses payable by the Company. The following Company directors participated in the aforementioned private placement as follows: (i) Stan Smith purchased 170,940 Director Shares and 170,940 Director Warrants for an aggregate purchase price of $200,0000; (ii) Louie Ngar Yee purchased 170,940 Director Shares and 170,940 Director Warrants for an aggregate purchase price of $200,000; (iii) Cristian Luput purchased 69,282 Director Shares and 69,282 Director Warrants for an aggregate purchase price of $81,060 (iv) Steven Chaouki purchased 34,641 Director Shares of common stock and 34,461 Director Warrants for an aggregate purchase price of $40,530 and (v) Ramiro Guerrero purchased 6,928 Director Shares and 6,928 Director Warrants for an aggregate purchase price of $8,106. We will need to raise additional capital to fund our operations, to develop and commercialize THIO, and to develop, acquire or in-license other products. We may seek to fund our operations through public equity, private equity, or debt financings, as well as other sources. We cannot make any assurances that additional financings will be available to us and, if available, on acceptable terms or at all. This could negatively impact our business and operations and could also lead to the reduction of our operations. Cash Flows Cash Flows years ended December 31, 2023 and 2022 Years Ended December 31, 2023 2022 Net cash flows used in operating activities $ (13,071,016 ) $ (12,096,104 ) Net cash flows provided by financing activities 9,270,901 12,477,169 Effect of foreign currency exchange rate changes on cash (117 ) (4,430 ) Net increase in cash and cash equivalents $ (3,800,232 ) $ 376,635 Operating Activities For the year ended December 31, 2023, net cash used in operating activities was approximately $13,071,000, which consisted of a consolidated net loss of approximately $19,773,000 offset by non-cash charges of approximately $3,616,000 which primarily includes approximately $3,089,000 in stock-based compensation, approximately $732,000 of expense related restricted shares issued for consulting services, and a gain of approximately $205,000 related to the changes in fair value of the warrant liability. Total changes in operating assets and liabilities of approximately $3,086,000 were primarily driven by an approximate $472,000 increase in accounts payable, an approximate $2,170,000 increase in an accrued expenses an approximate decrease of $158,000 in Australian research and development incentives receivable and an approximate $285,000 decrease in prepaid expenses and other current assets. For the year ended December 31, 2022, net cash used in operating activities was approximately $12,096,000, which consisted of a consolidated net loss of approximately $15,769,000 offset by non-cash charges of approximately $3,320,000 which primarily includes approximately $2,319,000 in stock-based compensation, approximately $1,099,000 of expense related to the ratchet share issuance, offset by a gain of approximately $98,000 related to the changes in fair value of the warrant liability. Total changes in operating assets and liabilities of approximately $353,000 were primarily driven by an approximate $211,000 increase in accounts payable, and an approximate $916,000 increase in accrued expenses, offset by an approximate increase of $269,000 in Australian research and development incentives receivable and an approximate $505,000 increase in prepaid expenses and other current assets. Financing Activities Net cash provided by financing activities for the year ended December 31, 2023 was approximately $9,271,000 consisted primarily of gross proceeds from the sale of common stock of approximately $5,750,000 in a public offering, proceeds from issuance of common stock of approximately $4,000,000 in a registered direct offering, gross proceeds of approximately of $1,667,000 in an at-the-market offering facility through our sales agent for such facility, and approximately $1,000 from the proceeds from exercising of stock options, offset by approximately $2,147,000 of offering costs paid. Net cash provided by financing activities for the year ended December 31, 2022 was approximately $12,477,000 consisted primarily of gross proceeds from the sale of common stock in the initial public offering of approximately $11,500,000, net proceeds from issuance of common stock of approximately of $2,474,000 in a crossover round, proceeds from issuance of common stock upon exercise of warrants of approximately $385,000, and approximate $440,000 decrease in deferred offering costs, and stock options of approximately $84,000, offset by approximately $2,406,000 of initial public offering costs paid. Critical Accounting Policies and Significant Judgments and Estimates Management’s discussion and analysis of our financial condition and results of our operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The most significant estimates in the Company’s financial statements relate to the valuation of stock options and warrants and accruals for 89 outsourced research and development activities. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected. We define our critical accounting policies as those accounting principles that require it to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles. While our significant accounting policies are more fully described in Note 1 to our financial statements, we believe the following are the critical accounting policies used in the preparation of its financial statements that require significant estimates and judgments. Stock-based compensation Our stock-based awards are classified as equity (restricted stock awards and stock options). We recognize related stock-based compensation expense based on the grant date fair value of the awards. The fair value of restricted stock awards is based on the trading value of the Company's common stock. We estimate the fair value of stock options and warrants using the Black-Scholes-Merton valuation model which requires the use of subjective assumptions that could materially impact the estimation of fair value and related compensation expense to be recognized. One of these assumptions include the expected volatility of our stock price. Developing this assumption requires the use of judgment. The Company lacks company-specific historical and implied volatility information. Therefore, we estimate our expected stock volatility based on the historical volatility of a publicly traded set of peer companies. Two of the assumptions used in the Black-Scholes-Merton valuation model are historical volatility and fair value of common stock. Historical volatility is subject to uncertainty due to changes in the market over time. The fair value of our common stock is subject to uncertainty due to the possibility of changes in the results of our clinical trials, which could impact the fair value of our common stock. The total expense related to stock options is material to our financial statements on an annual basis, and significant fluctuations in the volatility assumption or the fair value of our common stock could result in material changes in related compensation expense to be recognized. Prepaid and Accrued Research and Development Expenses As part of the process of preparing our consolidated financial statements, we are required to estimate our prepaid and accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. We make estimates of our prepaid and accrued research and development expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at the time. We confirm the accuracy of estimates with the service providers and make adjustments if necessary. Examples of estimated prepaid and accrued research and development expenses include expenses for: • Contract Research Organizations (CROs) in connection with clinical studies; • Investigative sites in connection with clinical studies; • Vendors in connection with preclinical development activities; and • Vendors related to product manufacturing, development and distribution of clinical materials. We base our expenses related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple CROs that conduct and manage clinical studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. The scope of services under these contracts can be modified and some of the agreements may be canceled by either party upon written notice. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense. Payments under some of these contracts depend on factors such as the successful enrollment of subjects and the completion of clinical study milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed we may report amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates and the amount actually incurred. 90 Item 7A . Quantitative and Qualitative Disclosures About Market Risk. We are a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required by this Item. Item 8 . Financial Statements and Supplementary Data. Beginning on page F-2 are the consolidated financial statements with applicable notes and the related Report of Independent Registered Public Accounting Firm. Item 9 . Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.