GeoVax Labs, Inc. - Quarter Report: 2019 September (Form 10-Q)

Part I -- FINANCIAL INFORMATION

See accompanying notes to condensed consolidated financial statements.

GEOVAX LABS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

GEOVAX LABS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY)

(Unaudited)

See accompanying notes to consolidated financial statements

GEOVAX LABS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY)

(Unaudited)

See accompanying notes to consolidated financial statement

Supplemental disclosure of non-cash financing activities:

During the nine months ended September 30, 2019, 587 shares of Series C Convertible Preferred Stock were converted into 78,280 shares of common stock, 1,563 shares of Series C Convertible Preferred Stock and 1,200 shares of Series E Convertible Preferred Stock were exchanged for 2,763 shares of Series F Convertible Preferred Stock, 507 shares of Series F Convertible Preferred Stock were converted into 381,700 shares of common stock, 250 shares of Series G Convertible Preferred Stock were issued in exchange for cancellation of $250,000 of term notes payable, 2,256 shares of Series F Convertible Preferred Stock and 1,000 shares of Series G Convertible Preferred Stock were exchanged for 3,256 shares of Series H Convertible Preferred Stock, and 1,002 shares of Series H Convertible Preferred Stock were converted into 94,687,441 shares of common stock.

During the nine months ended September 30, 2018, 1,000 shares of Series D Convertible Preferred Stock were converted into 133,333 shares of common stock.

See accompanying notes to condensed consolidated financial statements.

GEOVAX LABS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(unaudited)

FORWARD LOOKING STATEMENTS

In addition to historical information, the information included in this Form 10-Q contains forward-looking statements. Forward-looking statements involve numerous risks and uncertainties, including but not limited to the risk factors set forth under the heading “Risk Factors” in the Annual Report on Form 10-K for the year ended December 31, 2018, and should not be relied upon as predictions of future events. Certain such forward-looking statements can be identified by the use of forward-looking terminology such as ‘‘believes,’’ ‘‘expects,’’ ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘seeks,’’ ‘‘approximately,” ‘‘intends,’’ ‘‘plans,’’ ‘‘pro forma,’’ ‘‘estimates,’’ or ‘‘anticipates’’ or other variations thereof or comparable terminology, or by discussions of strategy, plans, or intentions. Such forward-looking statements are necessarily dependent on assumptions, data, or methods that may be incorrect or imprecise and may be incapable of being realized. The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:

Readers are cautioned not to place undue reliance on forward-looking statements, which reflect our management’s analysis only. We assume no obligation to update forward-looking statements.

Overview

GeoVax is a clinical-stage biotechnology company developing immunotherapies and vaccines against cancer and infectious diseases using a novel vector vaccine platform (Modified Vaccinia Ankara Virus-Like Particle, or “MVA-VLP”). Our recombinant MVA vector expresses target proteins on highly immunogenic VLPs in the person being vaccinated, resulting in durable immune responses while providing the safety characteristics of the replication-deficient MVA vector. Important attributes of GeoVax vaccines include single dose, no adjuvant, durable immunity, extensive safety and cost-effective manufacturing. 

Our current development programs are focused on preventive and therapeutic vaccines against Human Immunodeficiency Virus (HIV); preventive vaccines against hemorrhagic fever viruses (Ebola, Sudan, Marburg, and Lassa fever), Zika virus and malaria; a therapeutic vaccine for chronic hepatitis B virus infections; and immunotherapies for solid tumor cancers. Our most advanced vaccine program is focused on the clade B subtype of HIV prevalent in the larger commercial markets of the Americas, Western Europe, Japan and Australia; this program is currently undergoing human clinical trials.

Our corporate strategy is to improve health to patients worldwide by advancing our vaccine platform, using its unique capabilities to design and develop an array of products addressing unmet medical needs in the areas of infectious diseases and oncology. Our goal is to advance products through to human clinical testing, and to seek partnership or licensing arrangements for achieving regulatory approval and commercialization. We also leverage third party resources through collaborations and partnerships for preclinical and clinical testing with multiple government, academic and corporate entities.

We have not generated any revenues from the sale of any such products, and we do not expect to generate any such revenues for at least the next several years. Our product candidates will require significant additional research and development efforts, including extensive preclinical and clinical testing. All product candidates that we advance to clinical testing will require regulatory approval prior to commercial use and will require significant costs for commercialization. We may not be successful in our research and development efforts, and we may never generate sufficient product revenue to be profitable.

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 accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates and adjusts the estimates as necessary. We base our estimates on historical experience and on various other assumptions 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 materially from these estimates under different assumptions or conditions.

For a description of critical accounting policies that affect our significant judgments and estimates used in the preparation of our financial statements, refer to Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 2 to our Consolidated Financial Statements contained in our Annual Report on Form 10-K for the year ended December 31, 2018. There have been no significant changes to our critical accounting policies from those disclosed in our 2018 Annual Report.

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements is contained in Note 3 to the condensed consolidated financial statements, included in this Quarterly Report.

Liquidity and Capital Resources

Our principal uses of cash are to finance our research and development activities. Since inception, we have funded these activities primarily from government grants and clinical trial assistance, and from sales of our equity securities. At September 30, 2019, we had cash and cash equivalents of $569,359 and total assets of $816,529, as compared to $259,701 and $642,064, respectively, at December 31, 2018. At September 30, 2019, we had a working capital deficit of $1,012,491, compared to $1,005,127 at December 31, 2018. Our current liabilities at September 30, 2019 and December 31, 2018 include $1,606,738 and $1,220,179, respectively of accrued management salaries and director fees, payment of which is still being deferred as discussed further below.

Net cash used in operating activities was $1,117,737 and $1,041,485 for the nine-month periods ended September 30, 2019 and 2018, respectively. Generally, the variances between periods are due to fluctuations in our net losses, offset by non-cash charges such as depreciation and stock-based and deferred compensation expense, and by net changes in our assets and liabilities. Our net losses generally fluctuate based on expenditures for our research activities, partially offset by government grant revenues. As of September 30, 2019, there is $1,835,225 in approved grant funds available for use during 2019 and 2020. Of this amount, we expect that $1,151,610 will be used by us to reimburse third parties who will provide services covered by these grants. See “Results of Operations – Grant and Collaboration Revenues” below for additional details concerning our government grants.

Members of our executive management team and our board of directors have deferred receipt of portions of their salaries and fees in order to help conserve the Company’s cash resources. As of September 30, 2019, the accumulated deferrals totaled $1,606,738. We expect the ongoing deferrals of approximately $32,000 per month for the management salaries and $20-30,000 per quarter for the board of director fees to continue until such time as a significant financing event (as determined by the board of directors) is consummated. The method selected for addressing these accumulated deferrals could have an adverse effect on our liquidity.

The National Institute of Allergy and Infectious Diseases (NIAID), part of the National Institutes of Health (NIH), has funded the costs of conducting all of our human clinical trials (Phase 1 and Phase 2a) to date for our preventive HIV vaccines, with GeoVax incurring certain costs associated with manufacturing the clinical vaccine supplies and other study support. We expect that NIAID will also fund the cost of a planned Phase 1 trial (HVTN 132), conducted by the HIV Trials Network (HVTN), to further evaluate the safety and immunogenicity of adding “protein boost” components to our vaccine, GOVX-B11. The timing of HVTN 132 is uncertain, and dependent upon components other than our vaccine, but we expect the HVTN to commence patient enrollment in 2020. Additionally, we are party to a collaboration with American Gene Technologies International, Inc. (AGT) whereby AGT intends to conduct a Phase 1 human clinical trial, of which an arm will evaluate our combined technologies, with the ultimate goal of developing a functional cure for HIV infection. We expect that AGT will begin the Phase 1 trial in early 2020. We are also currently in discussions with a public-private consortium for the use of our vaccine in a similar effort toward developing a cure for HIV infection; we expect these studies may also begin in early 2020.

Net cash used in investing activities was $4,272 and $-0- for the nine-month periods ended September 30, 2019 and 2018, respectively. Our investing activities have consisted predominantly of capital expenditures.

Net cash provided by financing activities was $1,431,667 and $1,240,000 for the nine-month periods ended September 30, 2019 and 2018, respectively. Net cash provided by financing activities during the 2018 period relates to the sale by us of shares of our Series E convertible preferred stock ($1,190,000) and our issuance of a five-year Senior Promissory Note (the “GRA Note”) to the Georgia Research Alliance, Inc. for $50,000. The GRA Note bears an annual interest rate of 5%, payable monthly, with principal repayments which began in March 2019. Net cash provided by financing activities during the 2019 period relates to the sale by us of shares of our Series G and Series I convertible preferred stock for aggregate net proceeds of $1,440,000 (see discussion below) and $8,333 in repayments toward the GRA Note.

On February 25, 2019, we entered into a Securities Purchase Agreement with the purchasers identified therein (the “Purchasers”) providing for sale to the Purchasers of an aggregate of up to 1,000 shares of our Series G Convertible Preferred Stock (“Series G Preferred Stock”) and related warrants, which was funded at three different closings. At the first closing, which occurred on February 26, 2019, we issued 500 shares of Series G Preferred Stock in exchange for the payment by the Purchasers of $250,000 in the aggregate ($240,000 after deducting certain expenses of the Purchasers), plus the cancellation of Term Notes held by the Purchasers in the amount of $250,000.  At the first closing we also issued the Purchasers warrants to purchase an aggregate of 33,334 shares of our common stock. At the second and third closings, which occurred on April 26 and June 19, 2019, we issued an aggregate of 500 additional shares of Series G Preferred Stock in exchange for the payment by the Purchasers of a total of $500,000.  We also issued the Purchasers warrants to purchase an aggregate of 66,668 shares of our common stock.

On April 15, 2019, our stockholders approved, and on April 30, 2019 we implemented, a one-for-five hundred reverse split of our common stock, which was intended to not only improve the marketability of our stock, but also to provide additional shares of authorized common stock available to meet our equity financing needs.

On July 24, 2019, we entered into a Securities Purchase Agreement with the purchasers identified therein (the “Purchasers”) providing for sale to the Purchasers of an aggregate of 700 shares of our Series I Convertible Preferred Stock (“Series I Preferred Stock”) for gross proceeds of $700,000.

As of September 30, 2019, we had an accumulated deficit of approximately $42.3 million, and we expect the amount of the accumulated deficit will continue to increase, as it will be expensive to continue our research and development efforts. We have received a “going concern” opinion from our independent registered public accountants reflecting substantial doubt about our ability to continue as a going concern. We believe that our existing cash resources, combined with funding from existing government grants and clinical trial support, will be sufficient to fund our planned operations into the first quarter of 2020. We will require additional funds to continue our planned operations beyond that timeframe. We are currently seeking sources of capital through additional government grant programs and clinical trial support, and we plan to conduct additional offerings of our equity securities. Additional funding may not be available on favorable terms or at all and if we fail to obtain additional capital when needed, we may be required to delay, scale back, or eliminate some or all of our research and development programs as well as reduce our general and administrative expenses.

If the trading price for the Company’s common stock remains at current levels, then there are insufficient unissued shares of authorized common stock to fulfill the Company’s obligations to issue common stock upon conversion of their convertible preferred stock and exercise of warrants.

If the Company is unable to deliver common stock to its primary investors upon the conversion of convertible preferred stock or the exercise of warrants, then the Company may be required to pay liquidated damages, costs incurred by the investors for “buying in” shares to cover trades, and other amounts.  These costs could be substantial and have a material adverse effect on the Company’s financial position   If the Company has insufficient authorized shares of common stock available, it will not be unable to raise capital from the sale of such shares. Management plans to seek stockholder approval of a reverse stock split to address this concern.

On October 24, 2019, OTC Markets notified the Company of non-compliance with OTCQB Standards Section 2.3(2), which requires an issuer to maintain a minimum closing bid price of $0.01 per share on at least one of the prior 30 consecutive calendar days.  There is a cure period which ends on January 22, 2020, during which the minimum closing price of the Company’s common stock must be $0.01 or greater for 10 consecutive trading days. If the Company fails to regain compliance by January 22, 2020 or if the closing bid price of the Company’s common stock falls below $0.001 at any time for five consecutive days, the Company will be immediately removed from the OTCQB marketplace.

The Company intends to take remedial actions during such cure period to regain compliance with the Minimum Price Rule, which may include the reverse stock split. There can be no assurance any such action will achieve its purpose.  If the Company’s common stock is removed from the OTCQB market, the Company expects to have the option of moving it to the OTC Pink market.  If the Company’s common stock is removed from the OTCQB the Company may find it more difficult to raise funds.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that are likely or reasonably likely to have a material effect on our financial condition or results of operations.

Contractual Obligations

The table below summarizes our contractual obligations as of September 30, 2019, aggregated by type (in thousands). Our contractual obligations represent future cash commitments and liabilities under agreements with third parties and exclude contingent liabilities for which we cannot reasonably predict future payment. Additionally, the expected timing of payment of the obligations presented below is estimated based on current information. Timing of payments and actual amounts paid may be different depending on the timing of receipt of goods or services or changes to agreed-upon terms or amounts for some obligations.

As of September 30, 2019, except as disclosed in the table above, we had no other material firm purchase obligations or commitments for capital expenditures and no committed lines of credit or other committed funding or long-term debt, with the exception of the note payable to GRA ($41,667 remaining principal balance at September 30, 2019). We have employment agreements with our executive officers, each of which may be terminated with no more than 90 days’ advance written notice. Pursuant to existing technology license agreements, we may be required to make potential future milestone and royalty payments which are contingent upon the occurrence of future events. Such events include development milestones, regulatory approvals and product sales. Because the achievement of these milestones is currently neither probable nor reasonably estimable, the contingent payments have not been included in the table above or recorded in our financial statements.

Results of Operations

Net Loss

We recorded a net loss of $424,434 for the three-month period ended September 30, 2019, as compared to $666,893 for the three-month period ended September 30, 2018. For the nine-month period ended September 30, 2019, we recorded a net loss of $1,780,036, as compared to $1,925,749 for the nine-month period ended September 30, 2018. Our net losses will typically fluctuate due to the timing of activities and related costs associated with our vaccine research and development activities and our general and administrative costs, as described in more detail below.

Grant and Collaboration Revenues

During the three-month and nine-month periods ended September 30, 2019, we recorded grant and collaboration revenues of $333,209 and $907,382, respectively, as compared to $349,344 and $663,908, respectively, during the comparable periods of 2018.

Grant Revenues – Our grant revenues relate to grants from agencies of the U.S. government in support of our vaccine development activities. We record revenue associated with these grants as the related costs and expenses are incurred. The difference in our grant revenues from period to period is dependent upon our expenditures for activities supported by the grants and fluctuates based on the timing of the expenditures. Additional detail concerning our grant revenues and the remaining funds available for use as of September 30, 2019 is presented in the table below.

Collaboration Revenues – In addition to the grant revenues above, during the three-month and nine-month periods ended September 30, 2019 we recorded revenues associated with several research collaborations with third parties of $118,444 and $153,360, respectively, as compared to $8,628 and $13,628, respectively, during the comparable periods of 2018.

Research and Development Expenses

Our research and development expenses were $467,674 and $1,474,619 for the three-month and nine-month periods ended September 30, 2019 as compared to $557,696 and $1,416,892 for the comparable periods of 2018. Research and development expense for the three-month and nine-month periods of 2019 includes stock-based compensation expense of $11,006 and $33,647 respectively, as compared to $10,759 and $32,221, respectively, for the comparable periods of 2018 (see discussion under “Stock-Based Compensation Expense” below).

Our research and development expenses can fluctuate considerably on a period-to-period basis, depending on our need for vaccine manufacturing by third parties, the timing of expenditures related to our government grants, the timing of costs associated with any clinical trials being funding directly by us, and other factors. Research and development expenses increased by $57,727, or 4%, from the nine-month period of 2018 to 2019 primarily due to the timing of expenditures related to our government grants. Our research and development costs do not include costs incurred by the HIV Vaccine Trials Network (HVTN) in conducting clinical trials of our preventive HIV vaccines; those costs are funded directly to the HVTN by NIAID.

We do not disclose our research and development expenses by project, since our employees’ time is spread across multiple programs and our laboratory facility is used for multiple development projects. We track the direct cost of research and development expenses related to government grant revenue by the percentage of assigned employees’ time spent on each grant and other direct costs associated with each grant. Indirect costs associated with grants are not tracked separately but are applied based on a contracted overhead rate negotiated with the NIH. Therefore, the recorded revenues associated with government grants approximates the costs incurred.

We do not provide forward-looking estimates of costs and time to complete our research programs due to the many uncertainties associated with vaccine development. Due to these uncertainties, our future expenditures are likely to be highly volatile in future periods depending on the outcomes of the trials and studies. As we obtain data from pre-clinical studies and clinical trials, we may elect to discontinue or delay vaccine development programs to focus our resources on more promising vaccine candidates. Completion of preclinical studies and human clinical trials may take several years or more, but the length of time can vary substantially depending upon several factors. The duration and the cost of future clinical trials may vary significantly over the life of the project because of differences arising during development of the human clinical trial protocols, including the number of patients that ultimately participate in the clinical trial; the duration of patient follow-up that seems appropriate in view of the results; the number of clinical sites included in the clinical trials; and the length of time required to enroll suitable patient subjects.

General and Administrative Expenses

Our general and administrative expenses were $291,475 and $1,214,189 for the three-month and nine-month periods ended September 30, 2019, as compared to $458,974 and $1,175,399 during the comparable periods of 2018. General and administrative costs include officers’ salaries, legal and accounting costs, patent costs, and other general corporate expenses. General and administrative expense for the three-month and nine-month periods of 2019 include stock-based compensation expense of $21,342 and $257,097, respectively; as compared to $131,754 and $243,204, respectively, for the comparable periods of 2018 (see discussion under “Stock-Based Compensation Expense” below). Excluding stock-based compensation expense, general and administrative expenses were $270,133 and $957,092 during the three-month and nine-month periods ended September 30, 2019, respectively, as compared to $327,220 and $932,195, respectively during the comparable periods of 2018, representing an increase of $24,897 (2.7%) from the nine-month period of 2018 to 2019. We expect that our general and administrative costs may increase in the future in support of expanded research and development activities and other general corporate activities.

Stock-Based Compensation Expense

For the three-month and nine-month periods ended September 30, 2019 and 2018, the components of stock-based compensation expense were as follows:

In general, stock-based compensation expense is allocated to research and development expense or general and administrative expense according to the classification of cash compensation paid to the employee, consultant or director to whom the stock compensation was granted. For the three-month and nine-month periods ended September 30, 2019 and 2018, stock-based compensation expense was allocated as follows:

Other Income (Expense)

Interest income for the three-month and nine-month periods ended September 30, 2019 was $2,560 and $4,665, respectively, as compared to $1,058 and $4,092, respectively, for comparable periods of 2018. The variances between periods are primarily attributable to cash available for investment and interest rate fluctuations. Interest expense for the three-month and nine-month periods ended September 30, 2019 was $1,054 and $3,275, respectively, as compared to $625 and $1,458, respectively, for comparable periods of 2018. Interest expense relates to the GRA Note and financing costs associated with insurance premiums.

Not applicable.

Evaluation of disclosure controls and procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that the information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended (Exchange Act), is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to management, including the Chief Executive Officer and Principal Financial and Accounting Officer, as appropriate to allow timely decisions regarding required disclosure.

Our management has carried out an evaluation, under the supervision and with the participation of our Principal Executive Officer and our Principal Financial and Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15 as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Changes in internal control over financial reporting

There was no change in our internal control over financial reporting that occurred during the three months ended September 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Controls

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

PART II -- OTHER INFORMATION

None.

As a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act), we are not required to provide the information called for by this Item 1A.

None not previously disclosed on Form 8-K.

None.

Not applicable

None.

_____________________

*     Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this quarterly report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.

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