Item 1. Financial Statements
BLUE WATER VACCINES INC.
Condensed Balance Sheets
| |
June 30, 2022 | | |
December 31, 2021 | |
ASSETS | |
(Unaudited) | | |
| |
Current assets | |
| | |
| |
Cash | |
$ | 22,242,183 | | |
$ | 1,928,474 | |
Prepaid expenses | |
| 1,013,004 | | |
| 234,551 | |
Deferred offering costs | |
| 238,804 | | |
| 757,646 | |
Receivable from related party | |
| 20,364 | | |
| 152,524 | |
Total current assets | |
| 23,514,355 | | |
| 3,073,195 | |
| |
| | | |
| | |
Prepaid expenses, long-term | |
| 73,974 | | |
| — | |
Property and equipment, net | |
| 17,780 | | |
| 11,502 | |
Deposit | |
| 27,588 | | |
| — | |
Total assets | |
$ | 23,633,697 | | |
$ | 3,084,697 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable | |
$ | 972,971 | | |
$ | 582,605 | |
Accrued expenses | |
| 2,080,392 | | |
| 1,055,515 | |
Contingent warrant liability | |
| 5,373 | | |
| — | |
Total current liabilities | |
| 3,058,736 | | |
| 1,638,120 | |
| |
| | | |
| | |
Commitments and Contingencies (see Note 7) | |
| | | |
| | |
| |
| | | |
| | |
Stockholders’ equity | |
| | | |
| | |
Preferred stock, $0.00001 par value, 10,000,000 shares authorized at June 30, 2022 and December 31, 2021 | |
| — | | |
| — | |
Series Seed: 0 and 1,150,000 shares designated at June 30, 2022 and December 31, 2021, respectively; 0 and 1,146,138 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively; $0 and $15.4 million aggregate liquidation preference at June 30, 2022 and December 31, 2021, respectively | |
| — | | |
| 11 | |
Common stock, $0.00001 par value, 250,000,000 shares authorized at June 30, 2022 and December 31, 2021; 12,229,399 and 3,200,000 shares outstanding at June 30, 2022 and December 31, 2021, respectively | |
| 122 | | |
| 32 | |
Additional paid-in-capital | |
| 32,866,752 | | |
| 7,403,204 | |
Accumulated deficit | |
| (12,291,913 | ) | |
| (5,956,670 | ) |
Total stockholders’ equity | |
| 20,574,961 | | |
| 1,446,577 | |
Total liabilities and stockholders’ equity | |
$ | 23,633,697 | | |
$ | 3,084,697 | |
The accompanying notes are an integral part
of these condensed financial statements.
BLUE WATER VACCINES INC.
Condensed Statements of Operations
(Unaudited)
| |
Three Months Ended June 30, 2022 | | |
Three Months Ended June 30, 2021 | | |
Six Months Ended June 30, 2022 | | |
Six Months Ended June 30, 2021 | |
| |
| | |
| | |
| | |
| |
Operating expenses | |
| | |
| | |
| | |
| |
General and administrative | |
$ | 3,001,418 | | |
$ | 262,732 | | |
$ | 4,616,987 | | |
$ | 500,276 | |
Research and development | |
| 1,293,467 | | |
| 529,542 | | |
| 1,748,559 | | |
| 617,779 | |
Total operating expenses | |
| 4,294,885 | | |
| 792,274 | | |
| 6,365,546 | | |
| 1,118,055 | |
Loss from operations | |
| (4,294,885 | ) | |
| (792,274 | ) | |
| (6,365,546 | ) | |
| (1,118,055 | ) |
Other income | |
| | | |
| | | |
| | | |
| | |
Change in fair value of contingent warrant liability | |
| (30,303 | ) | |
| — | | |
| (30,303 | ) | |
| — | |
Total other income | |
| (30,303 | ) | |
| — | | |
| (30,303 | ) | |
| — | |
Net loss | |
$ | (4,264,582 | ) | |
$ | (792,274 | ) | |
$ | (6,335,243 | ) | |
$ | (1,118,055 | ) |
Cumulative preferred stock dividends | |
| — | | |
| 139,217 | | |
| 96,359 | | |
| 276,904 | |
Net loss applicable to common stockholders | |
$ | (4,264,582 | ) | |
$ | (931,491 | ) | |
$ | (6,431,602 | ) | |
$ | (1,394,959 | ) |
Net loss per share attributable to common stockholders, basic and diluted | |
$ | (0.36 | ) | |
$ | (0.29 | ) | |
$ | (0.70 | ) | |
$ | (0.44 | ) |
Weighted average number of common shares outstanding, basic and diluted | |
| 11,995,832 | | |
| 3,200,000 | | |
| 9,226,621 | | |
| 3,200,000 | |
The accompanying notes are an integral part
of these condensed financial statements.
BLUE WATER VACCINES INC.
Condensed Statements of Stockholders’ Equity
(Unaudited)
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Additional
Paid-in |
|
|
Accumulated |
|
|
Total Stockholders’ |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Equity |
|
Balance at December 31, 2021 |
|
|
1,146,138 |
|
|
$ |
11 |
|
|
|
3,200,000 |
|
|
$ |
32 |
|
|
$ |
7,403,204 |
|
|
$ |
(5,956,670 |
) |
|
$ |
1,446,577 |
|
Issuance of common stock in initial public offering, net of $2.9 million of offering costs |
|
|
— |
|
|
|
— |
|
|
|
2,222,222 |
|
|
|
22 |
|
|
|
17,138,818 |
|
|
|
— |
|
|
|
17,138,840 |
|
Conversion of convertible preferred stock to common stock upon initial public offering |
|
|
(1,146,138 |
) |
|
|
(11 |
) |
|
|
5,626,365 |
|
|
|
56 |
|
|
|
(45 |
) |
|
|
— |
|
|
|
— |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
19,332 |
|
|
|
— |
|
|
|
19,332 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,070,661 |
) |
|
|
(2,070,661 |
) |
Balance at March 31, 2022 |
|
|
— |
|
|
$ |
— |
|
|
|
11,048,587 |
|
|
$ |
110 |
|
|
$ |
24,561,309 |
|
|
$ |
(8,027,331 |
) |
|
$ |
16,534,088 |
|
Issuance of common stock and warrants in private placement, net of $1.1 million of offering costs |
|
|
— |
|
|
|
— |
|
|
|
590,406 |
|
|
|
6 |
|
|
|
6,858,322 |
|
|
|
— |
|
|
|
6,858,328 |
|
Exercise of pre-funded warrants |
|
|
— |
|
|
|
|
|
|
|
590,406 |
|
|
|
6 |
|
|
|
(6 |
) |
|
|
— |
|
|
|
— |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,447,127 |
|
|
|
— |
|
|
|
1,447,127 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,264,582 |
) |
|
|
(4,264,582 |
) |
Balance at June 30, 2022 |
|
|
— |
|
|
$ |
— |
|
|
|
12,229,399 |
|
|
$ |
122 |
|
|
$ |
32,866,752 |
|
|
$ |
(12,291,913 |
) |
|
$ |
20,574,961 |
|
| |
Preferred Stock | | |
Common Stock | | |
Additional
Paid-in | | |
Accumulated | | |
Total Stockholders’ | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Equity | |
Balance at December 31, 2020 | |
| 1,146,138 | | |
$ | 11 | | |
| 3,200,000 | | |
$ | 32 | | |
$ | 7,273,063 | | |
$ | (2,539,336 | ) | |
$ | 4,733,770 | |
Stock-based compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| 41,721 | | |
| — | | |
| 41,721 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (325,781 | ) | |
| (325,781 | ) |
Balance at March 31, 2021 | |
| 1,146,138 | | |
$ | 11 | | |
| 3,200,000 | | |
$ | 32 | | |
$ | 7,314,784 | | |
$ | (2,865,117 | ) | |
$ | 4,449,710 | |
Stock-based compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| 34,924 | | |
| — | | |
| 34,924 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (792,274 | ) | |
| (792,274 | ) |
Balance at June 30, 2021 | |
| 1,146,138 | | |
$ | 11 | | |
| 3,200,000 | | |
$ | 32 | | |
$ | 7,349,708 | | |
$ | (3,657,391 | ) | |
$ | 3,692,360 | |
The accompanying notes are an integral part
of these condensed financial statements.
BLUE WATER VACCINES INC.
Condensed Statements
of Cash Flows
(Unaudited)
|
|
Six Months
Ended
June 30,
2022 |
|
|
Six Months
Ended
June 30,
2021 |
|
Cash flows from operating activities |
|
|
|
|
|
|
Net loss |
|
$ |
(6,335,243 |
) |
|
$ |
(1,118,055 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation expense |
|
|
3,061 |
|
|
|
2,478 |
|
Stock-based compensation |
|
|
1,466,459 |
|
|
|
76,645 |
|
Change in fair value of contingent warrant liability |
|
|
(30,303 |
) |
|
|
— |
|
Changes
in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Prepaid expenses |
|
|
(778,453 |
) |
|
|
(77,500 |
) |
Deferred offering cost |
|
|
— |
|
|
|
(30,000 |
) |
Receivable from related party |
|
|
(7,840 |
) |
|
|
(12,437 |
) |
Prepaid expenses, long-term |
|
|
(73,974 |
) |
|
|
92,467 |
|
Deposit |
|
|
(27,588 |
) |
|
|
15,000 |
|
Accrued expenses |
|
|
1,223,613 |
|
|
|
434,728 |
|
Accounts payable |
|
|
491,760 |
|
|
|
(13,037 |
) |
Deferred rent |
|
|
— |
|
|
|
(9,642 |
) |
Net cash used in operating activities |
|
|
(4,068,508 |
) |
|
|
(639,353 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(9,339 |
) |
|
|
— |
|
Net cash used in investing activities |
|
|
(9,339 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Payment of deferred offering costs |
|
|
(51,304 |
) |
|
|
— |
|
Proceeds from issuance of common stock in initial public offering, net of underwriting discount |
|
|
18,400,000 |
|
|
|
— |
|
Payments of initial public offering costs |
|
|
(926,972 |
) |
|
|
— |
|
Proceeds from issuance of common stock and warrants in private placement, net of placement agent discount |
|
|
7,319,462 |
|
|
|
— |
|
Payments of private placement issuance costs |
|
|
(349,630 |
) |
|
|
— |
|
Net cash provided by financing activities |
|
|
24,391,556 |
|
|
|
— |
|
Net increase (decrease) in cash |
|
|
20,313,709 |
|
|
|
(639,353 |
) |
Cash, beginning of period |
|
|
1,928,474 |
|
|
|
4,308,821 |
|
Cash, end of period |
|
$ |
22,242,183 |
|
|
$ |
3,669,468 |
|
|
|
|
|
|
|
|
|
|
Noncash investing and financing activities: |
|
|
|
|
|
|
|
|
Deferred offering costs included in accrued expenses |
|
$ |
187,500 |
|
|
$ |
— |
|
Conversion of convertible preferred stock to common stock upon initial public offering |
|
$ |
45 |
|
|
$ |
— |
|
Private placement offering costs included in accounts payable |
|
$ |
75,828 |
|
|
$ |
— |
|
Recognition of contingent warrant liability upon issuance of common stock in private placement |
|
$ |
35,676 |
|
|
$ |
— |
|
Payment of accrued bonus through related party receivable |
|
$ |
140,000 |
|
|
$ |
— |
|
Exercise of pre-funded warrants |
|
$ |
6 |
|
|
$ |
— |
|
The accompanying notes are an integral part
of these condensed financial statements.
BLUE WATER VACCINES INC.
Notes to Condensed Financial Statements
(Unaudited)
Note 1 — Organization and Basis of Presentation
Organization and Nature of Operations
Blue Water Vaccines Inc. (the “Company”)
was formed on October 26, 2018, to focus on the research and development of transformational vaccines to prevent infectious diseases
worldwide. The Company’s lead vaccine candidates, BWV-101 and BWV-102, are being investigated as a universal influenza vaccine with
the potential to protect against all influenza strains and may provide a first-in-class long-term global vaccine that protects millions.
The Company’s proprietary, immunogenic, multi-purpose platform enables the Company to bioengineer viral nanoparticles to deliver
antigens, enhancing immunity, in an array of infectious disease agents, including influenza. All of the Company’s vaccine candidates
are in the pre-clinical developmental stage.
Initial Public Offering
On February 23, 2022, the Company completed its
initial public offering (“IPO”) in which the Company issued and sold 2,222,222 shares of its common stock, at a price to the
public of $9.00 per share. Proceeds from the IPO, net of underwriting discounts, commissions, and offering costs of $2.9 million, were
$17.1 million. In connection with the completion of the IPO, all outstanding shares of convertible preferred stock were converted into
5,626,365 shares of common stock. See Note 6.
Stock Split
On November 24, 2021, the Company’s
board of directors approved a 4-for-1 (4:1) stock split (the “Stock Split”) of the Company’s common stock without any
change to its par value, which became effective on November 24, 2021. All references to share and per share amounts for all periods
presented in these financial statements have been retrospectively restated to reflect the Stock Split and proportional adjustment of the
preferred stock conversion ratio. Par values were not adjusted.
Basis of Presentation
The Company’s unaudited condensed financial
statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Note 2 — Liquidity and Financial Condition
The Company has had limited operating activities
to date, substantially all of which have been devoted to seeking licenses and engaging in research and development activities. The Company’s
product candidates currently under development will require significant additional research and development efforts prior to commercialization.
The Company has financed its operations since inception primarily using proceeds received from seed investors, and proceeds received upon
the completion of its IPO and private placement.
The Company has incurred substantial operating
losses since inception and expects to continue to incur significant operating losses for the foreseeable future. As of June 30, 2022,
the Company had cash of approximately $22.2 million, working capital of approximately $20.5 million and an accumulated deficit
of approximately $12.3 million.
On April 19, 2022, the Company completed a private
placement in which it received approximately $6.9 million in net cash proceeds, after deducting placement agent fees and other offering
expenses, see Note 6. In addition, on August 11, 2022, the Company completed a private placement in which it received approximately
$8.8 million in net proceeds, after deducting placement agent fees and other initial offering expenses, see Note 11. The Company
believes the existing cash at June 30, 2022, will be sufficient to continue operations, satisfy its obligations and fund the future expenditures
that will be required to conduct the clinical and regulatory work to develop its product candidates for at least one year after
the date that these financial statements are available to be issued. As such, the Company determined that it is not probable based on
projected cash flows that substantial doubt about the Company’s ability to continue as a going concern exists for the one-year period
following the date that the financial statements for the three and six months ended June 30, 2022 were available to be issued.
The Company will require significant additional
capital to make the investments it needs to execute its longer-term business plan. The Company expects a significant increase in cash
outflows as compared to its historical spend for its planned pre-clinical development and clinical trial activities, and as such, it will
need to raise additional capital to sustain operations and meet its long-term operating requirements beyond the one year period following
the issuance of these financial statements. The Company expects to seek additional funding through additional debt or equity financings;
however, there are currently no commitments in place for further financing nor is there any assurance that such financing will be available
to the Company on favorable terms, if at all. If the Company is unable to secure additional capital, it may be required to curtail any
clinical trials and development of products and take additional measures to reduce expenses in order to conserve its cash in amounts sufficient
to sustain operations and meet its obligations in the long-term.
BLUE WATER VACCINES INC.
Notes to Condensed Financial Statements
(Unaudited)
Note 3 — Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity
with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the
reporting periods. The most significant estimates in the Company’s financial statements relate to the valuation of common stock,
stock-based compensation, valuation of the contingent warrant liability, judgments used in the evaluation of potential loss contingencies,
accrued research and development expenses and the valuation allowance of deferred tax assets resulting from net operating losses. These
estimates and assumptions are based on current facts, historical experience and various other factors 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 and the
recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these
estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of
operations will be affected.
Unaudited Interim Financial Statements
The accompanying condensed balance sheet as of
June 30, 2022, the condensed statements of operations and the condensed statements of changes in stockholders’ equity for the three
and six months ended June 30, 2022 and 2021, and the condensed statements of cash flows for the six months ended June 30, 2022 and 2021
are unaudited. These unaudited interim financial statements have been prepared on the same basis as the audited financial statements,
and in management’s opinion, include all adjustments, consisting of only normal recurring adjustments, necessary for the fair statement
of the Company’s financial position as of June 30, 2022, the results of its operations for the three and six months ended June 30,
2022 and 2021, and its cash flows for the six months ended June 30, 2022 and 2021. The financial data and the other financial information
disclosed in the notes to these condensed financial statements related to the three and six-month periods are also unaudited. Operating
results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year
ending December 31, 2022, any other interim periods, or any future year or period. The unaudited condensed financial statements included
in this Quarterly Report on Form 10-Q should be read in conjunction with the audited financial statements and notes thereto included in
the Company’s annual report on Form 10-K for the year ended December 31, 2021, which includes a broader discussion of the Company’s
business and the risks inherent therein.
Concentration of Credit Risk
Financial instruments that potentially subject
the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times, may exceed the Federal
Depository Insurance Coverage limit of $250,000. As of June 30, 2022 and December 31, 2021, the Company has not experienced losses
on these accounts and management believes the Company is not exposed to significant risks on such accounts.
Property and Equipment
Property and equipment consists of computers and
office furniture and fixtures, all of which are recorded at cost. Depreciation is recorded using the straight-line method over the respective
useful lives of the assets ranging from three to seven years. Long-lived assets are reviewed for impairment whenever events or circumstances
indicate that the carrying amount of these assets may not be recoverable.
Fair Value Measurements
Fair value is defined as the price that would
be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement
date. U.S. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and
the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
|
● |
Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets; |
BLUE WATER VACCINES INC.
Notes to Financial Statements
Note 3 — Summary of Significant Accounting Policies
(cont.)
|
● |
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
|
● |
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
In some circumstances, the inputs used to measure
fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is
categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
Financial instruments, including cash, prepaid expenses, deferred offering costs, receivables from related party, accounts payable and
accrued liabilities are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments.
As of December 31, 2021, none of the Company’s non-financial assets or liabilities were recorded at fair value on a non-recurring
basis. No transfers between levels have occurred during the periods presented. The contingent warrant
liability that became issuable upon the close of the private placement during the three months ended June 30, 2022, is valued on a recurring
basis utilizing a Monte Carlo simulation which includes Level 3 inputs. See Note 6. The following assumptions were used for the valuation
of the contingent warrant liability upon the commitment date of April 19, 2022:
Exercise price | |
$ | 8.46875 | |
Term (years) | |
| 4.00 | |
Expected stock price volatility | |
| 117.0 | % |
Risk-free rate of interest | |
| 2.86 | % |
The fair value of financial instruments measured on a recurring
basis is as follows:
|
|
As of June 30, 2022 |
|
Description |
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Contingent warrant liability |
|
$ |
5,373 |
|
|
|
— |
|
|
|
— |
|
|
$ |
5,373 |
|
The following table summarizes the change in fair value, as determined
by Level 3 inputs, for the contingent warrant liability using unobservable Level 3 inputs for the three and six months ended June 30,
2022:
|
|
Contingent |
|
|
|
Warrant Liability |
|
Balance at December 31, 2021 |
|
$ |
— |
|
Fair value at issuance |
|
|
35,676 |
|
Change in fair value |
|
|
(30,303 |
) |
Balance at June 30, 2022 |
|
$ |
5,373 |
|
Deferred Offering Costs
The Company capitalizes certain legal, professional
accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until
such financings are consummated. After consummation of the equity financing, these costs are recorded in stockholders’ equity as
a reduction of proceeds generated as a result of the offering. Should the in-process equity financing be abandoned, the deferred offering
costs will be expensed immediately as a charge to operating expenses in the statements of operations. As of June 30, 2022, all previously
deferred offering costs related to the IPO, totaling approximately $0.8 million, and of which $0.3 million were paid during 2021,
were netted against the proceeds received upon the closing of the IPO, which occurred on February 23, 2022.
Research and Development
The Company expenses the cost of research and
development as incurred. Research and development expenses include costs incurred in funding research and development activities, license
fees, and other external costs. Advance payments for goods and services that will be used in future research and development activities
are expensed when the activity has been performed or when the goods have been received rather than when the payment is made. Upfront and
milestone payments due to third parties that perform research and development services on the Company’s behalf will be expensed
as services are rendered or when the milestone is achieved. When billing terms under research and development contracts do not coincide
with the timing of when the work is performed, the Company is required to make estimates of outstanding obligations as of period end to
those third parties. Accrual estimates are based on several factors, including the Company’s knowledge of the progress towards completion
of the research and development activities, invoicing to date under the contracts, communication from the research institution or other
companies of any actual costs incurred during the period that have not yet been invoiced, and the costs included in the contracts. Significant
judgments and estimates may be made in determining the accrued balances at the end of any reporting period. Actual results could differ
from the estimates made by the Company. The historical accrual estimates made by the Company have not been materially different from the
actual costs. See Notes 5 and 7.
BLUE WATER VACCINES INC.
Notes to Financial Statements
Note 3 — Summary of Significant Accounting Policies
(cont.)
In accordance with FASB ASC Topic 730-10-25-1, Research
and Development, costs incurred in obtaining licenses and patent rights are charged to research and development expense if the technology
licensed has not reached commercial feasibility and has no alternative future use. The licenses purchased by the Company (see Note 5)
require substantial completion of research and development, regulatory and marketing approval efforts to reach commercial feasibility
and have no alternative future use. Accordingly, the total purchase price for the licenses acquired is reflected as research and development
on the Company’s statements of operations.
Contingencies
Accruals are recorded for loss contingencies when
it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. The Company evaluates,
on a quarterly basis, developments in legal proceedings and other matters that could cause an increase or decrease in the amount of the
liability that has been accrued previously. Considering facts known at the time of the assessment, the Company determines whether potential
losses are considered reasonably possible or probable and whether they are estimable. Based upon this assessment, the Company carries
out an evaluation of disclosure requirements and considers possible accruals in the financial statements.
Stock-Based Compensation
The Company expenses stock-based compensation
to employees and non-employees over the requisite service period based on the estimated grant-date fair value of the awards. Stock-based
awards to employees with graded-vesting schedules are recognized using the accelerated attribution method, on a straight-line basis over
the requisite service period for each separately vesting portion of the award.
The Company estimates the fair value of stock
option grants using the Black-Scholes option pricing model and the assumptions used in calculating the fair value of stock-based awards
represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.
Expected Term — The expected term
of options represents the period that the Company’s stock-based awards are expected to be outstanding based on the simplified method,
which is the half-life from vesting to the end of its contractual term.
Expected Volatility —Volatility is a measure
of the amount by which the Company’s share price has historically fluctuated or is expected to fluctuate (i.e., expected volatility)
during a period. Due to the lack of an adequate history of a public market for the trading of the Company’s common stock and
a lack of adequate company-specific historical and implied volatility data, the Company computes stock price volatility over expected
terms based on comparable companies’ historical common stock trading prices. For these analyses, the Company has selected companies
with comparable characteristics, including enterprise value, risk profiles, and position within the industry.
Common Stock Fair Value — Due to
the absence of an active market for the Company’s common stock prior to the IPO, the fair value of the common stock underlying the
Company’s stock options granted prior to the IPO was estimated at each grant date and was determined with the assistance of an independent
third-party valuation expert. The assumptions underlying these valuations represented management’s best estimates, which involved
inherent uncertainties and the application of significant levels of management judgment. After the completion of the IPO, the fair value
of each share of common stock is based on the closing price of the Company’s common stock as reported by the Nasdaq Capital Market.
Risk-Free Interest Rate — The Company
bases the risk-free interest rate on the implied yield available on U.S. Treasury securities with a remaining term commensurate with
the estimated expected term.
Expected Dividend — The Company has
never declared or paid any cash dividends on its shares of common stock and does not plan to pay cash dividends in the foreseeable future,
and, therefore, uses an expected dividend yield of zero in its valuation models.
The Company recognizes forfeitures of equity awards
as they occur.
Fair Value of Common Stock
In order to determine the fair value of shares
of common stock of the Company when issuing stock options prior to the IPO, its board of directors considered with input from third party
valuations, among other things, contemporaneous valuations of the Company’s common stock. Given the absence of a public trading
market of the Company’s capital stock prior to its IPO, its board of directors has exercised reasonable judgment and considered
a number of objective and subjective factors to determine the best estimate of the fair value of the Company common and preferred stock,
including:
|
● |
the prices, rights, preferences and privileges of the Company’s preferred stock relative to the Company’s common stock; |
|
● |
the Company’s business, financial condition and results of operations, including related industry trends affecting the Company’s operations; |
BLUE WATER VACCINES INC.
Notes to Financial Statements
Note 3 — Summary of Significant Accounting Policies
(cont.)
|
● |
the likelihood of achieving a liquidity event, such as an IPO, or sale of the Company, given prevailing market conditions; |
|
● |
the lack of marketability of the Company’s common stock; |
|
● |
the market performance of comparable publicly traded companies; |
|
● |
U.S. and global economic and capital market conditions and outlook; and |
|
● |
common stock valuation methodology. |
In estimating the fair market value of common
stock of the Company, its board of directors first determined the equity value of its business using accepted valuation methods.
The Company engaged a third-party valuation specialist
to conduct a valuation, which used its most recent preferred stock financing as a starting point and determined the equity value of the
Company based on the Backsolve method using an Option Pricing Method (OPM) to calculate the implied value based on a market approach.
The Company’s equity value was allocated using OPM to estimate the fair market value of the Company’s classes of equity.
After the completion of the IPO, the fair value
of each share of common stock is based on the closing price of the Company’s common stock as reported by the Nasdaq Capital Market.
Income Taxes
Income taxes are accounted for under the asset
and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax
credit carryforwards.
Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in operations in the period
that includes the enactment date. Deferred tax assets are reduced to estimated amounts expected to be realized by the use of a valuation
allowance.
Comprehensive Income (Loss)
The Company is required to report all components
of comprehensive income (loss), including net income (loss), in the accompanying condensed financial statements in the period in which
they are recognized. Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events
and circumstances from non-owner sources, including unrealized gains and losses on investments and foreign currency translation adjustments.
Net loss and comprehensive loss were the same for all periods presented.
Warrants
The Company determines the accounting classification
of warrants that are issued, as either liability or equity, by first assessing whether the warrants meet liability classification in accordance
with ASC 480-10, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, (“ASC
480-10”), and then in accordance with ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity (“ASC
815-40”). Under ASC 480-10, warrants are considered liability-classified if the warrants are mandatorily redeemable, obligate the
issuer to settle the warrants or the underlying shares by paying cash or other assets, or must or may require settlement by issuing variable
number of shares.
If the warrants do not meet liability classification
under ASC 480-10, the Company assesses the requirements under ASC 815-40, which states that contracts that require or may require the
issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring
that triggers the net cash settlement feature. If the warrants do not require liability classification under ASC 815-40, in order to conclude
equity classification, the Company assesses whether the warrants are indexed to its common stock and whether the warrants are classified
as equity under ASC 815-40 or other applicable GAAP. After all relevant assessments are made, the Company concludes whether the warrants
are classified as liability or equity. Liability-classified warrants are required to be accounted for at fair value both on the date of
issuance and on subsequent accounting period ending dates, with all changes in fair value after the issuance date recorded as a component
of other income (expense), net in the statements of operations. Equity-classified warrants are accounted for at fair value on the issuance
date with no changes in fair value recognized after the issuance date. As of June 30, 2022, all of the Company’s outstanding warrants
are equity-classified warrants, except for the contingent warrants that became issuable upon the close of the private placement that occurred
during the three months ended June 30, 2022. See Note 6.
BLUE WATER VACCINES INC.
Notes to Financial Statements
Note 3 — Summary of Significant Accounting Policies
(cont.)
Net Loss Per Share
Basic loss per share is computed by dividing the
net income or loss applicable to common shares by the weighted average number of common shares outstanding during the period. Diluted
earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding
during the period. Potential common shares consist of the Company’s preferred stock, warrants and options. Diluted loss per share
excludes the shares issuable upon the conversion of preferred stock, as well as common stock options and warrants, from the calculation
of net loss per share if their effect would be anti-dilutive.
The two-class method is used to determine earnings
per share based on participation rights of participating securities in any undistributed earnings. Each preferred stock that includes
rights to participate in distributed earnings is considered a participating security and the Company uses the two-class method to calculate
net income available to the Company’s common stockholders per common share — basic and diluted.
The following securities were excluded from the
computation of diluted shares outstanding due to the losses incurred in the periods presented, as they would have had an anti-dilutive
impact on the Company’s net loss:
|
|
Three Months Ended
June 30, |
|
|
Six Months Ended
June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Options to purchase shares of common stock |
|
|
1,495,180 |
|
|
|
780,640 |
|
|
|
1,495,180 |
|
|
|
780,640 |
|
Series Seed Preferred Stock |
|
|
— |
|
|
|
4,584,552 |
|
|
|
— |
|
|
|
4,584,552 |
|
Warrants issued upon close of IPO |
|
|
111,111 |
|
|
|
— |
|
|
|
111,111 |
|
|
|
— |
|
Private Placement Warrants |
|
|
1,251,661 |
|
|
|
— |
|
|
|
1,251,661 |
|
|
|
— |
|
Total |
|
|
2,857,952 |
|
|
|
5,365,192 |
|
|
|
2,857,952 |
|
|
|
5,365,192 |
|
New Accounting Pronouncements
In April 2012, the Jump-Start Our Business Startups
Act (the “JOBS Act”) was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting
requirements for an emerging growth company. As an emerging growth company, the Company may elect to adopt new or revised accounting standards
when they become effective for non-public companies, which typically is later than when public companies must adopt the standards. The
Company has elected to take advantage of the extended transition period afforded by the JOBS Act and, as a result, unless the Company
elects early adoption of any standards, will adopt the new or revised accounting standards on the relevant dates on which adoption of
such standards is required for non-public companies.
In August 2020, the FASB issued Accounting
Standard Update (“ASU”) No. 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20)
and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible
Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major
separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity contracts
to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. This
guidance is effective for public business entities except for smaller reporting companies for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2021. For all other entities, the standard will be effective for fiscal years
beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The Company
adopted ASU 2020-06 on January 1, 2022, using the modified retrospective method, and the adoption of the ASU did not impact
the Company’s financial position, results of operations, cash flows or net loss per share.
BLUE WATER VACCINES INC.
Notes to Financial Statements
Note 3 — Summary of Significant Accounting Policies
(cont.)
In October 2020, the FASB issued ASU 2020-10, Codification
Improvements, which updates various codification topics by clarifying or improving disclosure requirements to align with the SEC’s
regulations. The Company adopted ASU 2020-10 as of the reporting period beginning January 1, 2022. The adoption of
this update did not have a material effect on the Company’s financial statements.
In May 2021, the FASB issued ASU 2021-04,
Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock
Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40):
Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of
the FASB Emerging Issues Task Force). The ASU clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges
of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange.
The ASU provides guidance that will clarify whether an issuer should account for a modification or an exchange of a freestanding equity-classified
written call option that remains equity classified after modification or exchange as (1) an adjustment to equity and, if so, the
related earnings per share (EPS) effects, if any, or (2) an expense and, if so, the manner and pattern of recognition. The new guidance
is effective for all entities for annual and interim periods beginning after December 15, 2021, and early adoption is permitted,
including adoption in an interim period. The Company adopted ASU 2021-04 on January 1, 2022, and the adoption of the ASU did
not impact the Company’s financial position, results of operations, cash flows, or net loss per share.
In June 2022, the FASB issued ASU No. 2022-03, Fair
Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”),
which applies to all equity securities measured at fair value that are subject to contractual sale restrictions. This change prohibits
entities from taking into account contractual restrictions on the sale of equity securities when estimating fair value and introduces
required disclosures for such transactions. This guidance is effective for public business entities beginning after December 15,
2023, including interim periods within those fiscal years. For all other entities, the standard will be effective for fiscal years
beginning after December 15, 2024, including interim periods within those fiscal years. Early adoption is permitted. The Company
is currently evaluating the provisions of the amendments and the impact on its financial statements.
The Company’s management does not believe
that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying
condensed financial statements.
Note 4 — Balance Sheet Details
Prepaid Expenses
Prepaid expenses consisted of the following as
of June 30, 2022 and December 31, 2021:
| |
As of June 30, 2022 | | |
As of December 31, 2021 | |
Prepaid research and development | |
$ | 217,337 | | |
$ | 203,910 | |
Prepaid insurance | |
| 720,735 | | |
| 4,842 | |
Prepaid other | |
| 74,932 | | |
| 25,799 | |
Total | |
$ | 1,013,004 | | |
$ | 234,551 | |
BLUE WATER VACCINES INC.
Notes to Financial Statements
Note 4 — Balance Sheet Details (cont.)
Accrued Expenses
Accrued expenses consisted of the following as
of June 30, 2022 and December 31, 2021:
| |
As of June 30, 2022 | | |
As of December 31, 2021 | |
Accrued license fees | |
$ | 10,000 | | |
$ | 225,000 | |
Accrued research and development | |
| 497,022 | | |
| 300,182 | |
Accrued deferred offering costs | |
| 187,500 | | |
| 246,236 | |
Accrued compensation | |
| 736,380 | | |
| 234,265 | |
Accrued loss contingency | |
| 520,000 | | |
| — | |
Accrued professional fees | |
| 49,000 | | |
| — | |
Accrued other | |
| 80,490 | | |
| 49,832 | |
Total | |
$ | 2,080,392 | | |
$ | 1,055,515 | |
Note 5 — Significant Agreements
Oxford University Innovation Limited
In December 2018, the Company entered into
an option agreement Oxford University Innovation (“OUI”), which was a precursor to a license agreement (the “OUI Agreement”),
dated July 16, 2019. Under the terms of the OUI Agreement, the Company holds an exclusive, worldwide license to certain specified
patent rights and biological materials relating to the use of epitopes of limited variability and virus-like particle products and practice
processes that are covered by the licensed patent rights and biological materials for the purpose of developing and commercializing a
vaccine product candidate for influenza. The Company is obligated to use its best efforts to develop and market Licensed Products, as
defined in the OUI Agreement, in accordance with its development plan, report to OUI on progress, achieve the following milestones and
must pay OUI nonrefundable milestone fees when it achieves them: initiation of first Phase I study; initiation of first Phase II
study; initiation of first Phase III/pivotal registration studies; first submission of application for regulatory approval (BLA/NDA);
marketing authorization in the United States; marketing authorization in any EU country; marketing authorization in Japan; first
marketing authorization in any other country; first commercial sale in Japan; first commercial sale in any ROW country; first year that
annual sales equal or exceed certain thresholds. See Note 7 for additional information on the milestone payments as well as royalty
obligations required under the OUI Agreement. The OUI Agreement will expire upon ten (10) years from the expiration of the last patent
contained in the licensed patent rights, unless terminated earlier. During the year ended December 31, 2021, the U.S. Patent
related to immunogenic composition was issued to OUI. This patent expires in August 2037. No additional patents have been issued
during the three and six months ended June 30, 2022. Either party may terminate the OUI Agreement for an uncured material breach. The
Company may terminate the OUI Agreement for any reason at any time upon six months’ written notice expiring after the third
anniversary of the OUI Agreement. OUI may terminate immediately if the Company has a petition presented for its winding-up or passes
a resolution for winding up other than for a bona fide amalgamation or reconstruction or compounds with its creditors or has a receiver
or administrator appointed. OUI may also terminate if the Company opposes or challenges the validity of any of the patents or applications
in the Licensed Technology, as defined in the OUI Agreement; raises the claim that the know-how of the Licensed Technology is not necessary
to develop and market Licensed Products; or in OUI’s reasonable opinion, is taking inadequate or insufficient steps to develop or
market Licensed Products and does not take any further steps that OUI requests by written notice within a reasonable time.
For the three and six months ended June 30,
2022 and 2021, the Company did not incur any licensing fee payments for intellectual property licenses. See Note 7.
BLUE WATER VACCINES INC.
Notes to Financial Statements
Note 5 — Significant Agreements (cont.)
St. Jude Children’s Hospital
The Company entered into a license agreement (the
“St. Jude Agreement”), dated January 27, 2020, with St. Jude Children’s Research Hospital (“St. Jude”).
Under the terms of the St. Jude Agreement, the Company holds an exclusive, worldwide license to certain specified patent rights and biological
materials relating to the use of live attenuated streptococcus pneumoniae and practice processes that are covered by the licensed patent
rights and biological materials for the purpose of developing and commercializing a vaccine product candidate for streptococcus pneumoniae.
The St. Jude Agreement will expire upon the expiration of the last valid claim contained in the licensed patent rights, unless terminated
earlier. The Company is obligated to use commercially reasonable efforts to develop and commercialize the licensed product(s). The milestones
include the following events: (i) complete IND enabling study; (ii) initiate animal toxicology study; (iii) file IND; (iv) complete
Phase I Clinical Trial; (v) commence Phase II Clinical Trial; (vi) commence Phase III Clinical Trial; and, (vii) regulatory
approval, U.S. or foreign equivalent. If the Company fails to achieve the development milestones contained in the St. Jude Agreement,
and if the Company and St. Jude fail to agree upon a mutually satisfactory revised timeline, St. Jude will have the right to terminate
the St. Jude Agreement. Either party may terminate the St. Jude Agreement in the event the other party (a) files or has filed against
it a petition under the Bankruptcy Act (among other things) or (b) fails to perform or otherwise breaches its obligations under the
St. Jude Agreement, and has not cured such failure or breach within sixty (60) days. The Company may terminate for any reason on
thirty (30) days written notice. On May 11, 2022, the Company entered into an amendment to the St. Jude Agreement, whereby the royalty
terms, milestone payments and licensing fees were amended, and a revised development milestone timeline was agreed to. See Note 7 for
more information on this amendment.
For the three and six months ended June 30,
2022, the Company recognized approximately $8,000 and $10,000, respectively, for intellectual property licenses, which is recorded as
research and development expenses. For the three and six months ended June 30, 2021, the Company recognized $10,000 for intellectual property
licenses, which is recorded as research and development expenses. See Note 7 for additional information on the milestone payments
as well as royalty obligations required under the St. Jude Agreement.
Cincinnati Children’s Hospital Medical Center
The Company entered into a license agreement (the
“CHMC Agreement”), dated June 1, 2021, with Children’s Hospital Medical Center, d/b/a Cincinnati Children’s
Hospital Medical Center (“CHMC”). Under the terms of the CHMC Agreement, the Company holds an exclusive, worldwide license
(other than the excluded field of immunization against, and prevention, control, or reduction in the severity of gastroenteritis caused
by rotavirus and norovirus in China and Hong Kong) to certain specified patent and biological materials relating to the use of norovirus
nanoparticles and practice processes that are covered by the licensed patent rights and biological materials for the purpose of developing
and commercializing CHMC patents and related technology directed to a virus-like particle vaccine platform that utilizes nanoparticle
delivery technology that may have potential broad application to develop vaccines for multiple infectious diseases. The term of the CHMC
Agreement begins on the effective date and extends on a jurisdiction by jurisdiction and product by product basis until the later of:
(i) the last to expire licensed patent; (ii) ten (10) years after the first commercial sale; or, (iii) entrance onto
the market of a biosimilar or interchangeable product. The Company is obligated to use commercially reasonable efforts to bring licensed
products to market through diligent research and development, testing, manufacturing and commercialization, to use best efforts to make
all necessary regulatory filings and obtain all necessary regulatory approvals, to achieve milestones relating to development and sales,
and report to CHMC on progress. The Company will also be obligated to pay the agreed upon development milestone payments to CHMC, as well
as royalty payments, see Note 7 for additional information. The Company may terminate the CHMC Agreement for convenience, at any
time prior to first commercial sale of a product or process by providing one hundred and eighty (180) days’ written notice
to CHMC. It may also terminate for a CHMC uncured material breach. CHMC may terminate the CHMC Agreement for an uncured Company material
breach or insolvency or bankruptcy. Pursuant to the terms of the CHMC Agreement, if the Company fails to achieve the milestones, and cannot
mutually agree with CHMC on an amendment to the milestones, then CHMC will have the option of converting any and all of such exclusive
licenses to nonexclusive licenses, to continue developing indications that have already entered development at any stage or in which the
Company has invested in developing. CHMC may also terminate the CHMC Agreement to the fullest extent permitted by law in the countries
of the worldwide territory, in the event the Company or its affiliates challenge or induce others set up challenges to the validity or
enforceability of any of the Licensed Patents, as defined in the CHMC Agreement, and the Company will be obligated reimburse CHMC for
its costs, including reasonable attorneys’ fees.
BLUE WATER VACCINES INC.
Notes to Financial Statements
Note 5 — Significant Agreements (cont.)
For the three and six months ended June 30,
2022, the Company did not incur any licensing fee payments for intellectual property licenses. For the three and six months ended June 30,
2021, the Company accrued licensing fee payments for intellectual property licenses, which is recorded as research and development expenses,
in aggregate of approximately $377,000. See Note 7.
Ology Bioservices, Inc. (which was later acquired by National Resilience,
Inc.)
The Company entered into a Master Services Agreement
(“Ology MSA”), dated July 19, 2019, with Ology, Inc. (“Ology”) to provide services from time to time, including
but not limited to technology transfer, process development, analytical method optimization, cGMP manufacture, regulatory affairs, and
stability studies of biologic products. Pursuant to the Ology MSA, the Company and Ology shall enter into a Project Addendum
for each project to be governed by the terms and conditions of the Ology MSA. The Company has entered into two Project
Addendums as of June 30, 2022 and December 31, 2021. The initial Project Addendum was executed on October 18, 2019 and the
Company was required to pay Ology an aggregate of approximately $4 million. Due to unforeseen delays associated with
COVID-19, the Company and Ology entered into a letter agreement dated January 9, 2020 to stop work on the project. The Company paid
Ology $100,000 for services, of which $48,600 remained as a prepaid expense as of December 31, 2020. The second Project Addendum was
executed on May 21, 2021 and the Company is obligated to pay Ology an aggregate amount of approximately $2.8 million,
plus reimbursement for materials and outsourced testing, which will be billed at cost plus 15%. This project began during 2021, and the
Company recorded approximately $164,000 and $115,000 as related accounts payable and accrued expenses, respectively, at December 31, 2021.
On April 20, 2022, the Company entered into an amendment to the Ology MSA, whereby the Company’s obligations increased by $300,000,
specifically related to regulatory support on the project. During the three and six months ended June 30, 2022, the Company incurred related
research and development expenses of approximately $275,000 and $492,000, respectively, and had approximately $144,000 and $453,000 recorded
as related accounts payable and accrued expenses, respectively, at June 30, 2022. There were no such expenses incurred during the
three and six months ended June 30, 2021.
Note 6 — Stockholders’ Equity
Authorized Capital and Stock Split
On February 23, 2022, the Company filed with
the Secretary of State of the State of Delaware an amended and restated certificate of incorporation (the “A&R COI”),
which became effective immediately. The Company’s board of directors and stockholders approved the A&R COI to be effective upon
the closing of the IPO. There was no change to the Company’s authorized shares of common stock and preferred stock of 250,000,000
shares and 10,000,000 shares, respectively, or the par value, which is $0.00001 for both common and preferred stock. Prior to this amendment,
the Company had designated 1,150,000 shares of preferred stock, with par value $0.00001 per share. In addition, on February 23, 2022
and in connection with the closing of the IPO, the Company’s board of directors adopted Amended and Restated Bylaws.
Common Stock
As of June 30, 2022 and December 31, 2021,
there were 12,229,399 and 3,200,000 shares of common stock issued and outstanding, respectively.
Holders of the Company’s common stock are
entitled to one vote for each share held of record, and are entitled upon liquidation of the Company to share ratably in the net assets
of the Company available for distribution after payment of all obligations of the Company and after provision has been made with respect
to each class of stock, if any, having preference over the common stock, currently including the Company’s preferred stock. The
shares of common stock are not redeemable and have no preemptive or similar rights.
On February 17, 2022, the Company entered
into an underwriting agreement (the “Underwriting Agreement”) with Boustead Securities, LLC, acting as representative of the
underwriters (“Boustead”), in relation to the Company’s IPO, pursuant to which the Company agreed to sell to the underwriters
an aggregate of 2,222,222 shares of the Company’s common stock, at a price of $9.00 per share. The IPO closed on February 23,
2022, and resulted in net proceeds to the Company, after deducting the 8% underwriting discount, and other offering costs, of approximately
$17.1 million. Pursuant to the Underwriting Agreement, the Company issued to Boustead warrants to purchase 111,111 shares of common
stock. The warrants are exercisable, at the option of the holder, at a per share exercise price equal to $10.35 and are exercisable at
any time and from time to time, in whole or in part, starting on February 23, 2022 and terminating on February 11, 2027.
The Company evaluated the terms of the warrants
issued at the close of the IPO and determined that they should be classified as equity instruments based upon accounting guidance provided
in ASC 480 and ASC 815-40. Since the Company determined that the warrants were equity-classified, the Company recorded the proceeds from
the IPO, net of issuance costs, within common stock at par value and the balance of the net proceeds to additional paid in capital. As
of June 30, 2022, the outstanding warrants are exercisable into 111,111 shares of common stock whose fair value was $2.13 per
share, based on the closing trading price on that day.
BLUE WATER VACCINES INC.
Notes to Financial Statements
Note 6 — Stockholders’ Equity (cont.)
Private Investment in Public Equity
On April 19, 2022, the Company consummated the
closing of a private placement (the “April Private Placement”), pursuant to the terms and conditions of a securities purchase
agreement, dated as of April 13, 2022. At the closing of the April Private Placement, the Company issued 590,406 shares of common stock
(the “Shares”), pre-funded warrants (the “Pre-Funded Warrants”) to purchase an aggregate of 590,406 shares of
common stock and preferred investment options (the “Preferred Investment Options”) to purchase up to an aggregate of 1,180,812
shares of common stock. The purchase price of each Share together with the associated Preferred Investment Option was $6.775, and the
purchase price of each Pre-Funded Warrant together with the associated Preferred Investment Option was $6.774. The aggregate net cash
proceeds to the Company from the April Private Placement were approximately $6.9 million, after deducting placement agent fees and other
offering expenses. H.C. Wainwright & Co., LLC (“Wainwright”) acted as the exclusive placement agent for the April Private
Placement. The Pre-Funded Warrants had an exercise price of $0.001 per share, were exercisable on or after April 19, 2022, and were exercisable
until the Pre-Funded Warrants were exercised in full. The Pre-Funded Warrants were exercised in full on May 24, 2022, and as such the
Company issued 590,406 shares of common stock on that date. The Preferred Investment Options are exercisable at any time on or after April
19, 2022 through April 20, 2026, at an exercise price of $6.65 per share, subject to certain adjustments as defined in the agreement.
The Company agreed to pay Wainwright a placement agent fee and management fee equal to 7.5% and 1.0%, respectively, of the aggregate gross
proceeds from the April Private Placement and reimburse certain out-of-pocket expenses up to an aggregate of $85,000. In addition, the
Company issued warrants to Wainwright (the “Wainwright Warrants”) to purchase up to 70,849 shares of common stock. The Wainwright
Warrants are in substantially the same form as the Preferred Investment Options, except that the exercise price is $8.46875. The form
of the Preferred Investment Options is a warrant, and as such the Preferred Investment Options, the Pre-Funded Warrants, and the Wainwright
Warrants are collectively referred to as the “Private Placement Warrants”. Further, upon any exercise for cash of any Preferred
Investment Options, the Company agreed to issue to Wainwright additional warrants to purchase the number of Shares equal to 6.0% of the
aggregate number of Shares underlying the Preferred Investment Options that have been exercised, also with an exercise price of $8.46875
(the “Contingent Warrants”). The maximum number of Contingent Warrants issuable under this provision is 70,849.
In connection with the April Private Placement,
the Company entered into a Registration Rights Agreement with the purchasers, dated as of April 13, 2022 (the “April Registration
Rights Agreement”). The April Registration Rights Agreement provides that the Company shall file a registration statement covering
the resale of all of the registrable securities (as defined in the April Registration Rights Agreement) with the Securities and Exchange
Commission (the “SEC”) no later than the 20th calendar day following the date of the April Registration Rights Agreement and
have the registration statement declared effective by the SEC as promptly as possible after the filing thereof, but in any event no later
than the 45th calendar day following April 13, 2022 or, in the event of a full review by the SEC, the 75th day following April 13, 2022.
The registration statement on Form S-1 required under the Registration Rights Agreement was filed with the SEC on May 3, 2022, and became
effective on May 20, 2022.
Upon the occurrence of any Event (as defined in
the April Registration Rights Agreement), which, among others, prohibits the Purchasers from reselling the securities for more than ten
consecutive calendar days or more than an aggregate of fifteen calendar days during any 12-month period, and should the registration statement
cease to remain continuously effective, the Company is obligated to pay to each purchaser, on each monthly anniversary of each such Event,
an amount in cash, as partial liquidated damages and not as a penalty, equal to the product of 2.0% multiplied by the aggregate subscription
amount paid by such purchaser in the April Private Placement. As of June 30, 2022, the Company determined that the likelihood of
the Company incurring liquidated damages pursuant to the April Registration Rights Agreement is remote, and as such no accrual of these
payments is required as of June 30, 2022.
The Company evaluated the terms of the Private
Placement Warrants and determined that they should be classified as equity instruments based upon accounting guidance provided in ASC
480 and ASC 815-40. Since the Company determined that the Private Placement Warrants were equity-classified, the Company recorded the
proceeds from the April Private Placement, net of issuance costs, within common stock at par value and the balance of the net proceeds
to additional paid in capital. As of June 30, 2022, the outstanding Private Placement Warrants are exercisable into 1,251,661 shares
of common stock whose fair value was $2.13 per share, based on the closing trading price on that day. In August 2022, the investors
in the April Private Placement, agreed to cancel their preferred investment options issued in the April Private Placement, as part of
their participation in the August Private Placement. See Note 11.
The Company evaluated the terms of the Contingent Warrants and determined
that they should be classified as a liability based upon accounting guidance provided in ASC 815-40. The Company measured the liability
upon the close of the April Private Placement and at June 30, 2022, using a Monte Carlo simulation. See Note 3. Since the Contingent Warrants
are a form of compensation to the placement agent, the Company recorded the value of the liability of approximately $36,000, as a reduction
of additional paid in capital, with subsequent changes in the value of the liability recorded in other income (expense) in the accompanying
condensed statements of operations. As of June 30, 2022, the value of the Contingent Warrants was approximately $5,000, and none of the
Contingent Warrants have been issued, as no Preferred Investment Options have been exercised.
BLUE WATER VACCINES INC.
Notes to Financial Statements
Note 6 — Stockholders’ Equity (cont.)
Preferred Stock
Prior to the close of the IPO, the Company had
designated 1,150,000 shares of preferred stock as Series Seed Preferred Stock (“Series Seed”), with an original
issue price of $6.09 per share (the “Original Issue Price”). As of June 30, 2022 and December 31, 2021, there were 0
and 1,146,138 shares issued and outstanding, respectively.
Conversion
Each share of the Series Seed was convertible,
at the option of the holder, at any time and from time to time, and without the payment of additional consideration by the holder, at
a conversion price of $1.52 per share, subject to certain adjustments for stock splits, stock dividends, recapitalizations, and similar
corporate transactions, into fully paid and non-assessable shares of the Company’s common stock. Each Series Seed share was
automatically convertible into common stock of the Company, at the then-effective conversion price, upon the closing of a firmly underwritten
public offering netting proceeds of at least $50 million with an offering price of at least three hundred percent (300%) of the Original
Issue Price of the Series Seed. On February 18, 2022, the majority of the holders of the Series Seed approved the automatic
conversion of the outstanding shares of the Series Seed and all related accrued and unpaid dividends, upon the close of the IPO. The
number of conversion shares to be issued upon the close of the IPO were to be calculated in accordance with the original conversion terms
provided by the Company’s Amended and Restated Certificate of Incorporation (“COI”) dated July 1, 2019. This conversion
occurred on February 23, 2022, upon the close of the Company’s IPO.
Dividends
Holders of the Series Seed were entitled
to receive cumulative dividends at a per share rate of 8% per annum, compounded annually, on the initial investment amount commencing
on the date of issue. Dividends were payable only when, as, and if declared by the Board of Directors or upon a Liquidation Event, as
described below. Dividends on Series Seed were in preference to any dividend on the Company’s common stock. Upon the close
of the IPO, aggregate cumulative dividends of $1,586,162 or $1.38 per Series Seed share were automatically converted into shares
of common stock.
Liquidation Preference
In the event of certain voluntary or involuntary
acquisition or sale transactions or upon the liquidation, dissolution or winding up of the Company (each, a “Liquidation Event”),
the holders of Series Seed were entitled to receive out of the proceeds or assets of the Company legally available for distribution
to its stockholders (the “Proceeds”), prior and in preference to any distribution of the Proceeds of such Liquidation
Event to the holders of shares of common stock by reason of their ownership thereof, an amount (“the Liquidation Preference Amount”)
determined based on the provisions of the Company’s COI. The COI provided that the Liquidation Preference Amount be calculated
upon the occurrence of a Liquidation Event, based on the Company’s achievement of a Pre-Clinical Milestone and a Qualified Financing,
both as defined in the COI. Per the provisions of the COI, if a Liquidation Event occurred before a Pre-Clinical Milestone was achieved,
the Liquidation Preference Amount would be equal to two times the Series Seed Original Issue price per share, plus unpaid cumulative
dividends. If a Liquidation Event occurred after a Pre-Clinical Milestone was achieved, and after a Qualified Financing was completed,
then the Liquidation Preference Amount would be equal to one times the Series Seed Original Issue price, plus unpaid cumulative dividends.
If a Liquidation Event occurred after a Pre-Clinical Milestone was achieved and before a Qualified Financing was completed, the Liquidation
Preference Amount would be equal to the greater of (a) such amount per share as such holder would have been entitled to receive after
a Qualified Financing or (b) two times the Series Seed Original Issue price, plus unpaid cumulative dividends.
As of December 31, 2021, and all other prior
historical periods, the Liquidation Preference Amount was equal to two times the Series Seed Original Issue Price per share, plus
unpaid cumulative dividends. In the event that the Proceeds were insufficient to enable the distribution in full of the Liquidation Preference
Amount to the holders of the Series Seed for all of the preferred shares held by them, all of the Proceeds were to be distributed
among the holders of Series Seed on a pro rata basis. Upon completion of the distribution required to the holders of Series Seed,
all of the remaining Proceeds available for distribution to stockholders were to be distributed among the holders of common shares and
preferred shares, on an as-converted basis, pro rata based on the number of common shares held by each such holder. However, if upon
the occurrence of a Liquidation Event, the Liquidation Preference Amount the Series Seed stockholders were entitled to receive is
two times the Original Issue Price per share, plus unpaid cumulative dividends, after such distribution is made, then the remaining Proceeds
available for distribution to stockholders were to be distributed among the holders of common shares, pro rata based on the number of
common shares held by each such holder.
BLUE WATER VACCINES INC.
Notes to Financial Statements
Note 6 — Stockholders’ Equity (cont.)
Voting
On any matter presented to the stockholders of
the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in
lieu of meeting), each holder of outstanding shares of Series Seed were entitled to cast the number of votes equal to the number
of whole shares of common stock into which the shares of Series Seed held by such holder were convertible as of the record date for
determining stockholders entitled to vote on such matter. Holders of Series Seed were entitled to vote together with the holder of
common stock as a single class. Holders of Series Seed were entitled to nominate two out of five of the Company’s directors.
Equity Incentive Plans
The Company’s 2019 Equity Incentive
Plan (the “2019 Plan”) was adopted by its board of directors and by its stockholders on July 1, 2019. The Company has
reserved 1,400,000 shares of common stock for issuance pursuant to the 2019 Plan. There were no share-based awards granted under the 2019
Plan during the three and six months ended June 30, 2022 and 2021.
In addition, on February 23, 2022 and in
connection with the closing of the IPO, the Company’s board of directors adopted the Company’s 2022 Equity Incentive Plan
(the “2022 Plan”), which is the successor and continuation of the Company’s 2019 Plan. Under the 2022 Plan, the Company
may grant stock options, restricted stock, restricted stock units, stock appreciation rights, and other forms of awards to employees,
directors and consultants of the Company. Upon its effectiveness, a total of 1,600,000 shares of common stock were reserved for issuance
under the 2022 Plan. The stock options granted during the three and six months ended June 30, 2022 were granted under the 2022 Plan. As
of June 30, 2022, there are 104,820 options available for issuance under the 2022 Plan.
Stock Options
The following
summarizes activity related to the Company’s stock options under the 2019 Plan and the 2022 Plan for the six months ended June 30,
2022:
| |
Number of Shares | | |
Weighted Average Exercise Price | | |
Total Intrinsic Value | | |
Weighted Average Remaining Contractual Life (in years) | |
Outstanding as of December 31, 2021 | |
| 780,640 | | |
$ | 0.01 | | |
$ | 532,787 | | |
| 8.1 | |
Granted | |
| 714,540 | | |
| 6.34 | | |
| — | | |
| — | |
Forfeited / cancelled | |
| — | | |
| — | | |
| — | | |
| — | |
Exercised | |
| — | | |
| — | | |
| — | | |
| — | |
Outstanding as of June 30, 2022 | |
| 1,495,180 | | |
| 3.04 | | |
$ | 1,653,005 | | |
| 8.7 | |
Options vested and exercisable as of June 30, 2022 | |
| 891,722 | | |
$ | 2.56 | | |
$ | 1,134,252 | | |
| 8.5 | |
The fair value of options granted in 2022 was
estimated using the following assumptions:
| |
| For
the Six Months Ended June 30, | |
| |
| 2022 | |
Exercise
price | |
$ | 2.55 – 6.45 | |
Term
(years) | |
| 5.00 – 10.00 | |
Expected
stock price volatility | |
| 114.5% – 121.2 | % |
Risk-free
rate of interest | |
| 2.9% – 3.1 | % |
The weighted average grant date fair value of stock options granted
during the three and six months ended June 30, 2022 was $3.56. The aggregate fair value of stock options vested during the three and six
months ended June 30, 2022 was approximately $1.4 million and $1.5 million, respectively.
Of the total stock options granted during the three and six months
ended June 30, 2022, 200,000 stock options were granted to the Company’s Chief Executive Officer (“CEO”), Chairman,
and significant stockholder, 200,000 stock options were granted to the Company’s Chief Business Officer (“CBO”), and
100,000 stock options were granted to the Company’s Chief Financial Officer (“CFO”). Additionally, the Company granted
4,655 stock options to three of the Company’s non-executive directors, and 50,575 stock options to one non-executive director. The
grant-date fair value of the stock options granted to the CEO, CBO, and CFO was approximately $0.7 million, $0.7 million, and $0.4 million,
respectively, of which approximately $0.7 million, $0.5 million, and $0.1 million, respectively, was recognized as stock-based compensation
expense during the three and six months ended June 30, 2022. The grant-date fair value of the stock options granted to the non-executive
directors was approximately $0.2 million in the aggregate, of which approximately $0.1 million was recognized as stock-based compensation
expense during the three and six months ended June 30, 2022.
BLUE WATER VACCINES INC.
Notes to Financial Statements
Note 6 — Stockholders’ Equity (cont.)
Stock-Based Compensation
Stock-based compensation expense for the three
and six months ended June 30, 2022 and 2021 was as follows:
| |
For the Three Months Ended June 30, | | |
For the Six Months Ended June 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
General and administrative | |
$ | 932,211 | | |
$ | 10,958 | | |
$ | 938,628 | | |
$ | 23,876 | |
Research and development | |
| 514,916 | | |
| 23,966 | | |
| 527,831 | | |
| 52,769 | |
Total | |
$ | 1,447,127 | | |
$ | 34,924 | | |
$ | 1,466,459 | | |
$ | 76,645 | |
As of June 30, 2022, unrecognized stock-based
compensation expense relating to outstanding stock options is approximately $1.1 million, which is expected to be recognized over a weighted-average
period of 1.96 years.
Note 7 — Commitments and Contingencies
Office Leases
Starting in 2018, the Company leased office space for approximately
$5,500 a month from a related party. The Company was required to pay a $15,000 rental deposit. Rent expense related to this lease for
the three and six months ended June 30, 2022 was $0. Rent expense related to this lease for the three and six months ended June
30, 2021 was approximately $8,000 and $28,000, respectively. The Company terminated the related party lease in May 2021 and entered
into a month-to-month lease in Cincinnati, Ohio, with an unrelated party in April 2021 with monthly payments of approximately $500
per month.
The Company entered into a short-term lease in
Palm Beach, Florida with an unrelated party, with a commencement date of May 1, 2022, for approximately $14,000 per month. The lease term
ends on April 30, 2023 and is personally guaranteed by the Company’s CEO. The Company incurred rent expense for the three and
six months ended June 30, 2022 of approximately $36,000.
Litigation
From time to time, the Company may be subject
to various legal proceedings and claims that arise in the ordinary course of its business activities. As of June 30, 2022, the Company
is not a party to any material legal proceedings and is not aware of any pending or threatened claims aside from the following.
On April 15, 2022, the Company received a demand
letter (the “Demand Letter”) from Boustead. The Demand Letter alleges that the Company breached the Underwriting Agreement
entered into between Boustead and the Company, dated February 17, 2022 in connection with the Company’s initial public offering.
The Demand Letter alleges that, by engaging Wainwright as placement agent in the April Private Placement, the Company breached the right
of first refusal to act as placement agent granted to Boustead under the Underwriting Agreement and, as a result of selling securities
in the April Private Placement, breached the 12-month lock-up obligation following the consummation of the initial public offering under
the Underwriting Agreement. The Demand Letter requested that the Company rescind the April Private Placement. The Company has not responded
to the Demand Letter and no legal action has been brought by Boustead to date. The Company has evaluated the related contingency in accordance with
the authoritative accounting guidance and recorded an accrued loss contingency of approximately $0.5 million in the accompanying condensed
balance sheets, see Note 4. While the accrual represents the Company’s best estimate and incorporates
all currently available information, there is no assurance that future quarterly or annual operating results will not be materially affected
by this contingency.
Registration Rights Agreement
See Note 6.
Significant Agreements
Oxford University Innovation Limited
Pursuant to the OUI Agreement, as disclosed in Note 5, the Company
is obligated to pay certain milestone and royalty payments in the future, as the related contingent events occur. Specifically, the Company
is obligated to pay a 6% royalty on all net sales of licensed products, as defined in the OUI Agreement, with an annual minimum royalty
payment of $250,000 starting post-product launch, until the expiration of the OUI Agreement or revocation of the last valid claim covering
a licensed product, at which point a royalty rate of 3% will apply. An annual maintenance fee of $10,000 and $20,000 is required in the
pre-phase III year and Phase III year, respectively, and as defined in the OUI Agreement. The Company is also obligated to pay
a 25% royalty on any sums received by the Company from any sublicensee (including all up-front, milestone and other one-off payments received
by the Company from any sub-licenses or other contracts granted by the Company with respect to the licensed technology). In addition,
the Company is required to pay OUI milestone payments of up to an aggregate of $51.25 million; specifically, upon the achievement
of specified development milestones of approximately $2.25 million, regulatory milestones of approximately $9.5 million, and
commercial milestones of approximately $39.5 million. The annual maintenance fee and milestone fees are indexed to the RPI (Retail
Prices index for all items which is published in the United Kingdom by the Office for National Statistics, or any replacement of it) and
will be increased or decreased as appropriate as set forth in the OUI Agreement. As of June 30, 2022, the Company evaluated the likelihood
of the Company achieving the specified milestones and generating product sales, and determined the likelihood is not yet probable and
as such no accrual of these payments is required as of June 30, 2022.
BLUE WATER VACCINES INC.
Notes to Financial Statements
Note 7 — Commitments and Contingencies (cont.)
Oxford University Research Agreement
Pursuant to the terms of the OUI Agreement, as
disclosed in Note 5, the Company entered into a sponsored research agreement dated December 18, 2019 with Oxford University
for research related to the OUI Agreement for a period of three years for a total of £420,000. The Company prepaid the full
amount to Oxford of $554,802 for the services in January 2020, of which approximately $0.2 million remains as a prepaid expense
as of June 30, 2022 and December 31, 2021. On May 16, 2022, the Company entered into an amendment to the Oxford University Research
Agreement, whereby the Oxford University Research Agreement was extended until June 30, 2024, with an option to extend another 12 months,
for a fee of £53,500 (or approximately $56,000).
St. Jude Children’s Hospital
Pursuant to the St. Jude Agreement, as disclosed
in Note 5, the Company is obligated to pay certain milestone and royalty payments in the future, as the related contingent events
occur. On May 11, 2022, the Company entered into an amendment to the St. Jude Agreement, whereby the royalty terms, milestones payments
and licensing fees were amended. Specifically, pursuant to the terms of the St. Jude Agreement, as amended, the Company is obligated to
make 5% royalty payments for each licensed product(s) sold by the Company or its affiliates, based on the net sales for the duration
of the St. Jude Agreement, and also pay 15% of consideration received for any sublicenses. The Company is also required to pay an additional
one-time $5,000 license fee, and an annual maintenance fee of $10,000 beginning on the first anniversary of the Effective Date (which
is waived if all of the developmental milestones scheduled for completion before such annual fee is due have been achieved). In addition,
the Company is required to pay St. Jude milestone payments of up to an aggregate of $1.9 million; specifically, upon the achievement
of specified development milestones of $0.3 million, regulatory milestones of $0.6 million, and commercial milestones of $1.0 million.
As of June 30, 2022, the Company evaluated the likelihood of the Company achieving the specified milestones and generating product sales,
and determined the likelihood is not yet probable and as such no accrual of these payments is required as of June 30, 2022.
St. Jude Children’s Sponsored Research Agreement
In addition to the St. Jude Agreement, the Company
also entered into a sponsored research agreement dated May 3, 2021 with St. Jude for research related to the St. Jude Agreement (the
“St. Jude SRA”). Pursuant to the St. Jude SRA, the Company is obligated to pay St. Jude an aggregate amount of $73,073 in
two parts, Phase I for $57,624 and Phase II for $15,449. This sponsored research project began during 2021, and the Company
recorded approximately $8,000 in related accrued expenses at December 31, 2021. During the three and six months ended June 30, 2022, the
Company incurred related research and development expenses of approximately $0 and $8,000, respectively, and had approximately $15,000
recorded as related accrued expenses at June 30, 2022. During the three and six months ended June 30, 2021, the Company incurred
related research and development expenses of approximately $58,000.
Cincinnati Children’s Hospital Medical Center
Pursuant to the CHMC Agreement, as disclosed in
Note 5, the Company is obligated to pay certain milestone and royalty payments in the future, as the related contingent events occur.
Specifically, the Company is obligated to pay CHMC a single-digit royalty on net sales, being 5%, 4% or 2% depending on the product, until
the last valid claim covering a licensed product exists, at which point the royalty rates decrease by 50%. The Company is also obligated to pay up to a 25% royalty on any non-royalty sublicense
revenue paid to the Company by any sublicensee. The CHMC Agreement also provides the Company with an option to license any CHMC or jointly
patented modification, alteration or improvement of any invention claimed in a Licensed Patent (“CHMC Improvement” and “Joint
Improvement, respectively”), with a $50,000 option fee for each Improvement that the Company elects to include in the license grant
of the CHMC Agreement. In addition, the Company is required to pay CHMC milestone payments of up to an aggregate of $59.75 million;
specifically, upon the achievement of specified development milestones of approximately $0.5 million, regulatory milestones of approximately
$1.25 million, and commercial milestones of approximately $58 million. As of June 30, 2022, the Company evaluated the likelihood
of the Company achieving the specified milestones and generating product sales, and determined the likelihood is not yet probable and
as such no accrual of these payments is required as of June 30, 2022.
BLUE WATER VACCINES INC.
Notes to Financial Statements
Note 7 — Commitments and Contingencies (cont.)
CHMC Sponsored Research Agreement
In addition to the CHMC Agreement, the Company
also entered into a sponsored research agreement dated June 30, 2022 with CHMC for research related to the CHMC Agreement (the “CHMC
SRA”). Pursuant to this research agreement, the Company is obligated to pay CHMC an aggregate amount not-to-exceed $247,705. This
sponsored research project has not yet begun as of June 30, 2022. The CHMC SRA has a term of one year, and is cancelable upon 60 days
written notice by either party for convenience. In addition, either party may terminate the CHMC SRA in the event the other party (a) files
or has filed against it a petition under the Bankruptcy Act (among other things) or (b) fails to perform or otherwise breaches its
obligations under the agreement, and has not cured such failure or breach within 30 days of notice of material breach.
Ology Bioservices, Inc. (which was later acquired by National Resilience,
Inc.)
Pursuant to the Ology MSA and the second Project
Addendum, as disclosed in Note 5, the Company is obligated to pay Ology an aggregate amount of approximately $2.8 million, plus
reimbursement for materials and outsourced testing which will be billed at cost plus 15%. This project began during 2021, and the Company
recorded approximately $164,000 and $115,000 as related accounts payable and accrued expenses, respectively, at December 31, 2021. On
April 20, 2022, the Company entered into an amendment to the Ology MSA, whereby the Company’s obligations increased by $300,000,
specifically related to regulatory support on the project. During the three and six months ended June 30, 2022, the Company incurred related
research and development expenses of approximately $275,000 and $492,000, respectively, and had approximately $144,000 and $453,000 recorded
as related accounts payable and accrued expenses, respectively, at June 30, 2022. See Note 4. There were no such expenses incurred
during the three and six months ended June 30, 2021. This project is currently expected to be performed through the fourth quarter of
2023.
Underwriter Termination Agreement
On February 7, 2022, the Company and its
former underwriter, Maxim Group (“Maxim”), entered into a termination agreement, whereby the parties agreed to terminate their
engagement of Maxim as the Company’s lead managing underwriter and book runner in connection with the Company’s IPO. Per
the terms of the termination agreement, the Company agreed to pay Maxim a termination fee of $300,000, due upon the close of the Company’s
IPO. The termination fee was recorded as general and administrative expense, and paid, during the six months ended June 30, 2022.
Indemnification
In the normal course of business, the Company
enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications.
The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the
future but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification
obligations. However, the Company may incur charges in the future as a result of these indemnification obligations.
Risks and Uncertainties — COVID-19
Management continues to evaluate the impact of
the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect
on the Company’s financial position, results of its operations and/or search for drug candidates, the specific impact is not readily
determinable as of the date of these financial statements. The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Note 8 — Related Party Transactions
The Company originally engaged the Chief Executive
Officer, who is also the Board Chairman and prior to the close of the IPO, sole common stockholder of the Company, pursuant to a consulting
agreement commencing October 22, 2018, which called for the Company to pay for consulting services performed on a monthly basis.
Upon the close of the Company’s IPO, the consulting agreement was terminated and the CEO’s employment agreement became effective.
During the three and six months ended June 30, 2022, the Company incurred approximately $0 and $63,000 in fees under the consulting
agreement, respectively, which are recognized in general and administrative expenses in the accompanying condensed statements of operations.
During the three and six months ended June 30, 2021, the Company incurred approximately $105,000 and $210,000 in fees under
the consulting agreement, respectively, which are recognized in general and administrative expenses in the accompanying condensed statements
of operations.
BLUE WATER VACCINES INC.
Notes to Financial Statements
Note 8 — Related Party Transactions (cont.)
The Company also leased office space from a related
party, through common ownership. The lease is further described in Note 7 of these financial statements. The lease was terminated
in May 2021, and the related deposit was reclassified to the receivable from related party balance.
During the three and six months ended June 30,
2022, the Company’s compensation committee approved one-time bonus awards of $140,000 and $100,000 to the Company’s
CEO and CBO, respectively, in recognition of their efforts in connection with the Company’s IPO. These bonuses were recognized
during the six months ended June 30, 2022 as general and administrative expenses in the accompanying condensed statements of operations.
In addition, during the three and six months ended June 30, 2022, the Company’s compensation committee approved stock option grants
under the Company’s 2022 Equity Incentive Plan to certain of the Company’s executive officers. See Note 6.
As of June 30, 2022 and December 31, 2021,
the Company has a receivable from related party of approximately $20,000 and $153,000, respectively. The balance as of June 30, 2022 consists
of miscellaneous payments made by the Company on the behalf of the Company’s CEO. The balance as of December 31, 2021, consists
primarily of consulting fee prepayments to the Company’s CEO, in the amount of $140,000. These consulting fee prepayments were repaid
to the Company in lieu of a bonus payout due to the CEO during May 2022. The remaining balance as of December 31, 2021 consists of
miscellaneous payments made by the Company on the behalf of the CEO.
One of the Company’s former directors and
current Scientific Advisory Board members serves on the Advisory Board for the Cincinnati Children’s Hospital Medical Center Innovation
Fund, which is affiliated with CHMC. The Company has an exclusive license agreement with CHMC as disclosed in Note 5. This director
resigned from the Company’s board upon the close of its IPO.
Note 9 — Income Taxes
No provision for federal, state or foreign income
taxes has been recorded for the three and six months ended June 30, 2022 and 2021. The Company has incurred net operating losses for all
of the periods presented and has not reflected any benefit of such net operating loss carryforwards in the accompanying condensed financial
statements due to uncertainty around utilizing these tax attributes within their respective carryforward periods. The Company has recorded
a full valuation allowance against all of its deferred tax assets as it is not more likely than not that such assets will be realized
in the near future. The Company’s policy is to recognize interest expense and penalties related to income tax matters as income
tax expense. For the three and six months ended June 30, 2022 and 2021, the Company has not recognized any interest or penalties related
to income taxes.
Note 10 — Retirement Plan
Effective January 1, 2022, the Company adopted
a defined contribution savings plan pursuant to Section 401(k) of the Internal Revenue Code (“the 401(k) Plan”).
The 401(k) Plan is for the benefit of all qualifying employees and permits voluntary contributions by employees of up to 100% of eligible
compensation, subject to the maximum limits imposed by the Internal Revenue Service. The terms of the 401(k) Plan allow for discretionary
employer contributions. No expenses were incurred related to the 401(k) Plan during the three and six months ended June 30, 2022, and
the 401(k) Plan lapsed during the three months ended June 30, 2022 due to inactivity.
BLUE WATER VACCINES INC.
Notes to Financial Statements
Note 11
— Subsequent Events
On August 11, 2022, the Company consummated
the closing of a private placement (the “August Private Placement”), pursuant to the terms and conditions of a securities
purchase agreement, dated as of August 9, 2022. At the closing of the August Private Placement, the Company issued 1,350,000 shares of
common stock (the “Shares”), pre-funded warrants (the “Pre-Funded Warrants”) to purchase an aggregate of 2,333,280
shares of common stock and preferred investment options to purchase up to an aggregate of 4,972,428 shares of common stock. The purchase
price of each Share together with the associated preferred investment option was $2.715, and the purchase price of each Pre-Funded Warrant
together with the associated preferred investment option was $2.714. The aggregate net cash proceeds to the Company from the August Private
Placement were approximately $8.8 million, after deducting placement agent fees and other initial offering expenses. In addition, the
investors in the August Private Placement, who are the same investors from the private placement that closed in April (see Note 6), agreed
to cancel preferred investment options to purchase up to an aggregate of 1,180,812 shares of the Company’s common stock issued in
April 2022. Wainwright acted as the exclusive placement agent for the August Private Placement. The Pre-Funded Warrants had an exercise
price of $0.001 per share, are exercisable on or after August 11, 2022, and are exercisable until the Pre-Funded Warrants are exercised
in full. The Preferred Investment Options are exercisable at any time on or after August 11, 2022 through August 12, 2027, at an exercise
price of $2.546 per share, subject to certain adjustments as defined in the agreement. The Company agreed to pay Wainwright a placement
agent fee and management fee equal to 7.5% and 1.0%, respectively, of the aggregate gross proceeds from the August Private Placement and
reimburse certain out-of-pocket expenses up to an aggregate of $85,000. In addition, the Company issued warrants to Wainwright (the “August
Wainwright Warrants”) to purchase up to 220,997 shares of common stock. The August Wainwright Warrants are in substantially the
same form as the preferred investment options, except that the exercise price is $3.3938. Further, upon any exercise for cash of any preferred
investment options, the Company agreed to issue to Wainwright additional warrants to purchase the number of Shares equal to 6.0% of the
aggregate number of Shares underlying the preferred investment options that have been exercised, also with an exercise price of $3.3938.
In connection with the August Private Placement,
the Company entered into a Registration Rights Agreement with the purchasers, dated as of August 9, 2022 (the “August Registration
Rights Agreement”). The August Registration Rights Agreement provides that the Company shall file a registration statement covering
the resale of all of the registrable securities (as defined in the August Registration Rights Agreement) with the SEC no later than the
30th calendar day following the date of the August Registration Rights Agreement and have the registration statement declared effective
by the SEC as promptly as possible after the filing thereof, but in any event no later than the 45th calendar day following August 9,
2022 or, in the event of a full review by the SEC, the 80th day following August 9, 2022.
Upon the occurrence of any Event (as defined in
the August Registration Rights Agreement), which, among others, prohibits the Purchasers from reselling the securities for more than ten
consecutive calendar days or more than an aggregate of fifteen calendar days during any 12-month period, and should the registration statement
cease to remain continuously effective, the Company is obligated to pay to each purchaser, on each monthly anniversary of each such Event,
an amount in cash, as partial liquidated damages and not as a penalty, equal to the product of 2.0% multiplied by the aggregate subscription
amount paid by such purchaser in the August Private Placement.
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 should be read in conjunction with our financial statements and the related notes to those
statements included elsewhere in this Quarterly Report on Form 10-Q and with the audited financial statements and the related notes included
in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC, on March 31, 2022. In addition to
historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties,
and assumptions. Some of the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ
materially from those anticipated in these forward-looking statements as a result of many factors. See “Cautionary Note Regarding
Forward-Looking Statements.”
Overview
We are a biotechnology company focused on the
research and development of transformational vaccines to prevent infectious diseases worldwide. Our versatile vaccine platform has unique
molecular properties that enables delivery of various antigens, which can be utilized to develop singular or multi-targeted vaccines.
Our lead influenza (flu) vaccine program uses proprietary technology to identify specific epitopes, or proteins of antigens, with cross-reactive
properties, that enable the potential development of a universal flu vaccine. We are focused on developing novel vaccines that induce
durable and long-term immunity. We believe that our pipeline and vaccine platform are synergistic for developing next generation preventive
vaccines to improve both health outcomes and quality of life globally.
Since
March 31, 2022, key development affecting our business include:
|
● |
Completed Successful $8.8 Million Private Placement: In
the third quarter of 2022, we completed a private placement of 1,350,000 shares of common stock and pre-funded warrants to purchase an
aggregate of 2,333,280 shares of common stock. The aggregate net cash proceeds to us from the offering were $8.8 million, after deducting
placement agent fees and other initial offering expenses. |
|
|
|
|
● |
Advanced BWV-201 IND-Enabling Activities: We continue
to make significant progress with BWV-201,
including the recent generation of the master cell bank (MCB) and working
cell bank (WCB). |
| ● | Expansion
of our license agreement with St. Jude Children’s Research Hospital: We entered
into an amended license agreement on May 11, 2022 with St. Jude Children’s Research
Hospital to expand our global exclusive license to include use of our Streptococcus pneumoniae
strain as a vector to present additional upper respiratory infectious bacterial antigens,
including non-typeable Haemophilus influenzae (“NTHi”), a key infectious
agent causing acute otitis media. |
| | |
| ● | Amendment
to our Scientific Research Agreement with The University of Oxford for BWV-101: We
amended our research agreement with University of Oxford to extend the length of the agreement
to support further development of BWV-101. |
| | |
| ● | Executed
Memorandum of Understanding with Instituto Butantan for BWV-101 development in Brazil: We
entered into a memorandum of understanding with Instituto Butantan for development of our
universal influenza vaccine candidate, BWV-101. Instituto Butantan was approved for a grant
from the State of Sao Paulo Research Foundation (FAPESP) to develop BWV’s universal
influenza vaccine candidate in Brazil. This project grant is part of a larger consortium
across CeRDI to develop a centralized resource to achieve national autonomy in vaccines and
biologics manufacturing and development. |
| | |
| ● | Completed
Successful $6.9 Million Private Placement: In the second quarter of 2022, we completed
a private placement of 1,180,812 shares of our common stock, which included the full exercise
of pre-funded warrants to purchase 590,406 shares of common stock. The aggregate net cash
proceeds to us from the offering were $6.9 million, after deducting placement agent fees
and other offering expenses. |
| ● | Presented
data on BWV-101 H3 & Flu B Novel Epitopes of Limited Variability: We presented
the newly designed epitopes of limited variability supporting our universal influenza vaccine
candidate on April 20, 2022 at the World Vaccine Congress in Washington, D.C. |
| | |
|
● |
Presented Company Overview at Various Conferences: We
continue to develop relationships with the investment community through directed outreach. We were invited to present at the H.C. Wainwright
Global Investment Conference in May and the JMP Securities Life Science Conference in June. Additionally, the Company presented their
corporate overview to more than 25 potential investors, partners, collaborators and key stakeholders at the BIO International Convention
in June.
|
An updated
summary of the Company’s pipeline for all vaccine candidates is provided as follows:
Since our inception in October 2018, we have
devoted substantially all of our resources to performing research and development, undertaking preclinical studies and enabling manufacturing
activities in support of our product development efforts, hiring personnel, acquiring and developing our technology and vaccine candidates,
organizing and staffing our company, performing business planning, establishing our intellectual property portfolio and raising capital
to support and expand such activities. We do not have any products approved for sale and have not generated any revenue from product sales.
To date, we have financed our operations primarily with proceeds from our sale of preferred securities to seed investors, the close of
our initial public offering, and the close of a private placement. We will continue to require additional capital to develop our vaccine
candidates and fund operations in the long-term. Accordingly, until such time as we can generate significant revenue from sales of our
vaccine candidates, if ever, we expect to finance our cash needs through public or private equity or debt financings, third-party (including
government) funding and marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements,
or any combination of these approaches.
We have incurred net losses since inception and
expect to continue to incur net losses in the foreseeable future. Our net losses may fluctuate significantly from quarter-to-quarter and
year-to-year, depending in large part on the timing of our preclinical studies, clinical trials and manufacturing activities, and our
expenditures on other research and development activities. As of June 30, 2022, the Company had working capital of approximately $20.5 million
and an accumulated deficit of approximately $12.3 million. We will need to raise additional capital to sustain operations and
meet our long-term operating requirements beyond the one-year period following the issuance of the accompanying condensed financial statements.
While we believe that we can raise additional
capital to fund our planned operations, until we generate revenue sufficient to support self-sustaining cash flows, if ever, we will need
to raise additional capital to fund our continued operations to execute our long-term business plan, including our product development
and commercialization activities related to our current and future products. There can be no assurance that additional capital will be
available to us on acceptable terms, or at all, or that we will ever generate revenue sufficient to provide for self-sustaining cash flows.
We do not expect to generate any revenue from
commercial product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our vaccine
candidates, which we expect will take a number of years. We expect our expenses will increase substantially in connection with our
ongoing activities, as we:
|
● |
advance vaccine candidates through preclinical studies and clinical trials; |
|
● |
require the manufacture of supplies for our preclinical studies and clinical trials; |
|
● |
pursue regulatory approval of vaccine candidates; |
|
● |
hire additional personnel; |
|
● |
operate as a public company; |
|
● |
acquire, discover, validate and develop additional vaccine candidates; and |
|
● |
obtain, maintain, expand and protect our intellectual property portfolio. |
We rely and will continue to rely on third parties
in the conduct of our preclinical studies and clinical trials and for manufacturing and supply of our vaccine candidates. We have no internal
manufacturing capabilities, and we will continue to rely on third parties, of which the main suppliers are single-source suppliers, for
our preclinical and clinical trial materials. Given our stage of development, we do not yet have a marketing or sales organization or
commercial infrastructure. Accordingly, if we obtain regulatory approval for any of our vaccine candidates, we also expect to incur significant
commercialization expenses related to product sales, marketing, manufacturing and distribution.
Because of the numerous risks and uncertainties
associated with vaccine development, we are unable to predict the timing or amount of increased expenses or when or if we will be able
to achieve or maintain profitability. Even if we are able to generate revenue from the sale of our vaccines, we may not become profitable.
If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations
at planned levels and may be forced to reduce our operations.
Certain Significant Relationships
We have entered into grant, license and collaboration
arrangements with various third parties as summarized below. For further details regarding these and other agreements, see Note 5
to each of our audited financial statements included in the Form 10-K and unaudited financial statements included elsewhere in this Report.
Ology Agreement
In July 2019, we entered into a development
and manufacturing master services agreement with Ology Bioservices (which was later acquired by National Resilience, Inc.) (“Ology”),
as amended, which we refer to as the Ology Agreement, pursuant to which Ology is obligated to perform manufacturing process development
and clinical manufacture and supply of components.
Under the Ology Agreement, we will pay Ology agreed
upon fees for Ology’s performance of manufacturing services and regulatory support, and we will reimburse Ology for its out-of-pocket
costs associated with purchasing raw materials, plus a customary handling fee.
On April 20, 2022, the Company and Ology entered
into a first amendment to the second Project Addendum (the “Ology Amendment”). The Ology Amendment provides for an increase
to the Company’s obligation of $0.3 million, specifically related to regulatory support on the project.
For additional details regarding our relationship
with Ology, see Notes 5 and 7 to our financial statements included elsewhere in this Report.
Cincinnati Children’s Hospital Medical
Center Agreement
On June 1, 2021, we entered into an exclusive,
worldwide license agreement with Children’s Hospital Medical Center, d/b/a Cincinnati Children’s Hospital Medical Center,
or CHMC, which we refer to as the CHMC Agreement, pursuant to which we obtained the right to develop and commercialize certain CHMC patents
and related technology directed at a virus-like particle (VLP) vaccine platform that utilizes nanoparticle delivery technology, which
may have potential broad application to develop vaccines for multiple infectious diseases.
Under the CHMC Agreement, we agreed to pay CHMC
certain license fees, deferred license fees, development milestone fees, and running royalties beginning on the first net sale (among
others). For additional details regarding our relationship with CHMC, see Note 5 to our financial statements included elsewhere in
this Report. The CHMC license includes the following patents:
U.S. Patent
Application No. |
|
U.S. Patent No. |
|
Granted Claim Type |
|
U.S. Expiration |
|
Foreign
Counterparts |
12/797,396 |
|
8,486,421 |
|
Compositions of the vaccine/vaccine platform |
|
1/13/2031 |
|
CN107043408B
EP2440582B1
JP5894528B2 |
|
|
|
|
|
|
|
|
|
13/924,906 |
|
9,096,644 |
|
Method of treatment |
|
9/20/2030 |
|
CN107043408B
EP2440582B1
JP5894528B2 |
|
|
|
|
|
|
|
|
|
13/803,057 |
|
9,562,077 |
|
Compositions of the vaccine platform |
|
4/10/2034 |
|
none |
|
|
|
|
|
|
|
|
|
16/489,095 |
|
pending |
|
pending |
|
[3/15/2038]* |
|
Pending applications
in Canada, China,
EU and Japan |
|
|
|
|
|
|
|
|
|
63/149,742
(filed 2/16/2021) |
|
pending |
|
pending |
|
[February 2042]# |
|
TBD |
|
|
|
|
|
|
|
|
|
63/162,369
(filed 3/17/2021) |
|
pending |
|
pending |
|
[March 2042]# |
|
TBD |
* |
Projected expiration if patent issues: 20 years from earliest non-provisional application filing date. |
# |
Non-provisional application not yet filed. Expiration projected 21 years from provisional application filing date. Dependent on timely conversion to non-provisional application and issuance of patent. |
** |
This is a pending application. Claim type will be determined after U.S. prosecution is complete. The claim type sought includes compositions of the vaccine and vaccine platform. |
CHMC Sponsored Research Agreement
In addition to the CHMC Agreement, the Company also entered into a
sponsored research agreement dated June 30, 2022 with CHMC for research related to the CHMC Agreement (the “CHMC SRA”). Pursuant
to this research agreement, the Company is obligated to pay CHMC an aggregate amount not-to-exceed $247,705. This sponsored research project
has not yet begun as of June 30, 2022. The CHMC SRA has a term of one year, and is cancelable upon 60 days written notice by either party
for convenience. In addition, either party may terminate the CHMC SRA in the event the other party (a) files or has filed against
it a petition under the Bankruptcy Act (among other things) or (b) fails to perform or otherwise breaches its obligations under the
agreement, and has not cured such failure or breach within 30 days of notice of material breach.
Oxford University Innovation Limited Agreement
On July 16, 2019, we entered into an exclusive,
worldwide license agreement with Oxford University Innovation Limited, which we refer to as the OUI Agreement, pursuant to which we obtained
the right to develop and commercialize certain licensed technology entitled “Immunogenic Composition.”
Under the OUI Agreement, we agreed to fund three years’
worth of salaries for Dr. Craig Thompson in the University’ Department of Zoology through a sponsored research agreement with
Oxford University, as well as royalties on all net sales of licensed products, along with certain development and milestone payments (among
others). For additional details regarding our relationship with OUI, see Note 5 to our financial statements included elsewhere in
this Report. The OUI license includes the following patents:
U.S. Patent
Application No. |
|
U.S. Patent No. |
|
Granted Claim Type |
|
U.S. Expiration |
|
Foreign
Counterparts |
16/326,749 |
|
11,123,422 |
|
Compositions and method of treatment |
|
8/25/2037 |
|
Pending applications in Australia, Canada, China, EU and Japan |
|
|
|
|
|
|
|
|
|
17/458,712 |
|
pending |
|
pending |
|
[8/25/2037]* |
|
|
* |
Projected expiration if patent issues: 20 years from earliest non-provisional application filing date. |
** |
This is a pending application. Claim type will be determined after U.S. prosecution is complete. The claim type sought includes compositions of the compositions and method of treatment. |
St. Jude Children’s Research Hospital, Inc. Agreement
On January 27, 2020, we entered into an exclusive,
worldwide license agreement with St. Jude Children’s Research Hospital, Inc., as amended, which we refer to as the St. Jude Agreement,
pursuant to which we acquired the right to develop certain licensed products and produce vaccines for use in humans.
Under the St. Jude Agreement, we agreed to pay
an initial license fee, an annual maintenance fee, milestone payments, patent reimbursement, and running royalties based on the net sales
of licensed products. On May 11, 2022, the Company and St. Jude entered into a first amendment to the St. Jude Agreement (the “St.
Jude Amendment”). The St. Jude Amendment provides for a revised development milestone timeline, a one-time license fee of $5,000,
and an increase to the royalty rate from 4% to 5%. The St. Jude Amendment also provides for an increase to the contingent milestone payments,
from $1.0 million to $1.9 million in the aggregate; specifically, development milestones of $0.3 million, regulatory milestones of
$0.6 million, and commercial milestones of $1.0 million. For additional details regarding our relationship with St. Jude, see
Notes 5 and 7 to our financial statements included elsewhere in this Report. The St. Jude license includes the following patents:
U.S. Patent Application No. |
|
U.S. Patent No. |
|
Granted Claim Type |
|
U.S. Expiration |
|
Foreign
Counterparts |
14/345,988 |
|
9,265,819 |
|
Compositions and method of treatment |
|
9/19/2032 |
|
none |
|
|
|
|
|
|
|
|
|
17/602,414# |
|
pending |
|
pending |
|
[3/12/2040]* |
|
Pending Applications in: Australia, Brazil, Canada, China, Europe, Hong Kong, Japan and Korea |
* |
Projected expiration if patent issues: 20 years from earliest non-provisional application filing date. |
# |
U.S. National stage entry of WO 2020/183420 (PCT/IB2020/052250). |
** |
This is a pending application. Claim type will be determined after U.S. prosecution is complete. The claim type sought includes compositions of the compositions and method of treatment. |
St. Jude Children’s Sponsored Research Agreement
In addition to the St. Jude Agreement, the Company also entered into
a sponsored research agreement dated May 3, 2021 with St. Jude for research related to the St. Jude Agreement (the “St. Jude
SRA”). Pursuant to the St. Jude SRA, the Company is obligated to pay St. Jude an aggregate amount of $73,073 in two parts, Phase I
for $57,624 and Phase II for $15,449. This sponsored research project began during 2021, and the Company recorded approximately $8,000
in related accrued expenses at December 31, 2021. During the three and six months ended June 30, 2022, the Company incurred related research
and development expenses of approximately $0 and $8,000, respectively, and had approximately $15,000 recorded as related accrued expenses
at June 30, 2022. During the three and six months ended June 30, 2021, the Company incurred related research and development expenses
of approximately $58,000.
COVID-19 Impacts
Our business, results of operations and financial
condition have been and may continue to be impacted by the COVID-19 pandemic and could be further impacted by supply chain interruptions,
extended “shelter-in-place” orders or advisories, facility closures or other reasons related to the pandemic. As of the date
of this Quarterly Report on Form 10-Q, the extent to which COVID-19 could materially impact our financial conditions, liquidity or results
of operations is uncertain.
To the extent COVID-19 disruptions continue to
adversely impact our business, results of operations and financial condition, it may also have the effect of heightening risks relating
to our ability to successfully commercialize newly developed or acquired products, consolidation in the healthcare industry, and maintenance
of our contractual relationships.
Components of Results of Operations
Research and Development Expenses
Substantially all of our research and development
expenses consist of expenses incurred in connection with the development of our product candidates. These expenses include fees paid to
third parties to conduct certain research and development activities on our behalf, consulting costs, costs for laboratory supplies, product
acquisition and license costs, certain payroll and personnel-related expenses, including salaries and bonuses, employee benefit costs
and stock-based compensation expenses for our research and product development employees and allocated overheads, including information
technology costs and utilities. We expense both internal and external research and development expenses as they are incurred.
We do not allocate our costs by product candidate,
as a significant amount of research and development expenses include internal costs, such as payroll and other personnel expenses, laboratory
supplies and allocated overhead, and external costs, such as fees paid to third parties to conduct research and development activities
on our behalf, are not tracked by product candidate.
We expect our research and development expenses
to increase substantially for at least the next few years, as we seek to initiate additional clinical trials for our product candidates,
complete our clinical programs, pursue regulatory approval of our product candidates and prepare for the possible commercialization of
such product candidates. Predicting the timing or cost to complete our clinical programs or validation of our commercial manufacturing
and supply processes is difficult and delays may occur because of many factors, including factors outside of our control. For example,
if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate, we
could be required to expend significant additional financial resources and time on the completion of clinical development. Furthermore,
we are unable to predict when or if our product candidates will receive regulatory approval with any certainty.
General and Administrative Expenses
General and administrative expenses consist principally
of payroll and personnel expenses, including salaries and bonuses, benefits and stock-based compensation expenses, professional fees for
legal, consulting, accounting and tax services, including information technology costs, and other general operating expenses not otherwise
classified as research and development expenses.
We anticipate that our general and administrative
expenses will continue to increase when compared to historical levels, as a result of increased personnel costs, expanded infrastructure
and higher consulting, legal and accounting services costs associated with complying with the applicable stock exchange and the SEC requirements,
investor relations costs and director and officer insurance premiums associated with being a public company.
Results of Operations
Comparison of the Three Months Ended June 30, 2022
and 2021
The following table summarizes our statements
of operations for the periods indicated:
|
|
Three Months
Ended
June 30,
2022 |
|
|
Three Months
Ended
June 30,
2021 |
|
|
$ Change |
|
|
% Change |
|
Operating costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
$ |
3,001,418 |
|
|
$ |
262,732 |
|
|
$ |
2,738,686 |
|
|
|
1,042.4 |
% |
Research and development |
|
|
1,293,467 |
|
|
|
529,542 |
|
|
|
763,925 |
|
|
|
144.3 |
% |
Total operating expenses |
|
|
4,294,885 |
|
|
|
792,274 |
|
|
|
3,502,611 |
|
|
|
442.1 |
% |
Loss from operations |
|
|
(4,294,885 |
) |
|
|
(792,274 |
) |
|
|
(3,502,611 |
) |
|
|
442.1 |
% |
Total other income |
|
|
(30,303 |
) |
|
|
— |
|
|
|
(30,303 |
) |
|
|
* |
|
Net loss |
|
$ |
(4,264,582 |
) |
|
$ |
(792,274 |
) |
|
$ |
(3,472,308 |
) |
|
|
438.3 |
% |
General and Administrative Expenses
For the three months ended June 30, 2022,
general and administrative expenses increased by approximately $2.7 million compared to the same period in 2021. The increase was
mainly due to an increase in employee and director compensation and benefits, including annual bonus compensation and stock-based compensation,
of approximately $1.4 million, an increase in audit, accounting, and legal services of approximately $0.2 million, increases
in various business activities related to company growth and development such as entering into a new lease, patent-related expenses and
business advisory services totaling approximately $0.2 million, an accrued loss contingency of $0.5 million, and increases in other business
activities related to now being a public company of approximately $0.4 million.
Research and Development Expenses
For the three months ended June 30, 2022,
research and development expenses increased by approximately $0.8 million compared to the same period in 2021. The increase was primarily
attributable to an increase in employee compensation and benefits, including annual bonus compensation and stock-based compensation, of
approximately $0.7 million, increase in preclinical development activities of approximately $0.3 million mainly related to BWV-201,
and an increase in external research and development personnel costs of approximately $0.1 million, offset by a decrease in license
fees of approximately $0.3 million, primarily related to the one-time license fees incurred pursuant to the CHMC Agreement during the
three months ended June 30, 2021.
Other Income
Other income relates to the change in fair value
of the contingent warrant liability, which was incurred at the close of the private placement during the three months ended June 30, 2022.
There was no other income or expense during the three months ended June 30, 2021.
Comparison of the Six Months Ended June 30, 2022 and
2021
The following table summarizes our statements
of operations for the periods indicated:
| |
Six Months Ended June 30, 2022 | | |
Six Months Ended June 30, 2021 | | |
$ Change | | |
% Change | |
Operating costs and expenses | |
| | |
| | |
| | |
| |
General and administrative | |
$ | 4,616,987 | | |
$ | 500,276 | | |
$ | 4,116,711 | | |
| 822.9 | % |
Research and development | |
| 1,748,559 | | |
| 617,779 | | |
| 1,130,780 | | |
| 183.0 | % |
Total operating expenses | |
| 6,365,546 | | |
| 1,118,055 | | |
| 5,247,491 | | |
| 469.3 | % |
Loss from operations | |
| (6,365,546 | ) | |
| (1,118,055 | ) | |
| (5,247,491 | ) | |
| 469.3 | % |
Total other income | |
| (30,303 | ) | |
| — | | |
| (30,303 | ) | |
| * | |
Net loss | |
$ | (6,335,243 | ) | |
$ | (1,118,055 | ) | |
$ | (5,217,188 | ) | |
| 466.6 | % |
General and Administrative Expenses
For the six months ended June 30, 2022, general
and administrative expenses increased by $4.1 million compared to the same period in 2021. The increase was mainly due to an increase
in employee and director compensation and benefits, including annual bonus compensation and stock-based compensation, of approximately
$1.9 million, an increase in audit, accounting, and legal services of approximately $0.5 million, increases in various business
activities related to company growth and development such as patent-related expenses, travel, and business advisory services totaling
approximately $0.3 million, an accrued loss contingency of $0.5 million, and increases in other business activities related to now being
a public company of approximately $0.5 million. In addition, during the six months ended June
30, 2022, the Company incurred approximately $0.3 million for a non-recurring termination
penalty to the Company’s former underwriter, for early termination of the agreement with that underwriter.
Research and Development Expenses
For the six months ended June 30, 2022, research
and development expenses increased by approximately $1.1 million compared to the same period in 2021. The increase was primarily
attributable to an increase in employee compensation and benefits, including annual bonus compensation and stock-based compensation, of
approximately $0.7 million, increase in preclinical development activities of approximately $0.5 million mainly related to BWV-201,
and an increase in external research and development personnel costs of approximately $0.2 million, offset by a decrease in license
fees of approximately $0.3 million, primarily related to the one-time license fees incurred pursuant to the CHMC Agreement during the
six months ended June 30, 2021.
Other Income
Other income relates to the change in fair value
of the contingent warrant liability, which was incurred at the close of the private placement during the six months ended June 30, 2022.
There was no other income or expense during the six months ended June 30, 2021.
Liquidity and Capital Resources
Liquidity and Capital Resources
Since inception, we have devoted substantially
all of our efforts to research and development, undertaking preclinical studies and enabling manufacturing activities in support of our
product development efforts, hiring personnel, acquiring and developing our technology and vaccine candidates, organizing and staffing
our company, performing business planning, establishing our intellectual property portfolio and raising capital to support and expand
such activities. We do not have any products approved for sale and have not generated any revenue from product sales. We have incurred
net losses in each year since inception and expect to continue to incur net losses in the foreseeable future. Our net loss was approximately
$4.3 million and $6.3 million, respectively, for the three and six months ended June 30, 2022. As of June 30, 2022, we
had an accumulated deficit of approximately $12.3 million. We also generated negative operating cash flows of approximately
$4.1 million for the six months ended June 30, 2022.
On February 23, 2022, we completed our IPO
in which we received approximately $17.1 million in net proceeds, after deducting the underwriting discount, and offering expenses.
In addition, on April 19, 2022, we completed the April Private Placement in which we received approximately $6.9 million in net cash proceeds,
after deducting placement agent fees and other offering expenses. Further, on August 11, 2022, the Company completed the August Private
Placement in which it received approximately $8.8 million in net proceeds, after deducting placement agent fees and other initial
offering expenses. The Company believes the existing cash at June 30, 2022, will be sufficient to continue operations, satisfy
its obligations and fund the future expenditures that will be required to conduct the clinical and regulatory work to develop its product
candidates for at least one year after the date that the accompanying condensed financial statements were issued.
However, we will require significant amounts of
additional capital to continue to fund our operations in the long term and complete our research and development activities. We will continue
seeking additional financing sources to meet our working capital requirements, make continued investment in research and development and
make capital expenditures needed for us to maintain and expand our business. We may not be able to obtain additional financing on terms
favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it,
or if we expend capital on projects that are not successful, our ability to continue to support our business growth and to respond to
business challenges could be significantly limited, or we may even have to cease our operations. If we raise additional funds through
further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity
securities we issue could have rights, preferences and privileges superior to those of holders of our common stock.
Future Funding Requirements
Our primary uses of cash are to fund our operations,
which consist primarily of research and development expenditures related to our programs and general and administrative expenditures.
We anticipate that we will continue to incur significant expenses for the foreseeable future as we continue to advance our vaccine candidates,
expand our corporate infrastructure, including the costs associated with being a public company and further our research and development
initiatives for our vaccine candidates. We are subject to all of the risks typically related to the development of new drug candidates,
and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our
business. We anticipate that we will need substantial additional funding in connection with our continuing operations in order to execute
our long-term business plan.
We estimate that, based on our existing cash as
of June 30, 2022, we have cash on hand sufficient to fund our operations for at least the next 12 months. We will need to raise additional
capital prior to commencing additional pivotal trials for certain of our vaccine candidates. Until we can generate a sufficient amount
of revenue from the commercialization of our vaccine candidates or from collaboration agreements with third parties, if ever, we expect
to finance our future cash needs through public or private equity or debt financings, third-party (including government) funding and marketing
and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or any combination of
these approaches. The future sale of equity or convertible debt securities may result in dilution to our stockholders and, in the case
of preferred equity securities or convertible debt, those securities could provide for rights, preferences or privileges senior to those
of our common stock. Debt financings may subject us to covenant limitations or restrictions on our ability to take specific actions, such
as incurring additional debt, making capital expenditures or declaring dividends. Our ability to raise additional funds may be adversely
impacted by deteriorating global economic conditions and the recent disruptions to and volatility in the credit and financial markets
in the United States and worldwide resulting from the ongoing COVID-19 pandemic. There can be no assurance that we will be successful
in acquiring additional funding at levels sufficient to fund our operations or on terms favorable or acceptable to us. If we are unable
to obtain adequate financing when needed or on terms favorable or acceptable to us, we may be forced to delay, reduce the scope of or
eliminate one or more of our research and development programs.
Our future capital requirements will depend on
many factors, including:
|
● |
the timing, scope, progress, results and costs of research and development, testing, screening, manufacturing, preclinical and non-clinical studies and clinical trials, including any impacts related to the COVID-19 pandemic; |
|
● |
the outcome, timing and cost of seeking and obtaining regulatory approvals from the FDA and comparable foreign regulatory authorities, including the potential for such authorities to require that we perform field efficacy studies for our vaccine candidates, require more studies than those that we currently expect or change their requirements regarding the data required to support a marketing application; |
|
● |
the cost of building a sales force in anticipation of any product commercialization; |
|
● |
the costs of future commercialization activities, including product manufacturing, marketing, sales, royalties and distribution, for any of our vaccine candidates for which we receive marketing approval; |
|
● |
our ability to maintain existing, and establish new, strategic collaborations, licensing or other arrangements and the financial terms of any such agreements, including the timing and amount of any future milestone, royalty or other payments due under any such agreement; |
|
● |
any product liability or other lawsuits related to our products; |
|
● |
the expenses needed to attract, hire and retain skilled personnel; |
|
● |
the revenue, if any, received from commercial sales, or sales to foreign governments, of our vaccine candidates for which we may receive marketing approval; |
|
● |
the costs to establish, maintain, expand, enforce and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with licensing, preparing, filing, prosecuting, defending and enforcing our patents or other intellectual property rights; |
|
● |
expenses needed to attract, hire and retain skilled personnel; |
|
● |
the costs of operating as a public company; and |
|
● |
the impact of the COVID-19 pandemic, which may exacerbate the magnitude of the factors discussed above. |
A change in the outcome of any of these or other
variables could significantly change the costs and timing associated with the development of our vaccine candidates. Furthermore, our
operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated
with such change.
Cash Flows
The following table summarizes our cash flows
for the periods indicated:
|
|
Six Months
Ended
June 30,
2022 |
|
|
Six Months
Ended
June 30,
2021 |
|
Net cash used in operating activities |
|
|
(4,068,508 |
) |
|
|
(639,353 |
) |
Net cash used in investing activities |
|
|
(9,339 |
) |
|
|
— |
|
Net cash provided by financing activities |
|
|
24,391,556 |
|
|
|
— |
|
Net increase (decrease) in cash |
|
|
20,313,709 |
|
|
|
(639,353 |
) |
Cash Flows from Operating Activities
Net cash used in operating activities for the
six months ended June 30, 2022 was approximately $4.1 million, which primarily resulted from a net loss of approximately $6.3 million,
which was partially offset by noncash stock-based compensation of approximately $1.5 million, and a net change in our operating assets
and liabilities of approximately $0.8 million.
Net cash used in operating activities for the
six months ended June 30, 2021 was approximately $0.6 million, which primarily resulted from a net loss of approximately $1.1
million, and was partially offset by noncash stock-based compensation of approximately $0.1 million and a net change in our operating
assets and liabilities of approximately $0.4 million.
Cash Flows from Investing Activities
Net cash used in investing activities for the six
months ended June 30, 2022 was $9,000, which resulted from purchases of property and equipment. There were no such purchases, or
other investing activities during the six months ended June 30, 2021.
Cash Flows from Financing Activities
Net cash provided by financing activities for
the six months ended June 30, 2022 was approximately $24.4 million, and resulted primarily from the close of our IPO and the April
Private Placement. No financing activities took place during the six months ended June 30, 2021.
Legal Contingencies
From time to time, we may become involved in legal
proceedings arising from the ordinary course of business. We record a liability for such matters when it is probable that future losses
will be incurred and that such losses can be reasonably estimated.
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.
Recent Accounting Pronouncements Not Yet Adopted
See Note 3 to our financial statements included
elsewhere in this Report for more information.
Critical Accounting Policies and Estimates
Our financial statements have been prepared in
accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of these financial
statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure
of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including
those related to accrued research and development expenses, fair value of common stock, judgments used in the evaluation of potential
loss contingencies, and stock-based compensation. We base our estimates on historical experience, known trends and events and various
other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions.
While our significant accounting policies are
described in more detail in Note 3 to our financial statements included elsewhere in this Report, we believe the following accounting
policies and estimates to be most critical to the judgments and estimates used in the preparation of our financial statements.
Accrued Research and Development Expenses
We have entered into various agreements with contract
manufacturing organizations, or CMOs, and may enter into contracts with clinical research organizations, or CROs, in the future. As part
of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses as of
each balance sheet date. This process involves reviewing open contracts and purchase orders, communicating with our personnel and third
parties to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost
incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. We make estimates of our accrued
research and development expenses as of each balance sheet date based on facts and circumstances known to us at that time. We periodically
confirm the accuracy of our estimates with the service providers and make adjustments, if necessary. The significant estimates in our
accrued research and development expenses include the costs incurred for services performed by our vendors in connection with research
and development activities for which we have not yet been invoiced.
We accrue for costs related to research and development activities
based on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors, including CMOs, that
conduct research and development on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract
to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level
of services provided and result in a prepayment of the research and development expense. Advance payments for goods and services that
will be used in future research and development activities are expensed when the activity has been performed or when the goods have been
received. We make significant judgments and estimates in determining accrued research and development liabilities as of each reporting
period based on the estimated time period over which services will be performed and the level of effort to be expended. If the actual
timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid expense accordingly.
Although we do not expect our estimates to be
materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual
status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period.
To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.
Contingencies
Accruals are recorded for loss contingencies when it is probable
that a liability has been incurred and the amount of the related loss can be reasonably estimated. The Company evaluates, on a quarterly
basis, developments in legal proceedings and other matters that could cause an increase or decrease in the amount of the liability that
has been accrued previously. Considering facts known at the time of the assessment, the Company determines whether potential losses are
considered reasonably possible or probable and whether they are estimable. Based upon this assessment, the Company carries out an evaluation
of disclosure requirements and considers possible accruals in the financial statements.
Warrants
The Company determines the accounting classification
of warrants that are issued, as either liability or equity, by first assessing whether the warrants meet liability classification in accordance
with ASC 480-10, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, (“ASC 480-10”),
and then in accordance with ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity (“ASC 815-40”). Under ASC
480-10, warrants are considered liability-classified if the warrants are mandatorily redeemable, obligate the issuer to settle the warrants
or the underlying shares by paying cash or other assets, or must or may require settlement by issuing variable number of shares.
If the warrants do not meet liability classification
under ASC 480-10, the Company assesses the requirements under ASC 815-40, which states that contracts that require or may require the
issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring
that triggers the net cash settlement feature. If the warrants do not require liability classification under ASC 815-40, in order to conclude
equity classification, the Company assesses whether the warrants are indexed to its common stock and whether the warrants are classified
as equity under ASC 815-40 or other applicable GAAP. After all relevant assessments are made, the Company concludes whether the warrants
are classified as liability or equity. Liability-classified warrants are required to be accounted for at fair value both on the date of
issuance and on subsequent accounting period ending dates, with all changes in fair value after the issuance date recorded as a component
of other income (expense), net in the statements of operations. Equity-classified warrants are accounted for at fair value on the issuance
date with no changes in fair value recognized after the issuance date.
Stock-Based Compensation
The Company expensed stock-based compensation
to employees and non-employees over the requisite service period based on the estimated grant-date fair value of the awards. Stock-based
awards to employees with graded-vesting schedules are recognized, using the accelerated attribution method, on a straight-line basis over
the requisite service period for each separately vesting portion of the award.
The Company estimates the fair value of stock
option grants using the Black-Scholes option pricing model and the assumptions used in calculating the fair value of stock-based awards
represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.
|
Expected Term — The expected term of options represents the period that the Company’s stock-based awards are expected to be outstanding based on the simplified method, which is the half-life from vesting to the end of its contractual term. |
|
Expected Volatility — Volatility is a measure of the amount by which the Company’s share price has historically fluctuated or is expected to fluctuate (i.e., expected volatility) during a period. Due to the lack of an adequate history of a public market for the trading of the Company’s common stock and a lack of adequate company-specific historical and implied volatility data, the Company computes stock price volatility over expected terms based on comparable companies’ historical common stock trading prices. For these analyses, the Company has selected companies with comparable characteristics, including enterprise value, risk profiles, and position within the industry. |
|
Common Stock Fair Value — Due to the absence of an active market for the Company’s common stock prior to the IPO, the fair value of the common stock underlying the Company’s stock options granted prior to the IPO was estimated at each grant date and was determined with the assistance of an independent third-party valuation expert. The assumptions underlying these valuations represented management’s best estimates, which involved inherent uncertainties and the application of significant levels of management judgment. After the completion of the IPO, the fair value of each share of common stock is based on the closing price of the Company’s common stock as reported by the Nasdaq Capital Market. |
|
Risk-Free Interest Rate — The Company bases the risk-free interest rate on the implied yield available on U.S. Treasury securities with a remaining term commensurate with the estimated expected term. |
|
Expected Dividend — The Company has never declared or paid any cash dividends on its shares of common stock and does not plan to pay cash dividends in the foreseeable future, and, therefore, uses an expected dividend yield of zero in its valuation models. |
The Company recognizes forfeitures of equity awards
as they occur.
Fair value of common stock
In order to determine the fair value of shares
of common stock of the Company when issuing stock options prior to the IPO, and computing their estimated stock-based compensation expense,
its board of directors considered with input from third party valuations, among other things, contemporaneous valuations of the Company’s
common stock. Given the absence of a public trading market of the Company’s capital stock prior to the IPO, its board of directors
has exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair
value of our common and preferred stock, including:
|
● |
the prices, rights, preferences and privileges of our preferred stock relative to our common stock; |
|
● |
our business, financial condition and results of operations, including related industry trends affecting our operations; |
|
● |
the likelihood of achieving a liquidity event, such as an initial public offering, or IPO, or sale of our company, given prevailing market conditions; |
|
● |
the lack of marketability of our common stock; |
|
● |
the market performance of comparable publicly traded companies; |
|
● |
U.S. and global economic and capital market conditions and outlook; and |
|
● |
Common stock valuation methodology. |
In estimating the fair market value of common
stock of the Company, its board of directors first determined the equity value of its business using accepted valuation methods.
The Company engaged a third party valuation specialist
to conduct a valuation, which used its recent preferred stock financing as a starting point and determined the equity value of the company
based on the Backsolve method using an Option Pricing Method (OPM) to calculate the implied value based on a market approach. The Company’s
equity value was allocated using OPM to estimate the fair market value of the Company’s classes of equity.
After the completion of the IPO, the fair value
of each share of common stock is based on the closing price of the Company’s common stock as reported by the Nasdaq Capital Market.