SAB BIOTHERAPEUTICS, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in "Risk Factors" included elsewhere in this Annual Report. As used in this report, unless the context suggests otherwise, "we," "us," our" or "the Company" refer toSAB Biotherapeutics, Inc. and its subsidiaries. Overview We are a clinical-stage, biopharmaceutical company focused on the development of powerful and proprietary immunotherapeutic polyclonal human antibodies to treat and prevent infectious diseases and immune and autoimmune disorders, including infectious diseases resulting from outbreaks and pandemics as well as immunology, gastroenterology, and respiratory diseases that have significant mortality and health impacts on immunocompromised patients. We have applied advanced genetic engineering and antibody science to develop transchromosomic (Tc) Bovine™. Our versatile DiversitAb™ platform is applicable to a wide range of serious unmet needs in human diseases. It produces natural, specifically targeted, high-potency, fully-human polyclonal immunotherapies without the need for human donors. We currently have multiple drug development programs underway and collaborations with the US government and global pharmaceutical companies. The platform has been expanded and validated through funding awarded fromU.S. government emerging disease and medical countermeasures programs with cumulative grant award totals of approximately$203.6 million . We are advancing clinical programs in two indications, and preclinical development in three indications. In addition, we are executing on two research collaborations with global pharmaceutical companies, includingCSL Behring and an undisclosed collaboration. We generated total revenue of$23.9 million and$60.9 million for the years endedDecember 31, 2022 and 2021, respectively (60.7% decline). Our revenue to date has been primarily derived from government grants. As ofDecember 31, 2022 ,$0.4 million in funding remains for our current government grants, with an additional$0.4 million remaining for our current government grants pending approval of extensions on the funding for two of the grants. We plan to focus a substantial portion of our resources on continued research and development efforts towards deepening our technology and expertise with our platform and as well as indications in infectious disease and autoimmune indications. As a result, we expect to continue to make significant investments in these areas for the foreseeable future. We incurred research and development expenses of$36.4 million and$57.2 million for the years endedDecember 31, 2022 and 2021, respectively, and general and administrative expenses of$16.4 million and$17.1 million for the years endedDecember 31, 2022 and 2021, respectively. We expect to continue to incur significant expenses, and we expect such expenses to increase substantially in connection with our ongoing activities, including as we:
? invest in research and development activities to optimize and expand our
DiversitAb platform;
? develop new and advance preclinical and clinical progress of pipeline programs;
? market to and secure partners to commercialize our products;
? expand and enhance operations to deliver products, including investments in
manufacturing;
? acquire businesses or technologies to support the growth of our business;
? continue to establish, protect and defend our intellectual property and patent
portfolio;
? operate as a public company.
To date, we have primarily financed our operations from government agreements and the issuance and sale of common stock.
Our net loss for the year endedDecember 31, 2022 was$18.7 million and our net loss for the year endedDecember 31, 2021 was$17.1 million . As ofDecember 31, 2022 , we had an accumulated deficit of$47.9 million , and cash and cash equivalents totaling$15.0 million . Recent Developments Private Placement OnDecember 7, 2022 , we consummated a private placement with certain institutional and accredited investors, whereby we issued an aggregate of 7,363,377 shares of common stock and warrants to purchase up to 7,363,377 shares of common stock (the "PIPE Warrants"), each share and PIPE Warrant sold at a combined purchase price of$1.08 . The PIPE Warrants become exercisable on the six-month anniversary of the date of grant for a price of$1.08 per share and are exercisable for five years from the date of issuance. The issuance of shares of common stock upon exercise of the PIPE Warrants may result in material dilution to existing stockholders.
Termination of Contract with
OnAugust 3, 2022 , we received notice from theDoD to terminate theDepartment of Defense , JPEO Rapid Response contract, dated as ofAugust 7, 2019 with theDoD most recently amended as ofSeptember 14, 2021 , relating to prototype research and development of a Rapid Response Antibody Program and advanced clinical development through licensure and commercial manufacturing forSAB -185 (the "JPEO Rapid Response Contract Termination"). No termination penalties have been or will be incurred by us in connection therewith. 73
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Table of Contents Business Combination OnOctober 22, 2021 , we consummated the Business Combination pursuant to that certain Agreement and Plan of Merger, datedJune 21, 2021 ("Business Combination Agreement"), by and among BCYP,Big Cypress Merger Sub Inc. , aDelaware corporation and a direct wholly owned subsidiary of BCYP, andSAB Biotherapeutics, Inc. , which changed its name toSAB Sciences, Inc. and became our wholly-owned subsidiary in connection with the Business Combination (and which we refer to now as Legacy SAB). Upon completion of the Business Combination, and pursuant to the terms of the Business Combination Agreement, the stockholders of Legacy SAB exchanged their Legacy SAB shares for our shares of common stock, and options to purchase shares of Legacy SAB were converted into options to purchase our shares of common stock. Additionally, (i) we issued 10,491,937 shares of common stock to the former stockholders of Legacy SAB, which are being held in escrow and which will be released if certain conditions are met prior toOctober 22, 2026 , and (ii) we granted 1,508,063 contingently issuable restricted stock units to the holders of Legacy SAB options, which restricted stock units will be settled in our shares of common stock if the same conditions are met prior toOctober 22, 2026 . For more information, see Note 1 to the Company's consolidated financial statements, Nature of Business.
Key Factors Affecting Our Results of Operations and Future Performance
We believe that our financial performance has been, and in the foreseeable future will continue to be, primarily driven by multiple factors as described below, each of which presents growth opportunities for our business. These factors also pose important challenges that we must successfully address in order to sustain our growth and improve our results of operations. Our ability to successfully address these challenges is subject to various risks and uncertainties, including those described in Part I, Item 1A of this Annual Report.
Components of Results of Operations
Revenue Our revenue has historically been generated through grants from government and other (non-government) organizations. We currently have no commercially-approved products. Grant revenue is recognized for the period that the research and development services occur, as qualifying expenses are incurred or conditions of the grants are met. We concluded that payments received under these grants represent conditional, nonreciprocal contributions, as described in ASC 958, Not-for-Profit Entities, and that the grants are not within the scope of ASC 606, Revenue from Contracts with Customers, as the organizations providing the grants do not meet the definition of a customer. Expenses for grants are tracked by using a project code specific to the grant, and the employees also track hours worked by using the project code.
For the years ended
Government grants
The total revenue for government grants was approximately
National Institute of Health -National Institute of Allergy and Infectious Disease ("NIH-NIAID") (Federal Award #1R44AI117976-01A1) - this grant was for$1.4 million and started inSeptember 2019 throughAugust 2021 . The grant was subsequently amended to extend the date throughAugust 2022 . For the years endedDecember 31, 2022 and 2021, there was approximately$182,000 and$518,000 , respectively, in grant income recognized from this grant. This grant was completed in 2022. NIH-NIAID (Federal Award #1R41AI131823-02) - this grant was for approximately$1.5 million and started inApril 2019 throughMarch 2021 . The grant was subsequently amended to extend the date throughMarch 2023 . For the years endedDecember 31, 2022 and 2021, approximately$328,000 and$51,000 , respectively, in grant income was recognized from this grant. Approximately$429,000 in funding remains for this grant as ofDecember 31, 2022 . NIH-NIAID throughGeneva Foundation (Federal Award #1R01AI132313-01, Subaward #S-10511-01) - this grant was for approximately$2.7 million and started inAugust 2017 throughJuly 2021 . The grant was subsequently amended to extend the date throughJuly 2023 . For the years endedDecember 31, 2022 and 2021, there was approximately$1,052,000 and$94,000 , respectively, in grant income recognized from this grant. Approximately$0.4 million in funding remaining for this grant as ofDecember 31, 2022 .DoD , JPEO throughAdvanced Technology International - this grant was for a potential of$25 million , awarded in stages starting inAugust 2019 and with potential stages running throughFebruary 2023 . Additional contract modifications were added to this agreement in 2020 for work on a COVID therapeutic, bringing the agreement total to approximately$143 million . InSeptember 2021 , an additional modification for$60.5 million was added to the agreement for advanced clinical development through licensure and commercial manufacturing, bringing the agreement total to approximately$203.6 million . For the years endedDecember 31, 2022 and 2021, approximately$22.2 million and$60.2 million , respectively, in grant income was recognized from this grant. This grant was terminated in 2022. The grants for JPEO Rapid Response contract are cost reimbursement agreements, with reimbursement of our direct research and development expense (labor and consumables) with an overhead charge (based on actual, reviewed quarterly) and a fixed fee (9%). OnAugust 3, 2022 , we received noticed from theDoD to terminate the JPEO Rapid Response contract, dated as ofAugust 7, 2019 with theDoD most recently amended as ofSeptember 14, 2021 , relating to a prototype research and development of Rapid Response Antibody Program and advanced clinical development through licensure and commercial manufacturing forSAB -185 (the "JPEO Rapid Response Contract Termination"). We engaged in negotiations with theDoD to compensate us for services provided prior to the JPEO Rapid Response Contract Termination and costs we would be expected to bear in future periods. 74
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Table of Contents Operating Expenses
Research and Development Expenses
Research and development expenses primarily consist of salaries, benefits, incentive compensation, stock-based compensation, laboratory supplies and materials for employees and contractors engaged in research and product development, licensing fees to use certain technology in our research and development projects, fees paid to consultants and various entities that perform certain research and testing on our behalf. Research and development expenses are tracked by target/project code. Indirect general and administrative costs are allocated based upon a percentage of direct costs. We expense all research and development costs in the period in which they are incurred.
Research and development activities consist of discovery research for our platform development and the various indications we are working on. We have not historically tracked our research and development expenses on a product candidate-by-product candidate basis.
For the years endedDecember 31, 2022 and 2021, we had contracts with multiple CRO to conduct and complete clinical studies. In the case ofSAB -185, the CRO has been contracted and paid by the US government - as ofDecember 31, 2022 , there is no active CRO engaged by us in work on theSAB -185. ForSAB -176,PPD Development, LP , acting as CRO oversaw the Phase 1 safety study. The terms of that agreement are subject to confidentiality, and the status of the agreement is that it is current, in good standing and approximately 95% of the contract has been paid throughDecember 31, 2022 .SAB has also contracted with hVIVOServices Limited to conduct the Phase 2a influenza study onSAB -176. The terms of that agreement are subject to confidentiality, and the status of the agreement is that it is current, in good standing and approximately 95% of the contract has been paid throughDecember 31, 2022 . We expect to continue to incur substantial research and development expenses as we conduct discovery research to enhance our platform and work on our indications. We expect to hire additional employees and continue research and development and manufacturing activities. As a result, we expect that our research and development expenses will continue to increase in future periods and vary from period to period as a percentage of revenue. Major components within our research and development expenses are salaries and benefits (laboratory & farm), laboratory supplies, animal care, contract manufacturing, clinical trial expense, outside laboratory services, project consulting, and facility expense. Our platform allows us to work on multiple projects with the same resources, as the research and development process of each product is very similar (with minimal differences in the manufacturing process). Research and development expenses by component for the years endedDecember 31, 2022 and 2021 were as follows: Year Ended December 31, 2022 2021 Salaries & benefits$ 12,032,720 $ 9,944,717 Laboratory supplies 6,441,181 14,471,878 Animal care 1,560,099 4,636,515 Contract manufacturing 5,256,518 12,665,794 Clinical trial expense 271,283 5,299,817 Outside laboratory services 4,561,696 4,735,373 Project consulting 805,994 1,812,292 Facility expense 5,354,356 3,415,518 Other expenses 154,666 201,685
Total research and development expenses
General and Administrative Expenses
General and administrative expenses primarily consist of salaries, benefits and stock-based compensation costs for employees in our executive, accounting and finance, project management, corporate development, office administration, legal and human resources functions as well as professional services fees, such as consulting, audit, tax and legal fees, general corporate costs and allocated overhead expenses. We expect that our general and administrative expenses will continue to increase in future periods, primarily due to increased headcount to support anticipated growth in the business and due to incremental costs associated with operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a securities exchange and costs related to compliance and reporting obligations pursuant to the rules and regulations of theSEC and stock exchange listing standards, public relations, insurance and professional services. We expect these expenses to vary from period to period in absolute terms and as a percentage of revenue.
Nonoperating (Expense) Income
Gain on change in fair value of warrant liabilities
Gain on change in fair value of warrant liabilities consists of the changes in the fair value of the warrant liabilities.
Gain on debt extinguishment of Paycheck Protection Program SBA Loan
Gain on extinguishment of debt consists of the forgiveness of the PPP Loan, plus accrued interest.
Other income
Other income consists of primarily of gains on disposals of fixed assets.
Interest income
Interest income consists of interest earned on cash balances in our bank accounts.
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Table of Contents Interest expense
Interest expense consists primarily of interest related to borrowings under notes payable for equipment.
Income Tax Expense
Income tax expense consists primarily of domestic federal and state income taxes.
Results of Operations The following tables set forth our results of operations for the years endedDecember 31, 2022 and 2021: Year Ended December 31, 2022 2021 Revenue Grant revenue$ 23,904,181 $ 60,876,078 Total revenue 23,904,181 60,876,078 Operating expenses Research and development 36,438,513 57,183,589 General and administrative 16,383,285 17,085,692 Total operating expenses 52,821,798 74,269,281 Loss from operations (28,917,617 ) (13,393,203 ) Other income (expense) Changes in fair value of warrant liabilities 10,399,200 (4,151,068 ) Gain on debt extinguishment of Paycheck Protection Program SBA Loan - 665,596 Other income 33,754 5,488 Interest expense (301,584 ) (294,459 ) Interest income 71,072 23,115 Total other income 10,202,442 (3,751,328 ) Loss before income taxes (18,715,175 ) (17,144,531 ) Income tax expense 25,629 - Net loss$ (18,740,804 ) $ (17,144,531 )
Comparison of the Years Ended
Revenue
Year Ended December 31,
2022 2021 Change % Change
Revenue $ 23,904,181 $ 60,876,078 $ (36,971,897 ) (60.7 )%
Total revenue $ 23,904,181 $ 60,876,078
Revenue decreased by $37.0 million , or 60.7%, in 2022, primarily due to the
JPEO Rapid Response Contract Termination (year-over-year decrease of
$38 million , (63.1)%). Included in revenues for the year ended December 31,
2022 are $5.3 million for contract manufacturing, $3.1 million for labor, and
$5.4 million for supplies as compared to $12.7 million for contract
manufacturing, $3.9 million for fixed asset reimbursement, $6.1 million for
labor, and $16.7 million for supplies for the year ended December 31, 2021 .
We anticipate future revenues will be substantially derived from current period
directly reimbursable expenses such as laboratory supplies, labor costs, and
consulting fees plus, when applicable, an overhead charge and a flat-rate fixed
fee. As a result of the JPEO Rapid Response Contract Termination, we expect
future revenues to be lower as our primary pipeline development targets of
Clostridioides difficile Infection, influenza, and immune system disorders
remain independently financed as we explore potential partnerships,
co-development opportunities, and licensing arrangements
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Table of Contents
Research and Development
Year Ended December 31,
2022 2021 Change % Change
Research and development $ 36,438,513 $ 57,183,589 $ (20,745,076 ) (36.3 )%
Total research and development expenses $ 36,438,513 $ 57,183,589
Research and development expenses decreased by $20.7 million , or (36.3)%, in
2022, primarily due to decrease in laboratory supplies (year-over-year decrease
of $8.2 million , (42.7)%) , contract manufacturing costs (year-over-year
decrease of $7.4 million , (58.3)%), clinical trial and project consulting
expense (year-over-year decrease of $6.0 million , (84.5)%), and animal care
costs (year-over-year decrease of $3.1 million , (65.2)%), offset by an increase
in salaries and benefits (year-over-year increase of $2.1 million , 21.2%), and
facility costs (year-over-year increase of $1.9 million , 52.8%). Please refer to
the research and development expenses by component for the years ended December
31, 2022 and 2021 table above for additional information.
As a result of the JPEO Rapid Response Contract Termination and in tandem with
our focus on primary pipeline development targets, future period research and
development expenses will decrease as we no longer expect to incur costs of
contract manufacturing, outside laboratory services, project consulting, and
facilities costs related to the production of SABS-185.
General and Administrative
Year Ended December 31,
2022 2021 Change % Change
General and administrative $ 16,383,285 $ 17,085,692 $ (702,407 ) (4.1 )%
Total general and administrative expenses $ 16,383,285 $ 17,085,692
General and administrative expenses decreased by $0.7 million , or (4.1)%, in
2022, primarily due to decreased administrative salaries and benefits
(year-over-year decrease of $2.3 million ), decreases in business, regulatory and
marketing consulting (year-over-year decrease of $0.7 million ), offset by an
increase in insurance costs (year-over-year increase of $2.0 million ), and
public reporting expenses (year-over-year increase of $0.3 million ).
Non-operating (Expense) Income
Year Ended December 31,
2022 2021 Change % Change
Changes in fair value of
warrant liabilities $ 10,399,200 $ (4,151,068 ) $ 14,550,268 (350.5 )%
Gain on debt extinguishment
of Paycheck Protection
Program SBA Loan - 665,596 $ (665,596 ) (100.0 )%
Other income 33,754 5,488 $ 28,266 515.1 %
Total non-operating (expense)
income $ 10,432,954 $ (3,479,984 )
Total non-operating (expense) income changed by $13.9 million in 2022, primarily
due to changes in the fair value of the warrant liabilities, partially offset by
the forgiveness of the PPP Loan, plus accrued interest, in the first quarter of
2021.
Interest Expense
Year Ended December 31,
2022 2021 Change % Change
Interest expense $ 301,584 $ 294,459 $ 7,125 2.4 %
Total interest expense $ 301,584 $ 294,459
Interest expense remained largely unchanged in 2022, driven by adding no new
Finance Leases or other interest-bearing debt. We expect interest expense to
increase in future periods as the accrued interest payable under the 8%
Unsecured Convertible Note is realized over a full year.
Interest Income
Year Ended December 31,
2022 2021 Change % Change
Interest income $ 71,072 $ 23,115 $ 47,957 207.5 %
Total interest income $ 71,072 $ 23,115 Interest income increased by
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Liquidity and Capital Resources
As ofDecember 31, 2022 andDecember 31, 2021 , we had$15.0 million and$33.2 million , respectively, of cash and cash equivalents. Additionally, as ofDecember 31, 2021 we had$6.3 million in restricted cash held in escrow pending the final settlement of the Forward Share Purchase Agreement. Upon final settlement of the Forward Share Purchase Agreement during the first quarter of 2022,$817,060 in cash was released to us and the remaining$5.5 million was delivered to Radcliffe for the repurchase of 546,658 shares of our common stock. To date, we have primarily relied on grant revenue in the form of government grants and the sale of preferred stock. Our standard repayment terms for accounts receivable are thirty days from the invoice date. As a majority of our accounts receivable is from work performed under government grants, we have not had an uncollectible accounts receivable amount in over 5 years. As of the date this annual report has been made available for issuance, our entire$5.6 million balance of accounts receivables as ofDecember 31, 2022 has been fully collected. We intend to continue to invest in our business and, as a result, may incur operating losses in future periods. We expect to continue to invest in research and development efforts towards expanding our capabilities and expertise along our platform and the primary pipeline development targets we are working on, as well as building our business development team and marketing our solutions to partners in support of the growth of the business.
We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates, and begin commercialization of our products. As a result, we will require additional capital to fund our operations in order to support our long-term plans, in particular, following the JPEO Rapid Response Contract Termination.
We have incurred operating losses for the past several years. While we intend to continue to keep operating expenses at a reduced level there can be no assurance that our current level of operating expenses will not increase or that other uses of cash will not be necessary. Based on our current level of operating expenses, existing cash and cash equivalents may not be sufficient to cover operating cash needs through the twelve months following the date these financials are made available for issuance. We intend to seek additional capital through equity and/or debt financings, collaborative or other funding arrangements. Should we seek additional financing from outside sources, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital when required or on acceptable terms, we may be required to scale back or discontinue the advancement of product candidates, reduce headcount, liquidate our assets, file for bankruptcy, reorganize, merge with another entity, or cease operations. Sources of Liquidity
Since our inception, we have financed our operations primarily from revenue in the form of government grants and from equity financings.
Equity Financings and Option Exercises
As ofDecember 31, 2022 , we have raised approximately$90.2 million since our inception from the issuance and sale of convertible preferred shares, net of issuance costs associated with such financings, the Business Combination with BCYP, and exercises of employee stock options.
Notes payable and Convertible Debt
As of
8% Unsecured Convertible Note Pursuant to the Fourth Amendment to our lease withSanford Health , we agreed to a period of Abated Rent fromOctober 1, 2022 toSeptember 30, 2023 pertaining to our leased laboratory bay at theSanford Research Center . In exchange for the Abated Rent, effective as ofOctober 1, 2022 , we issued toSanford Health an 8% unsecured, convertible promissory note (the "8% Unsecured Convertible Note"). Pursuant to the 8% Unsecured Convertible Note, we shall pay the sum of$541,644 (the "Principal") plus accrued and unpaid interest thereon onSeptember 31, 2024 (the "Maturity Date"). Simple interest shall accrue on the outstanding Principal from and after the date of the October Note, and shall be payable on the Maturity Date.Sanford Health shall have the right, but not the obligation, to convert all or any part of the outstanding Principal of the 8% Unsecured Convertible Note, together with any accrued and unpaid interest thereon to the date of such conversion, into such number of fully paid and non-assessable shares of the Company's common stock, at any time and from time to time, prior to the later of the Maturity Date and the date on which the 8% Unsecured Convertible Note is paid in full, subject to certain restrictions, at a conversion price per share of Common Stock equal to greater of (x)$1.50 and (y) the price at which the Company sells shares of common stock in any bona fide private or public equity financing prior to the Maturity Date. Other Notes Payable OnMarch 27, 2020 ,President Trump signed into law the "Coronavirus Aid, Relief and Economic Security Act ("CARES Act"). InApril 2020 , we entered into the PPP Loan withFirst Premier Bank under the PPP, which is part of the CARES Act administered by the SBA. As part of the application for these funds, we, in good faith, certified that the current economic uncertainty made the loan request necessary to support our ongoing operations. The certification further requires us to take into account our current business activity and our ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. Under the PPP, we received proceeds of approximately$661,612 . In accordance with the requirements of the PPP, we utilized the proceeds from the PPP Loan primarily for payroll costs. The PPP Loan has a 1.00% interest rate per annum, matures inApril 2022 and is subject to the terms and conditions applicable to loans administered by the SBA under the PPP. Under the terms of PPP, all or certain amounts of the PPP Loan may be forgiven if they are used for qualifying expenses, as described in the CARES Act. We recorded the entire amount of the PPP Loan as debt. Under the terms of the PPP Loan, monthly payments of principal and interest were due to commenceNovember 1, 2020 , however, the SBA is deferring loan payments for borrowerswho apply for loan forgiveness until the SBA remits the borrower's loan forgiveness amount to the lender. An application for forgiveness of the PPP Loan was completed inFebruary 2021 . InMarch 2021 , the SBA approved the forgiveness of the PPP Loan, plus accrued interest. We recorded a gain on extinguishment of PPP Loan of$665,596 for the forgiveness of the PPP Loan and accrued interest within gain on debt extinguishment of Paycheck Protection Program SBA Loan on the consolidated statement of operations for the year endedDecember 31, 2021 . 78
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Table of Contents Insurance Financing We obtained financing for certain Director & Officer liability insurance policy premiums. The agreement assignsFirst Insurance Funding (Lender) a first priority lien on and security interest in the financed policies and any additional premium required in the financed policies including (a) all returned or unearned premiums, (b) all additional cash contributions or collateral amounts assessed by the insurance companies in relation to the financed policies and financed by Lender, (c) any credits generated by the financed policies, (d) dividend payments, and (e) loss payments which reduce unearned premiums. If any circumstances exist in which premiums related to any Financed Policy could become fully earned in the event of loss, Lender shall be named a loss-payee with respect to such policy. The total premiums, taxes and fees financed is approximately$1,236,000 with an annual interest rate of 5.47%. In consideration of the premium payment by Lender to the insurance companies or the Agent or Broker, we unconditionally promise to pay Lender the amount Financed plus interest and other charges permitted under the Agreement. AtDecember 31, 2022 and 2021 we recognized approximately$773,000 and$1,772,000 , respectively, as insurance financing note payable in its consolidated balance sheet. We will pay the insurance financing through installment payments with the last payment being onSeptember 22, 2023 . InDecember 2017 , we entered into a loan agreement with a financial institution for the purchase of a tractor for$116,661 at 3.6%. The loan included annual payments of$25,913 for the next five years starting inDecember 2018 . The tractor was paid off in full inNovember 2022 .
Please refer to Note 11 in our consolidated financial statements, Notes Payable, for additional information on our debt.
Cash Flows The following table summarizes our cash flows for the years endedDecember 31, 2022 and 2021: 2022 2021
Net cash provided (used) by operating activities
(2,090,024 ) (10,943,657 )
Net cash provided by financing activities 1,051,411 35,891,419
Net decrease in cash, cash equivalents, and restricted cash$ (24,498,124 ) $ 26,934,635 Operating Activities Net cash provided (used) by operating activities decreased by$25.4 million in 2022, primarily due to a$15.5 million decrease in operating income, an$11.9 million increase in non-cash working capital, offset by an increase of$2.7 million in non-cash expenses. Year-over-year changes in cash provided (used) by operating activities is explained by shifts in the company's non-cash working capital balances as we continue to advance our lead programs after the JPEO Rapid Response Contract Termination. Investing Activities Net cash used in investing activities increased by$8.9 million in 2022, primarily due to a decrease in purchases of equipment as new equipment purchases under the JPEO Rapid Response Contract were substantially completed in 2021. Capital asset purchases completed in 2022 relate substantially to leasehold improvements at the Corporate Headquarters and completion of the clinical manufacturing facility at theSanford Research Center . Financing Activities Net cash provided by financing activities decreased by$34.8 million in 2022, primarily due to$34.4 million in proceeds from the Business Combination being fully realized in 2021. In 2022, we received$7.7 million of funds (net of issuance costs) from the issuance of common stock in a private placement, offset by utilizing$6.3 million of restricted cash to settle the Forward Share Purchase Agreement.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations and commitments as ofDecember 31, 2022 : Payments Due by Period Less than 1 Total year 1-3 years 3-5 years Over 5 years Notes payable$ 1,314,309 $ 772,665 $ 541,644 $ - $ -
Operating lease liabilities (1) 896,838 528,520 368,318
- -
Finance lease liabilities (1) 6,395,321 406,339 802,992 802,992 4,382,998
Total $ 8,606,468 $ 1,707,524 $ 1,712,954 $ 802,992 $ 4,382,998 (1) We are party to certain contractual arrangements for equipment, lab space,
and an animal facility, which meet the definition of leases under FASB ASC
Topic 842, Leases ("ASC 842").
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We enter into contracts in the normal course of business with third parties, including CROs. These payments are not included in the table above, as the amount and timing of such payments are not known.
As of
Income Taxes We had$22.0 million of federal net operating loss carryforwards as ofDecember 31, 2022 . Our carryforwards are subject to review and possible adjustment by the appropriate taxing authorities. These carryforwards may generally be utilized in any future period but may be subject to limitations based upon changes in the ownership of our shares in a prior or future period. We have not quantified the amount of such limitations, if any. Going Concern
A fundamental principle of the preparation of financial statements in accordance with GAAP is the assumption that we will continue in existence as a going concern, which contemplates continuity of operations and the realization of assets and settlement of liabilities occurring in the ordinary course of business.
As ofDecember 31, 2022 , we have experienced net losses, negative cash flows from operations and had an accumulated deficit of$47.9 million . We anticipate we will continue to generate losses for the foreseeable future, and expects the losses to increase as we continue the development of, and seek regulatory approvals for, product candidates, and begin commercialization of products. As a result, we will require additional capital to fund operations in order to support long-term plans, in particular, following the JPEO Rapid Response Contract Termination. These factors raise substantial doubt about our ability to continue as a going concern for the one-year period following the date that these financial statements were issued. To continue as a going concern, we will need, among other things, to raise additional capital resources. We plan to seek additional funding through a combination of equity or debt financings, or other third-party financing, collaborative or other funding arrangements. Should we seek additional financing from outside sources, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital when required or on acceptable terms, we may be required to scale back or discontinue the advancement of product candidates, reduce headcount, liquidate our assets, file for bankruptcy, reorganize, merge with another entity, or cease operations. The consolidated financial statements forDecember 31, 2022 , have been prepared on the basis that we will continue as a going concern, and does not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability for us to continue as a going concern.
Off-Balance Sheet Arrangements
We did not have, for the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies and Estimates
We have prepared our consolidated financial statements in accordance withU.S. GAAP. Our preparation of these consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in Note 3 in our consolidated financial statements, Summary of Significant Accounting Policies, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our consolidated financial statements. Revenue Recognition
Our revenue is primarily generated through grants from government and other (non-government) organizations.
Grant revenue is recognized for the period that the research and development
services occur, as qualifying expenses are incurred or conditions of the grants
are met. We concluded that payments received under these grants represent
conditional, nonreciprocal contributions, as described in ASC 958,
Not-for-Profit Entities, and that the grants are not within the scope of ASC
606, Revenue from Contracts with Customers, as the organizations providing the
grants do not meet the definition of a customer. Expenses for grants are tracked
by using a project code specific to the grant, and the employees also track
hours worked by using the project code.
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Table of Contents Stock-Based Compensation We recognize compensation cost relating to stock-based payment transactions using a fair-value measurement method, which requires all stock-based payments to employees, directors, and non-employee consultants, including grants of stock options, to be recognized in operating results as compensation expense based on fair value over the requisite service period of the awards. Prior to the Business Combination, the grant date fair value of our common stock was typically determined by our board of directors with the assistance of management and a third-party valuation specialist. Subsequent to the Business Combination, the board of directors elected to determine the fair value of our post-merger common stock based on the closing market price at closing on the date of grant. In determining the fair value of our stock-based awards, we utilize the Black-Scholes option-pricing model, which uses both historical and current market data to estimate fair value. The Black-Scholes option-pricing model incorporates various assumptions, such as the value of the underlying common stock, the risk-free interest rate, expected volatility, expected dividend yield and expected life of the options. For awards with performance-based vesting criteria, we estimate the probability of achievement of the performance criteria and recognize compensation expense related to those awards expected to vest. No awards may have a term in excess of ten years. Forfeitures are recorded when they occur. Stock-based compensation expense is classified in our consolidated statements of operations based on the function to which the related services are provided. We recognize stock-based compensation expense over the expected term. In addition to considering the results of the independent third-party valuations, our board of directors considered various objective and subjective factors to determine the fair value of our common shares as of each grant date, which may be a date other than the most recent independent third-party valuation date, including:
? the prices at which we most-recently sold preferred shares and the superior
rights and preferences of the preferred shares relative to our common shares
at the time of each grant;
? the lack of liquidity of our equity as a private company;
? our stage of development and business strategy and the material risks related
to our business and industry;
? our financial condition and operating results, including our levels of
available capital resources and forecasted results;
? developments in our business, including the achievement of milestones such as
entering into partnering agreements;
? the valuation of publicly traded companies in the life sciences,
biopharmaceutical and healthcare technology sectors, as well as recently
completed mergers and acquisitions of peer companies;
? any external market conditions affecting our industry, and trends within our
industry;
? the likelihood of achieving a liquidity event for the holders of our preferred
shares and holders of our common shares, such as an initial public offering,
or IPO, or a sale of our company, given prevailing market conditions; and
? the analysis of IPOs and the market performance of similar companies in our
industry.
The assumptions underlying these valuations represented management's best
estimates, which involved inherent uncertainties and the application of
management's judgment. As a result, if factors or expected outcomes change and
we use significantly different assumptions or estimates, the fair value of our
common shares and our stock-based compensation expense could be materially
different.
See Note 13 in our consolidated financial statements, Stock Option Plan, for
information concerning certain specific assumptions we used in applying the
Black-Scholes option pricing model to determine the estimated fair value of our
stock options granted for the years ended December 31, 2022 and 2021.
Stock-based compensation expense was $2.7 million and $2.3 million for the years
ended December 31, 2022 and 2021, respectively. As of December 31, 2022 we
had $4.2 million of total unrecognized stock-based compensation cost related to
non-vested options, which we expect to recognize in future operating results
over a weighted-average period of 3.17 years. Total unrecognized compensation
cost related to non-vested stock awards as of December 31, 2022 , was
approximately $0.5 million and is expected to be recognized within future
operating results over a weighted-average period of 3.46 years.
Warrant Valuations
Liability Classified Warrants
We are required to periodically estimate the fair value of our Private Placement
Warrant liabilities with the assistance of an independent third-party valuation
firm. The assumptions underlying these valuations represented our best
estimates, which involved inherent uncertainties and the application of
significant levels of our judgment. The fair value of our Public Warrant
liabilities is determined by reference to the quoted market price.
The warrants are accounted for as liabilities in accordance with ASC 815-40,
Derivatives and Hedging-Contracts in Entity's Own Equity, and were presented
within warrant liabilities on the consolidated balance sheet as of December 31,
2022 . The initial fair value of the warrant liabilities was measured at fair
value on the Closing Date, and changes in the fair value of the warrant
liabilities were presented within changes in fair value of warrant liabilities
in the consolidated statement of operations for the year ended December 31,
2022 .
On the Closing Date, we established the fair value of the Private Placement
Warrants utilizing both the Black-Scholes Merton formula and a Monte Carlo
Simulation ("MCS") analysis. Specifically, we considered a MCS to derive the
implied volatility in the publicly-listed price of the Public Warrants. We then
considered this implied volatility in selecting the volatility for the
application of a Black-Scholes Merton model for the Private Placement Warrants.
We determined the fair value of the Public Warrants by reference to the quoted
market price.
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The Public Warrants were classified as a Level 1 fair value measurement, due to the use of the quoted market price, and the Private Placement Warrants held privately byBig Cypress Holdings LLC , aDelaware limited liability company which acted as our sponsor in connection with the IPO (the "Sponsor"), were classified as a Level 3 fair value measurement, due to the use of unobservable inputs.
The measurement as of
The key inputs into the valuations as of the Closing Date andDecember 31, 2022 were as follows: December 31, December 31, 2022 2021 Risk-free interest rate 4.00 % 1.24 % Expected term remaining (years) 3.81
4.81
Implied volatility 82.0 % 43.0 % Closing common stock price on the measurement date $ 0.59 $ 7.81 Equity Classified Warrants OnDecember 7, 2022 , as a part of our 2022 Private Placement, the Company issued PIPE Private Placement Warrants to investors to purchase up to 7,363,377 shares of Common Stock. The PIPE Private Placement Warrants, including those purchased by the participating directors ofSAB are exercisable beginning six months from the date of issuance at an exercise price equal to$1.08 per share, and are exercisable for five years from the date of issuance. We also issued our placement agent,Brookline Capital Markets , PIPE Placement Agent Warrants to purchase up to an aggregate of 210,913 shares of Common Stock The Placement Agent Warrants have an exercise price equal to$1.35 per share and are exercisable six months from the date of issuance and expires five years from the date of issuance. The PIPE Private Placement Warrants and PIPE Placement Agent Warrants met all necessary criteria to be accounted for as equity in accordance with ASC 815-40, Derivatives and Hedging-Contracts in Entity's Own Equity. As such, they are presented within additional paid-in capital within Company's Consolidated Statements of Changes in Stockholders' Equity (Deficit) and consolidated balance sheets as ofDecember 31, 2022 . Warrants classified as equity are initially measured at fair value. Subsequent changes in fair value are not recognized as long as the warrants continue to be classified as equity. The initial fair value of each PIPE Private Placement Warrant and PIPE Placement Agent Warrant issued has been determined using the Black-Scholes option-pricing model. All relevant terms and conditions for the PIPE Private Placement Warrant and PIPE Placement Agent Warrant are identical with the exception of the exercise prices of$1.08 and$1.35 , respectively; the key inputs into the valuations as of the initial measurement date were as follows: Initial Measurement Risk-free interest rate 3.62 % Expected term remaining (years)
5.00
Implied volatility
89.0 % Closing common stock price on the measurement date, less discount for lack of marketability (1)
$ 0.66
As the underlying shares are restricted from sale for a period of 180
days from the date of the 2022 Private Placement, the fair value of thewarrants were estimated using the Black-Scholes option pricing model that
(1) uses several inputs, including market price of our common shares at the
end of each reporting period (a level one input), less a discount for
lack of marketability (a level two input). The discount for lack of
marketability was estimated upon consideration of volatility and the
length of the lock-up period.
See Note 14 in our consolidated financial statements, Fair Value Measurements,
for information concerning certain specific assumptions we used in applying the
Black-Scholes Merton formula and MCS to determine the estimated fair value of
the Private Placement Warrants, PIPE Private Placement Warrants, and PIPE
Placement Agent Warrants outstanding for the year ended December 31, 2022 .
Common Stock Valuations
Prior to becoming a public company, we were required to periodically estimate
the fair value of our common stock with the assistance of an independent
third-party valuation firm, as discussed above, when issuing stock options and
computing our estimated stock-based compensation expense. The assumptions
underlying these valuations represented our best estimates, which involved
inherent uncertainties and the application of significant levels of our
judgment. In order to determine the fair value of our common stock, we
considered, among other items, previous transactions involving the sale of our
securities, our business, financial condition and results of operations,
economic and industry trends, the market performance of comparable publicly
traded companies, and the lack of marketability of our common stock.
Subsequent to the Business Combination, we now determine the fair value of our common stock based on the closing market price at closing on the date of grant.
Compensation expense related to stock-based transactions is measured and
recognized in the financial statements at fair value of our post-merger common
stock based on the closing market price at closing on the date of grant.
Stock-based compensation expense is measured at the grant date based on the fair
value of the equity award and is recognized as expense over the requisite
service period, which is generally the vesting period, on the straight-line
method. We estimate the fair value of each stock option award on the date of
grant using the Black-Scholes option-pricing model. Determining the fair value
of stock option awards at the grant date requires judgment, including estimating
the expected volatility, expected term, risk-free interest rate, and expected
dividends.
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Lease Liabilities and Right-of-Use Assets
We are party to certain contractual arrangements for equipment, lab space, and an animal facility, which meet the definition of leases under ASC 842. In accordance with ASC 842, we, as ofJanuary 1, 2018 (the date of adoption), recorded right-of-use assets and related lease liabilities for the present value of the lease payments over the lease terms. We utilized the practical expedient regarding lease and non-lease components and have combined such items into a single combined component. Our incremental borrowing rate was used in the calculation of our right-of-use assets and lease liabilities.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 4 in our consolidated financial statements, New Accounting Standards.
Impact of the COVID-19 Pandemic
InMarch 2020 , theWorld Health Organization declared the outbreak of a novel coronavirus, or COVID-19, as a pandemic, which continues to spread throughout theU.S. and worldwide. As with many companies around the world, our day-to-day operations were disrupted with the imposition of work from home policies and requirements for physical distancing for any personnel present in our offices and laboratories. The pandemic has also disrupted our activities as shelter-in-place orders, quarantines, supply chain disruptions, travel restrictions and other public health safety measures have impacted our ability to interact with our existing and potential partners for our activities. However, the COVID-19 pandemic did not materially impact our business, operating results or financial condition. There is significant uncertainty as to the trajectory of the pandemic and its impacts on our business in the future. We could be materially and adversely affected by the risks, or the public perception of the risks, related to the COVID-19 pandemic or similar public health crises. Such crises could adversely impact our ability to conduct on-site laboratory activities, expand our laboratory facilities, secure critical supplies such as reagents, laboratory tools or immunized animals required for discovery research activities, and hire and retain key personnel. The ultimate extent of the impact of any epidemic, pandemic, outbreak, or other public health crisis on our business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of such epidemic, pandemic, outbreak, or other public health crisis and actions taken to contain or prevent the further spread, among others. Accordingly, we cannot predict the extent to which our business, financial condition and results of operations will be affected. We remain focused on maintaining our operations, liquidity and financial flexibility and continue to monitor developments as we deal with the disruptions and uncertainties from the COVID-19 pandemic.
JOBS Act Accounting Election
We qualify as an "emerging growth company" as defined in the JOBS Act. An emerging growth company may take advantage of reduced reporting requirements that are not otherwise applicable to public companies. These provisions include, but are not limited to:
? being permitted to present only two years of audited financial statements and
only two years of related Management's Discussion and Analysis of Financial
Condition and Results of Operations in this Annual Report;
? not being required to comply with the auditor attestation requirements on the
effectiveness of our internal controls over financial reporting;
? not being required to comply with any requirement that may be adopted by the
PCAOB regarding mandatory audit firm rotation or a supplement to the auditor's
report providing additional information about the audit and the financial
statements (auditor discussion and analysis);
? reduced disclosure obligations regarding executive compensation arrangements;
and
? exemptions from the requirements of holding a nonbinding advisory vote on
executive compensation and stockholder approval of any golden parachute
payments not previously approved.
We may use these provisions until the last day of our fiscal year in which the
fifth anniversary of the completion of our initial public offering occurred.
However, if certain events occur prior to the end of such five-year period,
including if we become a "large accelerated filer," our annual gross revenue
exceeds $1.235 billion , or we issue more than $1.0 billion of non-convertible
debt in any three-year period, we will cease to be an emerging growth company
prior to the end of such five-year period.
We have elected to take advantage of certain of the reduced disclosure
obligations in this Annual Report and may elect to take advantage of other
reduced reporting requirements in future filings. As a result, the information
that we provide to our shareholders may be different than the information you
receive from other public companies in which you hold stock.
The JOBS Act provides that an emerging growth company can take advantage of an
extended transition period for complying with new or revised accounting
standards, until those standards apply to private companies. We have elected to
take advantage of the benefits of this extended transition period and,
therefore, we will not be subject to the same new or revised accounting
standards as other public companies that are not emerging growth companies. Our
financial statements may therefore not be comparable to those of companies that
comply with such new or revised accounting standards. Until the date that we are
no longer an emerging growth company or affirmatively and irrevocably opt out of
the exemption provided by Section 7(a)(2)(B) of the Securities Act upon issuance
of a new or revised accounting standard that applies to our financial statements
and that has a different effective date for public and private companies, we
will disclose the date on which we will adopt the recently issued accounting
standard.
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