Immunome Inc. - Quarter Report: 2021 March (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

OR

☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from         to        

Commission File Number: 001-39580

Immunome, Inc.

(Exact name of registrant as specified in its charter)

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(610) 321-3700

(Registrant’s telephone number, including area code)

Not applicable.

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐    No  ☒

There were 11,757,255 shares of the registrant’s common stock outstanding as of May 7, 2021.

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IMMUNOME, INC.

Quarterly Report on Form 10-Q for the Quarterly Period ended March 31, 2021

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

IMMUNOME, INC.

Condensed Balance Sheets

(Unaudited; In thousands, except share data)

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The accompanying notes are an integral part of these unaudited condensed financial statements.

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IMMUNOME, INC.

Condensed Statements of Operations

(Unaudited; In thousands, except share and per share data)

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The accompanying notes are an integral part of these unaudited condensed financial statements.

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IMMUNOME, INC.

Condensed Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(Unaudited; In thousands, except share data)

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The accompanying notes are an integral part of these unaudited condensed financial statements.

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IMMUNOME, INC.

Condensed Statements of Cash Flows

(Unaudited; In thousands)

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The accompanying notes are an integral part of these unaudited condensed financial statements.

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IMMUNOME, INC.

Notes to Condensed Financial Statements

(Unaudited)

1. Nature of the business and basis of presentation

Organization

Immunome, Inc. (the Company or Immunome) was incorporated as a Pennsylvania corporation on March 2, 2006 and was converted to a Delaware corporation on December 2, 2015. The Company is a biopharmaceutical company utilizing our proprietary human memory B cell platform to discover and develop first-in-class antibody therapeutics designed to change the way diseases are currently being treated. The Company’s primary focus areas are oncology and infectious disease, including COVID-19.

Since its inception, the Company has devoted substantially all of its resources to research and development, raising capital, building its management team and building its intellectual property portfolio. The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry including, but not limited to; technical risks associated with the successful research, development and manufacturing of product candidates, uncertain results of preclinical and clinical testing, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and regulatory approval of product candidates and the ability to secure additional capital to fund operations.

Liquidity

The Company has incurred net losses since inception, including net losses of $3.9 million and $2.7 million for the three months ended March 31, 2021 and 2020, respectively, and it expects to generate losses from operations for the foreseeable future primarily due to research and development costs for its potential product candidates. As of March 31, 2021, the Company had an accumulated deficit of $58.3 million. The Company expects to generate operating losses and negative operating cash flows for the foreseeable future.

On October 6, 2020, the Company closed its initial public offering (IPO), in which the Company issued and sold 3,250,000 shares of its common stock at a public offering price of $12.00 per share. On October 13, 2020, the underwriters exercised their option to purchase an additional 487,500 shares of the Company’s common stock at a purchase price of $12.00 per share. The Company received net proceeds of $41.7 million after deducting underwriting discounts and commissions of $3.1 million but before deducting other offering expenses.

The Company expects that its cash as of March 31, 2021 as well as an additional $27.0 million received from a private offering of the Company’s common stock in April 2021 (see Note 12, Subsequent Events) will be sufficient to fund the Company’s operations through fiscal year 2022. Beyond that date, the Company will need additional financing to support its continuing operations and pursue its growth strategy.

If the Company cannot obtain the necessary funding, it will need to delay, scale back or eliminate some or all of its research and development programs or enter into collaborations with third parties to commercialize potential products or technologies that it might otherwise seek to develop or commercialize independently; consider other various strategic alternatives, including a merger or sale of the Company; or cease operations. If the Company engages in collaborations, it may receive lower consideration upon commercialization of such products than if it had not entered into such arrangements or if it entered into such arrangements at later stages in the product development process. Additionally, volatility in the capital markets and general economic conditions in the United States may be a significant obstacle to raising the required funds.

Operations of the Company are subject to certain risks and uncertainties including various internal and external factors that will affect whether and when the Company’s product candidates become approved drugs and how significant their market share will be, some of which are outside of the Company’s control. The length of time and cost of

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developing and commercializing these product candidates and/or failure of them at any stage of the drug approval process will materially affect the Company’s financial condition and future operations. On March 11, 2020, the World Health Organization characterized the novel COVID 19 virus as a global pandemic. Although there is significant uncertainty as to the likely effects this disease may have in the future, to date there has not been a significant impact to the Company’s operations or financial results.

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2. Summary of significant accounting policies

Basis of presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted (GAAP) in the United States. Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Updates (ASU) promulgated by the Financial Accounting Standards Board (FASB).

Unaudited interim results

These unaudited condensed financial statements and accompanying notes should be read in conjunction with the Company’s annual financial statements and the notes thereto included in the Company’s Form 10-K filed with the Securities and Exchange Commission on March 25, 2021. The accompanying condensed financial statements as of March 31, 2021 and for the three months ended March 31, 2021 and 2020 are unaudited but include all adjustments that management believes to be necessary for a fair presentation of the periods presented. Interim results are not necessarily indicative of results for a full year. Balance sheet amounts as of December 31, 2020 have been derived from the audited financial statements as of that date.

Reverse stock split

The Company’s board of directors approved a one-for-six reverse stock split of its issued and outstanding common stock, stock options, convertible preferred stock and convertible preferred stock warrants legally effective as of September 22, 2020. Accordingly, all convertible preferred shares and common shares, common stock warrants, per share amounts, and additional paid-in capital amounts for all periods presented in the accompanying financial statements and notes thereto have been retroactively adjusted, where applicable, to reflect the reverse stock split.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and expenses. The Company bases its estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. Significant estimates and assumptions reflected in these condensed financial statements include, but are not limited to, the fair value of the Company’s common stock in connection with share-based compensation arrangements. Actual results could differ from these estimates.

Fair value of financial instruments

ASC Topic 820, Fair Value Measurement (ASC 820), establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the assets or liability and are developed based on the best information available in the circumstances. ASC 820 identifies fair value as the price that would be received to sell an asset or paid to transfer a liability, in an orderly transaction between market

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participants at the measurement date. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tiered value hierarchy that distinguishes between the following:

Level 1 — Quoted market prices in active markets for identical assets or liabilities.

Level 2 — Inputs other than Level 1 inputs that are either directly or indirectly observable, such as quoted market prices, interest rates and yield curves.

Level 3 — Unobservable inputs for the asset or liability (i.e. supported by little or no market activity). Level 3 inputs include management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).

To the extent the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair values requires more judgement. Accordingly, the degree of judgement exercised by the Company in determining fair value is greatest for instruments categorized as Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Equity issuance costs

The Company capitalized incremental legal, professional, accounting and other third-party fees that were directly associated with the IPO as other noncurrent assets until the IPO was consummated. After consummation of the IPO in October 2020, these costs were recorded in stockholders’ equity as a reduction of additional paid-in-capital generated as a result of the IPO. As of March 31, 2021 and December 31, 2020, there were no deferred offering costs.

Government contract funding

The Company accounts for amounts received under its U.S. Department of Defense expense reimbursement contract as contra-research and development expenses in the condensed statements of operations.

Research and development costs

Research and development costs are charged to expense as incurred. Research and development costs consist of costs incurred in performing research and development activities, including salaries and bonuses, share-based compensation, employee benefits, facilities costs, laboratory supplies, depreciation and amortization, preclinical expenses, consulting and other contracted services. Additionally, under the terms of the license agreements, the Company is obligated to make future payments should certain development and regulatory milestones be achieved. No such costs have been incurred for the three months ended March 31, 2021 and 2020. Costs for certain research and development activities are recognized based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as a prepaid or accrued expense.

Net loss per share

The Company follows the two-class method when computing net loss per share, as the Company has issued shares that meet the definition of participating securities. The two-class method determines net loss per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.

Basic net loss per share of common stock is computed by dividing the net loss by the weighted average number of common shares outstanding for the period. Diluted net loss per share of common stock is computed by adjusting net loss to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net loss per share of common stock is computed by dividing the diluted net loss by the weighted average number of common shares

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outstanding for the period, including potential dilutive common shares assuming the dilutive effect of common stock equivalents.

The following potentially dilutive securities outstanding as of March 31, 2021 and 2020 have been excluded from the computation of diluted weighted-average shares of common stock outstanding, as they would be anti-dilutive:

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Prior to its conversion, the Company’s Series A convertible preferred stock contractually entitles the holders of such shares to participate in dividends but does not contractually require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which the Company reported a net loss, such losses were not allocated to participating securities. In periods in which the Company reports a net loss per share of common stock, diluted net loss per share of common stock is the same as basic net loss per share of common stock since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. The Company reported a net loss per share of common stock for the three months ended March 31, 2021 and 2020.

Segment and geographic information

Operating segments are defined as components of an entity about which separate discrete information is available for evaluation by the chief operating decision maker (CODM), or decision-making group, in deciding how to allocate resources and in assessing performance. The CODM is the Company’s Chief Executive Officer. The Company views its operations as and manages its business in one operating segment operating exclusively in the United States.

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3. U.S. Department of Defense (DoD) expense reimbursement contract

In July 2020, the Company entered into an Other Transaction Authority for Prototype Agreement (the OTA Agreement) with the DoD to fund the Company’s efforts in developing Biosynthetic Convalescent Plasma (BCP) to treat COVID-19. Under the OTA Agreement, the Company intends to develop BCP for use in the U.S. military population and the U.S. population as a whole, subject to approval by the U.S. Food and Drug Administration (FDA). The amount of funding being made available to the Company under this expense reimbursement contract is $13.3 million which, based on the Company’s anticipated expenditures, is expected to be received through 2021. The Company recorded contra-research and development expense in the amount of $4.0 million for the three months ended March 31, 2021 in the condensed statements of operations. There was no contra-research and development expense for the three months ended March 31, 2020. As of March 31, 2021, the Company had an expense reimbursement receivable balance of $2.6 million due from the DoD in prepaid expenses and other current assets on the condensed balance sheet. Costs that have been reimbursed by the DoD but not yet expensed by the Company are recorded as a deferred research obligation liability for the period. As of March 31, 2021, the Company has a deferred research obligation liability of $0.7 million.

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4. Accrued expenses

Accrued expenses consisted of the following:

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5. Convertible promissory notes

From January 2019 through July 2019, the Company issued $6.8 million of non-interest bearing convertible promissory notes to several existing Series A Preferred shareholders and new investors. These notes were scheduled to mature on February 2, 2020, if not converted or otherwise settled prior to maturity. Upon completion of a qualified equity financing event, as defined in the notes, the notes automatically convert into shares of the stock sold in such qualified financing and at a price equal to 80% of the subscription price. Upon the sale of additional shares of Series A Preferred prior to a qualified financing event, the notes automatically convert into shares of Series A Preferred at a discount to the $9.00 per share subscription price. The discount is equal to 1% for each month that has lapsed from the initial note issuance date to the date in which the extended sale of Series A Preferred is consummated.

In November 2019, the Company completed the sale of its Series A Preferred and the notes automatically converted into 821,657 shares of Series A Preferred. The effective conversion price of the notes was less than the fair value of the Series A Preferred and therefore, no beneficial conversion feature was recorded for the discount.

The Company accounted for the conversion upon a qualified financing event as a bifurcated redemption feature as settlement under this feature would be in a variable number of shares and at a substantial discount. At issuance and over the term of the note, the Company determined the probability of settlement pursuant to the qualified financing event to be remote. As such, the estimated fair value of the redemption feature was de minimis.

6. Equipment loan payables

The Company entered into various equipment financing agreements (the Agreements) to purchase laboratory equipment. The Agreements provide for 36 to 38 monthly payments ranging from $1,000 to $8,000. Interest rates for the Agreements range from 9.03% to 12.08%. Interest expense related to the equipment financing agreements was $2,000 and $8,000 for the three months ended March 31, 2021 and 2020, respectively.

Future payments for the Agreements are as follows as of March 31, 2021 (in thousands):

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7. Long-term debt

On April 30, 2020, the Company entered into a loan agreement with Silicon Valley Bank as the lender (Lender) for a loan in an aggregate principal amount of $0.5 million (the Loan) pursuant to the Paycheck Protection Program (PPP) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act and implemented by the U.S. Small Business Administration (SBA). The Company used the proceeds of the Loan for payroll and other qualifying expenses. Under the terms of the Loan, the Company may apply for forgiveness of amounts due under the Loan, with the amount of potential

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loan forgiveness to be calculated in accordance with the requirements of the PPP based on payroll costs, any mortgage interest payments, any covered rent payments and any covered utilities payments during the 8 or 24-week period after the origination date of the Loan. The Loan matures in two years and bears interest at a rate of 1% per year, with all payments deferred through the six-month anniversary of the date of the Loan or until a conclusion has been reached as to whether the Loan will be forgiven. In January 2021, the Company applied to the SBA for forgiveness and is awaiting a decision. While the Company believes that its use of the Loan proceeds will meet the conditions of forgiveness of the Loan, it cannot be assured that actions taken could cause the Company to be ineligible for forgiveness of the Loan, in whole or in part. In the event the debt is forgiven in a future period, the Company will recognize a gain on extinguishment in the statement of operations. Interest expense for each of the three months ended March 31, 2021 and 2020 was de minimis.

The following table sets forth the Company’s future principal payments as of March 31, 2021 (in thousands):

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8. Commitments and contingencies

Operating leases

In May 2017, the Company entered into a 62 month office and laboratory space lease commencing on July 1, 2017 for approximately 11,000 square feet of space in Exton, Pennsylvania. The Company has an option to extend the lease for two additional five-year terms. The lease is subject to fixed rate escalation increases and the landlord waived the Company’s rent obligation for the first two months of the lease. Deferred rent is $15,000 and $16,000 as of March 31, 2021 and December 31, 2020, respectively, and is being amortized as a reduction in rent expense over the term of the lease. The Company recognizes rent expense on a straight-line basis over the expected lease term.

Future minimum lease payments for the Company’s operating leases are as follows as of March 31, 2021 (in thousands):

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Rent expense was $0.1 million for each of the three months ended March 31, 2021 and 2020, respectively.

In August 2020, the Company entered into a one-year operating lease for laboratory equipment that expires in July 2021 and has fixed monthly payments of $18,000.

Employment agreements

The Company entered into employment offer letter agreements (the Employment Agreements) with key personnel providing for compensation and severance in certain circumstances, as defined in the respective Employment Agreements. The Employment Agreements may be terminated by either the Company or the employees in accordance with the respective Employment Agreements and provide for annual pay increases and bonuses at the discretion of the Board of Directors.

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Employee benefit plan

The Company maintains a defined-contribution plan under Section 401(k) of the Internal Revenue Code (the 401(k) Plan). The 401(k) Plan covers all employees who meet defined minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. The Company assumes all administrative costs of the 401(k) Plan and makes matching contributions as defined in the 401(k) Plan document. The Company made matching contributions of $39,000 and $16,000 to the 401(k) Plan for the three months ended March 31, 2021 and 2020, respectively.

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Legal proceedings

The Company is not a party to any litigation and does not have contingency reserves established for any litigation liabilities. At each reporting date, the Company evaluates whether a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies.

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9. Common stock and convertible preferred stock

Common stock

The holders of common stock are entitled to one vote for each share of common stock. Subject to the approval of the majority of shareholders, the holders of common stock shall be entitled to receive dividends out of funds legally available. In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the Company, the holders of common stock shall be entitled to share ratably in the remaining assets of the Company available for distribution.

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In October 2020, the Company closed the IPO in which the Company issued and sold 3,757,500 shares of its common stock at a public offering price of $12.00 per share, including 487,500 shares of the Company’s common stock sold pursuant to the underwriters’ option to purchase additional shares. The Company received net proceeds of $41.7 million after deducting underwriting discounts and commissions of $3.1 million but before deducting other offering expenses. The Company’s common stock is listed on the Nasdaq Capital Market under the trading symbol “IMNM.” On October 6, 2020, the Company filed an amended and restated certificate of incorporation to, among other things, increase the number of shares of common stock, $0.0001 par value per share, authorized for issuance to 200,000,000 and authorize the Company’s board of directors to issue up to 10,000,000 shares of “blank check” preferred stock, $0.0001 par value per share.

Series A convertible preferred stock

Prior to the IPO, all of the Company’s convertible preferred stock was classified outside of stockholders’ deficit because the shares contained certain redemption features that were not solely within the control of the Company. At the time of issuance, the redeemable convertible preferred stock was recorded at its issuance price, less issuance costs.

During the year ended December 31, 2019, the Company sold 512,826 shares of its Series A Preferred at $9.00 per share in exchange for $4.6 million in gross proceeds and incurred $35,000 of related issuance costs and issued 821,657 shares of Series A Preferred in connection with the conversion of the promissory notes of $6.8 million (see Note 5, Convertible Promissory Notes). In 2020, the Company completed the sale of an additional 1,226,925 shares of Series A Preferred at $9.00 per share, resulting in gross cash proceeds of $11.0 million, which includes 4,722 shares issued in January 2020 for gross receipts of $45,000. During the three months ended March 31, 2020, the Company received $1.0 million in advanced payments for shares of Series A Preferred that would be sold in June 2020. In addition to the shares of Series A Preferred, the Company issued 1,035,196 warrants to purchase shares of the Company’s Series A Preferred with a fair value of $1.5 million. The warrants were exercisable at any time and had an exercise price of $9.00 per share and were to terminate at the earlier of (i) three years from the date of issuance, (ii) upon liquidation of the Company and (iii) upon the Company’s securities trading at $27.00 per share for at least 10 days out of a consecutive 20-day trading period beginning after the first anniversary of the IPO.

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In connection with the Company’s sale of its Series A Preferred in 2015, a future milestone closing provision (the Future Milestone) was included requiring the Company to sell, on the same terms and conditions as the initial offering, an aggregate of $3.5 million of additional Series A Preferred upon achievement of certain development and strategic milestones, as defined in the purchase agreement and at $9.00 per share, or 388,888 shares of Series A Preferred. The Future Milestone was not achieved and the Company’s obligations under this right terminated upon completion of the Company’s IPO.

The Company determined that the future tranche right related to the Future Milestone did not meet the definition of a freestanding financial instrument as it was not legally detachable. The future tranche right was also evaluated as an embedded derivative and the Company determined it did not meet the definition of a derivative instrument for which bifurcation would be required.

In connection with the IPO, all of the Series A Preferred converted into 5,670,184 shares of common stock and all of the outstanding warrants to purchase convertible preferred stock converted into warrants to purchase common stock.

Warrants to acquire shares of common stock

At March 31, 2021 there were 1,023,530 warrants outstanding to acquire shares of the Company’s common stock. The warrants were issued in connection with the June 2020 sale of the Company’s Series A convertible preferred stock and originally entitled the holders to acquire shares of the Company’s Series A convertible preferred stock. These warrants were originally liability-classified as the underlying Series A convertible preferred stock was contingently redeemable and outside of the Company’s control. The warrants had a grant date fair value of $1.5 million and a warrant liability was recorded in the balance sheet upon issuance. Upon completion of the IPO on October 6, 2020, the warrants became exercisable for shares of the Company’s common stock and the $7.1 million warrant liability was reclassified to additional paid-in capital. During the three months ended March 31, 2021, 11,666 warrants were exercised at a price of $9.00 per warrant for gross proceeds of $0.1 million and 11,666 shares of the Company’s common stock were issued.

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10. Share-based compensation

In July 2008 the board of directors adopted the 2008 Equity Incentive Plan (the 2008 Plan) which provided for the grant of qualified incentive stock options and nonqualified stock options, restricted stock or other awards to the Company’s employees, officers, directors, advisors, and outside consultants for the issuance or purchase of shares of the Company’s common stock. The 2008 Plan was replaced in July 2018 with the Immunome, Inc. 2018 Equity Incentive Plan (the 2018 Plan and collectively with the 2008 Plan, the Plans). At the time that the 2008 Plan was terminated, there were 388,748 shares available for grant that were transferred to the 2018 Plan. Any additional shares that become available for grant under the 2008 Plan are automatically transferred to and made available for grant under the 2018 Plan. On September 24, 2020, the 2018 Plan was terminated and replaced with the 2020 Equity Incentive Plan (the 2020 Plan). The remaining 298,277 shares available for grant under the 2018 Plan are available for issuance under the 2020 Plan and an additional 1,701,723 shares were authorized under the 2020 Plan.

The Company also adopted the 2020 Employee Stock Purchase Plan (the ESPP Plan) on September 18, 2020 which provides for the grant of purchase rights to purchase shares of the Company’s common stock to eligible employees, as defined by the ESPP Plan. The maximum number of shares of common stock that may be issued under the ESPP Plan will not exceed 125,000 shares of common stock, plus the number of shares of common stock that are automatically added on January 1st of each calendar year for a period of up to ten years, commencing on the first January 1st following the year in which an IPO occurs and ending on, and including, January 1, 2030, in an amount equal to the lesser of (i) 1% of the total number of shares of common stock outstanding on December 31st of the preceding calendar year, and (ii) 1,000,000 shares of common stock. No awards have been granted under the ESPP Plan as of March 31, 2021.

The 2020 Plan and the ESPP Plan are administered by the board of directors. The exercise prices, vesting and other restrictions are determined at the discretion of the board of directors. Stock options awarded under the Plans generally expire 10 years after the grant date unless the board of directors sets a shorter term. Vesting periods for awards under the Plans and the 2020 Plan are determined at the discretion of the board of directors. Incentive stock options and non-

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statutory stock options granted to employees, officers, members of the board of directors and consultants of the Company typically vest over two to four years. Certain options provide for accelerated vesting if there is a change in control, as defined in the Plans and the 2020 Plan.

Share-based compensation expense recorded as research and development and general and administrative expenses in the condensed statements of operations is as follows:

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Unrecognized compensation cost related to unvested options was $7.3 million as of March 31, 2021 and will be recognized over an estimated weighted average period of 3.61 years.

Stock options

The weighted average assumptions used in the Black-Scholes option-pricing model for stock options granted were:

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A summary of option activity during the three months ended March 31, 2021 is as follows:

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The weighted-average grant date fair value per share of stock options granted during the three months ended March 31, 2021 and 2020 was $22.46 and $0.22, respectively. The aggregate intrinsic value of stock options exercised during the three months ended March 31, 2021 was $0.4 million. The aggregate intrinsic value of stock options outstanding at March 31, 2021 is $45.1 million.

In August 2020, the Company granted stock options exercisable for a total of up to 92,169 shares of common stock to two of its officers, which option awards included both performance-based and service-based vesting conditions. These option awards were subsequently modified in September 2020 to eliminate the performance-based criteria. As a result of the modification, only service-based vesting conditions remained. All other terms and conditions of these option awards remain unchanged. Since the performance condition was not considered probable of being achieved prior to the modification, no share-based compensation expense was recorded prior to the modification. At the time of the modification, the fair value of these options awards was recalculated at $8.69 per option.

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11. Related party transactions

License agreements

The Company has entered into license agreements with certain stockholders of the Company. Expenses with these related parties were de minimis for each of the three months ended March 31, 2021 and 2020, respectively. There were no amounts owed to these related parties as of March 31, 2021 and December 31, 2020.

Broadband services agreement

In November 2015, the Company entered into a management services agreement (MSA) with BCM Advisory Partners LLC and Broadband Capital Partners LLC (Broadband Capital), as subsequently amended and/or restated in July 2016, January 2017, June 2018, March 2020 and August 2020. Under the Broadband MSA, the Company engages Broadband Capital as a consultant for advice in connection with senior management matters related to the Company’s business, administration and policies in exchange for a cash fee to Broadband Capital of $20,000 per month. The Broadband MSA expires in June 2021. Pursuant to the Broadband MSA, the Company previously issued an aggregate of 827,640 shares of its common stock to Broadband Advisory and has no further obligation to issue additional shares under the Broadband MSA. The Company recorded $0.1 million during each of the three months ended March 31, 2021 and 2020, related to the Broadband MSA which is included in general and administrative expenses in the condensed statements of operations.

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12. Subsequent events

On April 28, 2021, the Company sold 1,000,000 shares of the Company’s common stock in a private placement at a price of $27.00 per share for gross proceeds of $27.0 million. In connection with the private placement, the Company also issued Series B Warrants (the Series B Warrants) to purchase 500,000 shares of common stock. The Series B Warrants are exercisable at any time, have an exercise price of $45.00 per share and will terminate at the earlier of (i) three years from the date of issuance and (ii) upon liquidation or deemed liquidation of the Company. The Series B Warrants are callable by the Company in certain circumstances.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations, as well as other sections in this Quarterly Report on Form 10-Q, should be read in conjunction with our unaudited interim financial statements and related notes thereto included elsewhere herein. In addition to historical financial information, some of the information contained in the following discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts, including statements regarding our future results of operations and financial position, business strategy, current and prospective products, product approvals, research and development costs, current and prospective collaborations, timing and likelihood of success, plans and objectives of management for future operations and future results of current and anticipated products, are forward-looking statements. These statements involve known and unknown risks, uncertainties, assumptions and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described in

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“Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 25, 2021. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for us to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

Overview

Since our inception in 2006, we have devoted substantially all of our resources to research and development, raising capital, building our management team and building our intellectual property portfolio. To date, we have financed our operations primarily through the sale of our common stock, Series A convertible preferred stock and warrants and convertible promissory notes. Through March 31, 2021, we raised an aggregate of $50.4 million from the sale of our Series A convertible preferred stock and warrants and convertible promissory notes and in April 2020, we received $0.5 million in cash pursuant to the Paycheck Protection Program, or the PPP, under the Coronavirus Aid, Relief, and Economic Security (CARES) Act implemented by the U.S. Small Business Administration.

On October 6, 2020, we closed the IPO, in which we issued and sold 3,250,000 shares of our common stock at a public offering price of $12.00 per share. On October 13, 2020, the underwriters exercised their option to purchase an additional 487,500 shares of our common stock at a purchase price of $12.00 per share. We received net proceeds of $41.7 million after deducting underwriting discounts and commissions of $3.1 million but before deducting other offering expenses.

We are a development stage company, and all of our programs are in a preclinical stage of development. To date, we have not generated any revenue from product sales and do not expect to generate revenue from the sale of products for the foreseeable future. Since inception we have incurred significant operating losses. Our net losses for the three months ended March 31, 2021 and 2020 were $3.9 million and $2.7 million, respectively.

As of March 31, 2021, we had a cash balance of $36.3 million. On April 28, 2021, we sold 1,000,000 shares of our common stock in a private placement at a price of $27.00 per share and received gross proceeds of $27.0 million. We expect to continue to incur losses for the foreseeable future. We expect to continue to incur significant expenses and increasing operating losses in connection with ongoing development activities related to our portfolio of programs as we continue our preclinical development of product candidates; advance these product candidates toward clinical development; further develop our product candidates; perform research activities as we seek to discover and develop additional product candidates; carry out maintenance, expansion enforcement, defense, and protection of our intellectual property portfolio; and hire research and development, clinical and commercial personnel. If we cannot obtain the necessary funding, we will need to delay, scale back or eliminate some or all of our research and development programs or enter into collaborations with third parties to commercialize potential products or technologies that we might otherwise seek to develop or commercialize independently; consider other various strategic alternatives, including a merger or sale of the Company; or cease operations. If we engage in collaborations, we may receive lower consideration upon commercialization of such products than if we had not entered into such arrangements or if we entered into such arrangements at later stages in the product development process. We currently have no sources of revenue, and our ability to continue as a going concern is dependent on our ability to raise capital to fund our future business plans. Additionally, volatility in the capital markets and general economic conditions in the United States may be a significant obstacle to raising the required funds.

We expect to continue to incur significant expenses and increasing operating losses in connection with ongoing research and development activities, particularly if and as we:

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Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company.

As a result of these anticipated expenditures, we will need substantial additional financing to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of any stockholder will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. We may be unable to raise additional funds or enter into such other agreements when needed on favorable terms or at all. The inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy.

We expect that our cash as of March 31, 2021, together with additional funds received from a private placement of our common stock in April 2021 will be sufficient to fund our operations through fiscal year 2022. We have based these estimates on assumptions that may prove to be imprecise, and we may exhaust our available capital resources sooner than we currently expect. See “— Liquidity and capital resources.” Due to the numerous risks and uncertainties associated with the development of our programs, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates.

COVID-19 Pandemic

The ongoing COVID-19 pandemic will continue to impact our development timelines and its effect on our preclinical research and development is uncertain.

We have established a work-from-home policy for all employees, other than those performing or supporting business-critical operations, such as certain members of our laboratory and facilities staff. For those employees, we have implemented stringent safety measures designed to comply with applicable federal, state and local guidelines instituted in response to the COVID-19 pandemic. We have taken these precautionary steps while maintaining business continuity so that we can continue to progress our programs.

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The future impact of the COVID-19 pandemic on our industry, the healthcare system and our current and future operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. See “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on March 25, 2021 for a discussion of the potential adverse impact of COVID-19 on our business, results of operations and financial condition.

Components of our results of operations

Research and development expenses

Research and development expenses consist of costs incurred in performing research and development activities, which include:

We expense research and development costs as incurred. Advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the benefits are consumed.

Research and development activities are central to our business model. We expect that our research and development expenses will increase substantially in connection with our planned preclinical and future clinical development activities.

In July 2020, we entered into an Other Transaction Authority for Prototype Agreement (the DoD Agreement) with the DoD to fund our efforts in developing Biosynthetic Convalescent Plasma (BCP) to treat COVID-19. In connection with the DoD Agreement, we record expense reimbursements received from DoD as contra-research and development expenses in the same period the underlying expenses are incurred.

General and administrative expenses

General and administrative expenses consist primarily of salaries and other related costs, including share-based compensation for personnel in our executive, intellectual property, business development, and administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters, professional fees for accounting, auditing, tax and consulting services, insurance costs, travel, direct and allocated facility related expenses and other operating costs.

We anticipate that our general and administrative expenses will increase in the future to support increased research and development activities. We also expect to incur increased costs associated with being a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with Nasdaq and SEC requirements, director and officer insurance costs and investor and public relations costs.

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Interest expense, net

Interest expense, net consists of interest expense related to our capital lease obligations and equipment loans payable, offset by interest income earned on our cash.

Results of operations

As described above in “— COVID-19 Pandemic,” the ultimate extent of the impact of any epidemic, pandemic, outbreak or other public health crisis on our results of operations will depend on future developments, which are highly uncertain, including new information that may emerge concerning the severity of the COVID-19 pandemic or other public health crisis and actions taken to contain or prevent the further spread, among others. Accordingly, we cannot fully predict the extent to which our business and results of operations will be affected. Many clinical trial sites have been impacted by the pandemic, forcing them to delay enrollment in research trials and it is unclear for how long this will last. This may impact our ability to commence clinical trials in the future.

Comparison of the three months ended March 31, 2021 and 2020

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Research and development expenses

Research and development expenses were $2.0 million and $2.1 million for the three months ended March 31, 2021 and 2020, respectively. Research and development expenses for the three months ended March 31, 2021 reflect the recognition of contra-research and development expenses related to the DoD Agreement in the amount of $4.0 million, which off-sets the expenses recognized in the period for the DoD Agreement. Other non-DoD related research and development expenses decreased $0.1 million for the three months ended March 31, 2021. This decrease was primarily the result of a decrease of $0.6 million in supplies and outsourced services for other research and development activities which was offset in part by an increase of $0.4 million in personnel-related costs due to an increase in headcount and stock-based compensation.

Research and development expenses are expected to increase in the future as we continue our current research programs, initiate new research programs, continue our preclinical development of product candidates and conduct future clinical trials for any of our product candidates.

General and administrative expenses

General and administrative expenses increased by $1.4 million to $1.9 million for the three months ended March 31, 2021 from $0.5 million for the three months ended March 31, 2020. The increase was primarily a result of a $0.3 million increase in personnel-related costs due to an increase in headcount and stock-based compensation and $1.1 million increase in professional fees, consulting services and legal expenses to support our operations as a public company as well as increases in insurance.

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Interest expense, net

Interest expense, net consists of interest expense related to our capital lease obligations, equipment loan payables and long-term debt, offset by interest income related to our cash. Interest expense decreased $21,000 for the three months ended March 31, 2021 as a result of lower capital lease obligations and equipment loans outstanding.

Liquidity and capital resources

Since our inception, we have incurred significant operating losses. We expect to incur significant expenses and operating losses for the foreseeable future as we advance the preclinical and, if successful, the clinical development of our programs. To date, we have funded our operations primarily with proceeds from the sales of common stock, preferred stock and warrants and convertible promissory notes. Through March 31, 2021, we raised an aggregate of $95.4 million in gross proceeds from sales of our common stock, Series A convertible preferred stock and warrants and issuance of convertible promissory notes and in April 2020, we received $0.5 million in cash from the PPP. As of March 31, 2021, we had $36.3 million in cash. In April 2021, we received $27.0 million in gross proceeds from the sale of our common stock. We will need to raise additional capital before we exhaust our current cash in order to continue to fund our research and development, including our plans for clinical and preclinical trials and new product development, as well as to fund operations generally. As and if necessary, we will seek to raise additional funds through various potential sources, such as equity and debt financings or through corporate collaboration and license agreements. We can give no assurances that we will be able to secure such additional sources of funds to support our operations, or, if such funds are available to us, that such additional financing will be sufficient to meet our needs.

Cash flows

The following table summarizes our sources and uses of cash for the three months ended March 31, 2021 and 2020:

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Operating activities

Net cash used in operating activities for the three months ended March 31, 2021 was $3.5 million, consisting primarily of our net loss of $3.9 million, an increase in prepaid expenses and other assets of $1.7 million and a decrease in accrued expenses and other liabilities of $0.2 million. These uses of cash were offset by noncash charges of depreciation and amortization expense $0.2 million and share-based compensation expense of $0.3 million and an increase in accounts payable of $1.8 million due to our growth in expenditures.

Net cash used in operating activities for the three months ended March 31, 2020 was $2.1 million, consisting primarily of our net loss of $2.7 million, offset by noncash charges of depreciation and amortization expense and share-based compensation expense of $0.3 million and an increase in accounts payable of $0.3 million due to timing of payments.

Investing activities

During the three months ended March 31, 2021 and 2020, we used $31,000 and $55,000, respectively, for the purchase of property and equipment.

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Financing activities

During the three months ended March 31, 2021, financing activities provided $0.1 million from the exercise of common stock warrants and stock options, offset by $35,000 for payments related to our equipment loan.

During the three months ended March 31, 2020, financing activities provided $1.0 million from prepayments related to the sale of our Series A convertible preferred stock financing in June 2020 offset in part by $0.2 million for payments related to our capital lease obligations and equipment loan.

Funding requirements

Our operating expenses are expected to increase substantially as we continue to advance our portfolio of programs.

Specifically, our expenses will increase if and as we:

We expect that our existing cash at March 31, 2021 plus proceeds from the sale of our common stock in April 2021 will enable us to fund our current and planned operating expenses and capital expenditures through fiscal year 2022. Beyond that date, the Company will need additional financing to support its continuing operations and pursue its growth strategy. We have based these estimates on assumptions that may prove to be imprecise, and we may exhaust our available capital resources sooner that we currently expect. Because of the numerous risks and uncertainties associated with the development of our programs, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates.

Our future funding requirements will depend on many factors including:

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Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, and licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of any purchaser will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Critical accounting policies and use of estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are 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. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

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While our significant accounting policies are described in more detail in Note 2 to our audited financial statements appearing in our Annual Report filed on Form 10-K with the SEC on March 25, 2021, we believe that the following accounting policies are the most critical to the judgments and estimates used in the preparation of our financial statements.

Share-based compensation

We recognize the grant-date fair value of share-based awards issued as compensation expense on a straight-line basis over the requisite service period, which is generally the vesting period of the award. The fair value of stock options is estimated at the time of grant using the Black-Scholes option pricing model, which requires the use of inputs and assumptions such as the estimated fair value of the underlying common stock, exercise price of the option, expected term, risk-free interest rate, expected volatility and dividend yield, the most critical of which is the estimated fair value of our common stock.

The inputs and assumptions used to estimate the fair value of share-based payment awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different inputs and assumptions, our share-based compensation expense could be materially different for future awards.

These subjective assumptions are estimated as follows:

Estimating the fair value of common stock

Prior to May 2020, in valuing our common and preferred stock, we determined the equity value of our business by using a net asset approach. The net asset approach is predicated on the assumption that a prudent buyer would pay no more than it would cost to purchase the assets (tangible and intangible) of a company at current market prices. This approach requires estimating the individual market values of our assets and liabilities to derive an adjusted enterprise value. The enterprise values determined by the net asset approach were then allocated to our common stock using the Option Pricing Method, or OPM.

The OPM treats common stock and preferred stock as call options on a company’s enterprise value, with exercise prices based on the liquidation preferences of the preferred stock. Therefore, the common stock has value only if the funds available for distribution to the stockholders exceed the value of the liquidation preference at the time of an assumed liquidity event such as a merger, sale or initial public offering. The common stock is modeled as a call option with a claim on the enterprise at an exercise price equal to the remaining value immediately after the preferred stock is liquidated. The OPM uses the Black-Scholes option-pricing model to determine the price of the call option. The OPM is appropriate to use when the range of possible future outcomes is so difficult to predict that forecasts would be highly speculative.

Beginning in May 2020, we used the probability-weighted expected return method to determine the value of our common stock. Under the probability-weighted expected return method, the value of an enterprise’s common stock is estimated based upon an analysis of future values assuming various possible future liquidity events, such as an initial public offering, a strategic sale or merger and remaining a private enterprise without a liquidity event. The fair market value of the stock is based upon the probability-weighted present value of expected future net cash flows as a result of

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distributions to stockholders considering each of the possible future events, as well as the rights and preferences of each class of stock.

Given the absence of a public trading market for our capital stock at the time, our board of directors exercised reasonable judgment and considered a number of subjective factors to determine the best estimate of the fair value of our common stock, including:

Recently issued accounting standards

There are currently no recently issued accounting standards which management expects will impact the Company’s financial position, operations or cash flows.

JOBS Act

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies, including reduced disclosure about our executive compensation arrangements, exemption from the requirements to hold non-binding advisory votes on executive compensation and golden parachute payments and exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.

We may take advantage of these exemptions until the last day of the fiscal year following the fifth anniversary of this offering or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company earlier if we have more than $1.07 billion in annual revenue, we have more than $700.0 million in market value of our stock held by non-affiliates (and we have been a public company for at least 12 months and have filed one annual report on Form 10-K) or we issue more than $1.0 billion of non-convertible debt securities over a three-year period. For so long as we remain an emerging growth company, we are permitted, and intend, to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. We may choose to take advantage of some, but not all, of the available exemptions.

In addition, 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. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company. Therefore, the reported results of operations contained in our financial statements may not be directly comparable to those of other public companies.

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Off-balance sheet arrangements

During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The information under this item is not required to be provided by smaller reporting companies.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of March 31, 2021, our disclosure controls and procedures are not designed at a reasonable assurance level and are not effective due to the material weaknesses described below.

Discussion of Material Weaknesses

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In connection with our preparation of our financial statements as of March 31, 2021 and December 31, 2020 and for the three months ended March 31, 2021 and 2020, we identified material weaknesses as defined under the Exchange Act and by the Public Company Accounting Oversight Board (United States) in our internal control over financial reporting. The material weaknesses relate to the design of our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.

The material weaknesses that we identified related to the lack of review of journal entries, lack of timely and effective review of financial statement account balances and our lack of maintaining a sufficient complement of personnel commensurate with our accounting and reporting requirements.

Remediation Activities

We are currently in the process of remediating the material weaknesses and have taken and will continue to take steps that we believe will address the underlying causes of the material weaknesses. The remediation efforts include (i) implementing a monthly financial statement close process that includes formal review of financial statement account balances and journal entries, (ii) creating a disclosure committee consisting of key executives and accounting personnel who review the Company’s financial statements and related disclosures and (iii) hiring a full time Chief Financial Officer as well as actively recruiting for other open positions to hire additional qualified accounting and financial reporting personnel in 2021. While significant progress has been made to enhance our internal control over financial reporting, we are still in the process of implementing, documenting and testing these processes, procedures and controls. We will continue to devote significant time and attention to these remediation efforts. However, the material weaknesses cannot be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Notwithstanding the material weaknesses, management has concluded that the financial statements included elsewhere in this Quarterly Report present fairly, in all material respects, our financial position, results of operations and cash flows in conformity with GAAP.

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Changes in Internal Control Over Financial Reporting

Other than as described above under “Remediation Activities,” there was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(f) of the Exchange Act that occurred during the quarter ended March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

We are not currently a party to any material legal proceedings. From time to time, we may become involved in legal proceedings arising in the ordinary course of our business.

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Item 1A. Risk Factors

The information under this item is not required to be provided by smaller reporting companies.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Recent Issuances of unregistered securities

During fiscal quarter ended March 31, 2021, we issued an aggregate of 14,270 shares of common stock upon the exercise of previously issued stock options, for aggregate consideration of $5,624 and 11,666 shares of common stock upon the exercise of previously issued warrants, for aggregate consideration of $104,994.

No underwriters were involved in the foregoing issuances of securities. The issuances of stock options and the shares of our common stock issued upon the exercise of the options were issued pursuant to written compensatory plans or arrangements with our employees, directors, and consultants, in reliance on the exemption provided by Rule 701 promulgated under the Securities Act, or pursuant to Section 4(a)(2) under the Securities Act, relating to transactions by an issuer not involving any public offering. All recipients either received adequate information about us or had access, through employment or other relationships, to such information.

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Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

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Item 5. Other Information

None.

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Item 6. Exhibits

EXHIBIT INDEX

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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