REVELATION BIOSCIENCES, INC. 10-K

Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market Information Our common stock and Public Warrants are traded on the Nasdaq Capital Market under the symbols “REVB” and “REVBW”, respectively. Holders of Record As of March 18, 2024, there were approximately 66 stockholders of record of our common stock and 30 holders of record of our warrants. Because many of our securities are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders. Dividends We have never paid dividends on shares of our common stock, and we do not have any plans to pay dividends in the foreseeable future. Any determination to pay dividends to holders of shares of our common stock will be at the discretion of our board of directors and will depend on many factors, including our financial condition, results of operations, projections, liquidity, earnings, legal requirements, restrictions in the agreements governing any indebtedness we may enter into and other factors that our board of directors deems relevant. Item 6. [RESERVED] Not applicable. 74 Ite m 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion of our financial condition and results of operations in conjunction with our audited financial statements and the notes included elsewhere in this Form 10-K. The following discussion contains forward-looking statements that involve certain risks and uncertainties. Our actual results could differ materially from those discussed in these statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Form 10-K, particularly under the “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements and Risk Factors Summary” sections. Overview Revelation is a clinical-stage biopharmaceutical company founded in May 2020. We are focused on the development or commercialization of innate immune system therapeutics. Our current product candidates were developed by us and licensed to potentially prevent, treat and detect disease. Our therapeutic product candidates are based on our therapeutic platform and consist of GEM-SSI, which is being developed for the prevention and treatment of surgical sit infection; GEM-AKI, which is being developed as a potential therapy for the prevention and treatment of acute kidney injury as a result of cardiac surgery; and GEM-CKD, which is being developed as a potential therapy for the prevention and treatment of chronic kidney disease. Until June of 2022 we were developing REVTx-99a as a broad anti-viral nasal drop solution for the potential prevention or potential treatment of respiratory viral infections and REVTx-99b as a prevention or treatment for chronic nasal congestion and allergic rhinitis. Since our inception in May 2020, we have devoted substantially all of our resources to organizing and staffing our Company, business planning, raising capital, and research and development of GEM-SSI, GEM-AKI and GEM-CKD, our product candidates. We have funded our operations since our inception in May 2020 to December 31, 2023 through the issuance and sale of our capital stock, from which we have raised net proceeds of $43.9 million. Additionally, taking into consideration the net proceeds of approximately $5.4 million received in connection with the public offering completed in February of 2024, our current cash and cash equivalents balance will not be sufficient to complete all necessary product development or future commercialization efforts. We anticipate that our current cash and cash equivalents balance will not be sufficient to sustain operations within one-year after the date that our audited financial statements for December 31, 2023 were issued, which raises substantial doubt about our ability to continue as a going concern. We plan to seek additional funding through public or private equity or debt financings. We may not be able to obtain financing on acceptable terms, or at all. The terms of any financing may adversely affect the holdings or the rights of our stockholders. If we are unable to obtain funding we could be required to delay, reduce or eliminate research and development programs, product portfolio expansion or future commercialization efforts, which could adversely affect our business operations. 75 We have incurred recurring losses since our inception, including a net loss of $0.1 million for the year ended December 31, 2023 and $10.8 million for the year ended December 31, 2022, respectively. As of December 31, 2023 we had an accumulated deficit of $25.5 million. We expect to continue to generate operating losses and negative operating cash flows for the foreseeable future if and as we: • continue the research and development of our product candidates; • initiate clinical studies for, or preclinical development of, our product candidates; • further develop and refine the manufacturing processes of our product candidates; • change or add manufacturers or suppliers of product candidate materials; • seek regulatory and marketing authorizations for any of our product candidates that successfully complete development; • acquire or license other product candidates, technologies or biological materials; • make milestone, royalty or other payments under future license agreements; • obtain, maintain, protect and enforce our intellectual property portfolio; • seek to attract and retain new and existing skilled personnel; • create additional infrastructure to support our operations as a public company and incur increased legal, accounting, investor relations and other expenses; and • experience delays or encounter issues with any of the above. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical studies and our expenditures on other research and development activities. We have never generated revenue and do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for GEM-SSI, GEM-AKI, GEM-CKD or other product candidates, which we expect will not be for at least several years, if ever. Accordingly, until such time as we can generate significant revenue from sales of GEM-SSI, GEM-AKI, GEM-CKD or other product candidates, if ever, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. On January 10, 2022, we consummated the Business Combination, pursuant to the terms of the agreement and plan of merger, dated as of August 29, 2021 with Petra and Merger Sub. Pursuant to the Business Combination Agreement, on the Closing Date, (i) Merger Sub merged with and into Revelation Sub, with Revelation Sub as the surviving company in the Business Combination, and became a wholly-owned subsidiary of Petra and (ii) Petra changed its name to “Revelation Biosciences, Inc.” 76 Recent Developments 2024 Reverse Stock Split On January 17, 2024, at a special meeting of stockholders, our stockholders approved a Certificate of Amendment to our Third Amended and Restated Certificate of Incorporation to effect a reverse stock split of our outstanding shares of common stock at a specific ratio within a range of one-for-two (1-for-2) to a maximum of a one-for-fifty (1-for-50) split. On January 22, 2024, we filed the Certificate of Amendment which effected a 1-for-30 reverse stock split of our outstanding shares of common stock as of 12:01 a.m. Eastern Standard Time on January 25, 2024. 2023 Change in Authorized Shares and Reverse Stock Split On January 30, 2023, at a special meeting of stockholders, our stockholders approved a Certificate of Amendment to our Third Amended and Restated Certificate of Incorporation to change the authorized common stock from 100,000,000 to 500,000,000 shares and effect a reverse stock split of our outstanding shares of common stock at a specific ratio within a range of one-for-twenty (1-for-20) to a maximum of a one-for-one hundred (1-for-100) split. On January 30, 2023, we filed the Certificate of Amendment which set the authorized common stock to 500,000,000 and effected a 1-for-35 reverse stock split of our outstanding shares of common stock as of 12:01 a.m. Eastern Standard Time on February 1, 2023. Research and Development Research and development expenses consist primarily of costs incurred for the development of our product candidates GEM-SSI, GEM-AKI, GEM-CKD and REVTx-99a/b. Our research and development expenses consist primarily of external costs related to clinical development, costs related to contract research organizations, costs related to consultants, costs related to acquiring and manufacturing clinical study materials, costs related to contract manufacturing organizations and other vendors, costs related to the preparation of regulatory submissions, costs related to laboratory supplies and services, and personnel costs. Personnel and related costs consist of salaries, employee benefits and stock-based compensation for personnel involved in research and development efforts. We expense all research and development expenses in the periods in which they are incurred. We accrue for costs incurred as the services are being provided by monitoring the status of specific activities and the invoices received from our external service providers. We adjust our accrual as actual costs become known. We expect our research and development expenses to increase substantially for the foreseeable future as we continue the development of GEM-SSI, GEM-AKI and GEM-CKD and continue to invest in research and development activities. The process of conducting the necessary clinical research and product development to obtain regulatory approval is costly and time consuming, and the successful development of GEM-SSI, GEM-AKI, GEM-CKD and any future product candidates is highly uncertain. To the extent that our product candidates continue to advance into larger and later stage clinical studies, our expenses will increase substantially and may become more variable. The actual probability of success for GEM-SSI, GEM-AKI, GEM-CKD or any future product candidate may be affected by a variety of factors, including the safety and efficacy of our product candidates, investment in our clinical programs, manufacturing capability and competition with other products. As a result, we are unable to determine the timing of initiation, duration and completion costs of our research and development efforts or when and to what extent we will generate revenue from the commercialization and sale of GEM-SSI, GEM-AKI, GEM-CKD or any future product candidate. 77 General and Administrative Our general and administrative expenses consist primarily of personnel costs, expenses for outside professional services, including financial advisory, legal, human resource, audit and accounting services and consulting costs. Personnel and related costs consist of salaries, employee benefits and stock-based compensation for personnel involved in executive, finance and other administrative functions. We expect our general and administrative expenses to increase for the foreseeable future as we increase the size of our administrative function to support the growth of our business and support our continued research and development activities. We also anticipate increased expenses as we continue to operate as a public company, including increased expenses related to financial advisory services, audit, legal, regulatory, investor relations costs, director and officer insurance premiums associated with maintaining compliance with exchange listing and SEC requirements. Other Income (Expense), Net Other income (expense), net primarily consists of the change in fair value of warrant liability, foreign currency transaction gains and losses, interest expense and interest income from our cash balances in savings accounts. Results of Operations The following table summarizes our results of operations for the periods presented: Year Ended December 31, 2023 2022 Change Operating expenses: Research and development $ 4,145,902 $ 5,377,400 $ (1,231,498 ) General and administrative 4,510,762 5,487,111 (976,349 ) Total operating expenses 8,656,664 10,864,511 (2,207,847 ) Loss from operations (8,656,664 ) (10,864,511 ) 2,207,847 Total other income (expense), net 8,536,410 34,962 8,501,448 Net loss $ (120,254 ) $ (10,829,549 ) $ 10,709,295 Research and Development Expenses The following table summarizes our research and development expenses for the periods presented: Year Ended December 31, 2023 2022 Change REVTx-99a clinical study expenses $ — $ 3,104,727 $ (3,104,727 ) REVTx-99b clinical study expenses — 450,464 (450,464 ) GEM-SSI and GEM-AKI clinical study expenses 209,702 — 209,702 Manufacturing expenses 697,429 225,578 471,851 Other program expenses 2,190,493 27,660 2,162,833 Other expenses 282,948 432,160 (149,212 ) Personnel expenses (including stock-based compensation) 765,330 1,136,811 (371,481 ) Total research and development expenses $ 4,145,902 $ 5,377,400 $ (1,231,498 ) Research and development expenses decreased by $1.2 million, from $5.4 million for the year ended December 31, 2022 to $4.1 million for the year ended December 31, 2023. The decrease was primarily due to decreases of $3.1 million in clinical study expenses related to REVTx-99a, $0.5 million in clinical study expenses related to REVTx-99b and $0.4 million in personnel expenses, offset by increases of $2.2 million in other program expenses and $0.5 million in manufacturing expenses. Other program expenses include pre-clinical costs and clinical preparation costs primarily for programs GEM-SSI and GEM-AKI. 78 General and Administrative Expenses The following table summarizes our general and administrative expenses for the periods presented: Year Ended December 31, 2023 2022 Change Personnel expenses (including employee stock-based compensation) $ 2,272,005 $ 1,874,706 $ 397,299 Legal and professional fees (including non-employee stock-based compensation) 1,844,077 2,073,561 (229,484 ) Other expenses 394,680 1,538,844 (1,144,164 ) Total general and administrative expenses $ 4,510,762 $ 5,487,111 $ (976,349 ) General and administrative expenses decreased by $1.0 million, from $5.5 million for the year ended December 31, 2022 to $4.5 million for the year ended December 31, 2023. The decrease was primarily due to a decrease of $1.1 million in other expenses as a result of a decrease in D&O Insurance. Other Income (Expense), Net Other income (expense), net was $34,962 for the year ended December 31, 2022, related to interest expense for the Promissory Notes Payable and Convertible Note, foreign currency transaction gains and losses, and interest income from our cash balances in savings accounts. Other income (expense), net was $8,536,410 for the year ended December 31, 2023, related to the change in fair value of the warrant liability, foreign currency transaction gains and losses, and interest income from our cash balances in savings accounts. Liquidity and Capital Resources Since our inception to December 31, 2023, we have funded our operations from the issuance and sale of our common stock, preferred stock and warrants, from which we have raised net proceeds of $43.9 million, of which $14.0 million was received during the year ended December 31, 2023. As of December 31, 2023, we had available cash and cash equivalents of $12.0 million and an accumulated deficit of $25.5 million. Our use of cash is to fund operating expenses, which consist primarily of research and development expenditures related to our therapeutic product candidates, GEM-SSI, GEM-AKI and GEM-CKD. We plan to increase our research and development expenses substantially for the foreseeable future as we continue the clinical development of our current and future product candidates. At this time, due to the inherently unpredictable nature of product development, we cannot reasonably estimate the costs we will incur and the timelines that will be required to complete development, obtain marketing approval, and commercialize our current product candidate or any future product candidates. For the same reasons, we are also unable to predict when, if ever, we will generate revenue from product sales or any future license agreements which we may enter into or whether, or when, if ever, we may achieve profitability. Clinical and preclinical development timelines, the probability of success, and development costs can differ materially from expectations. In addition, we cannot forecast the timing and amounts of milestone, royalty and other revenue from licensing activities, which future product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. We expect to continue to generate substantial operating losses for the foreseeable future as we expand our research and development activities. We will continue to fund our operations primarily through utilization of our current financial resources and through additional raises of capital. 79 To the extent that we raise additional capital through partnerships or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, future revenue streams or research programs or to grant licenses on terms that may not be favorable to us. If we raise additional capital through public or private equity offerings, the ownership interest of our then-existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to obtain adequate financing when needed, we may have to delay, reduce the scope of or suspend one or more of our clinical studies or preclinical studies, research and development programs or commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves. Going Concern We have incurred recurring losses since our inception, including a net loss of $0.1 million for the year ended December 31, 2023. As of December 31, 2023 we had an accumulated deficit of $25.5 million, a stockholders’ equity of $6.6 million and available cash and cash equivalents of $12.0 million. Additionally, taking into consideration the net proceeds of approximately $5.4 million received in connection with the public offering completed in February of 2024, we expect to continue to incur significant operating and net losses, as well as negative cash flows from operations, for the foreseeable future as we continue to complete all necessary product development or future commercialization efforts. We have never generated revenue and do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for GEM-SSI, GEM-AKI, GEM-CKD or other product candidates, which we expect will not be for at least several years, if ever. We do not anticipate that our current cash and cash equivalents balance will be sufficient to sustain operations within one-year after the date that our audited financial statements for December 31, 2023 were issued, which raises substantial doubt about our ability to continue as a going concern. To continue as a going concern, we will need, among other things, to raise additional capital resources. We plan to seek additional funding through public or private equity or debt financings. We may not be able to obtain financing on acceptable terms, or at all. The terms of any financing may adversely affect the holdings or the rights of our stockholders. If we are unable to obtain funding we could be required to delay, reduce or eliminate research and development programs, product portfolio expansion or future commercialization efforts, which could adversely affect our business operations. The audited consolidated financial statements for December 31, 2023, have been prepared on the basis that we will continue as a going concern, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability for us to continue as a going concern. 80 Cash Flows The following table summarizes our cash flows for the periods presented: Year Ended December 31, 2023 2022 Net cash used in operating activities $ (7,286,286 ) $ (11,219,396 ) Net cash provided by financing activities. 14,025,008 15,197,646 Net increase in cash and cash equivalents $ 6,738,722 $ 3,978,250 Net Cash Used in Operating Activities During the year ended December 31, 2023, net cash used in operating activities was $7.3 million, which consisted of a net loss of $0.1 million and non-cash charges of $8.1 million comprised of the change in fair value of the warrant liability, stock-based compensation expense and depreciation expense, offset by a net change of $1.0 million in our net operating assets and liabilities. During the year ended December 31, 2022, net cash used in operating activities was $11.2 million, which consisted of a net loss of $10.8 million and a net change of $0.7 million in our net operating assets and liabilities, offset by non-cash charges of $0.3 million comprised of stock-based compensation expense, non-cash lease expense and depreciation expense. Net Cash Provided by Financing Activities During the year ended December 31, 2023, net cash provided by financing activities was $14.0 million, from cash proceeds of $14.0 million received from the February 2023 Public Offering. During the year ended December 31, 2022, net cash provided by financing activities was $15.2 million, from net proceeds of $4.2 million received in connection with the Business Combination, after exercise of the Forward Share Purchase Agreement of $7.7 million, net proceeds of $7.3 million received from the PIPE, and net proceeds of approximately $4.5 million received from the July 2022 Public Offering, offset by $0.8 million in repayments of Promissory Notes Payable, including interest expense. Contractual Obligations and Other Commitments We enter into contracts in the normal course of business with third party service providers and vendors. These contracts generally provide for termination on notice and, therefore, are cancellable contracts and not considered contractual obligations and commitments. We believe that our non-cancelable obligations under these agreements are not material. Off-Balance Sheet Arrangements As of December 31, 2023, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K. Interest Rate Risk Our cash and cash equivalents consist primarily of highly liquid investments in money market funds and cash on hand and have an original maturity date of 90 days or less. The fair value of our cash and cash equivalents would not be significantly affected by either an increase or decrease in interest rates due mainly to the short-term nature of these instruments. 81 Foreign Currency Risk Our expenses are generally denominated in the currencies in which our operations are located, which is primarily in the United States, England and Australia. We make payments to vendors for research and development services with payments denominated in foreign currencies including Australian Dollars and British Pounds. We are subject to foreign currency transaction gains or losses on our payments denominated in foreign currencies. To date, foreign currency transaction gains and losses have not been material and we have not had a formal hedging program with respect to foreign currency; however, we may consider doing so in the future. A 10% increase or decrease in currency exchange rates would not have a material effect on our financial results. Critical Accounting Policies and Significant Judgements and Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with the U.S. generally accepted accounting principles (“GAAP”). The preparation of the consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions about future events that affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenue and expenses. These estimates and assumptions are based on management’s best estimates and judgment. Management regularly evaluates its estimates and assumptions using industry experience and other factors; however, actual results could differ materially from these estimates and could have an adverse effect on our consolidated financial statements. While our significant accounting policies are more fully described in the notes to our consolidated financial statements, we believe that the accounting policies discussed below are most critical to understanding and evaluating our historical and future performance. Research and Development Expenditures We record accrued expenses for estimated preclinical and clinical study and research expenses related to the services performed but not yet invoiced pursuant to contracts with research institutions, contract research organizations and clinical manufacturing organizations that conduct and manage preclinical studies, and clinical studies, and research services on our behalf. Payments for these services are based on the terms of individual agreements and payment timing may differ significantly from the period in which the services were performed. Our estimates are based on factors such as the work completed, including the level of patient enrollment. We monitor patient enrollment levels and related activity to the extent reasonably possible and make judgments and estimates in determining the accrued balance in each reporting period. Our estimates of accrued expenses are based on the facts and circumstances known at the time. If we underestimate or overestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates. As actual costs become known, we adjust our accrued expenses. To date, we have not experienced significant changes in our estimates of clinical study accruals. Stock-based Compensation We recognize the compensation expense related to stock options, third-party warrants, and RSU awards granted, based on the estimated fair value of the awards on the date of grant. The fair value of employee stock options and third-party warrants are generally determined using the Black-Scholes option-pricing model using various inputs, including estimates of historic volatility, term, risk-free rate, and future dividends. The grant date fair value of the stock-based awards, which have graded vesting, is recognized using the straight-line method over the requisite service period of each stock-based award, which is generally the vesting period of the respective stock-based awards. The Company recognizes forfeitures as they occur. As of December 31, 2023, there were 94 Rollover RSU awards unvested and unissued and 1,157 stock options outstanding. 82 Determination of the Fair Value of Common Stock Prior to the Business Combination, given the absence of a public trading market for our shares of common stock, our board of directors exercised its judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of our shares of common stock, including timely valuations of our shares of common stock prepared by an unrelated third-party valuation firm, important developments in our operations, sales of common stock and convertible preferred shares, actual operating results and financial performance, the conditions in the biotechnology industry and the economy in general, the stock price performance and volatility of comparable public companies, and the lack of liquidity of our shares of common stock, among other factors. After the Business Combination, the fair value of each share of common stock is based on the closing price of our shares of common stock as reported on the date of grant. Recent Accounting Pronouncements See Note 2 to our audited consolidated financial statements for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one yet, of their potential impact on our financial condition of results of operations. JOBS Act Accounting Election We are an “emerging growth company,” as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements and our interim condensed financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. 83 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 otherwise required under this item. Item 8. Financial Statements and Supplementary Data. The financial statements required by this item are set forth at the end of this Annual Report on Form 10-K beginning on page F-1 and are incorporated herein by reference. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.