Tevogen Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations In this Quarterly Report on Form 10-Q (this “Report”), “we,” “our,” “us,” “Tevogen,” “the Company” and similar terms refer to Tevogen Bio Holdings Inc. and its subsidiaries collectively unless the context indicates otherwise. All quarterly information in this Management’s Discussion and Analysis is unaudited. The following discussion and analysis of our results of operations and our liquidity and capital resources should be read together with our unaudited consolidated financial statements and the related notes appearing elsewhere this Report and the audited financial information and related notes, as well as the Management’s Discussion and Analysis of Financial Condition and Results of Operations and other disclosures, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “Annual Report”), and in Exhibits 99.1 and 99.2 to our Current Report on Form 8-K/A dated April 29, 2024 (the “Form 8-K”). Forward-Looking Statements This Report contains forward-looking statements intended to be covered by the safe harbor provisions for forward-looking statements in Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We may use words such as “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,” “potentially,” “will,” or “may,” or other words or expressions that convey future events, conditions, circumstances, or outcomes to identify these forward-looking statements. Forward-looking statements in this Report include, without limitation, statements regarding: ● the development of, potential benefits of, and patient access to our product candidates for the treatment of infectious diseases, cancer, and neurological disorders, including TVGN 489 of the treatment of COVID-19 and Long COVID; ● our ability to develop additional product candidates, including through the use of our ExacTcell TM platform; ● the anticipated benefits of ExacTcell; ● our expectations regarding our future clinical trials; ● our manufacturing plans; ● our ability to generate revenue in the future; ● our ability to manage, grow, and diversify our business and execute our business initiatives and strategy; ● expectations regarding the healthcare and biopharmaceutical industries; ● the potential liquidity and trading of our securities; and ● the future business, operations, and financial performance of our company. Forward-looking statements are based on our beliefs, assumptions, and expectations of our future performance, taking into account information currently available to us and are not guarantees of future results. A number of important factors could cause actual results to differ materially from the results anticipated by these forward-looking statements, including the following risks and uncertainties, among others: ● the effect of the recent Business Combination (as defined below) of Semper Paratus Acquisition Corporation (n/k/a Tevogen Bio Holdings Inc.) and Tevogen Bio Inc (n/k/a Tevogen Bio Inc.) (“Tevogen Bio”) on our business relationships, operating results, and business generally; ● the outcome of any legal proceedings that may be instituted against us related to the Business Combination; ● changes in the markets in which we compete, including with respect to its competitive landscape, technology evolution, or regulatory changes; ● changes in domestic and global general economic conditions; ● we may not be able to execute our growth strategies or may experience difficulties in managing our growth and expanding operations; ● we may not be able to effectively remediate our material weakness and develop and maintain effective internal controls; ● costs related to the Business Combination and the failure to realize anticipated benefits of the Business Combination; ● we may fail to achieve our commercialization and development plans and identify and realize additional opportunities, which may be affected by, among other things, competition and our ability to grow and manage growth economically and hire and retain key employees; 14 ● we may fail to keep pace with rapid technological developments to provide new and innovative products and services or make substantial investments in unsuccessful new products and services; ● risks related to our ability to develop, license, or acquire new therapeutics; ● we will need to raise additional capital, which may not be available on acceptable terms or at all, in order to execute our business plan; ● the risk of regulatory lawsuits or proceedings relating to our business; ● uncertainties inherent in the execution, cost, and completion of preclinical studies and clinical trials; ● risks related to regulatory review and approval and commercial development; ● risks associated with intellectual property protection; ● our limited operating history; ● our ability to continue as a going concern; and ● our success and continuation of business operations are dependent on raising additional capital sufficient to meet our obligations on a timely basis. Forward-looking statements should be considered in light of these factors and the factors described elsewhere in this Report, including in the “Risk Factors” section, in the “Risk Factors” section of our Annual Report, and in our various filings with the Securities and Exchange Commission (the “SEC”). It is important that you read these factors and the other cautionary statements made in this Report as being applicable to all related forward-looking statements wherever they appear in this Report. If any of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance, or achievements may differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. You should also read the more detailed description of our business in our Annual Report when considering forward-looking statements. We caution readers not to place undue reliance on any forward-looking statements herein, which speak only as of the date of this Report. We undertake no obligation to publicly update any forward-looking statements, except as required by law. Overview We are a clinical-stage specialty immunotherapy company harnessing one of nature’s most powerful immunological weapons, CD8+ cytotoxic T lymphocytes (“CD8+ CTLs”), to develop off-the-shelf, precision T cell therapies for the treatment of infectious diseases, cancers, and neurological disorders with the aim of addressing the significant unmet needs of large patient populations. We believe that sustainability and commercial success in the forthcoming era of medicine will rely on ensuring patient accessibility through advanced science, innovative business models, and engagement across the development lifecycle and healthcare system. We aspire to be the first biotechnology company offering commercially attractive, economically viable, and cost-effective personalized T cell therapies. We believe our allogeneic, precision T cell technology platform, ExacTcell TM , represents a significant scientific breakthrough that has the potential to produce a new class of off the shelf – manufactured and stored for immediate use – drugs with diverse applications spanning virology, oncology, and neurology. ExacTcell is a set of processes and methodologies to develop, enrich, and expand single human leukocyte antigen (“HLA”) restricted CTL therapies with proactively selected, precisely defined targets. HLA molecules are proteins that play an important role in the immune system’s ability to recognize “self” versus “foreign.” There are numerous HLA types that vary from person to person. CD8+ CTLs, also known as killer T cells, are white blood cells that are part of the immune system and destroy infected, malignant, or otherwise damaged cells. We are focused on using ExacTcell to develop allogeneic therapeutics, meaning therapeutics that are intended to be infused in patients other than the original donor. ExacTcell therapies are based on carefully selected, naturally occurring CTLs that recognize targets of interest from the body’s native T cell receptor pool, unlike genetically engineered T cell therapies. CD8+ CTLs in ExacTcell-based products target multiple and distinct antigens, with the aim to circumvent the impact of mutations in viruses and cancer cells that can render existing treatments ineffective. ExacTcell is designed to maximize the immunologic specificity of our products in order to eliminate malignant and virally infected cells while allowing healthy cells to remain intact. We believe this high degree of specificity has the potential to significantly reduce the chances of cross-reactivity or adverse impact on healthy cells. Our confidence in ExacTcell is reflected in our development pipeline, which has been carefully tailored to address the unmet needs of large patient populations grappling with life-threatening viral diseases, both viral and non-viral induced cancers, and neurological disorders such as multiple sclerosis. 15 The first clinical product of ExacTcell, TVGN 489, is being developed to fill a critical gap in COVID-19 therapeutics for the immunocompromised and the high-risk elderly, with potential applications in both treatment and prevention of chronic lingering symptoms of the disease (“Long COVID”). Viruses, including COVID-19, hijack cellular machinery to transform infected cells into virus production plants. Elimination of infected cells is necessary to allow them to be replaced by healthy, uninfected counterparts. TVGN 489 consists of CTLs active against multiple precise, well defined, and well characterized targets across the SARS-CoV-2 genome. The product progressed from pre-discovery to the clinic in less than 18 months, and in January 2023, we completed the Phase 1 proof-of-concept clinical trial of TVGN 489 for the treatment of ambulatory, high-risk adult COVID-19 patients. No dose-limiting toxicities or significant treatment-related adverse events were observed in the treatment arm. Secondary endpoints showing a rapid reduction of viral load and that infusion of TVGN 489 did not prevent development of the patients’ own T cell-related (cellular) or antibody-related (humoral) anti-COVID-19 immunity were also met. None of the patients who participated in the trial reported progression of infection, reinfection, or the development of Long COVID during the six-month follow-up period. These clinical observations were mirrored by laboratory evidence of the persistence of TVGN 489 cells for at least six months after treatment. We plan to launch a pivotal trial of TVGN 489 in COVID-19 patients with B cell malignancies, with studies of other highly vulnerable populations thereafter. TVGN 489 is also in preclinical development for treatment and prevention of Long COVID. On February 14, 2024 (the “Closing Date”), pursuant to the agreement and plan of merger dated June 28, 2023 (the “Merger Agreement”) by and among Semper Paratus, Semper Merger Sub, Inc., a wholly owned subsidiary of Semper Paratus (“Merger Sub”), SSVK Associates, LLC, Tevogen Bio, and Dr. Ryan Saadi, in his capacity as seller representative, Merger Sub merged with and into Tevogen Bio, with Tevogen Bio being the surviving company and a wholly owned subsidiary of Semper Paratus (the “Merger,” and together with the other transactions contemplated by the Merger Agreement, the “Business Combination”) and Semper Paratus was renamed Tevogen Bio Holdings Inc. (the “Closing”). See Note 4 to our unaudited consolidated financial statements in this quarterly Report 10-Q for additional information regarding the net assets acquired through the Merger. The Merger was accounted for as a reverse recapitalization under U.S. GAAP because the Company was determined to be the accounting acquirer. Since commencing operations in June 2020, we have devoted substantially all our efforts and financial resources to establishing corporate governance, recruiting essential staff, establishing research and development capability including securing laboratory space and equipment, conducting scientific research, securing intellectual property rights to our inventions related to our product candidates and ExacTcell, carrying out drug discovery including pre-clinical studies and our Phase 1 clinical trial of TVGN 489, raising capital, and pursuing the Business Combination. To date, we have not generated any revenue. Our net income for the three months ended March 31, 2024, was $11.3 million and our net loss for the three months ended March 31, 2023, was $30.8 million. Net income for the three months ended March 31, 2024, was primarily attributable to a $48.5 million decrease in fair value in the three months ended March 31, 2024 due to the decrease in the fair value of our common stock prior to the Business Combination, partially offset by $7.5 million in transaction costs in connection with the Business Combination and a $29.5 million loss from operations that primarily resulted from non-cash, stock-based compensation expense recognized when the liquidity event condition contained in certain stock-based awards was satisfied upon the Closing. As of March 31, 2024, we had an accumulated deficit of $88.4 million and cash of $1.3 million. On February 14, 2024, we entered into a securities purchase agreement with an investor pursuant to which the investor purchased 500 shares of our Series A Preferred Stock for an aggregate purchase price of $2.0 million. On March 27, 2024, we entered into an Amended and Restated Securities Purchase Agreement with the investor pursuant to which we amended and restated the original agreement and the investor agreed to purchase 600 shares of our Series A-1 Preferred Stock for an aggregate purchase price of $6.0 million, of which $0.2 million was received during the three months ended March 31, 2024, and $2.0 million has been received subsequent to March 31, 2024. The remainder is expected to be received in the second quarter of 2024. The shares of Series A Preferred Stock are convertible into a total of 500,000 shares of our common stock at the election of the holder, and the shares of Series A-1 Preferred Stock will be convertible into a total of 600,000 shares of the Company’s common stock. The Series A Preferred Stock is and the Series A-1 Preferred Stock will be subject to a call right providing us the right to call the stock if the volume weighted average price of the common stock for the 20 days prior to delivery of the call notice is greater than $5.00 per share and there is an effective resale registration statement on file covering the underlying common stock. The Series A Preferred Stock is and the Series A-1 Preferred Stock will be non-voting, has or will have no mandatory redemption, and carries or will carry an annual 5% cumulative dividend, increasing by 2% each year, and the dividend on the Series A-1 Preferred Stock is capped at 15% per annum. As described in more detail in “Liquidity and Capital Resources – Funding Requirements” below, on May 10, 2024, we entered into a binding term sheet with a lender for a unsecured line of credit for up to $36.0 million, as well as for a contingent option for the lender to purchase at least $14.0 million of shares of our common stock in a future private placement (the “Optional PIPE”). We anticipate that this transaction will close during the quarter ending June 30, 2024, but we have not yet entered into a definitive agreement and there is no assurance as to the timing of the closing or the amount of proceeds we will ultimately receive. Based on cash on hand as of the date of this Report, as well as our history of operating losses and negative cash flows from operation combined with our anticipated use of cash, we have concluded that we do not have sufficient cash to fund our operations for 12 months from the issuance date of our unaudited consolidated financial statements, and as a result, under the applicable accounting standards and disclosure rules, there is substantial doubt about our ability to continue as a going concern. In making this determination, applicable accounting standards prohibited us from considering the potential mitigating effect of plans that have not been fully implemented as of the date of our unaudited consolidated financial statements, including without limitation plans to raise additional capital. We do not expect to generate product revenue unless and until we obtain marketing approval for and successfully commercialize TVGN 489 or another product candidate, and we cannot assure you that we will ever generate significant revenue or profits. We expect to incur significant expenses related to expanding our research and development capability, building our manufacturing infrastructure including through acquisitions, and developing our commercialization organization, including reimbursement, marketing, managed market, and distribution functions, and training and deploying a specialty medical science liaison team. 16 Components of our Results of Operations Revenue To date, we have not generated any revenue, and we do not expect to generate any revenue from the sale of products unless and until we obtain marketing approval for and commercialize TVGN 489 or another product candidate. Operating Expenses Research and Development Expenses Research and development expenses consist primarily of costs incurred for our research activities, including staffing, discovery efforts, preclinical studies, and clinical development of TVGN 489, and preclinical studies of other product candidates, and include: ● acquisition of supplies and, equipment and, leasing lab spaces; ● expenses incurred to conduct the necessary pre-clinical studies required by the U.S. Food and Drug Administration to obtain the regulatory approval necessary to conduct our TVGN 489 clinical trial; ● salaries, benefits, and other related costs for personnel engaged in research and development functions; ● costs of funding research performed by third parties, including pursuant to agreements with contract research organizations (“CROs”), and investigative site costs to conduct our pre-clinical studies and clinical trials; ● manufacturing costs, including expenses incurred under agreements with contract manufacturing organizations (“CMOs”), including manufacturing scale-up expenses, and the cost of acquiring and manufacturing pre-clinical study and clinical trial materials; ● costs of outside consultants, including their fees, stock-based compensation, and related travel expenses; ● costs of laboratory supplies and acquiring materials for pre-clinical studies and clinical trials; and ● facility-related expenses, which include direct depreciation costs of equipment and expenses for rent and maintenance of facilities and other operating costs. Research and development activities are central to the biotechnology business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages, primarily due to the increased study sizes, which also leads generally to longer patient enrollment times in later-stage clinical trials. We expect our research and development expenses to increase significantly over the next several years as we increase manufacturing, shipping, and storage of clinical batches required for clinical trials, personnel costs, including stock-based compensation, conduct planned clinical trials for TVGN 489 and other clinical and pre-clinical activities for other product candidates, and prepare regulatory filings for any of our product candidates. The successful development of our current or future product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing, and costs of the efforts that will be necessary to complete the development of any product candidates. The success of TVGN 489 and our other product candidates will depend on several factors, including the following: ● with respect to products other than TVGN 489, successfully completing pre-clinical studies; ● successfully initiating future clinical trials; ● successfully enrolling patients in and completing clinical trials; ● applying for and receiving marketing approvals from applicable regulatory authorities; ● obtaining and maintaining intellectual property protection and regulatory exclusivity for TVGN 489 and any other product candidates we are developing or may develop in the future and enforcing, defending, and protecting these rights; ● making arrangements with third-party manufacturers, or establishing adequate commercial manufacturing capabilities; ● establishing sales, marketing and distribution capabilities and launching sales of our products, if and when approved, whether alone or in collaboration with others; ● market adoption of TVGN 489 and any other product candidates, if and when approved, by patients and the medical community; ● competing effectively with potential therapeutic alternatives in our target disease areas; and ● adequate reimbursement by private and public payors including health technology appraisal entities in non-U.S. countries. 17 A change in the outcome of any of these variables concerning the development, manufacturing, or commercialization activities of a product candidate could result in a significant change in the costs and timing associated with the development of that product candidate. For example, if we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive, if there are safety concerns or if we determine that the observed safety or efficacy profile would not be competitive in the marketplace, we could be required to expend significant additional financial resources and time on the completion of clinical development. Product commercialization will take several years, and we expect to spend a significant amount in development costs. General and Administrative Expenses General and administrative expenses primarily consist of personnel expenses, which include salaries, benefits, and stock-based long term incentive compensation for employees. These expenses also encompass corporate facility costs such as rent, utilities, depreciation, and maintenance, as well as costs not classified under research and development expenses. Legal fees pertaining to intellectual property and corporate matters, as well as fees for accounting and consulting services, are also included in general and administrative expenses. We expect that our general and administrative expenses will increase in the future to support our continued research and development activities, potential commercialization efforts, and increased costs of operating as a public company. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, lawyers, accountants, and recruitment firms, among other expenses. Increased costs associated with being a public company will also include expenses related to services associated with maintaining compliance with SEC and Nasdaq Stock Market requirements, insurance, and investor relations costs. If any of our current or future product candidates obtains marketing approval, we expect that we would incur significantly increased expenses associated with sales and marketing efforts. Interest Expense, Net Interest expense, net consists primarily of interest on our convertible promissory notes, partially offset by interest earned on bank deposits. (See “— Sources of Liquidity ” below). Merger Transaction Costs Transaction costs we incurred in relation to the Merger were initially capitalized as deferred transaction costs up through the Closing Date, at which time such costs were charged to expense in our statements of operations less the amount of cash received in the Merger. Change in Fair Value of Convertible Promissory Notes U.S. accounting standards provide entities with an option to measure many financial instruments and certain other items at fair value. As a result of us electing this option, we recorded all convertible promissory notes at fair value with changes in fair value reported in our statements of operations at each balance sheet date through the settlement of the convertible promissory notes in connection with the Closing, at which time the convertible promissory notes were converted into our common stock. Income Tax Provision Since inception, we have generally incurred significant net losses. As of December 31, 2023, we had net operating loss carryforwards, (“NOLs”) for federal and state income tax purposes of $13.9 million and $16.4 million, respectively. We have provided a valuation allowance against the full amount of our net deferred tax assets since, in the opinion of our management, based upon our historical and anticipated future losses, it is more likely than not that the benefits will not be realized. Our utilization of our NOLs may be subject to a substantial annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, respectively, as well as similar state provisions. 18 Results of Operations Comparison of the three months ended March 31, 2024 and 2023 The following table summarizes our results of operations for the three months ended March 31, 2024 and 2023: Three months ended March 31, 2024 2023 Operating expenses: Research and development $ 20,811,582 $ 1,347,173 General and administrative 8,705,142 977,109 Total operating expenses 29,516,724 2,324,282 Loss from operations (29,516,724 ) (2,324,282 ) Interest expense, net (155,786 ) (288,997 ) Merger transaction costs (7,499,353 ) — Change in fair value of warrants (31,973 ) — Change in fair value of convertible promissory notes 48,468,678 (28,142,865 ) Net income (loss) $ 11,264,842 $ (30,756,144 ) Research and Development Expenses We do not track our internal research and development costs on a program-by-program basis. The following table summarizes our research and development expenses for the three months ended March 31, 2024 and 2023: Three months ended March 31, 2024 2023 Personnel costs $ 1,381,583 $ 678,782 Stock-based compensation from satisfaction of liquidity condition upon the Closing 18,966,062 — Other clinical and pre-clinical development expenses 219,110 435,899 Facilities and other expenses 244,827 232,492 Total research and development expenses $ 20,811,582 $ 1,347,173 Research and development expenses for the three months ended March 31, 2024 were $20.8 million, compared to $1.3 million for the three months ended March 31, 2023. The increase was primarily attributable to a non-cash stock-based compensation expense of $19.0 million recognized when the liquidity event condition contained in certain stock-based awards (the “Liquidity Condition”) was satisfied upon the Closing. General and Administrative Expenses The following table summarizes our general and administrative expenses for the three months ended March 31, 2024 and 2023: Three months ended March 31, 2024 2023 Personnel costs $ 1,543,787 $ 289,921 Stock-based compensation from satisfaction of liquidity condition upon the Closing 6,267,425 — Legal and professional fees 663,297 469,551 Facilities and other expenses 230,633 217,637 Total general and administrative expenses $ 8,705,142 $ 977,109 General and administrative expenses for the three months ended March 31, 2024 were $8.7 million compared to $1.0 million for the three months ended March 31, 2023. The increase was primarily attributable to a non-cash stock-based compensation expense of $6.3 million recognized when the liquidity event condition contained in certain stock-based awards (the “Liquidity Condition”) was satisfied upon the Closing. Interest Expense, Net We recognized $0.2 million and $0.3 million in interest expense for the three months ended March 31, 2024 and 2023, respectively, which was attributable primarily to the outstanding principal balance associated with our convertible promissory notes which converted into common stock in connection with the Closing. Merger Transaction Costs Merger transaction costs in excess of cash received from the Merger of $7.5 million were recognized as period expenses for the three months ended March 31, 2024. 19 Change in Fair Value of Convertible Promissory Notes We recognized a non-cash gain of $48.5 million and a non-cash loss of $28.1 million for the change in fair value of the convertible promissory notes for the three months ended March 31, 2024 and 2023, respectively. The change was primarily a result of the increase in the underlying estimated fair value of the Company’s common stock during the three months ended March 31, 2023 compared to a decrease in the underlying estimated fair value of the Company’s common stock from January 1, 2024 to the settlement of the convertible promissory notes upon the Closing. Liquidity and Capital Resources Sources of Liquidity As of March 31, 2024, we had $1.3 million in cash and an accumulated deficit of $88.4 million compared to $1.1 million in cash and an accumulated deficit of $99.7 million as of December 31, 2023. To date, we have not yet commercialized any products or generated any revenue from product sales and have financed our operations primarily with proceeds from the sale of convertible promissory notes and research tax credits. Since January 2021, we have raised aggregate gross proceeds of $24.0 million from the sale of convertible promissory notes, $2.0 million from the sale of our Series A Preferred Stock, and $1.2 million from the sale of our Series A-1 Preferred Stock. Cash Flows The following table summarizes our cash flows for the three months ended March 31, 2024 and 2023: Three months ended March 31, 2024 2023 Cash provided by (used in) Operating activities $ (2,163,825 ) $ (2,177,135 ) Investing activities - (133,000 ) Financing activities 2,429,328 2,500,000 Net change in cash $ 265,503 $ 189,865 Cash Flows from Operating Activities During the three months ended March 31, 2024, we used $2.2 million of net cash in operating activities. Cash used in operating activities reflected our net income of $11.3 million offset by $13.9 million of non-cash charges related to the change in the fair value of the convertible promissory notes, stock-based compensation expense, depreciation expense, reductions in the operating right of use (“ROU”) assets, non-cash interest on the convertible promissory notes, offset by a $0.5 million net change in our operating assets and liabilities attributable to the timing of our payments to our vendors for research and development activities. During the three months ended March 31, 2023, we used $2.2 million of net cash in operating activities. Cash used in operating activities reflected our net loss of $30.8 million offset by $28.5 million of non-cash charges related to the change in the fair value of the convertible promissory notes, depreciation expense, reductions in the operating ROU assets, and a $0.1 million net change in our operating assets and liabilities attributable to the timing of our payments to our vendors for research and development activities. Cash Flows from Investing Activities During the three months ended March 31, 2023, the Company purchased $0.1 million of property and equipment. Cash Flows from Financing Activities During the three months ended March 31, 2024, we received $2.4 million of net cash from financing activities attributable to proceeds from the issuance of $2.0 million Series A Preferred Stock, $0.2 million of non-refundable prepaid proceeds towards the anticipated issuance of Series A-1 Preferred Stock and $0.2 million of cash in connection with the Merger. During the three months ended March 31, 2023, we received $2.5 million of net cash from financing activities attributable to the proceeds from the convertible promissory notes. 20 Funding Requirements Our primary sources of funds to meet our near-term liquidity and capital requirements include cash on hand, including the funding we have received from the sale of our Series A Preferred Stock and the funding we expect to receive from the sale of our Series A-1 Preferred Stock. On February 14, 2024, we entered into a securities purchase agreement with an investor pursuant to which an investor agreed to purchase shares of our Series A Preferred Stock for an aggregate purchase price of $8.0 million. On March 27, 2024, we entered into an agreement pursuant to which that amount was reduced to $2.0 million and the investor agreed to purchase shares of our Series A-1 Preferred Stock for an aggregate purchase price of $6.0 million. We have not yet received $4.8 million of the $6.0 million purchase price for the Series A-1 Preferred Stock. Even if we receive such proceeds, we will still need additional capital to fully implement our business, operating, and development plans. On May 10, 2024, we entered into a binding term sheet (the “Financing Term Sheet”) with a lender pursuant to which the lender agreed to provide to the Company up to $36.0 million (the “Maximum Loan Amount”) under an unsecured line of credit (the “Facility”). The lender is also the investor in our Series A and Series A-1 Preferred Stock. The Facility would permit us to borrow up to $1.0 million monthly in a single monthly draw over a period of up to three years. Draws would accrue interest at a fixed annual rate of the lower of (i) daily SOFR plus 2.00%, measured on the date we receive the draw (the “Deposit Date”), and (ii) 7.00%, payable quarterly. Interest would be payable in shares of our common stock priced at $1.50 per share, and each draw would mature 48 months after the Deposit Date. Prepayment would be permitted without penalty, and we would be permitted to repay or prepay any amount of outstanding principal balance at our election in cash or in shares of common stock priced at the greater of $1.50 per share and the closing price of the common stock on the day immediately preceding such payment, provided that there is an effective resale registration statement with respect to such shares. Pursuant to the Financing Term Sheet, we would also agree to provide the lender an option to purchase $14.0 million of shares of our common stock plus an additional amount up to the total then-remaining available and undrawn portion of the Maximum Loan Amount (which amount would cease to be available under the Facility). The Optional PIPE would be priced at a 30% discount to the 10-day trailing volume weighted average price of our common stock on the date such volume weighted average price first reaches at least $10.00 per share. We anticipate that we will enter into a definitive agreement for the financing provided by the Financing Term Sheet during the quarter ending June 30, 2024, but we have not yet entered into such an agreement and there is no assurance as to the timing of closing or the amount of proceeds we will ultimately receive. We expect to devote substantial financial resources to our ongoing and planned activities, particularly as we conduct our planned clinical trials of TVGN 489 and other product candidates. Identifying potential product candidates and conducting pre-clinical testing and clinical trials is a time-consuming, expensive, and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance our pre-clinical studies and clinical trials. In addition, if we obtain marketing approval for TVGN 489 in any indication or for any other product candidate we are developing or develop in the future, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing, and distribution. Furthermore, we expect to continue to incur increased costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding. Our future capital requirements will depend on many factors, including: ● the progress, costs, and results of our planned clinical trials of TVGN 489 and other planned and future clinical trials; ● the scope, progress, costs and results of our pre-clinical testing and clinical trials of TVGN 489 for additional combinations, targets, and indications; ● the number of and development requirements for additional indications for TVGN 489 or for any other product candidates; ● our ability to scale up our manufacturing processes and capabilities to support clinical trials of TVGN 489 and other product candidates we are developing and may develop in the future; ● the costs, timing, and outcome of regulatory review of TVGN 489 and other product candidates we are developing and may develop in the future; ● potential changes in the regulatory environment and enforcement rules; ● our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such arrangements; ● the costs and timing of future commercialization activities, including product manufacturing, sales, marketing, and distribution, for TVGN 489 and other product candidates we are developing and may develop in the future for which we may receive marketing approval; ● our ability to obtain and maintain acceptance of any approved products by patients, the medical community, and third-party payors; ● the amount and timing of revenue, if any, received from commercial sales of TVGN 489 and any other product candidates we are developing or develop in the future for which we receive marketing approval; ● potential changes in pharmaceutical pricing and reimbursement infrastructure; ● the availability of raw materials for use in production of our product candidates; and ● the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights, and defending any intellectual property-related claims. 21 As of March 31, 2024, we had cash of $1.3 million. Based on our cash balance, as well as our history of operating losses and negative cash flows from operation combined with our anticipated use of cash to, among other things, fund the preclinical and clinical development of our products, identify and develop new product candidates, and seek approval for TVGN 489 and our other product candidates and any other product candidates we may develop, management has concluded that we do not have sufficient cash to fund our operations for 12 months from the date of our unaudited consolidated financial statements included in this Report without additional financing, and as a result, there is substantial doubt about our ability to continue as a going concern. In making this determination, applicable accounting standards prohibited us from considering the potential mitigating effect of plans that have not been fully implemented as of the date of our unaudited consolidated financial statements, including raising additional capital. Our financial information has been prepared on a basis that assumes that we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. This financial information and our unaudited consolidated financial statements do not include any adjustments that may result from an unfavorable outcome of this uncertainty. Until such time, if ever, as we can generate substantial revenues from product sales, we expect to finance our cash needs through a combination of public and private equity offerings and debt financings, strategic alliances, collaborations, and marketing, distribution, or licensing arrangements. However, adequate additional financing may not be available to us on acceptable terms, or at all, and may be impacted by the economic climate and market conditions. See the risk factor in our Annual Report captioned “We will require substantial additional financing to pursue our business objectives, which may not be available on acceptable terms, or at all. A failure to obtain this necessary capital when needed could force us to delay, limit, reduce or terminate our product development, commercialization efforts or other operations.” Contractual Obligations and Commitments The following table summarizes our contractual obligations and commitments as of March 31, 2024: Total Less than 1 Year 1 to 3 Years Contractual obligations: Operating lease commitments (1) $ 463,608 $ 219,162 $ 244,446 Total contractual obligations $ 463,608 $ 219,162 $ 244,446 (1) Reflects obligations pursuant to our office and laboratory leases in Philadelphia, Pennsylvania and Warren, New Jersey. The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum, or variable price provisions, and the approximate timing of the actions under the contracts. Our contracts with CROs, CMOs, and other third parties for the manufacture of our product candidates and to support pre-clinical research studies and clinical testing are generally cancelable by us upon prior notice and do not contain any minimum purchase commitments. Payments due upon cancellation consisting only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation are not included in the table above as the amount and timing of such payments are not known. Critical Accounting Policies and Estimates This discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of the 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 expenses, the fair value of our common stock, the fair value of our convertible promissory notes, 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, including those factors set out in the “ Risk Factors ” section of our Annual Report. See also the section entitled “– Forward-Looking Statements ” above. While our significant accounting policies are described in more detail in Note 3 to our financial statements contained in this Report and Note 3 to the audited financial statements included as Exhibit 99.1 to the Form 8-K, we believe the following accounting policies are the most critical to the judgments and estimates used in the preparation of our financial statements or involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operation. 22 Research and Development Expenses Research and development activities are expensed as incurred. As part of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses, including those related to clinical trials and product candidate manufacturing. This process involves reviewing open contracts and purchase orders, communicating with our applicable 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 services when we have not yet been invoiced or otherwise notified of actual costs. Our service providers invoice us in arrears or require prepayments for services performed, as well as on a pre-determined schedule or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in the financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of the estimates with the service providers and make adjustments if necessary. Examples of estimated accrued research and development expenses include fees paid to: ● vendors in connection with preclinical and clinical development activities; ● CROs in connection with clinical trials; and ● CMOs in connection with the process development and scale-up activities and the production of preclinical and clinical trial materials. Costs for clinical trials and manufacturing activities are recognized based on an evaluation of our vendors’ progress towards completion of specific tasks, using data such as participant enrollment, clinical site activations, or information provided to us by our vendors regarding their actual costs incurred. Payments for these activities are based on the terms of individual contracts and payment timing may differ significantly from the period in which the services were performed. We determine accrual estimates through reports from and discussions with applicable personnel and outside service providers as to the progress or state of completion of studies, or the services completed. Our estimates of accrued expenses as of each balance sheet date are based on the facts and circumstances known at the time. Costs that are paid in advance of performance are deferred as a prepaid expense and amortized over the service period as the services are provided. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses. However, due to the nature of estimates, we cannot assure that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical trials and other research activities. Stock-Based Compensation Awards under our compensation plans are accounted for in accordance with ASC 718. Compensation cost is measured at the grant date fair value of the award and is recognized over the vesting period of the award. We use the straight-line method to record compensation expense of awards with service-based vesting conditions. We account for forfeitures of stock-based awards as they occur. We recognize share-based compensation expense for awards with performance conditions when it is probable that the condition will be met, and the award will vest. Prior to the Merger, we estimated the fair value of our common stock in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation . Estimating the fair value of common stock Prior to the Closing, we were required to estimate the fair value of shares of our common stock underlying our stock-based awards and in connection with valuing our convertible promissory notes. Because our common stock was not publicly traded prior to February 15, 2024, the fair value of our common stock prior to such date had been estimated on each grant date by our board of directors, with input from our management, considering third-party valuations of our common stock. 23 Our board of directors considered various objective and subjective factors to estimate the estimated fair value of our common stock, including: ● the estimated value of all classes of securities outstanding; ● the anticipated capital structure that will directly impact the value of the currently outstanding securities; ● our results of operations and financial position; ● the status of our research and development efforts; ● the composition of, and changes to, our management team and board of directors; ● the lack of liquidity of our common stock as a private company; ● our stage of development and business strategy and the material risks related to our business and industry; ● external market conditions affecting the life sciences and biotechnology industry sectors; ● the likelihood of achieving a liquidity event for the holders of our common stock, such as an initial public offering, or a sale of the company, given the prevailing market conditions; and ● the market value and volatility of comparable companies. Fair Value Measurements Our recurring fair value measurements primarily consist of the convertible promissory notes prior to the Merger, for which we elected the fair value option. As a result of our electing this option, we recorded our convertible promissory notes at fair value. We used the Probability Weighted Expected Return Method (“PWERM”) valuation methodology to determine the fair value of the convertible promissory notes prior to the Merger for all the periods presented. The PWERM is a scenario-based methodology that estimates the fair value based upon an analysis of future values for the company, assuming various outcomes. The value is based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes available. The future value under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value. Significant assumptions used in determining the fair value of convertible promissory notes include volatility, discount rate, and probability of a future liquidity event. In February 2024, concurrent with the Merger, we converted our outstanding convertible promissory notes into 10,337,419 shares of common stock. Recent Accounting Pronouncements See Note 3 to our unaudited consolidated financial statements found in this Report for a description of recent accounting pronouncements applicable to our financial statements. 24 Item 3. Quantitative and Qualitative Disclosures About Market Risk. The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information under this Item.