Tevogen Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and related notes included elsewhere in this Annual Report. This discussion and other parts of this Annual Report contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations and intentions. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. References to the “Company,” “we,” “us,” and “our” in this section generally refer to Tevogen Bio Inc before the Business Combination and to Tevogen Bio Holdings Inc. and its subsidiary collectively from and after the Business Combination, unless the context otherwise requires. Overview We are a clinical-stage specialty immunotherapy company harnessing one of nature’s most powerful immunological weapons, CD8+ CTLs, to develop off-the-shelf, precision T cell therapies for the treatment of infectious diseases, cancers, and other disorders, with the aim of addressing the significant unmet needs of large patient populations. We believe the full potential of T cell therapies remains largely untapped, and 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, ExacTcell TM , has the potential to mainstream cell therapy with a new class of off-the-shelf T cell therapies with diverse applications across virology, oncology, and other areas. ExacTcell is a set of processes and methodologies to develop, enrich, and expand single human HLA restricted CTL therapies with proactively selected, precisely defined targets. We are focused on using ExacTcell to develop therapeutics that are intended to be infused in patients other than the original donor. 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. In addition, through our Tevogen.AI artificial intelligence initiative, we are exploring ways to deploy artificial intelligence-powered target detection to further accelerate our product development pace. The first clinical product of ExacTcell, TVGN 489, is initially 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 Long COVID. We have completed a 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 of the trial. 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. 80 Our commercial success depends in part on our ability to obtain and maintain patent and other protection for our products and methods, preserve the confidentiality of our trade secrets, operate without infringing, misappropriating, or otherwise violating the valid, enforceable proprietary rights of others, and prevent others from infringing, misappropriating, or otherwise violating our proprietary rights. We rely on a combination of patents, patent applications, trademarks, and trade secrets to establish and protect our intellectual property rights. Our ability to stop third parties from making, using, selling, offering to sell, or importing our products without the right to do so may depend on the extent to which we have rights under valid and enforceable patents, trademarks or trade secrets that cover these activities. As our patents were developed internally, historical expenditures related to their development were all expensed as incurred per GAAP. We believe these patents have significant value as the basis of our product pipeline. Our continued investment in our pipeline highlights our belief in future commercial viability of these products. 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 consolidated financial statements in this Annual Report for additional information regarding the net assets acquired through the Merger. The Merger was accounted for as a reverse recapitalization under 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 loss for the years ended December 31, 2024 and 2023 was $13.7 million and $60.5 million, respectively. Net loss for the year ended December 31, 2024 was primarily attributable to a $53.6 million loss from operations that primarily resulted from non-cash, stock-based compensation expense recognized with the liquidity event condition contained in certain stock awards was satisfied upon the closing of the Business Combination as well as $7.5 million in transaction costs in connection with the Business Combination, partially offset by the change in fair value of convertible promissory notes of $48.5 million. As of December 31, 2024, we had cash of $1.3 million. On February 14, 2024, we entered into a securities purchase agreement with The Patel Family, LLP (the “Patel Family”) pursuant to which the Patel Family 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 Patel Family pursuant to which we amended and restated the original agreement and the Patel Family agreed to purchase 600 shares of our Series A-1 Preferred Stock for an aggregate purchase price of $6.0 million, of which $3.0 million has been received through the date of this Annual Report. On August 21, 2024, we entered into a securities purchase agreement with the Patel Family, pursuant to which the investor purchased 600 shares of our Series C Preferred Stock for an aggregate purchase price of $6.0 million. As described in more detail in “— Liquidity and Capital Resources—Funding Requirements ” below, on June 6, 2024, we entered into a Loan Agreement (the “Loan Agreement”) with the Patel Family providing for (i) an unsecured line of credit facility (the “Facility”), pursuant to which the Patel Family agreed to lend us up to an initial amount of $36.0 million (the “Maximum Loan Amount”) of term loans in $1.0 million increments on a monthly basis, over a draw period of thirty-six months, and (ii) a contingent option for the Patel Family to purchase at least $14.0 million of our Common Stock in a future private placement (the “Optional PIPE”). The Loan Agreement also contains a contingent option for the Patel Family to purchase at least $14.0 million of our Common Stock plus up to the then-remaining available amount under the Facility, in a future private placement if the ten-day trailing volume weighted average price per share of the Common Stock (the “Trailing VWAP”) reaches $10.00 per share. Pursuant to the terms of the Loan Agreement, we also issued to the Patel Family 1,000,000 shares of Common Stock as a commitment fee (the “Commitment Shares”), subject to forfeiture by the Patel Family of the Commitment Shares or an equal number of shares of Common Stock in the event the Patel Family fails to (i) make a deposit under the Facility when due or (ii) pay the purchase price for the Optional PIPE within 30 days after the Threshold Price Notice Date (as defined in the Loan Agreement) in the event we have satisfied all applicable closing conditions. 81 In addition, in January 2025, we received a grant of $2.0 million from KRHP to further our development of off-the-shelf, genetically unmodified precision T cell therapeutics to treat infectious diseases and cancers. KRHP is affiliated with the Patel Family. Based on cash on hand as of the date of this Annual Report of approximately $1.3 million, the amounts available under our Loan Agreement, and the $8.0 million of additional committed grant funding from KRHP, we have concluded that we have sufficient cash to fund our operations for at least the next 12 months from the issuance date of our consolidated financial statements. We do not expect to generate product revenue unless and until we obtain marketing approval or other authorization for and successfully commercialize TVGN 489 or another product candidate. We expect to incur 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. 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 or other authorization 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 FDA to obtain the regulatory approval necessary to conduct TVGN 489 clinical trials; ● 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 CROs, and investigative site costs to conduct our pre-clinical studies and clinical trials; ● manufacturing costs, including expenses incurred under agreements with 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. 82 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, incur increased 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. 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. We anticipate that product commercialization may take several years, and we expect to spend a significant amount in development costs. 83 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 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 former convertible promissory notes and Loan Agreement, partially offset by interest earned on bank deposits. (See “— Liquidity and Capital Resources — Sources of Liquidity ” below.) Merger Transaction Costs Transaction costs we incurred in relation to the Business Combination 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 Business Combination. 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. Loss on Issuance of Commitment Shares Our other expenses consist of losses on the issuance of the Commitment Shares for the year ended December 31, 2024 associated with the Loan Agreement. Since we intend to elect the fair value option for future draws under the Loan Agreement, we expense all issuance costs associated with the Loan Agreement, which are comprised of the fair value of the Commitment Shares as well as the issuance date fair value of the $14 million Purchase Option and Additional Amount Purchase Option. For more information about the Loan Agreement, see “— Liquidity and Capital Resources—Funding Requirements ” below. Income Tax Provision Since inception, we have incurred significant net losses. As of December 31, 2024, we had net operating loss carryforwards (“NOLs”) for federal and state income tax purposes of $25.6 million and $27.8 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. 84 Results of Operations Comparison of the years ended December 31, 2024 and 2023 The following table summarizes our results of operations for the years ended December 31, 2024 and 2023: Year ended December 31, 2024 2023 Operating expenses: Research and development $ 31,033,276 $ 4,403,526 General and administrative 22,531,212 4,439,499 Total operating expenses 53,564,488 8,843,025 Loss from operations (53,564,488 ) (8,843,025 ) Interest expense, net (184,037 ) (1,206,352 ) Merger transaction costs (7,499,353 ) — Change in fair value of warrants (58,180 ) — Change in fair value of convertible promissory notes 48,468,678 (50,428,303 ) Loss on issuance of commitment shares (890,000 ) — Net loss $ (13,727,380 ) $ (60,477,680 ) 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 years ended December 31, 2024 and 2023: Year ended December 31, 2024 2023 Personnel costs $ 466,955 $ 2,263,711 Stock-based compensation 27,012,127 - Other clinical and pre-clinical development expenses 2,584,651 1,226,402 Facilities and other expenses 969,543 913,413 Total research and development expenses $ 31,033,276 $ 4,403,526 Research and development expenses for the year ended December 31, 2024 were $31.0 million, compared to $4.4 million for the year ended December 31, 2024. The increase was primarily attributable to an increase in stock-based compensation due to stock compensation expense related to the restricted stock units (“RSUs”) granted to Dr. Saadi on the Closing Date. General and Administrative Expenses The following table summarizes our general and administrative expenses for the years ended December 31, 2024 and 2023: Year ended December 31, 2024 2023 Personnel costs $ 1,725,326 $ 1,095,468 Stock-based compensation 13,752,010 - Legal and professional fees 6,636,232 2,616,925 Facilities and other expenses 417,644 727,106 Total general and administrative expenses $ 22,531,212 $ 4,439,499 85 General and administrative expenses for the year ended December 31, 2024 were $22.5 million compared to $4.4 million for the year ended December 31, 2023. The increase was primarily attributable to stock-based compensation expense of $13.8 million, of which $7.7 million was recognized as a non-cash stock-based compensation expense from certain stock-based awards that continue to vest through satisfaction of service conditions subsequent to the satisfaction of the liquidity condition upon the Closing, and $2.3 million was recognized as restricted stock compensation expense related to the RSUs granted. The increase of $0.6 million in personnel costs was primarily attributable to an increase in headcount and an increase in premium for our director and officer insurance policy. The increase of $4.0 million in legal and professional fees was primarily attributable to the additional services incurred as a result of the Merger. Interest Expense, Net We recognized $0.2 million and $1.2 million in interest expense for the years ended December 31, 2024 and 2023, respectively, which was attributable primarily to the outstanding principal balance associated with our convertible promissory notes that converted into Common Stock in connection with the Closing. Merger Transaction Costs Merger transaction costs in excess of cash received from the Business Combination of $7.5 million were recognized as period expenses for the year ended December 31, 2024. Change in Fair Value of Convertible Promissory Notes We recognized a non-cash gain of $48.5 million and a non-cash loss of $50.4 million for the change in fair value of the convertible promissory notes for the years ended December 31, 2024 and 2023, respectively. The change was primarily a result of the increase in the underlying estimated fair value of our Common Stock during the year ended December 31, 2023 compared to a decrease in the underlying estimated fair value of our Common Stock from January 1, 2024 to the settlement of the convertible promissory notes upon the Closing. Loss on Issuance of Commitment Shares We incurred losses on the issuance of Commitment Shares during the year ended December 31, 2024, associated with the Loan Agreement. Liquidity and Capital Resources Sources of Liquidity As of December 31, 2024, we had $1.3 million in cash, as compared to $1.1 million in cash 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 preferred stock, funds drawn on the Loan Agreement, and grant funding. 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, $3.0 million from deposits related to the future sale of our Series A-1 Preferred Stock, and $6.0 million from the sale of our Series C Preferred Stock. In June 2024, we entered into the Loan Agreement, which provided up to $36.0 million of term loans that can be drawn in $1.0 million increments each month over thirty-six months, as described below. As of December 31, 2024, we had drawn $1.0 million with a remaining $30.0 million available for future financing over the remaining 30 months. We drew an additional $1.0 million on February 10, 2025. In addition, in January 2025, we received a grant of $2.0 million from KRHP. We expect to receive an additional $8.0 million grant from KRHP during the second quarter of 2025. 86 Cash Flows The following table summarizes our cash flows for the years ended December 31, 2024 and 2023: Year ended December 31, 2024 2023 Cash provided by (used in) Operating activities $ (11,998,730 ) $ (8,171,118 ) Investing activities - (133,000 ) Financing activities 12,229,328 3,872,250 Net change in cash $ 230,598 $ (4,431,868 ) Cash Flows from Operating Activities During the year ended December 31, 2024, we used $12.0 million of net cash in operating activities. Cash used in operating activities reflected our net loss of $13.7 million offset by $1.7 million of non-cash charges related to the change in the fair value of the convertible promissory notes, depreciation expense, reductions in the operating right of use (“ROU”) assets, non-cash interest on the convertible promissory notes, and the 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 year ended December 31, 2023, we used $8.2 million of net cash in operating activities. Cash used in operating activities reflected our net loss of $60.5 million offset by $52.0 million of non-cash charges related to the change in the fair value of the convertible promissory notes, depreciation expense, reductions in the ROU assets, non-cash interest on the convertible promissory notes, and a $0.3 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 years ended December 31, 2024 and 2023, we used $0.0 million and $0.1 million respectively, for the purchase of property and equipment. Cash Flows from Financing Activities During the year ended December 31, 2024, we received $12.3 million of net cash from financing activities attributable to $2.0 million in proceeds from the sale of Series A Preferred Stock, $6.0 million in proceeds from the sale of Series C Preferred Stock, $3.0 million of non-refundable prepaid proceeds towards the anticipated issuance of Series A-1 Preferred Stock, $1.0 million drawn under the Loan Agreement, and $0.2 million of cash in connection with the Merger. During the year ended December 31, 2023, we received $4.0 million of net cash from financing activities attributable to the proceeds from the convertible promissory notes, less $0.1 million related to payments of deferred transaction costs. 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 and Series C Preferred Stock and the funding we expect to receive from the sale of our Series A-1 Preferred Stock, our access to an unsecured line of credit (limited to a $1.0 million monthly draw) under the Loan Agreement described below, and the $8.0 million of grant funding that KRHP has committed to provide to be used towards the Company’s ongoing operational expenses. On February 14, 2024, we entered into a securities purchase agreement with an investor pursuant to which the 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 $3.0 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 August 21, 2024, we entered into a securities purchase agreement with an investor pursuant to which the investor agreed to purchase shares of our Series C Preferred Stock for an aggregate purchase price of $6.0 million. 87 On June 6, 2024, we entered into the Loan Agreement, pursuant to which the Patel Family agreed to provide to us up to the Maximum Loan Amount of $36.0 million under the Facility. The Patel Family is also the investor in our Series A, Series A-1, and Series C Preferred Stock. The Facility permits us to borrow up to $1.0 million monthly in a single monthly draw over a period of up to three years. Draws accrue interest at a fixed annual rate of the lower of (i) the daily secured overnight financing rate, measured on the date we receive the draw (the “Deposit Date”), plus 2.00% and (ii) 7.00%, accruing quarterly beginning on the Deposit Date and payable quarterly beginning on the three-month anniversary of the Deposit Date. Interest will be payable in shares of Common Stock with an effective purchase price of $1.50 per share, and each draw will mature 48 months after the Deposit Date. Prepayment will be permitted without penalty. We may repay or prepay any amount of outstanding principal balance under the Facility at our election in cash or in shares of Common Stock with an effective purchase price of the greater of $1.50 per share and the 10-day trailing volume weighted average price of the Common Stock (the “Trailing VWAP”) as of the trading day prior to payment, subject to certain requirements related to resale registration. Pursuant to the Loan Agreement, we also agreed to provide the Patel Family 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 thereafter no longer be available under the Facility). The Optional PIPE would be priced at a 30% discount to the Trailing VWAP on the date such price first reaches at least $10.00 per share (the “Threshold Price Date”) and will be exercisable by the Patel Family by written notice within three business days after we have notified the Patel Family of the Threshold Price Date (the date of such notice, the “Threshold Price Notice Date”). Pursuant to the terms of the Loan Agreement, we issued to the Patel Family the Commitment Shares, subject to forfeiture by the Patel Family of the Commitment Shares or an equal number of shares of Common Stock in the event the Patel Family fails to (i) make a deposit under the Facility when due or (ii) pay the purchase price for the Optional PIPE within 30 days after the Threshold Price Notice Date in the event we have satisfied all applicable closing conditions. There is no assurance as to the amount of proceeds we will ultimately receive under the Loan Agreement. As of December 31, 2024, we have drawn an aggregate of $1.0 million under the Loan Agreement. We expect to devote considerable 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 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 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 additional funding to fully implement our business plans. 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; 88 ● 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 collaboration, 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. As of December 31, 2024, we had cash of $1.3 million. We believe that our cash balance and amounts available under the Loan Agreement, which allows us to draw down term loans of $1.0 million per month over thirty-six months, will allow us to have adequate cash and financial resources, to operate for at least the next 12 months from the date of issuance of our consolidated financial statements included in this Annual Report. In addition, KRHP has committed to provide an additional $8.0 million of grant funding to the Company to be used towards the Company’s ongoing operational expenses. The grant funding will be used to satisfy the Company’s obligations as they come due through March 31, 2026. The Company does not plan to initiate a clinical trial until additional funding is received. We regularly evaluate different strategies to obtain funding for operations for subsequent periods. These strategies may include but are not limited to private placements of securities, licensing and/or marketing arrangements, partnerships with other pharmaceutical or biotechnology companies, and public offerings of securities. We may not be able to obtain financing on acceptable terms and may not be able to enter into strategic alliances or other arrangements on favorable terms. The terms of any financing may adversely affect the holdings or the rights of our stockholders. If we are unable to obtain sufficient 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 prospects. Contractual Obligations and Commitments The following table summarizes our contractual obligations and commitments as of December 31, 2024: Total Less than 1 Year 1 to 3 Years Contractual obligations: Operating lease commitments (1) $ 244,446 $ 230,471 $ 13,975 Notes payable (2) 1,651,000 1,651,000 - Loan Agreement repayment (3) 1,028,270 28,270 1,000,000 Total contractual obligations $ 2,923,716 $ 1,909,741 $ 1,013,975 (1) Reflects obligations pursuant to our office and laboratory leases in Philadelphia, Pennsylvania and Warren, New Jersey. (2) Reflects notes payable obligations assumed as part of the Merger. (3) Reflects obligations to settle outstanding balances on our Loan Agreement, if paid in cash at time of settlement, as well as accrued interest. 89 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 consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of the consolidated 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 consolidated 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 and elsewhere in this Annual Report, including the section entitled “ Special Note Regarding Forward-Looking Statements. ” While our significant accounting policies are described in more detail in Note 3 to our consolidated financial statements, we believe the following accounting policies are the most critical to the judgments and estimates used in the preparation of our consolidated 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. Research and Development Expenses Research and development activities are expensed as incurred. As part of the process of preparing our consolidated 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 consolidated 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. 90 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 you 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. 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, the freestanding $14 million purchase option under the Loan Agreement, and the bifurcated purchase option that is embedded within the loan commitment under the Loan Agreement. 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. We used a Monte Carlo Simulation (“MCS”) valuation methodology to determine the fair value of the freestanding $14 million purchase option and embedded purchase option associated with the Loan Agreement at inception and as of December 31, 2024. The MCS methodology simulates our future stock price to estimate if and when the Trailing VWAP will reach $10.00 per share, and discounts the resulting payoff back to each valuation date using a present value factor. Significant assumptions used in determining the fair value of these options include volatility and discount rate. Stock-Based Compensation Awards under our compensation plans are accounted for in accordance with Accounting Standards Codification 718, Compensation – Stock Compensation . 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 . Recent Accounting Pronouncements See Note 3 to our consolidated financial statements found in this Annual Report for a description of recent accounting pronouncements applicable to our financial statements. 91 Item 7A. Quantitative and Qualitative Disclosures About Market Risk. We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information under this item. Item 8. Financial Statements and Supplementary Data. This information appears following Item 16 of this Annual Report and is incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.