Item 5. Market for Registrant’s Common Equity
Item 5. Market for Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock began trading
on Nasdaq under the symbol “BWV” on February 18, 2022. Prior to that date, there was no established public trading market
for our common stock.
Holders
As of March 15, 2022, there
were approximately 7 holders of record of our common stock. This number does not include stockholders who are beneficial owners, but whose
shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose
shares may be held in trust by other entities.
Recent Sales of Unregistered Securities
Since October 2018 (our date of inception), we have
made the following sales of unregistered securities:
(1) We granted to certain employees, consultants and directors
options to purchase an aggregate of 780,640 shares (net of certain forfeitures of grants) of our common stock at an exercise price
of $0.01 per share.
(2) We issued an aggregate of 1,146,138 shares of Series
Seed Preferred Stock in July 2019 to 5 accredited investors at a price of $6.09 per share for an aggregate purchase price of $6,979,980,
which converted into 5,626,365 shares of common stock upon the consummation of our initial public offering.
The offers, sales and issuances of the securities
described in paragraph (1) were deemed to be exempt from registration under Rule 701 promulgated under the Securities Act as transactions
under compensatory benefit plans and contracts relating to compensation, or under Section 4(a)(2) of the Securities Act as a transaction
by an issuer not involving a public offering. The recipients of such securities were our directors, employees or bona fide consultants
and received the securities under our equity incentive plans. Appropriate legends were affixed to the securities issued in these transactions.
Each of the recipients of securities in these transactions had adequate access, through employment, business or other relationships, to
information about us.
The offers, sales and issuances of the securities
described in paragraph (2) were deemed to be exempt under Section 4(a)(2) of the Securities Act or Rule 506 of Regulation D under
the Securities Act as a transaction by an issuer not involving a public offering. The recipients of securities in each of these transactions
acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an
accredited investor within the meaning of Rule 501 of Regulation D under the Securities Act and had adequate access, through employment,
business or other relationships, to information about us. No underwriters were involved in these transactions.
Dividend Policy
As of the date of this Annual
Report on Form 10-K, we have not paid any cash dividends to stockholders. The declaration of any future cash dividend will be at the discretion
of our board of directors and will depend upon our earnings, if any, our capital requirements and financial position, the general economic
conditions, and other pertinent conditions. It is our present intention not to pay any cash dividends in the foreseeable future, but rather
to reinvest earnings, if any, in our business operations.
Use of Proceeds from Initial Public Offering
On February 23, 2022, we completed our initial public
offering, or IPO, in which we issued and sold 2,222,222 shares of our common stock, at a public offering price of $9.00 per share. We
received net proceeds of $17.2 million, after deducting underwriting discounts and commissions and other offering costs. We will
use the net proceeds of our IPO to fund our research and development activities, clinical trials and the regulatory review process for
our product candidates, and the remainder for working capital and other general corporate purposes.
The foregoing expected use
of net proceeds from our initial public offering represents our intentions based upon our current plans and business conditions. However,
the nature, amounts and timing of our actual expenditures may vary significantly depending on numerous factors. For example, we may also
elect to use proceeds from the initial public offering to acquire complimentary technologies, products or businesses, although we are
not a party to any letters of intent or definitive agreements for any such acquisition. As a result, our management has and will retain
broad discretion over the allocation of the net proceeds. We may find it necessary or advisable to use the net proceeds for other purposes,
and we will have broad discretion in the application of net proceeds.
Item 6. Reserved.
100
Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
The following discussion
and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the
related notes to those statements included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information,
the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Some of
the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of many factors, including those discussed under Part I. “Item 1A. Risk
Factors” and elsewhere in this Annual Report on Form 10-K.
Overview
We are a biotechnology company focused on the research
and development of transformational vaccines to prevent infectious diseases worldwide. Our versatile vaccine platform has unique molecular
properties that enables delivery of various antigens, which can be utilized to develop singular or multi-targeted vaccines. Our lead influenza
(flu) vaccine program uses proprietary technology to identify specific epitopes, or proteins of antigens, with cross-reactive properties,
that enable the potential development of a universal flu vaccine. We are focused on developing novel vaccines that induce durable and
long-term immunity. We believe that our pipeline and vaccine platform are synergistic for developing next generation preventive vaccines
to improve both health outcomes and quality of life globally.
Since our inception in October 2018, we have
devoted substantially all of our resources to performing research and development, undertaking preclinical studies and enabling manufacturing
activities in support of our product development efforts, hiring personnel, acquiring and developing our technology and vaccine candidates,
organizing and staffing our company, performing business planning, establishing our intellectual property portfolio and raising capital
to support and expand such activities. We do not have any products approved for sale and have not generated any revenue from product sales.
To date, we have financed our operations primarily with proceeds from our sale of preferred securities to seed investors and the close
of our initial public offering. We will continue to require additional capital to develop our vaccine candidates and fund operations beyond
the second quarter of 2023. Accordingly, until such time as we can generate significant revenue from sales of our vaccine candidates,
if ever, we expect to finance our cash needs through public or private equity or debt financings, third-party (including government) funding
and marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or any combination
of these approaches.
We have incurred net losses since inception and
expect to continue to incur net losses in the foreseeable future. Our net losses may fluctuate significantly from quarter-to-quarter and
year-to-year, depending in large part on the timing of our preclinical studies, clinical trials and manufacturing activities, and our
expenditures on other research and development activities. As of December 31, 2021, the Company had working capital of approximately
$1.4 million and an accumulated deficit of approximately $6.0 million. We will need to raise additional capital to fund our
planned operations beyond the second quarter of 2023.
While we believe that we can raise additional capital
to fund our planned operations, until we generate revenue sufficient to support self-sustaining cash flows, if ever, we will need to raise
additional capital to fund our continued operations to execute our long-term business plan, including our product development and commercialization
activities related to our current and future products. There can be no assurance that additional capital will be available to us on acceptable
terms, or at all, or that we will ever generate revenue sufficient to provide for self-sustaining cash flows.
101
We do not expect to generate any revenue from commercial
product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our vaccine candidates,
which we expect will take a number of years. We expect our expenses will increase substantially in connection with our ongoing activities,
as we:
● advance vaccine candidates through preclinical studies and
clinical trials;
● require the manufacture of supplies for our preclinical studies
and clinical trials;
● pursue regulatory approval of vaccine candidates;
● hire additional personnel;
● operate as a public company;
● acquire, discover, validate and develop additional vaccine
candidates; and
● obtain, maintain, expand and protect our intellectual property
portfolio.
We rely and will continue to rely on third parties
in the conduct of our preclinical studies and clinical trials and for manufacturing and supply of our vaccine candidates. We have no internal
manufacturing capabilities, and we will continue to rely on third parties, of which the main suppliers are single-source suppliers, for
our preclinical and clinical trial materials. Given our stage of development, we do not yet have a marketing or sales organization or
commercial infrastructure. Accordingly, if we obtain regulatory approval for any of our vaccine candidates, we also expect to incur significant
commercialization expenses related to product sales, marketing, manufacturing and distribution.
Because of the numerous risks and uncertainties
associated with vaccine 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 revenue from the sale of our vaccines, we may not become profitable.
If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations
at planned levels and may be forced to reduce our operations.
Certain Significant Relationships
We have entered into grant, license and collaboration
arrangements with various third parties as summarized below. For further details regarding these and other agreements, see the section
titled “Business — Intellectual Property” and Note 5 to each of our audited financial statements and
unaudited financial statements included elsewhere in this Report.
Ology Agreement
In July 2019, we entered into a development
and manufacturing master services agreement with Ology Bioservices (which was later acquired by National Resilience, Inc.) (“Ology”),
which we refer to as the Ology Agreement, pursuant to which Ology is obligated to perform manufacturing process development and clinical
manufacture and supply of components.
Under the Ology Agreement, we will pay Ology agreed
upon fees for Ology’s performance of manufacturing services, and we will reimburse Ology for its out-of-pocket costs associated
with purchasing raw materials, plus a customary handling fee.
For additional details regarding our relationship
with Ology, see the section entitled “Business — Manufacturing and Supply” and Note 5 to our financial
statements included elsewhere in this Report.
102
Cincinnati Children’s Hospital Medical Center Agreement
On June 1, 2021, we entered into an exclusive,
worldwide license agreement with Children’s Hospital Medical Center, d/b/a Cincinnati Children’s Hospital Medical Center,
or CHMC, which we refer to as the CHMC Agreement, pursuant to which we obtained the right to develop and commercialize certain CHMC patents
and related technology directed at a virus-like particle (VLP) vaccine platform that utilizes nanoparticle delivery technology, which
may have potential broad application to develop vaccines for multiple infectious diseases.
Under the CHMC Agreement, we agreed to pay CHMC
certain license fees, deferred license fees, development milestone fees, and running royalties beginning on the first net sale (among
others). For additional details regarding our relationship with CHMC, see the section entitled “Business — Intellectual
Property — Exclusive License Agreement with Children’s Hospital Medical Center, d/b/a Cincinnati Children’s
Hospital Medical Center” included elsewhere in this Report. The CHMC license includes:
U.S. Patent
Application No.
U.S. Patent No.
Granted Claim Type
U.S. Expiration
Foreign
Counterparts
12/797,396
8,486,421
Compositions of the vaccine/vaccine platform
1/13/2031
CN107043408B
EP2440582B1
JP5894528B2
13/924,906
9,096,644
Method of treatment
9/20/2030
CN107043408B
EP2440582B1
JP5894528B2
13/803,057
9,562,077
Compositions of the vaccine platform
4/10/2034
none
16/489,095
pending
pending
[3/15/2038]*
Pending applications
in Canada, China,
EU and Japan
63/149,742
(filed 2/16/2021)
pending
pending
[February 2042] #
TBD
63/162,369
(filed 3/17/2021)
pending
pending
[March 2042] #
TBD
* Projected expiration if patent issues: 20 years from
earliest non-provisional application filing date.
# Non-provisional application not yet filed. Expiration projected
21 years from provisional application filing date. Dependent on timely conversion to non-provisional application and issuance of
patent.
** This is a pending application. Claim type will be determined
after U.S. prosecution is complete. The claim type sought includes compositions of the vaccine and vaccine platform.
Oxford University Innovation Limited Agreement
On July 16, 2019, we entered into an exclusive,
worldwide license agreement with Oxford University Innovation Limited, which we refer to as the OUI Agreement, pursuant to which we obtained
the right to develop and commercialize certain licensed technology entitled “Immunogenic Composition.”
Under the OUI Agreement, we agreed to fund three years’
worth of salaries for Dr. Craig Thompson in the University’ Department of Zoology through a sponsored research agreement with
Oxford University, as well as royalties on all net sales of licensed products, along with certain development and milestone payments (among
others). For additional details regarding our relationship with OUI, see the section entitled “Business — Intellectual
Property — License Agreement Between Oxford University Innovation Limited and Blue Water Vaccines Inc.” included
elsewhere in this Report. The OUI license includes:
U.S. Patent
Application No.
U.S. Patent No.
Granted Claim Type
U.S. Expiration
Foreign
Counterparts
16/326,749
11,123,422
Compositions and method of treatment
8/25/2037
Pending applications in Australia, Canada, China, EU and Japan
17/458,712
pending
pending
[8/25/2037]*
* Projected expiration if patent issues: 20 years from
earliest non-provisional application filing date.
** This is a pending application. Claim type will be determined
after U.S. prosecution is complete. The claim type sought includes compositions of the compositions and method of treatment.
103
St. Jude Children’s Research Hospital, Inc. Agreement
On January 27, 2020, we entered into an exclusive,
worldwide license agreement with St. Jude Children’s Research Hospital, Inc., which we refer to as the St. Jude Agreement, pursuant
to which we acquired the right to develop certain licensed products and produce vaccines for use in humans.
Under the St. Jude Agreement, we agreed to pay an
initial license fee, an annual maintenance fee, milestone payments, patent reimbursement, and running royalties based on the net sales
of licensed products. For additional details regarding our relationship with St. Jude, see the section entitled “Business — Intellectual
Property — Exclusive License Agreement between St. Jude Children’s Research Hospital, Inc. & Blue Water
Vaccines” included elsewhere in this Report. The St. Jude license includes:
U.S. Patent Application No.
U.S. Patent No.
Granted Claim Type
U.S. Expiration
Foreign
Counterparts
14/345,988
9,265,819
Compositions and method of treatment
9/19/2032
none
17/602,414 #
pending
pending
[3/12/2040]*
Pending Applications in: Australia, Brazil, Canada, China, Europe, Hong Kong, Japan and Korea
* Projected expiration if patent issues: 20 years from
earliest non-provisional application filing date.
# U.S. National stage entry of WO 2020/183420 (PCT/IB2020/052250).
** This is a pending application. Claim type will be determined
after U.S. prosecution is complete. The claim type sought includes compositions of the compositions and method of treatment.
COVID-19 Impacts
We are continuing to closely monitor the impact
of the global COVID-19 pandemic on our business and are taking proactive efforts designed to protect the health and safety of our employees
and to maintain business continuity. We believe that the measures we are implementing are appropriate, and we will continue to monitor
and seek to comply with guidance from governmental authorities and adjust our activities as appropriate. Based on guidance issued by federal,
state and local authorities, we transitioned to a remote work model for a vast majority of our employees in March 2020. The COVID-19
pandemic has resulted in an impact to our development timelines, as the pandemic continues, we could continue to see an impact on our
ability to advance our programs, obtain supplies from our contract manufacturer or interact with regulators, ethics committees or other
important agencies due to limitations in regulatory authority, employee resources or otherwise. In any event, if the COVID-19 pandemic
continues and persists for an extended period of time, we could experience significant disruptions to our development timelines, which
would adversely affect our business, financial condition, results of operations and growth prospects.
In addition, while the potential economic impact
brought by, and the duration of, the COVID-19 pandemic may be difficult to assess or predict, the pandemic could result in significant
and prolonged disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect
our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business
and the potential value of our common stock.
The extent of the impact of the COVID-19 pandemic
on our development and regulatory efforts, our ability to raise sufficient additional capital on acceptable terms, if at all, and the
future value of and market for our common stock will depend on future developments that are highly uncertain and cannot be predicted with
confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business
closure requirements in the U.S. and in other countries, and the effectiveness of actions taken globally to contain and treat COVID-19.
For additional information about risks and uncertainties related to the COVID-19 pandemic that may impact our business, financial condition
and results of operations, see the section titled “Risk Factors.”
104
Components of Results of Operations
Research and Development Expenses
Substantially all of our research and development
expenses consist of expenses incurred in connection with the development of our product candidates. These expenses include fees paid to
third parties to conduct certain research and development activities on our behalf, consulting costs, costs for laboratory supplies, product
acquisition and license costs, certain payroll and personnel-related expenses, including salaries and bonuses, employee benefit costs
and stock-based compensation expenses for our research and product development employees and allocated overheads, including information
technology costs and utilities. We expense both internal and external research and development expenses as they are incurred.
We do not allocate our costs by product candidate,
as a significant amount of research and development expenses include internal costs, such as payroll and other personnel expenses, laboratory
supplies and allocated overhead, and external costs, such as fees paid to third parties to conduct research and development activities
on our behalf, are not tracked by product candidate.
We expect our research and development expenses
to increase substantially for at least the next few years, as we seek to initiate additional clinical trials for our product candidates,
complete our clinical programs, pursue regulatory approval of our product candidates and prepare for the possible commercialization of
such product candidates. Predicting the timing or cost to complete our clinical programs or validation of our commercial manufacturing
and supply processes is difficult and delays may occur because of many factors, including factors outside of our control. For example,
if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate, we
could be required to expend significant additional financial resources and time on the completion of clinical development. Furthermore,
we are unable to predict when or if our product candidates will receive regulatory approval with any certainty.
General and Administrative Expenses
General and administrative expenses consist principally
of payroll and personnel expenses, including salaries and bonuses, benefits and stock-based compensation expenses, professional fees for
legal, consulting, accounting and tax services, including information technology costs, and other general operating expenses not otherwise
classified as research and development expenses.
We anticipate that our general and administrative
expenses will increase as a result of increased personnel costs, expanded infrastructure and higher consulting, legal and accounting services
costs associated with complying with the applicable stock exchange and the SEC requirements, investor relations costs and director and
officer insurance premiums associated with being a public company.
Other Income
Other income consists primarily of interest income.
Results of Operations
Comparison of the Years Ended December 31, 2021 and
2020
The following table summarizes our statements of
operations and comprehensive loss for the periods indicated:
Year Ended
December 31,
2021
Year Ended
December 31,
2020
$ Change
% Change
Operating costs and expenses
General and administrative
$ 2,092,304
$ 1,097,161
995,143
90.7 %
Research and development
1,325,030
524,908
800,122
152.4 %
Total operating expenses
3,417,334
1,622,069
1,795,265
110.7 %
Loss from operations
(3,417,334 )
(1,622,069 )
(1,795,265 )
110.7 %
Other income
Interest income
—
22,603
(22,603 )
(100.0 )%
Total other income
—
22,603
(22,603 )
(100.0 )%
Net loss
$ (3,417,334 )
$ (1,599,466 )
(1,817,868 )
113.7 %
105
General and Administrative Expenses
For the year ended December 31, 2021, general
and administrative expenses increased by $1.0 million compared to 2020. The increase was mainly due to an increase in discretionary
bonus compensation of approximately $0.5 million, an increase in audit and accounting services of $0.3 million, and increases
in other business activities and expenses such as public relations, travel expenses, and franchise tax fees, which each increased $0.1 million.
These increases were partially offset by a decrease in wages and stock-based compensation of approximately $0.1 million.
Research and Development Expenses
For the year ended December 31, 2021, research
and development expenses increased by approximately $0.8 million compared to 2020. The increase was primarily attributable to an
increase in licensing fees and patent reimbursements of approximately $0.3 million related mainly to BWV-301 and BWV-302, an
increase in preclinical development activities of approximately $0.4 million mainly related to BWV-201, and an increase in research
and development personnel costs of approximately $0.2 million. These increases were partially offset by a decrease in stock-based
compensation of approximately $0.2 million.
Other Income
For the year ended December 31, 2021, other
income decreased by $23,000 compared to 2020. The decrease was primarily due to decrease in interest income after transitioning our bank
account from a money market account to a business checking account.
Liquidity and Capital Resources
Liquidity and Capital Resources
Since inception, we have devoted substantially all
of our efforts to research and development, undertaking preclinical studies and enabling manufacturing activities in support of our product
development efforts, hiring personnel, acquiring and developing our technology and vaccine candidates, organizing and staffing our company,
performing business planning, establishing our intellectual property portfolio and raising capital to support and expand such activities.
We do not have any products approved for sale and have not generated any revenue from product sales. We have incurred net losses in each
year since inception and expect to continue to incur net losses in the foreseeable future. Our net loss was $3.4 million for the
year ended December 31, 2021. As of December 31, 2021, we had an accumulated deficit of $6.0 million. We also generated
negative operating cash flows of $2.0 million for the year ended December 31, 2021.
On February 23, 2022, we completed our IPO
in which we received approximately $17.2 million in net proceeds, after deducting the underwriting discount, and estimated offering
expenses.
We believe the existing cash at December 31,
2021, together with the net proceeds received upon the close of our initial public offering, will be sufficient to continue operations,
satisfy our obligations and fund the future expenditures that will be required to conduct the clinical and regulatory work to develop
our product candidates into the second quarter of 2023.
106
However, we will require significant amounts of
additional capital to continue to fund our operations in the long term and complete our research and development activities. We will continue
seeking additional financing sources to meet our working capital requirements, make continued investment in research and development and
make capital expenditures needed for us to maintain and expand our business. We may not be able to obtain additional financing on terms
favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it,
or if we expend capital on projects that are not successful, our ability to continue to support our business growth and to respond to
business challenges could be significantly limited, or we may even have to cease our operations. If we raise additional funds through
further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity
securities we issue could have rights, preferences and privileges superior to those of holders of our common stock.
Future Funding Requirements
Our primary uses of cash are to fund our operations,
which consist primarily of research and development expenditures related to our programs and general and administrative expenditures.
We anticipate that we will continue to incur significant expenses for the foreseeable future as we continue to advance our vaccine candidates,
expand our corporate infrastructure, including the costs associated with being a public company and further our research and development
initiatives for our vaccine candidates. We are subject to all of the risks typically related to the development of new drug candidates,
and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our
business. We anticipate that we will need substantial additional funding in connection with our continuing operations in order to execute
our long term business plan.
We estimate that, based on our existing cash as
of December 31, 2021, together with the net proceeds received from the initial public offering, we have cash on hand sufficient to fund
our operations into the second quarter of 2023. We will need to raise additional capital prior to commencing additional pivotal trials
for certain of our vaccine candidates. Until we can generate a sufficient amount of revenue from the commercialization of our vaccine
candidates or from collaboration agreements with third parties, if ever, we expect to finance our future cash needs through public or
private equity or debt financings, third-party (including government) funding and marketing and distribution arrangements, as well as
other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches. The future sale of equity
or convertible debt securities may result in dilution to our stockholders and, in the case of preferred equity securities or convertible
debt, those securities could provide for rights, preferences or privileges senior to those of our common stock. Debt financings may subject
us to covenant limitations or restrictions on our ability to take specific actions, such as incurring additional debt, making capital
expenditures or declaring dividends. Our ability to raise additional funds may be adversely impacted by deteriorating global economic
conditions and the recent disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting
from the ongoing COVID-19 pandemic. There can be no assurance that we will be successful in acquiring additional funding at levels sufficient
to fund our operations or on terms favorable or acceptable to us. If we are unable to obtain adequate financing when needed or on terms
favorable or acceptable to us, we may be forced to delay, reduce the scope of or eliminate one or more of our research and development
programs.
Our future capital requirements will depend on many
factors, including:
● the timing, scope, progress, results and costs of research
and development, testing, screening, manufacturing, preclinical and non-clinical studies and clinical trials, including any impacts related
to the COVID-19 pandemic;
● the outcome, timing and cost of seeking and obtaining regulatory
approvals from the FDA and comparable foreign regulatory authorities, including the potential for such authorities to require that we
perform field efficacy studies for our vaccine candidates, require more studies than those that we currently expect or change their requirements
regarding the data required to support a marketing application;
● the cost of building a sales force in anticipation of any
product commercialization;
● the costs of future commercialization activities, including
product manufacturing, marketing, sales, royalties and distribution, for any of our vaccine candidates for which we receive marketing
approval;
107
● our ability to maintain existing, and establish new, strategic
collaborations, licensing or other arrangements and the financial terms of any such agreements, including the timing and amount of any
future milestone, royalty or other payments due under any such agreement;
● any product liability or other lawsuits related to our products;
● the expenses needed to attract, hire and retain skilled personnel;
● the revenue, if any, received from commercial sales, or sales
to foreign governments, of our vaccine candidates for which we may receive marketing approval;
● the costs to establish, maintain, expand, enforce and defend
the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that
we may receive, in connection with licensing, preparing, filing, prosecuting, defending and enforcing our patents or other intellectual
property rights;
● expenses needed to attract, hire and retain skilled personnel;
● the costs of operating as a public company; and
● the impact of the COVID-19 pandemic, which may exacerbate
the magnitude of the factors discussed above.
A change in the outcome of any of these or other
variables could significantly change the costs and timing associated with the development of our vaccine candidates. Furthermore, our
operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated
with such change.
Cash Flows
The following table summarizes our cash flows for
the periods indicated:
Year Ended
December 31,
2021
Year Ended
December 31,
2020
Net cash used in operating activities
(2,044,235 )
(1,730,138 )
Net cash used in investing activities
(1,924 )
(11,792 )
Net cash used in financing activities
(334,188 )
—
Net decrease in cash
(2,380,347 )
(1,741,930 )
Cash Flows from Operating Activities
Net cash used in operating activities for the year
ended December 31, 2021 was $2.0 million, which primarily resulted from a net loss of $3.4 million, and was partially offset
by a net change in our operating assets and liabilities of $1.2 million and stock-based compensation of $0.1 million.
Net cash used in operating activities for the year
ended December 31, 2020 was $1.7 million, which primarily resulted from a net loss of $1.6 million and a net change in
our operating assets and liabilities of $0.5 million, partially offset by stock-based compensation of $0.3 million.
Cash Flows from Investing Activities
Net cash used in investing activities for the years
ended December 31, 2021 and 2020 was $2,000 and $12,000, respectively, which resulted from purchases of property and equipment.
Cash Flows from Financing Activities
Net cash used in financing activities for the year
ended December 31, 2021 and 2020, was $0.3 million related to payments of deferred offering costs and $0, respectively.
108
Legal Contingencies
From time to time, we may become involved in legal
proceedings arising from the ordinary course of business. We record a liability for such matters when it is probable that future losses
will be incurred and that such losses can be reasonably estimated.
Off-Balance Sheet Arrangements
During the periods presented we did not have, nor
do we currently have, any off-balance sheet arrangements as defined in the rules and regulations of the SEC.
Recent Accounting Pronouncements Not Yet Adopted
See Note 3 to our financial statements included
elsewhere in this Report for more information.
Critical Accounting Policies and Estimates
Our financial statements have been prepared in accordance
with U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of
contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including
those related to accrued research and development expenses fair value of common stock and stock-based compensation. We base our estimates
on historical experience, known trends and events and various other factors that are 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 that are not readily apparent
from other sources. Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described
in more detail in Note 3 to our financial statements included elsewhere in this Report, we believe the following accounting policies
and estimates to be most critical to the judgments and estimates used in the preparation of our financial statements.
Accrued Research and Development Expenses
We have entered into various agreements with contract
manufacturing organizations, or CMOs, and may enter into contracts with clinical research organizations, or CROs, in the future. As part
of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses as of
each balance sheet date. This process involves reviewing open contracts and purchase orders, communicating with our personnel and third
parties 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 accrued
research and development expenses as of each balance sheet date based on facts and circumstances known to us at that time. We periodically
confirm the accuracy of our estimates with the service providers and make adjustments, if necessary. The significant estimates in our
accrued research and development expenses include the costs incurred for services performed by our vendors in connection with research
and development activities for which we have not yet been invoiced.
We accrue for costs related to research and development activities
based on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors, including CMOs, that
conduct research and development 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. 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 research and development expense. Advance payments for goods and services that
will be used in future research and development activities are expensed when the activity has been performed or when the goods have been
received. We make significant judgments and estimates in determining accrued research and development liabilities as of each reporting
period based on the estimated time period over which services will be performed and the level of effort to be expended. If the actual
timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid expense accordingly.
109
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, it could result in us reporting amounts that are too high or too low in any particular period. To date,
there have been no material differences between our estimates of such expenses and the amounts actually incurred.
Stock-Based Compensation
The Company expensed stock-based compensation to
employees and non-employees over the requisite service period based on the estimated grant-date fair value of the awards. Stock-based
awards to employees with graded-vesting schedules are recognized, using the accelerated attribution method, on a straight-line basis over
the requisite service period for each separately vesting portion of the award.
The Company estimates the fair value of stock option
grants using the Black-Scholes option pricing model and the assumptions used in calculating the fair value of stock-based awards represent
management’s best estimates and involve inherent uncertainties and the application of management’s judgment.
Expected Term — The expected term of options represents the period
that the Company’s stock-based awards are expected to be outstanding based on the simplified method, which is the half-life
from vesting to the end of its contractual term.
Expected Volatility — The Company computes stock price volatility over
expected terms based on comparable companies historical common stock trading prices.
Common Stock Fair Value — The fair value of the common stock
underlying the Company’s stock options was estimated at each grant date and was determined with the assistance of an
independent third-party valuation expert. The assumptions underlying these valuations represented management’s best estimates,
which involved inherent uncertainties and the application of significant levels of management judgment.
Risk-Free Interest Rate — The Company bases the risk-free interest
rate on the implied yield available on U.S. Treasury securities with a remaining term commensurate with the estimated expected
term.
Expected Dividend — The Company has never declared or paid any cash
dividends on its common shares and does not plan to pay cash dividends in the foreseeable future, and, therefore, uses an expected
dividend yield of zero in its valuation models.
The Company recognizes forfeitures of equity awards
as they occur.
Fair value of common stock
In order to determine the fair value of shares of
common stock of the Company when issuing stock options and computing their estimated stock-based compensation expense, its board of directors
considered with input from third party valuations, among other things, contemporaneous valuations of the Company’s common stock.
Given the absence of a public trading market of the Company’s capital stock to date, its board of directors has exercised reasonable
judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of our common and
preferred stock, including:
● the prices, rights, preferences and privileges of our preferred
stock relative to our common stock;
● our business, financial condition and results of operations,
including related industry trends affecting our operations;
● the likelihood of achieving a liquidity event, such as an
initial public offering, or IPO, or sale of our company, given prevailing market conditions;
● the lack of marketability of our common stock;
● the market performance of comparable publicly traded companies;
● U.S. and global economic and capital market conditions
and outlook; and
● Common stock valuation methodology.
110
In estimating the fair market value of common stock
of the Company, its board of directors first determined the equity value of its business using accepted valuation methods.
The Company engaged a third party valuation specialist
to conduct a valuation, which used its recent preferred stock financing as a starting point and determined the equity value of the company
based on the Backsolve method using an Option Pricing Method (OPM) to calculate the implied value based on a market approach. The Company’s
equity value was allocated using OPM to estimate the fair market value of the Company’s classes of equity.
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 otherwise required under this item.
JOBS Act
Section 107 of the JOBS Act also provides that
an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of
the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can
delay the adoption of new or revised accounting standards until those standards would otherwise apply to private companies. We have elected
to avail ourselves of this extended transition period.
For as long as we remain an “emerging growth
company” under the recently enacted JOBS Act, we will, among other things:
● be exempt from the provisions of Section 404(b) of
the Sarbanes-Oxley Act, which requires that our independent registered public accounting firm provide an attestation report on the effectiveness
of our internal control over financial reporting;
● be permitted to omit the detailed compensation discussion
and analysis from proxy statements and reports filed under the Exchange Act and instead provide a reduced level of disclosure concerning
executive compensation; and
● be exempt from any rules that may be adopted by the Public
Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report on the financial
statements.
Although we are still evaluating the JOBS Act, we
currently intend to take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us so
long as we qualify as an “emerging growth company,” including the extension of time to comply with new or revised financial
accounting standards available under Section 102(b) of the JOBS Act. Among other things, this means that our independent registered
public accounting firm will not be required to provide an attestation report on the effectiveness of our internal control over financial
reporting so long as we qualify as an emerging growth company, which may increase the risk that weaknesses or deficiencies in our internal
control over financial reporting go undetected. Likewise, so long as we qualify as an emerging growth company, we may elect not to provide
you with certain information, including certain financial information and certain information regarding compensation of our executive
officers, that we would otherwise have been required to provide in filings we make with the SEC, which may make it more difficult for
investors and securities analysts to evaluate our company. As a result, investor confidence in our company and the market price of our
common stock may be materially and adversely affected.
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk
As a smaller reporting company, we are not required to provide the
information required by this item.
Item 8. Financial Statements and Supplementary
Data.
Reference is made to pages F-1 through F-24 comprising
a portion of this report, which are incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure.
None.
111
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.