sabs20230331_10q.htm
0001833214 SAB Biotherapeutics, Inc. false --12-31 Q1 2023 0.0001 0.0001 10,000,000 10,000,000 0 0 0 0 0.0001 0.0001 490,000,000 490,000,000 50,944,420 50,944,420 50,397,762 50,394,262 546,658 546,658 1 0 0 100 0 3 1 5 5 3 7 1.12 15.66 1 5 5 7 7 5 3 0 100 3 50 2 Included in Common stock warrants are the 5,750,000 Public Warrants, 208,600 Private Warrants, and 300,000 Ladenburg Agreement Warrants. See Note 12, Fair Value Measurements for further details on the Company's outstanding warrants As the underlying shares are restricted from sale for a period of 180 days from the date of the 2022 Private Placement, the fair value of the warrants were estimated using the Black-Scholes option pricing model that uses several inputs, including market price of the Company's common shares at the end of each reporting period (a level one input), less a discount for lack of marketability (a level two input). The discount for lack of marketability was estimated upon consideration of volatility and the length of the lock-up period. As the Earnout shares are subject to certain vesting requirements not satisfied as of the three months ended March 31, 2023, the Earnout Shares held in escrow are excluded from calculating both basic and diluted earnings per share. 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Table of Contents



 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


FORM 10-Q


(Mark One)

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

 

For the quarterly period ended March 31, 2023

 

OR

 

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

 

For the transition period from ___________________ to ___________________

 

Commission File Number: 001-39871

 


SAB BIOTHERAPEUTICS, INC.

(Exact Name of Registrant as Specified in its Charter)


 

Delaware

85-3899721

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

2100 East 54th Street North

Sioux Falls, South Dakota

57104

(Address of principal executive offices)

(Zip Code)

 

Registrants telephone number, including area code: (605) 679-6980


 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common stock, 0.0001 par value per share

 

SABS

 

The Nasdaq Stock Market LLC

Warrants, each exercisable for one share of Common Stock at an exercise price of $11.50 per share

 

SABSW

 

The Nasdaq Stock Market LLC

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

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

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

    

Emerging growth company

 

 

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

 

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

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐

 

As of May 5, 2023, the registrant had 50,397,762 shares of common stock, $0.0001 par value per share, outstanding.

 



 

 

 

Table of Contents

 

   

Page

     

PART I.

FINANCIAL INFORMATION

2

     

Item 1.

Consolidated Financial Statements (Unaudited)

2

 

Consolidated Balance Sheets

2

 

Consolidated Statements of Operations

3

 

Consolidated Statements of Changes In Stockholders’ Equity (Deficit)

4

 

Consolidated Statements of Cash Flows

5

 

Notes to Unaudited Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

35

Item 4.

Controls and Procedures

35

     

PART II.

OTHER INFORMATION

36

     

Item 1.

Legal Proceedings

36

Item 1A.

Risk Factors

36

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

36

Item 3.

Defaults Upon Senior Securities

36

Item 4.

Mine Safety Disclosures

36

Item 5.

Other Information

36

Item 6.

Exhibits

37

Signatures

38

 

 

 

PART IFINANCIAL INFORMATION

 

Item 1. Consolidated Financial Statements (Unaudited).

 

SAB Biotherapeutics, Inc. and Subsidiaries

Consolidated Balance Sheets

 

  

March 31, 2023

  

December 31, 2022

 
  

(Unaudited)

     

Assets

        

Current assets

        

Cash and cash equivalents

 $13,060,087  $15,046,894 

Accounts receivable, net

  763,123   5,556,577 

Prepaid expenses

  1,208,781   1,493,982 

Total current assets

  15,031,991   22,097,453 

Long-term prepaid insurance

  434,000   467,694 

Operating lease right-of-use assets

  960,168   1,192,054 

Financing lease right-of-use assets

  3,872,157   3,896,873 

Property, plant and equipment, net

  22,373,698   23,250,853 

Total assets

 $42,672,014  $50,904,927 

Liabilities and Stockholders’ Equity

        

Current liabilities

        

Accounts payable

 $1,444,963  $3,679,116 

Notes payable

  444,478   772,665 

Operating lease liabilities, current portion

  518,012   490,794 

Finance lease liabilities, current portion

  132,816   132,788 

Deferred grant income

  2,939,198    

Accrued expenses and other current liabilities

  8,186,259   9,917,981 

Total current liabilities

  13,665,726   14,993,344 

Operating lease liabilities, noncurrent

  227,652   361,225 

Finance lease liabilities, noncurrent

  3,596,126   3,629,642 

Warrant liabilities

  238,344   320,930 

Convertible Debt

  541,644   541,644 

Total liabilities

  18,269,492   19,846,785 

Commitments and contingencies (Note 16)

          

Stockholders’ equity

        

Preferred stock; $0.0001 par value; 10,000,000 shares authorized, 0 shares issued and outstanding at March 31, 2023 and December 31, 2022

      

Common stock; $0.0001 par value; 490,000,000 shares authorized at March 31, 2023 and December 31, 2022; 50,944,420 and 50,940,920 shares issued, respectively, and 50,397,762 and 50,394,262 outstanding at March 31, 2023 and December 31, 2022, respectively

  5,094   5,094 

Treasury stock, at cost; 546,658 shares held at March 31, 2023 and December 31, 2022

  (5,521,246)  (5,521,246)

Additional paid-in capital

  85,142,249   84,444,049 

Accumulated deficit

  (55,223,575)  (47,869,755)

Total stockholders’ equity

  24,402,522   31,058,142 

Total liabilities and stockholders’ equity

 $42,672,014  $50,904,927 

 

See accompanying notes to the consolidated financial statements

 

 

 

 

SAB Biotherapeutics, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

 

  

Three Months Ended March 31,

 
  

2023

  

2022

 

Revenue

        

Grant revenue

 $581,101  $11,803,077 

Total revenue

  581,101   11,803,077 

Operating expenses

        

Research and development

  4,535,721   13,324,344 

General and administrative

  3,447,389   5,186,072 

Total operating expenses

  7,983,110   18,510,416 

Loss from operations

  (7,402,009)  (6,707,339)

Other income (expense)

        

Changes in fair value of warrant liabilities

  82,586   7,849,572 

Interest expense

  (92,385)  (72,022)

Interest income

  57,988   7,933 

Total other income

  48,189   7,785,483 

Income (loss) before income taxes

  (7,353,820)  1,078,144 

Income tax expense

     92,281 

Net income (loss)

 $(7,353,820) $985,863 

Earnings (loss) per common share attributable to the Company’s shareholders

        

Basic earnings (loss) per common share

 $(0.15) $0.02 

Diluted earnings (loss) per common share

 $(0.15) $0.02 

Weighted-average common shares outstanding – basic

  50,397,054   43,113,353 

Weighted-average common shares outstanding – diluted

  50,397,054   45,816,651 

 

See accompanying notes to the consolidated financial statements.

 

 

 

SAB Biotherapeutics, Inc. and Subsidiaries

Consolidated Statements of Changes In Stockholders Equity (Deficit)

(Unaudited)

 

   

Common stock

           

Treasury Stock

                 
   

Shares

   

Amount

   

Additional Paid-In Capital

   

Shares

   

Amount

   

Accumulated Deficit

   

Total Stockholders’ Equity

 

Balance at December 31, 2021

    43,487,279     $ 4,349     $ 67,674,515           $     $ (29,128,951 )   $ 38,549,913  

Issuance of common stock for exercise of stock options

    14,500       1       7,829                         7,830  

Forward Share Purchase Agreement, final settlement

                817,060                         817,060  

Repurchase of common stock pursuant to the Forward Share Purchase Agreement

                5,521,246       (546,658 )     (5,521,246 )            

Stock-based compensation

                897,600                         897,600  

Net income

                                  985,863       985,863  

Balance at March 31, 2022

    43,501,779     $ 4,350     $ 74,918,250       (546,658 )   $ (5,521,246 )   $ (28,143,088 )   $ 41,258,266  

Balance at December 31, 2022

    50,940,920     $ 5,094     $ 84,444,049       (546,658 )   $ (5,521,246 )   $ (47,869,755 )   $ 31,058,142  

Issuance of common stock for exercise of stock options

    3,500             1,890                         1,890  

Professional fees paid with warrants

                93,530                         93,530  

Stock-based compensation

                602,780                         602,780  

Net loss

                                  (7,353,820 )     (7,353,820 )

Balance at March 31, 2023

    50,944,420     $ 5,094     $ 85,142,249       (546,658 )   $ (5,521,246 )   $ (55,223,575 )   $ 24,402,522  

 

See accompanying notes to the consolidated financial statements.

 

 

 

SAB Biotherapeutics, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

 

   

Three Months Ended March 31,

 
   

2023

   

2022

 

Cash flows from operating activities:

               

Net income (loss)

  $ (7,353,820 )   $ 985,863  

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:

               

Depreciation and amortization

    898,453       636,235  

Amortization of right-of-use assets

    24,716       41,207  

Stock-based compensation expense

    602,780       897,600  

Gain on sale of equipment

          (14,278 )

Changes in fair value of warrant liabilities

    (82,586 )     (7,849,572 )

Professional fees paid with warrants

    93,530        

Changes in operating assets and liabilities

               

Accounts receivable

    4,793,454       (3,775,713 )

Prepaid expenses

    318,901       (354,612 )

Operating lease right-of-use assets

    125,531       (18,080 )

Accounts payable

    (2,234,157 )     522,816  

Due to related party

          (2,367 )

Deferred grant income

    2,939,198       (100,000 )

Income tax payable

          92,281  

Accrued expense and other current liabilities

    (1,731,717 )     (599,105 )

Net cash used in operating activities

    (1,605,717 )     (9,537,725 )
                 

Cash flows from investing activities:

               

Proceeds from the sale of equipment

          76,390  

Purchases of equipment

    (21,300 )     (1,357,324 )

Net cash used in investing activities

    (21,300 )     (1,280,934 )
                 

Cash flows from financing activities:

               

Payments of notes payable

    (328,187 )     (755,783 )

Payments related to the Forward Share Purchase Agreement

          (5,521,246 )

Principal payments on finance leases

    (33,493 )     (48,751 )

Proceeds from exercise of stock options

    1,890       7,830  

Net cash used in financing activities

    (359,790 )     (6,317,950 )
                 

Net decrease in cash, cash equivalents, and restricted cash

    (1,986,807 )     (17,136,609 )

Cash, cash equivalents, and restricted cash

               

Beginning of year

    15,046,894       39,545,018  

End of period

  $ 13,060,087     $ 22,408,409  

Supplemental disclosures:

               

Cash paid for interest

  $ 78,312     $ 72,022  

 

See accompanying notes to the consolidated financial statements.

 

 

SAB BIOTHERAPEUTICS, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


 

(1) Nature of Business

 

On October 22, 2021 (the “Closing Date”), we consummated the business combination contemplated by the agreement and plan of merger, dated as of June 21, 2021, as amended on August 12, 2021, made by and among Big Cypress Acquisition Corp., a Delaware corporation (“BCYP”), Big Cypress Merger Sub Inc., a Delaware corporation (“Merger Sub”), SAB Biotherapeutics, Inc., a Delaware corporation (“SAB” or “SAB Biotherapeutics” or the “Company”), and Shareholder Representative Services LLC, a Colorado limited liability company, solely in its capacity as the representative, agent and attorney-in-fact of the SAB Stockholders (the “Business Combination”). Upon closing of the Business Combination, Merger Sub merged with SAB Biotherapeutics, with SAB Biotherapeutics as the surviving company of the merger. Upon closing of the Business Combination, BCYP changed its name to “SAB Biotherapeutics, Inc.”.

 

SAB is a clinical-stage biopharmaceutical company focused on the development and commercialization of a portfolio of products from its proprietary immunotherapy platform to produce fully targeted human polyclonal antibodies, without using human plasma or serum. SAB’s novel DiversitAb platform enables the rapid production of large amounts of targeted human polyclonal antibodies, leveraging transchromosomic cattle (Tc Bovine™) that have been genetically designed to produce human antibodies (immunoglobulin G) rather than bovine in response to an antigen. Animal antibodies have been made in rabbits, sheep and horses. However, SAB’s platform is the first to produce fully human antibodies in large animals.

 

Going Concern

 

As of March 31, 2023, the Company has experienced net losses, negative cash flows from operations and had an accumulated deficit of $55.2 million. The Company anticipates to continue to generate losses for the foreseeable future and expects the losses to increase as the Company continues the development of, and seek regulatory approvals for, product candidates, and begin commercialization of products. As a result, the Company will require additional capital to fund operations in order to support long-term plans, in particular, following the JPEO Rapid Response Contract Termination. These factors raise substantial doubt about the Company’s ability to continue as a going concern for the one-year period following the date that these financial statements were issued.

 

To continue as a going concern, the Company will need, among other things, to raise additional capital resources. The Company plans to seek additional funding through a combination of equity or debt financings, or other third-party financing, collaborative or other funding arrangements. Should the Company seek additional financing from outside sources, the Company may not be able to raise such financing on terms acceptable to the Company or at all. If the Company is unable to raise additional capital when required or on acceptable terms, the Company may be required to scale back or discontinue the advancement of product candidates, reduce headcount, liquidate assets, file for bankruptcy, reorganize, merge with another entity, or cease operations.

 

The unaudited consolidated financial statements as of March 31, 2023, have been prepared on the basis that the Company will continue as a going concern, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability for the Company to continue as a going concern.

 

 

(2) Summary of Significant Accounting Policies

 

A summary of the significant accounting policies applied in preparation of the accompanying consolidated financial statements is set forth below.

 

Basis of presentation

 

The financial statements have been prepared in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) and include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented.

 

The Business Combination was accounted for as a reverse recapitalization in accordance with U.S. GAAP (the “Reverse Recapitalization”). Under this method of accounting, BCYP is treated as the “acquired” company and SAB Biotherapeutics is treated as the acquirer for financial reporting purposes. Accordingly, for accounting purposes, the Reverse Recapitalization was treated as the equivalent of SAB Biotherapeutics issuing stock for the net assets of BCYP, accompanied by a recapitalization. The net assets of BCYP are stated at historical cost, with no goodwill or other intangible assets recorded. SAB Biotherapeutics was determined to be the accounting acquirer based on the following predominant factors:

 

 

SAB Biotherapeutics’ shareholders have the largest portion of voting rights in the Company;

 

the Board and Management are primarily composed of individuals associated with SAB Biotherapeutics;

 

the operations of SAB comprise the ongoing operations of the Company.

 

The consolidated assets, liabilities and results of operations prior to the Reverse Recapitalization are those of SAB Biotherapeutics. At the Closing Date, and subject to the terms and conditions of the Merger Agreement, each share of SAB Biotherapeutics common stock, par value $0.0001 per share, and each share of the SAB Biotherapeutics convertible preferred stock that was convertible into a share of SAB Biotherapeutics common stock at a one-to-one ratio, was converted into Common Stock equal to approximately 0.4653 (the “Exchange Ratio”). The shares and corresponding capital amounts and losses per share, prior to the Business Combination, have been retroactively restated based on shares reflecting the Exchange Ratio established in the Business Combination.

 

6

 

Emerging growth company status

 

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

 

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

 

Principles of consolidation

 

The accompanying consolidated financial statements include the results of the Company and its wholly owned subsidiaries, SAB Sciences, Inc., SAB Capra, LLC, and Aurochs, LLC. Intercompany balances and transactions have been eliminated in consolidation.

 

Significant risks and uncertainties

 

The Company’s operations are subject to a number of factors that can affect its operating results and financial condition. Such factors include, but are not limited to, the results of research and development efforts, clinical trial activities of the Company’s product candidates, the Company’s ability to obtain regulatory approval to market its product candidates, competition from products manufactured and sold or being developed by other companies, and the Company’s ability to raise capital.

 

The Company currently has no commercially approved products and there can be no assurance that the Company’s research and development will be successfully commercialized. Developing and commercializing a product requires significant time and capital and is subject to regulatory review and approval as well as competition from other biotechnology and pharmaceutical companies. The Company operates in an environment of rapid change and is dependent upon the continued services of its employees and obtaining and protecting intellectual property. Additional funding may be needed to cover operational costs as the Company moves forward with the Company’s efforts to develop a commercially approved product.

 

 

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, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities in the financial statements. The Company has used significant estimates in its determination of stock-based compensation assumptions, determination of the fair value of the Company’s common stock prior to becoming a public company, determination of the fair value of the Company’s warrants, determination of the incremental borrowing rate (“IBR”) used in the calculation of the Company’s right of use assets and lease liabilities, and the valuation allowance on deferred tax assets. Actual amounts realized may differ from these estimates.

 

Fair Value Measurements 

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The following fair value hierarchy classifies the inputs to valuation techniques that would be used to measure fair value into one of three levels:

 

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.

 

Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

 

Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

 

Certain of the Company’s financial instruments are not measured at fair value on a recurring basis but are recorded at amounts that approximate their fair value due to the short-term nature of their maturities, such as cash and cash equivalents, accounts receivable, accounts payable and accrued expenses. 

 

7

 

The Company accounts for warrants to purchase its common stock pursuant to ASC Topic 470, Debt, and ASC Topic 480, Distinguishing Liabilities from Equity, and classifies warrants for common stock as liabilities or equity. The warrants classified as liabilities are reported at their estimated fair value (see Note 12, Fair Value Measurements) and any changes in fair value are reflected in other income and expense. The warrants classified as equity are reported at their estimated relative fair value with no subsequent remeasurement. The Company’s outstanding warrants are discussed in more detail in Note 12, Fair Value Measurements.

 

Cash, cash equivalents, and restricted cash

 

Cash equivalents include short-term, highly liquid instruments, consisting of money market accounts and short-term investments with original maturities at the date of purchase of 90 days or less.

 

Accounts receivable

 

Accounts receivable are carried at original invoice amount, less an allowance for doubtful accounts. The Company estimates an allowance for doubtful accounts for potential credit losses that are expected to be incurred, based on management’s assessment of the collectability of specific accounts, the aging of the accounts receivable, historical information and other currently available evidence. Receivables are written off when deemed uncollectible. To date, no receivables have been written off. The Company had no allowance for doubtful accounts as of March 31, 2023 and December 31, 2022.

 

Concentration of credit risk

 

The Company maintains its cash and cash equivalent balances in the form of business checking accounts and money market accounts, the balances of which, at times, may exceed federally insured limits. Exposure to credit risk is reduced by placing such deposits in high credit quality federally insured financial institutions. The Company monitors the financial institutions and the composition of the Company’s accounts. The Company has not experienced any losses in such accounts and believes that the financial institutions at which the Company’s cash is held are stable. 

 

The Company received 100% of its total revenue through grants from government organizations during the three months ended March 31, 2023 and 2022.

 

Lease liabilities and right-of-use assets

 

The Company is party to certain contractual arrangements for equipment, lab space, and an animal facility, which meet the definition of leases under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC 842”). In accordance with ASC 842, the Company recorded right-of-use assets and related lease liabilities for the present value of the lease payments over the lease terms. The Company’s IBR was used in the calculation of its right-of-use assets and lease liabilities.

 

The Company elected not to apply the recognition requirements of ASC 842 to short-term leases, which are deemed to be leases with a lease term of twelve months or less. Instead, the Company recognized lease payments in the Consolidated Statements of Operations on a straight-line basis over the lease term and variable payments in the period in which the obligation for these payments was incurred. The Company elected this policy for all classes of underlying assets.

 

Research and development expenses

 

Expenses incurred in connection with research and development activities are expensed as incurred. These include licensing fees to use certain technology in the Company’s research and development projects, fees paid to consultants and various entities that perform certain research and testing on behalf of the Company, and expenses related to salaries, benefits, and stock-based compensation granted to employees in research and development functions.

 

During the three months ended March 31, 2023 and 2022, the Company had contracts with multiple contract research organizations (“CRO”) to complete studies as part of research grant agreements. In the case of SAB-185, the CRO has been contracted and paid by the US government—as of March 31, 2023 there is no active CRO engaged by the Company in work on SAB-185. For SAB-176, PPD Development, LP acting as the CRO oversaw the Phase 1 safety study. The terms of that agreement are subject to confidentiality, and the status of the agreement is that it is current, in good standing and approximately 95% of the contract has been paid as of March 31, 2023. SAB has also contracted with hVIVO Services Limited to conduct the Phase 2a influenza study on SAB-176. The terms of that agreement are subject to confidentiality, and the status of the agreement is that it is current, in good standing and approximately 95% of the contract has been paid as of March 31, 2023.

 

Equipment

 

The Company records equipment at cost less depreciation. Depreciation is calculated using straight-line methods over the following estimated useful lives (in years):

 

(in years)

    

Animal facility equipment

  7 

Laboratory equipment

  7 

Leasehold improvements

  

Shorter of asset life or lease term

 

Office furniture & equipment

  5 

Vehicles

  5 

 

Repairs and maintenance expenses are expensed as incurred.

 

8

 

Impairment of long-lived assets

 

The Company reviews the recoverability of long-lived assets, including the related useful lives, whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. If necessary, the Company compares the estimated undiscounted future net cash flows to the related asset’s carrying value to determine whether there has been an impairment. If an asset is considered impaired, the asset is written down to fair value, which is based either on discounted cash flows or appraised values in the period the impairment becomes known. The Company believes that long-lived assets are recoverable, and no impairment was deemed necessary, during the three months ended March 31, 2023 and 2022.

 

Stock-based compensation

 

FASB ASC Topic 718, Compensation Stock Compensation, prescribes accounting and reporting standards for all share-based payment transactions in which employee and non-employee services are acquired. The Company recognizes compensation cost relating to stock-based payment transactions using a fair-value measurement method, which requires all stock-based payments to employees, directors, and non-employee consultants, including grants of stock options, to be recognized in operating results as compensation expense based on fair value over the requisite service period of the awards. Prior to the Business Combination, the grant date fair value of the Company’s common stock was typically determined by the Company’s board of directors with the assistance of management and a third-party valuation specialist.

 

Subsequent to the Business Combination, the board of directors elected to determine the fair value of post-merger common stock based on the closing market price at closing on the date of grant. In determining the fair value of stock-based awards, the Company utilizes the Black-Scholes option-pricing model, which uses both historical and current market data to estimate fair value. The Black-Scholes option-pricing model incorporates various assumptions, such as the value of the underlying common stock, the risk-free interest rate, expected volatility, expected dividend yield, and expected life of the options. For awards with performance-based vesting criteria, the Company estimates the probability of achievement of the performance criteria and recognizes compensation expense related to those awards expected to vest. No awards may have a term in excess of ten years. Forfeitures are recorded when they occur. Stock-based compensation expense is classified in the consolidated statements of operations based on the function to which the related services are provided. The company recognizes stock-based compensation expense over the expected term.

 

Income taxes

 

Deferred income taxes reflect future tax effects of temporary differences between the tax and financial reporting basis of the Company’s assets and liabilities measured using enacted tax laws and statutory tax rates applicable to the periods when the temporary differences will affect taxable income. When necessary, deferred tax assets are reduced by a valuation allowance, to reflect realizable value, and all deferred tax balances are reported as long-term on the consolidated balance sheet. Accruals are maintained for uncertain tax positions, as necessary.

 

Income tax expense includes the current tax liability from operations and the change in deferred income taxes during the year. Current tax liabilities or receivables are recognized for estimated income tax payable and/or refundable for the current year.

 

The Company uses a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. The Company has elected to treat interest and penalties related to income taxes, to the extent they arise, as a component of income taxes.

 

Revenue recognition

 

The Company’s revenue is primarily generated through grants from government and other (non-government) organizations.

 

Grant revenue is recognized during the period that the research and development services occur, as qualifying expenses are incurred, or conditions of the grants are met. The Company concluded that payments received under these grants represent conditional, nonreciprocal contributions, as described in ASC 958, Not-for-Profit Entities, and that the grants are not within the scope of ASC 606, Revenue from Contracts with Customers, as the organizations providing the grants do not meet the definition of a customer. Expenses for grants are tracked by using a project code specific to the grant, and the employees also track hours worked by using the project code.

 

Deferred grant income represents grant proceeds received by the Company prior to the period in which the research and development services occur, as qualifying expenses are incurred, or conditions of the grants are met.

 

Comprehensive income (loss)

 

The Company had no items of comprehensive income (loss) other than its net income (loss).

 

Litigation

 

From time to time, the Company is involved in legal proceedings, investigations and claims generally incidental to its normal business activities. In accordance with U.S. GAAP, the Company accrues for loss contingencies when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Legal costs in connection with loss contingencies are expensed as incurred.

 

Earnings per share

 

In accordance with ASC 260, Earnings per Share (“ASC 260”), basic net income (loss) per share attributable to common stockholders is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of common stock outstanding during the period. Diluted net income (loss) per share attributable to common stockholders is computed by dividing the diluted net income (loss) attributable to common stockholders by the weighted-average number of common stock outstanding for the period including potential dilutive common shares such as stock options.

 

Segment reporting

 

In accordance with ASC 280, Segment Reporting, the Company’s business activities are organized into one reportable segment, as only the Company’s operating results in their entirety are regularly reviewed by the Company’s chief operating decision maker to make decisions about resources to be allocated and to assess performance.

 

9

 

Common stock valuations

 

Prior to the Business Combination, the Company was required to periodically estimate the fair value of its common stock with the assistance of an independent third-party valuation firm, as discussed above, when issuing stock options and computing estimated stock-based compensation expense. The assumptions underlying these valuations represented the Company’s best estimates, which involved inherent uncertainties and the application of significant levels of judgment. In order to determine the fair value of its common stock, the Company considered, among other items, previous transactions involving the sale of Company securities, the business, financial condition and results of operations, economic and industry trends, the market performance of comparable publicly traded companies, and the lack of marketability of the Company’s common stock.

 

Subsequent to the Business Combination, the Company now determines the fair value of common stock based on the closing market price at closing on the date of grant.

 

Compensation expense related to stock-based transactions is measured and recognized in the financial statements at fair value of the post-merger common stock based on the closing market price at closing on the date of grant. Stock-based compensation expense is measured at the grant date based on the fair value of the equity award and is recognized as expense over the requisite service period, which is generally the vesting period, on the straight-line method. The Company estimates the fair value of each stock option award on the date of grant using the Black-Scholes option-pricing model. Determining the fair value of stock option awards at the grant date requires judgment, including estimating the expected volatility, expected term, risk-free interest rate, and expected dividends.

 

(3) New accounting standards

 

Recently-adopted standards

 

In May 2021, FASB issued Accounting Standards Update (“ASU”) 2021-04, Earnings Per Share (Topic 260), DebtModifications and Extinguishments (Subtopic 470-50), CompensationStock Compensation (Topic 718), and Derivatives and HedgingContracts in Entitys Own Equity (Subtopic 815-40): Issuers Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The amendments in ASU 2021-04 provide guidance to clarify and reduce 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 amendments in this ASU 2021-04 are effective for all entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, including interim periods within those fiscal years. The Company adopted ASU 2021-04 at January 1, 2022, and the adoption did not have a material impact on its consolidated financial statements.

 

In July 2021, the FASB issued ASU 2021-05, Leases (Topic 842) Lessors - Certain Leases with Variable Lease Payments, to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities as well as disclosing key information about leasing transactions. This guidance is effective for all entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years for public business entities. The Company adopted ASU 2021-05 at January 1, 2022, and the adoption did not have a material impact on its consolidated financial statements.

 

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This ASU increases the transparency of government assistance to include the disclosure of (1) the types of assistance, (2) an entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements. The guidance in ASU 2021-10 is effective for financial statements of all entities, including private companies, for annual periods beginning after December 15, 2021, with early application permitted. Entities are required to provide the new disclosures prospectively for all transactions with a government entity that are accounted for under either a grant or a contribution accounting model and are reflected in the financial statements at the date of initially applying the new amendments, and to new transactions entered into after that date. The Company adopted ASU 2021-10 at January 1, 2022, and the adoption did not have a material impact on its consolidated financial statements.

 

In July 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires the measurement of all expected credit losses of financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 is effective for periods beginning after December 15, 2022, and interim periods within those fiscal years. The Company adopted ASU 2016-13 at January 1, 2023, and the adoption did not have a material impact on its consolidated financial statements.

 

10

 
 

(4) Revenue

 

During the three months ended March 31, 2023 and 2022, the Company worked on the following grants:

 

Government grants

 

The total revenue for government grants was approximately $0.6 million  and $11.8 million, respectively, the three months ended March 31, 2023 and 2022.

 

National Institute of Health – National Institute of Allergy and Infectious Disease (“NIH-NIAID”) (Federal Award #1R44AI117976-01A1) – this grant was for $1.4 million and started in September 2019 through August 2021. This grant was subsequently amended to extend the date through August 2022. No grant income was recognized for this grant for the three months ended March 31, 2023, and approximately $27 thousand of grant income was recognized for the three months ended March 31, 2022. This grant was completed in 2022. 

 

NIH-NIAID (Federal Award #1R41AI131823-02) – this grant was for approximately $1.5 million and started in April 2019 through March 2021. The grant was subsequently amended to extend the date through March 2023. Grant income recognized was approximately $192 thousand and $13 thousand, respectively, for the three months ended March 31, 2023 and 2022. There is approximately $237 thousand in funding remaining for this grant as of March 31, 2023.

 

NIH-NIAID through Geneva Foundation (Federal Award #1R01AI132313-01, Subaward #S-10511-01) – this grant was for approximately $2.7 million and started in August 2017 through July 2021. The grant was subsequently amended to extend the date through July 2023. Grant income recognized was approximately $236 thousand and $23 thousand, respectively, for the three months ended March 31, 2023 and 2022. There is approximately $226 thousand in funding remaining for this grant as of March 31, 2023.

 

US Department of Defense (“DoD”), Joint Program Executive Office for Chemical, Biological, Radiological and Nuclear Defense Enabling Biotechnologies (“JPEO”) through Advanced Technology International – this grant was for a potential of $25 million, awarded in stages starting in August 2019 and with potential stages running through February 2023. Additional contract modifications were added to this contract in 2020 and 2021 for work on a COVID therapeutic, bringing the contract total to $203.6 million. Grant income recognized was approximately $153 thousand and $11.7 million, respectively, for the three months ended March 31, 2023 and 2022. This grant was terminated in 2022. 

 

The grants for the JPEO Rapid Response contract are cost reimbursement agreements, with reimbursement of qualified direct research and development expense (labor and consumables) with an overhead charge (based on actual, reviewed quarterly) and a fixed fee (9%).

 

On August 3, 2022, the Company received notice from the DoD to terminate the JPEO Rapid Response contract, dated as of August 7, 2019 with the DoD most recently amended as of September 14, 2021, relating to a prototype research and development of Rapid Response Antibody Program and advanced clinical development through licensure and commercial manufacturing for SAB-185 (the “JPEO Rapid Response Contract Termination”).  The Company engaged in negotiations with the DoD to compensate the Company for services provided prior to the JPEO Rapid Response Contract Termination and costs the Company would be expected to bear in future periods. A termination and settlement proposal was submitted the DoD on September 9, 2022; the Company submitted a final invoice on December 15, 2022; and received payment from the DoD on or about January 12, 2023. The terms of the arrangement provide for a cost-reimbursable structure, and state that the parties will work in good faith equitable reimbursement for work performed toward accomplishment of the tasks provided in the agreement. At this time, other than certain deferred obligations (presented within deferred grant income within the Company’s consolidated unaudited balance sheet) potentially payable to the DoD solely due to subsequent negotiations with third-party vendors, the Company believes and has been advised there is a reasonable, good faith basis for the position that no present or future obligations exist. Revenue recognized subsequent to the JPEO Rapid Response Contract Termination relates to satisfaction of residual obligations under the termination and settlement agreement—see Note 2, Summary of Significant Accounting Policies for further information about the Company’s established revenue recognition process.

 

(5) Earnings per share

 

The following is a reconciliation of the numerator and denominator used to calculate basic earnings per share and diluted earnings per share for the three months ended March 31, 2023 and 2022:

 

  

Three Months Ended March 31,

 
  

2023

  

2022

 

Calculation of basic and diluted earnings (loss) per share attributable to the Company’s shareholders

        

Net income (loss) attributable to the Company’s shareholders

 $(7,353,820) $985,863 

Weighted-average common shares outstanding – basic

  50,397,054   43,113,353 

Net income (loss) per share, basic

 $(0.15) $0.02 

Calculation of diluted EPS attributable to the Company’s shareholders

        

Net income (loss) attributable to the Company’s shareholders

 $(7,353,820) $985,863 

Weighted-average common shares outstanding – diluted

  50,397,054   45,816,651 

Net earnings (loss) per share, diluted

 $(0.15) $0.02 

 

11

 

The following table reconciles the weighted-average common shares outstanding used in the calculation of basic earnings per share (“EPS”) to the weighted-average common shares outstanding used in the calculation of diluted EPS for the three months ended  March 31, 2023 and 2022:

 

  

Three Months Ended March 31,

 
  

2023

  

2022

 

Weighted-average common shares outstanding – basic

  50,397,054   43,113,353 

Stock options

     2,703,298 

Total

  50,397,054   45,816,651 

 

The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

 

  

Three Months Ended March 31,

 
  

2023

  

2022

 

Stock options and awards

  5,735,738   1,655,733 

Convertible Debt

  375,421    

Commons stock warrants (1) (2)

  6,258,600   5,958,600 

Earnout Shares (3)

  10,491,937   10,491,937 

Contingently issuable Earnout Shares from unexercised Rollover Options

  1,508,063   1,508,063 

Total

  24,369,759   19,614,333 

 

 

 

(1)

The warrants issued to investors in the Company’s December 2022 private placement of securities (the “PIPE Warrants”) and to the placement agent in the December 2022 private placement of securities (the “PIPE Placement Agent Warrants”) to purchase up to 7,363,777 and 210,193 shares of common stock, respectively, are excluded from the calculation of diluted earnings per share as they are not exercisable until June 7, 2023.

 

(2)

Included in Common Stock warrants are the 5,750,000 publicly-traded warrants (the “Public Warrants”), 208,600 warrants held by assignees of Big Cypress Holdings, LLC (the “Private Placement Warrants”), and 300,000 warrants held by Ladenburg Thalmann & Co. Inc. (the “Ladenburg Warrants”). See Note 12, Fair Value Measurements for further details on the Company’s outstanding warrants.

 

(3)

As the Earnout shares are subject to certain vesting requirements not satisfied as of the three months ended March 31, 2023, the Earnout Shares held in escrow are excluded from calculating both basic and diluted earnings per share.

 

 

 

 

(6) Property, plant and equipment, net

 

As of March 31, 2023 and December 31, 2022, the Company’s equipment was as follows:

 

  

March 31, 2023

  

December 31, 2022

 

Laboratory equipment

 $9,918,019  $9,000,114 

Animal facility

  8,357,667   8,357,667 

Animal facility equipment

  1,141,213   1,141,213 

Construction-in-progress

  329,617   308,317 

Leasehold improvements

  9,296,343   9,296,343 

Vehicles

  208,453   192,683 

Office furniture and equipment

  299,362   1,233,038 

Total Property, plant and equipment, gross

  29,550,674   29,529,375 

Less: accumulated depreciation and amortization

  (7,176,976)  (6,278,522)

Property, plant and equipment, net

 $22,373,698  $23,250,853 

 

Depreciation and amortization expense was $898 thousand and $636 thousand, respectively, for the three months ended March 31, 2023 and 2022.

 

All tangible personal property with a useful life of at least three years and a unit acquisition cost of $5,000 or more will be capitalized and depreciated over its useful life using the straight-line method of depreciation. The Company will expense the full acquisition cost of tangible personal property below these thresholds in the year of purchase. The basis of accounting for depreciable fixed assets is acquisition cost and any additional expenditures required to make the asset ready for use. The carrying amount at the balance sheet date of long-lived assets under construction-in-progress includes assets purchased, constructed, or being developed internally that are not yet in service. Depreciation commences when the assets are placed in service.

 

The Company has several ongoing construction projects related to the expansion of its operating capacity. As of March 31, 2023 and December 31, 2022, the Company’s construction-in-progress was as follows:

 

  

March 31, 2023

  

December 31, 2022

 

New office space at Headquarters

 $191,806  $85,767 

IT equipment at Headquarters

     84,739 

Software

  137,811   137,811 

Total construction-in-progress

 $329,617  $308,317 

 

12

 
 

(7) Leases

 

The Company has an operating lease for lab space from Sanford Health, under a lease that started in June 2014 and ran through June 2019, at which time the lease was amended to run through August 2024. This lease can be terminated with one year advance written notice. This lease was amended again in October 2022 to reduce the Company’s leased area to 21,014 square feet.  Additionally, pursuant to the amendment in October 2022, the Company and Sanford Health agreed for the period of October 2022 to September 2023, the Company’s obligation to pay the Annual Rent shall be abated and not required to be paid when normally due (the “Abated Rent”). In exchange for the Abated Rent, effective October 1, 2022, the Company issued Sanford Health an 8% unsecured, convertible promissory note (see Note 9, Notes Payable for further discussion). The October 2022 amendment was accounted for as a lease modification under ASC 842Leases and the right-of-use asset and lease liability were remeasured at the modification date of October 1, 2022. The October 2022 lease amendment reduced the lease payment to approximately $44 thousand per month. The lease does not provide an implicit rate, and, therefore, the Company used an IBR of 6.92% as the discount rate when measuring the operating lease liability. The operating lease does not include an option to extend beyond the life of the current term. The Company estimated the IBR based upon comparing interest rates available in the market for similar borrowings and the credit quality of the Company.

 

The Company entered into a lease for office, laboratory, and warehouse space in November 2020, the lease was amended in July 2022 to add additional administrative and lab space. This amended lease has a 3-year term, with options to extend for 3 additional periods of 3 years each. The options were not included in the right of use calculation as it is unclear as to whether or not the location will meet the Company’s requirements beyond the next three years. The July 2022 amendment was accounted for as a separate contract under ASC 842 – Leases. The lease costs are $36 thousand and $2 thousand per month for the original leased space on November 2020 and the amendment on July 2022, respectively. The Company used an IBR of 4.69% and 6.60% as the discount rate when measuring the operating lease liability for the original leased space on November 2022 and the amended on July 2022, respectively. The Company estimated the IBR based upon comparing interest rates available in the market for similar borrowings and the credit quality of the Company.

 

The Company has the following finance leases:

 

In December 2018, the Company entered into a finance lease with Dakota Ag Properties for a new animal facility which includes the surrounding land. The facility and the land have been accounted for as separate lease components. The lease is based upon payback of $4 million in construction costs, with a 20-year term at an interest rate of 8%. The monthly payment for this lease is approximately $33 thousand. The Company has the option to purchase the asset at any time during the term of the lease for the balance of the unamortized lease payments.

In December 2018, the Company entered into an equipment lease for a 12,000-gallon propane tank that is located on the Company’s animal facility. The lease is for five years, with an annual payment of approximately $8 thousand. The Company purchased the asset in November 2022. 

In July 2018, the Company entered into a lease agreement with a bank, for a Ruby Cell Analyzer. The lease agreement is for a five-year term. The monthly payment for this lease is $807. The Company has the option to purchase the asset at the end of the lease for $1.

 

The lease agreements do not require material variable lease payments, residual value guarantees or restrictive covenants.

 

The amortizable lives of the operating lease assets are limited by their expected lease terms. The amortizable lives of the finance lease assets are limited by their expected lives, as the Company intends to exercise the purchase options at the end of the leases. The following is the estimated useful lives of the finance lease assets:

 

(in years)

    

Animal Facility

  40 

Equipment

  37 

Land

  

Indefinite

 

 

The Company’s weighted-average remaining lease term and weighted-average discount rate for operating and finance leases as of March 31, 2023 are:

 

  

Operating

  

Finance

 

Weighted-average remaining lease term (in years)

  1.12   15.66 

Weighted-average discount rate

  6.18%  7.72%

 

13

 

The table below reconciles the undiscounted future minimum lease payments under non-cancelable leases with terms of more than one year to the total lease liabilities recognized on the consolidated balance sheet as of March 31, 2023:

 

  

Operating

  

Finance

 

2023 - remaining

 $410,588  $303,544 

2024

  368,318   401,496 

2025

     401,496 

2026

     401,496 

2027

     401,496 

Thereafter

     4,382,998 

Undiscounted future minimum lease payments

  778,906   6,292,526 

Less: Amount representing interest payments

  (33,242)  (2,563,584)

Total lease liabilities

  745,664   3,728,942 

Less current portion

  (518,012)  (132,816)

Noncurrent lease liabilities

 $227,652  $3,596,126 

 

Operating lease expense was approximately $243 thousand and $293 thousand, respectively, for the three months ended March 31, 2023 and 2022. Operating lease costs are included within research and development expenses on the consolidated statements of operations.

 

Finance lease costs for the three months ended March 31, 2023 and 2022 included approximately $25 thousand and $41 thousand, respectively, in right-of-use asset amortization and approximately $69 thousand and $72 thousand, respectively, of interest expense. Finance lease costs are included within research and development expenses on the consolidated statements of operations.

 

Cash payments under operating and finance leases were approximately $118 thousand and $103 thousand, respectively, for the three months ended March 31, 2023.  Cash payments under operating and finance leases were approximately $311 thousand and $121 thousand, respectively, for the three months ended March 31, 2022

 

(8) Accrued Expenses and Other Current Liabilities

 

As of March 31, 2023 and December 31, 2022, accrued expenses and other current liabilities consisted of the following:

 

  

March 31, 2023

  

December 31, 2022

 

Accrued vacation

 $609,558  $511,849 

Accrued payroll

  175,736   357,390 

Accrued construction-in-progress

     85,767 

Accrued consulting

  509,186   186,833 

Accrued clinical trial expense

  403,087   355,479 

Accrued outside laboratory services

  635,820   1,106,903 

Accrued bonus & severance

  313,602   950,324 

Accrued contract manufacturing

     25,129 

Accrued legal

  856,505   856,505 

Accrued financing fees payable

  4,410,500   4,910,500 

Accrued franchise tax payable

  50,000   50,000 

Accrued interest

  22,265   8,192 

Other accrued expenses

  200,000   513,110 
  $8,186,259  $9,917,981 
 

(9) Notes Payable

 

8% Unsecured Convertible Note

 

Pursuant to the Fourth Amendment to the Company’s lease with Sanford Health, the Company and Sanford Health agreed to a period of Abated Rent from  October 1, 2022 to September 30, 2023. In exchange for the Abated Rent, effective as of October 1, 2022, the Company issued to Sanford Health an 8% unsecured, convertible promissory note (the “8% Unsecured Convertible Note”).

 

Pursuant to the October Note, the Company shall pay the sum of approximately $542 thousand (the “Principal”) plus accrued and unpaid interest thereon on September 31, 2024 (the “Maturity Date”). Simple interest shall accrue on the outstanding Principal from and after the date of the October Note and shall be payable on the Maturity Date. Sanford Health shall have the right, but not the obligation, to convert all or any part of the outstanding Principal of the October Note, together with any accrued and unpaid interest thereon to the date of such conversion, into such number of fully paid and non-assessable shares of the Company’s common stock, at any time and from time to time, prior to the later of the Maturity Date and the date on which the October Note is paid in full, subject to certain restrictions, at a conversion price per share of Common Stock equal to greater of (x) $1.50 and (y) the price at which the Company sells shares of common stock in any bona fide private or public equity financing prior to the Maturity Date.

 

The Company evaluated the treatment of the 8% Unsecured Convertible Note under ASC 470 and ASU 2020-06 (early adopted by the Company as of January 1, 2021) and determined the Note in its entirety would be allocated to debt without separating the nonconvertible debt. The Company’s consolidated balance sheet as of  March 31, 2023 includes accrued interest of approximately $22 thousand.

 

14

 

Insurance Financing

 

The Company obtained financing for certain Director & Officer liability insurance policy premiums. The agreement assigns First Insurance Funding (Lender) a first priority lien on and security interest in the financed policies and any additional premium required in the financed policies including (a) all returned or unearned premiums, (b) all additional cash contributions or collateral amounts assessed by the insurance companies in relation to the financed policies and financed by Lender, (c) any credits generated by the financed policies, (d) dividend payments, and (e) loss payments which reduce unearned premiums. If any circumstances exist in which premiums related to any Financed Policy could become fully earned in the event of loss, Lender shall be named a loss-payee with respect to such policy.

 

The total premiums, taxes and fees financed is approximately $1.2 million with an annual interest rate of 5.47%. In consideration of the premium payment by Lender to the insurance companies or the Agent or Broker, the Company unconditionally promises to pay Lender the amount Financed plus interest and other charges permitted under the Agreement. At March 31, 2023 and December 31, 2022, the Company recognized approximately $444 thousand and $773 thousand, respectively, as an insurance financing note payable in its consolidated balance sheets. The Company will pay the insurance financing through installment payments with the last payment for the current note being on September 22, 2023.

 

 

(10) Stockholders’ Equity

 

Authorized and Outstanding Capital Stock

 

The total number of shares of the Company’s authorized capital stock is 500,000,000. The total amount of authorized capital stock consists of 490,000,000 shares of common stock and 10,000,000 shares of preferred stock. As of March 31, 2023, no shares of preferred stock are issued or outstanding.

 

Common Stock

 

Holders of SAB Biotherapeutics Common Stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders, including the election of directors, and do not have cumulative voting rights. Subject to preferences that may be applicable to any then outstanding preferred stock, holders of SAB Biotherapeutics Common Stock are entitled to receive ratably those dividends, if any, as may be declared by the Company’s board of directors out of legally available funds. In the event of liquidation, dissolution or winding up, the holders of SAB Biotherapeutics Common Stock will be entitled to share ratably in the assets legally available for distribution to stockholders after the payment of or provision for all of the Company’s debts and other liabilities, subject to the prior rights of any preferred stock then outstanding. Holders of SAB Biotherapeutics Common Stock have no preemptive or conversion rights or other subscription rights and there are no redemption or sinking fund provisions applicable to the SAB Biotherapeutics Common Stock. All outstanding shares of Common Stock are duly authorized, validly issued, fully paid and nonassessable. The rights, preferences and privileges of holders of SAB Biotherapeutics Common Stock are subject to and may be adversely affected by the rights of the holders of shares of any series of preferred stock that the Company may designate and issue in the future.

 

Preferred Stock

 

Under the terms of the Company’s certificate of incorporation, its board of directors has the authority, without further action by the Company’s stockholders, to issue up to 10,000,000 shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each such series, to fix the dividend, voting and other rights, preferences and privileges of the shares of each wholly unissued series and any qualifications, limitations or restrictions thereon, and to increase or decrease the number of shares of any such series, but not below the number of shares of such series then outstanding.

 

The Company’s board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of SAB Biotherapeutics Common Stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deterring or preventing a change in the Company’s control and may adversely affect the market price of SAB Biotherapeutics Common Stock and the voting and other rights of the holders of SAB Biotherapeutics Common Stock. The Company has no current plans to issue any shares of preferred stock.

 

Earnout Shares

 

Additionally, the Business Combination agreement included an earnout provision whereby the shareholders of SAB Biotherapeutics shall be entitled to receive additional consideration (“Earnout Shares”) if the Company meets certain Volume Weighted Average Price (“VWAP”) thresholds, or a change in control with a per share price exceeding the VWAP thresholds within a five-year period immediately following the Closing.

 

15

 

The Earnout Shares shall be released in four equal increments as follows:

 

 

(i)

25% of the Earnout Shares shall be released if, at any time during the five (5)-year period immediately following the Closing Date, the VWAP of the Company’s publicly traded common stock is greater than or equal to $15.00 for any twenty (20) trading days within a period of thirty (30) consecutive trading days (the “First Earnout”).

 

 

(ii)

25% of the Earnout Shares shall be released if, at any time during the five (5)-year period immediately following the Closing Date, the VWAP of the Company’s publicly traded common stock is greater than or equal to $20.00 for any twenty (20) trading days within a period of thirty (30) consecutive trading days (the “Second Earnout”).

 

 

(iii)

25% of the Earnout Shares shall be released if, at any time during the five (5)-year period immediately following the Closing Date, the VWAP of the Company’s publicly traded common stock is greater than or equal to $25.00 for any twenty (20) trading days within a period of thirty (30) consecutive trading days (the “Third Earnout”).

 

 

(iv)

25% of the Earnout Shares shall be released if, at any time during the five (5)-year period immediately following the Closing Date, the VWAP of the Company’s publicly traded common stock is greater than or equal to $30.00 for any twenty (20) trading days within a period of thirty (30) consecutive trading days (the “Fourth Earnout” and together with the First Earnout, the Second Earnout and the Third Earnout, the “Earnouts”).

 

At the Effective Time, each outstanding share of SAB Biotherapeutics common stock, including shares of SAB Biotherapeutics common stock resulting from the conversion of outstanding shares of SAB Biotherapeutics preferred stock (as calculated pursuant to the SAB Biotherapeutics certificate of incorporation), immediately prior to the Effective Time, was converted into the right to receive a pro rata portion of the total consideration and the contingent right to receive a pro rata portion of the Earnout Shares.

 

Pursuant to the terms of the Business Combination Agreement, SAB Biotherapeutics’ securityholders (including vested option holders) who own SAB Biotherapeutics securities immediately prior to the Closing Date will have the contingent right to receive their pro rata portion of (i) an aggregate of 12,000,000 shares of Common Stock, of which 1,508,063 are contingently issuable based upon future satisfaction of the aforementioned VWAP thresholds. The remaining 10,491,937 are legally issued and outstanding, if the Company does not meet the above VWAP thresholds, or a change in control with a per share price below the VWAP thresholds occurs within a five-year period immediately following the Closing Date, the shares will be returned to the Company.

 

Warrants

 

For information pertaining to the Company’s outstanding warrants to purchase shares of the Company’s common stock, see Note 12, Fair Value Measurements.

 

(11) Stock Option Plans

 

On August 5, 2014, the Company approved a stock option grant plan (the “2014 Equity Incentive Plan”) for employees, directors, and non-employee consultants, which provides for the issuance of options to purchase common stock. The total shares authorized under the plan was originally 8 million; however, during 2019, the Plan was amended to increase the total shares authorized under the plan to 16 million. As a result of the Business Combination, the 2014 Equity Incentive Plan was amended to reduce the shares authorized to approximately 7,444,800 based upon the impact of the Exchange Ratio.

 

As a result of the Business Combination, the Company adopted the 2021 Omnibus Equity Incentive Plan (hereinafter collectively with the 2014 Equity Incentive Plan referred to as the “Equity Compensation Plans”), representing 11,000,000 shares of common stock reserved for issuance under the 2021 Omnibus Equity Incentive Plan. At of the beginning of the each calendar year, the shares reserved for future issuance shall increase by two percent (2%) of the total number of shares of Common Stock issued and outstanding as of the end of the most recently completed fiscal year. As of March 31, 2023, 12,877,631 shares of common stock were reserved for future issuance under the 2021 Omnibus Equity Incentive Plan.

 

The expected term of the stock options was estimated using the “simplified” method, as defined by the SEC’s Staff Accounting Bulletin No. 107, Share-Based Payment. The volatility assumption was determined by examining the historical volatilities for industry peer companies, as the Company does not have sufficient trading history for its common stock. The risk-free interest rate assumption is based on the U.S. Treasury instruments whose term was consistent with the expected term of the options. The dividend assumption is based on the Company’s history and expectation of dividend payouts. The Company has never paid dividends on its common stock and does not anticipate paying dividends on its common stock in the foreseeable future. Therefore, the Company has assumed no dividend yield for purposes of estimating the fair value of the options.

 

16

 

Stock Options

 

Stock option activity for employees and non-employees under the Equity Compensation Plans for the three months ended March 31, 2023 was as follows:

 

  

Options

  

Weighted Average Exercise Price

  

Weighted Average Remaining Contractual Life (years)

  

Aggregate Intrinsic Value

 

Outstanding options, December 31, 2022

  7,095,462  $1.99   5.79  $109,891 

Granted

  2,546,750  $0.54         

Forfeited

  (13,963) $1.59         

Exercised

  (3,500) $0.54         

Expired

  (28,086) $5.21         

Outstanding options, March 31, 2023

  9,596,663  $1.59   6.72  $ 

Options vested and exercisable, March 31, 2023

  4,451,753  $1.92   3.39  $ 

 

Total unrecognized compensation cost related to non-vested stock options as of  March 31, 2023 was approximately $4.5 million and is expected to be recognized within future operating results over a weighted-average period of 3.52 years.

 

The weighted average grant date fair value of options granted during the three months ended  March 31, 2023 and 2022, was $0.39 per share and $3.88 per share; respectively. During the three months ended  March 31, 2023 and 2022,  approximately 213 thousand shares with a fair value totaling $637 thousand, and 192 thousand shares with a fair value totaling $806 thousand, respectively, vested.

 

The estimated fair value of stock options granted to employees and consultants during the three months ended March 31, 2023 and 2022, were calculated using the Black-Scholes option-pricing model using the following assumptions:

 

  

Three Months Ended March 31,

 
  

2023

  

2022

 

Expected volatility

  81.9%  78.0 - 80.8%

Weighted-average volatility

  81.9%  79.0%

Expected dividends

      

Expected term (in years)

  6.08   5.50 - 6.08 

Risk-free rate

  3.76%  1.38 - 2.41%

 

Restricted Stock

 

Stock award activity for employees and non-employees under the Equity Compensation Plans for the three months ended March 31, 2023 was as follows:

 

  

Number of shares

  

Weighted Average Grant Date Fair Value

 

Unvested as of December 31, 2022

  350,000  $1.72 

Granted

  318,875  $0.54 

Unvested as of March 31, 2023

  668,875  $1.16 

 

At March 31, 2023, the Company had an aggregate of $650 thousand of unrecognized equity-based compensation related to restricted stock units outstanding. The unrecognized expense for restricted stock units is expected to be recognized over a weighted average period of 3.55 years. 

 

Stock-based compensation expense

 

Stock-based compensation expense for the three months ended March 31, 2023 and 2022 was as follows:

 

  

Three Months Ended March 31,

 
  

2023

  

2022

 

Research and development

 $147,691  $368,225 

General and administrative

  455,089   529,375 

Total

 $602,780  $897,600 

 

 

(12) Fair Value Measurements

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The following fair value hierarchy classifies the inputs to valuation techniques that would be used to measure fair value into one of three levels:

 

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.

 

Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

 

Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

 

17

 

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:

 

  

As of March 31, 2023

 
  

Total

  

Quoted Prices In Active Markets (Level 1)

  

Significant Other Observable Inputs (Level 2)

  

Significant Other Unobservable Inputs (Level 3)

 

Liabilities:

                

Public Warrant liability

 $230,000  $230,000  $  $ 

Private Placement Warrant liability

  8,344         8,344 

Total

 $238,344  $230,000  $  $8,344 

 

  

As of December 31, 2022

 
  

Total

  

Quoted Prices In Active Markets (Level 1)

  

Significant Other Observable Inputs (Level 2)

  

Significant Other Unobservable Inputs (Level 3)

 

Liabilities:

                

Public Warrant liability

 $310,500  $310,500  $  $ 

Private Placement Warrant liability

  10,430         10,430 

Total

 $320,930  $310,500  $  $10,430 

 

Public Warrants

 

Each whole Public Warrant entitles the holder to purchase one share of the Company’s common stock at a price of $11.50 per share, subject to adjustment as discussed herein. The Public Warrants became exercisable 30 days after the Closing Date of the Business Combination and will expire five years after the Closing Date of the Business Combination, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.

 

Once the warrants become exercisable, the Company may call the warrants for redemption:

 

 

in whole and not in part;

 

at a price of $0.01 per warrant;

 

upon not less than 30 days’ prior written notice of redemption (the “30-day redemption period”) to each warrant holder; and

 

if, and only if, the reported last sale price of the common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending three business days before the Company send the notice of redemption to the warrant holders.

 

If the Company calls the warrants for redemption as described above, the management will have the option to require any holder that wishes to exercise its warrant to do so on a “cashless basis.” If the management takes advantage of this option, all holders of warrants would pay the exercise price by surrendering their warrants for that number of shares of common stock equal to the quotient obtained by dividing (x) the product of the number of shares of common stock underlying the warrants, multiplied by the excess of the “fair market value” (defined below) over the exercise price of the warrants by (y) the fair market value. The “fair market value” shall mean the average reported last sale price of the common stock for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of warrants.

 

As of March 31, 2023, an aggregate of 5,750,000 Public Warrants classified as liabilities were outstanding.

 

Private Placement Warrants

 

The private placement warrants (the “Private Placement Warrants”) held by assignees of Big Cypress Holdings LLC, a Delaware limited liability company which acted as the Company’s sponsor in connection with the IPO, and the common stock issuable upon the exercise of the Private Placement Warrants were not transferable, assignable or saleable until after the completion of the Company’s Business Combination. Additionally, the Private Placement Warrants will be exercisable on a cashless basis and be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.

 

As of March 31, 2023, an aggregate of 208,600 Private Placement Warrants classified as liabilities were outstanding.

 

18

 

PIPE Warrants and PIPE Placement Agent Warrants

 

In December 2022, the Company entered into a Securities Purchase Agreement with certain institutional and accredited investors for the sale by the Company of 7,363,377 shares of common stock and warrants to purchase up to 7,363,377 shares of common stock (the “PIPE Warrants”), and in a private placement offering. The combined purchase price per share and accompanying PIPE Warrant was $1.08 (the “December Private Placement”). Three directors of the Company participated in the December Private Placement, each paying a $0.125 premium per share and accompanying PIPE Warrant. The PIPE Warrants, including those purchased by the participating directors of the Company are exercisable beginning six months from the date of issuance at an exercise price equal to $1.08 per Share, and are exercisable for five years from the date of issuance. The Company received gross proceeds of approximately $8.0 million before deducting transaction related fees and expenses. The Company paid Brookline Capital Markets, the placement agent, a cash fee equal to seven percent of the gross proceeds received by the Company in the December Private Placement. The Company also issued Brookline Capital Markets a warrant to purchase up to an aggregate of 210,913 shares of common stock (the “PIPE Placement Agent Warrants”), equal to 7% of the number of shares purchased by investors introduced to the Company by Brookline Capital Markets. The PIPE Placement Agent Warrants have an exercise price equal to $1.35 per share and are exercisable six months from the date of issuance and expires five years from the date of issuance.

 

As of March 31, 2023, 7,363,377 PIPE Warrants and 210,913 PIPE Placement Agent Warrants classified as equity were outstanding.


2023 Ladenburg Agreement Warrants

 

On March 21, 2023, the Company entered into a settlement agreement with Ladenburg Thalmann & Co. Inc. (“Ladenburg”), effective March 23, 2023 (the “2023 Ladenburg Agreement”, and the action brought by Ladenburg, the “Ladenburg Action”). In connection with the 2023 Ladenburg Agreement, on March 24, 2023, the Company (i) issued to Ladenburg a warrant (the “Ladenburg Warrants”) to purchase up to 300,000 shares of common stock, exercisable for three years from the date of issuance at $0.5424 per share; and (ii) furnished to Ladenburg a one-time cash payment of $500 thousand. Pursuant to the terms and subject to the conditions set forth in the 2023 Ladenburg Agreement, the Company will (i) no later than June 30, 2023, pay $1.5 million to Ladenburg in cash or shares of common stock, at the Company’s option; and (ii) no later than December 31, 2023, pay $1.1 million to Ladenburg in cash or shares of common stock, at the Company’s option. Following the completion of the Company’s obligations under the 2023 Ladenburg Agreement, Ladenburg has agreed to dismiss the Ladenburg Action with prejudice and extinguish any and all obligations of the Company in connection therewith. All cash payments contemplated by the 2023 Ladenburg Agreement are contained within accrued expenses and other current liabilities within the Company’s consolidated balance sheets as of  March 31, 2023 and  December 31, 2022.

 
As of  March 31, 2023 , 300,000 Ladenburg Warrants classified as equity were outstanding. 

 

Presentation and Valuation of the Warrants

 

Liability Classified Warrants

 

The Public Warrants and Private Placement Warrants are accounted for as liabilities in accordance with ASC 815-40, Derivatives and HedgingContracts in Entitys Own Equity and were presented within warrant liabilities on the consolidated balance sheet as of March 31, 2023 and December 31, 2022. The initial fair value of the warrant liabilities were measured at fair value at the Closing Date, and changes in the fair value of the warrant liabilities were presented within changes in fair value of warrant liabilities in the consolidated statements of operations for the three months ended March 31, 2023 and March 31, 2022.

 

On the Closing Date, the Company established the fair value of the Private Placement Warrants utilizing both the Black-Scholes Merton formula and a Monte Carlo Simulation ("MCS") analysis. Specifically, the Company considered an MCS to derive the implied volatility in the publicly-listed price of the Public Warrants. The Company then considered this implied volatility in selecting the volatility for the application of a Black-Scholes Merton model for the Private Placement Warrants. The Company determined the fair value of the Public Warrants by reference to the quoted market price.

 

The Public Warrants were classified as a Level 1 fair value measurement, due to the use of the quoted market price, and the Private Placement Warrants held privately by assignees of Big Cypress Holdings LLC, were classified as a Level 3 fair value measurement, due to the use of unobservable inputs.

 

The following table provides a summary of the changes in Level 3 fair value measurements: 

 

  

March 31, 2023

 

Balance, December 31, 2022

 $10,430 

Change in fair value of Private Placement Warrant liability

  (2,086)

Balance, March 31, 2023

 $8,344 

 

The key inputs into the valuations of the Company’s Liability Classified Warrants as of March 31, 2023 and  December 31, 2022 were as follows:

 

  

March 31, 2023

  

December 31, 2022

 

Risk-free interest rate

  3.75%  4.00%

Expected term remaining (years)

  3.56   3.81 

Implied volatility

  94.0%  82.0%

Closing common stock price on the measurement date

 $0.44  $0.59 

 

As of March 31, 2023 and December 31, 2022, the Company did not have any other assets or liabilities that are recorded at fair value on a recurring basis.

 

The Company believes that the carrying amounts of its cash and cash equivalents, accounts receivable, and notes payable approximate their fair values due to their near-term maturities.

 

19

 

Equity Classified Warrants

 

The Company determined the Ladenburg Warrants, PIPE Warrants, and PIPE Placement Agent Warrants met all necessary criteria to be accounted for as equity in accordance with ASC 815-40, Derivatives and HedgingContracts in Entitys Own Equity. As such, they are presented within additional paid-in capital within Company’s consolidated statements of changes in stockholders’ equity (deficit) and consolidated balance sheets.

 

Warrants classified as equity are initially measured at fair value. Subsequent changes in fair value are not recognized as long as the warrants continue to be classified as equity. 

 

The initial fair value of each PIPE Warrant and PIPE Placement Agent Warrant issued was determined using the Black-Scholes option-pricing model. All relevant terms and conditions for the PIPE Warrant and PIPE Placement Agent Warrant are identical with the exception of the exercise prices of $1.08 and $1.35, respectively; the key inputs into the valuations as of the initial measurement date were as follows:

 

  Initial 
  Measurement 
Risk-free interest rate  3.62%
Expected term remaining (years)  5.00 
Implied volatility  89.0%
Closing common stock price on the measurement date, less discount for lack of marketability (1) $0.66 

 

 

(1)

As the underlying shares are restricted from sale for a period of 180 days from the date of the 2022 Private Placement, the fair value of the warrants were estimated using the Black-Scholes option pricing model that uses several inputs, including market price of the Company’s common shares at the end of each reporting period (a level one input), less a discount for lack of marketability (a level two input). The discount for lack of marketability was estimated upon consideration of volatility and the length of the lock-up period.

 

Upon initial measurement, the fair value of the PIPE Warrants and PIPE Placement Agent Warrants were determined to be $0.42 and $0.39, respectively, per warrant for aggregate values of approximately $3.1 million and $82 thousand, respectively. In the Private Placement, the Company recognized the PIPE Warrants and PIPE Placement Agent Warrants on a relative fair value basis with approximately $2.2 million and $58 thousand being allocated to each as a component of additional paid-in capital within the Company’s consolidated statements of changes in stockholders’ equity (deficit) and consolidated balance sheets as of December 31, 2022.

 

The initial fair value of each Ladenburg Warrant issued and exercisable at $0.5424 has been determined using the Black-Scholes option-pricing model. The key inputs into the valuations as of the 2023 Ladenburg Agreement initial measurement date were as follows:

 

  

Initial

 
  

Measurement

 

Risk-free interest rate

  3.98%

Expected term remaining (years)

  3.00 

Implied volatility

  94.0%

Closing common stock price on the measurement date

 $0.52 

 

Upon initial measurement, the fair value of each Ladenburg Warrant was determined to be $0.31, per warrant for a value of approximately $93 thousand. The total fair value of the Ladenburg Warrants was recognized by the company as a non-cash expense and allocated to additional paid-in capital within the Company’s consolidated statement of changes in stockholders’ equity (deficit) and consolidated balance sheet.

 

(13) Income Taxes

 

The effective income tax rate for the three months ended March 31, 2023 is 0%, compared with an effective tax rate of (0.20%) for the year ended December 31, 2022The prior year tax rate reflects a tax provision on a pre-tax loss.

 

The Company continues to record a full valuation allowance on its net deferred tax assets. The valuation allowance increased by approximately $1.6 million during the three months ended March 31, 2023. The Company has not recognized any reserves for uncertain tax positions.

 

(14) Related Party Transactions

 

For the three months ended March 31, 2023 and 2022, under the Related Party Transaction Policy the Company adopted in the fourth quarter of 2021, there were no related party transactions with beneficial owners of 5% or more of any class of the Company’s voting securities, immediate family members of any of the foregoing persons, and any entities in which any of the foregoing is an executive officer or is an owner of 5% or more ownership interest.

 

(15) Employee Benefit Plan

 

The Company sponsors a defined contribution retirement plan. All the Company’s employees are eligible to be enrolled in the employer-sponsored contributory retirement savings plan, which include features under Section 401(k) of the Internal Revenue Code of 1986, as amended, and provides for Company matching contributions. The Company’s contributions to the plan are determined by its Board of Directors, subject to certain minimum requirements specified in the plan. The Company has historically made matching contributions of 100% on 3% of the employee contributions, with an additional 50% match on the next 2% of employee contributions. The Company made contributions of approximately $76 thousand and $93 thousand, respectively, during the three months ended March 31, 2023 and 2022.

 

20

 
 

(16) Commitments and Contingencies

 

The Company is not a party to any litigation, and, to its best knowledge, no action, suit, or proceeding has been threatened against the Company which are expected to have a material adverse effect on its financial condition, results of operations or liquidity.

 

(17) Subsequent Events

 

The Company has evaluated subsequent events through the date of issuance of these consolidated financial statements. The Company has no subsequent events that occurred that would require disclosure in, or would be recognized in, these consolidated financial statements.

 

21

 
 

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.

 

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the accompanying notes included in Part I, Item 1 of this Form 10-Q. Some of the information contained in this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. As a result of many factors, including those factors set forth in the section titled Risk Factors, our actual results could differ materially from those discussed in or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled Risk Factors. Please also refer to the section titled Special Note Regarding Forward Looking Statements.

 

Special Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q (this “Quarterly Report” or “Form 10-Q”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Exchange Act, as amended, that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements involved known and unknown risks, including risks with regard to our ability to continue as a going concern, relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. In addition, historic results, including but not limited to those related to discovery data of SAB-195 and SAB-142; Phase 1 & Phase 2a results of SAB-176; and Phase 1, 1b, and 2 results for SAB-185 do not guarantee that future research or trials will suggest the same conclusions, nor that historic results referred to herein will be interpreted in the same manner due to future preclinical and clinical trial results or otherwise. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the sections entitled “Risk Factors” in this Quarterly Report, our most recent Annual Report on Form 10-K, subsequent Quarterly Reports on Form 10-Q, and other periodic reports filed with the Securities and Exchange Commission and available at https://www.sec.gov/. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except as expressly required by applicable law, we disclaim any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements.

 

Overview

 

We are a clinical-stage, biopharmaceutical company focused on the development of powerful and proprietary immunotherapeutic polyclonal human antibodies to treat and prevent infectious diseases and immune and autoimmune disorders, including infectious diseases resulting from outbreaks and pandemics as well as immunology, gastroenterology, and respiratory diseases that have significant mortality and health impacts on immunocompromised patients. We have applied advanced genetic engineering and antibody science to develop transchromosomic (Tc) Bovine™. Our versatile DiversitAb™ platform is applicable to a wide range of serious unmet needs in human diseases. It produces natural, specifically targeted, high-potency, fully-human polyclonal immunotherapies without the need for human donors. We currently have multiple drug development programs underway and collaborations with global pharmaceutical companies.

 

We are advancing clinical programs in two indications, and preclinical development in three indications. In addition, we are executing on two research collaborations with global pharmaceutical companies, including CSL Behring and an undisclosed collaboration.

 

We generated total revenue of $0.6 million and $11.8 million for the three months ended March 31, 2023 and 2022, respectively. Our revenue to date has been primarily derived from government grants. As of March 31, 2023, $0.4 million in funding remains for our current government grants.

 

 

We plan to focus a substantial portion of our resources on continued research and development efforts towards deepening our technology and expertise with our platform and as well as indications in infectious disease and autoimmune indications. As a result, we expect to continue to make significant investments in these areas for the foreseeable future. We incurred research and development expenses of $4.5 million and $13.3 million for the three months ended March 31, 2023 and 2022, respectively. We incurred general and administrative expenses of $3.4 million and $5.2 million for the three months ended March 31, 2023 and 2022, respectively. We expect to continue to incur significant expenses, and we expect such expenses to increase substantially in connection with our ongoing activities, including as we:

 

 

invest in research and development activities to optimize and expand our DiversitAb platform;

 

develop new and advance preclinical and clinical progress of pipeline programs;

 

market to and secure partners to commercialize our products;

 

expand and enhance operations to deliver products, including investments in manufacturing;

 

acquire businesses or technologies to support the growth of our business;

 

continue to establish, protect and defend our intellectual property and patent portfolio;

 

operate as a public company.

 

To date, we have primarily financed our operations from government agreements and the issuance and sale of common stock.

 

Our net loss for three months ended March 31, 2023 was $7.4 million and our net income for the three months ended March 31, 2022 was $1.0 million. As of March 31, 2023, we had an accumulated deficit of $55.2 million with cash and cash equivalents totaling $13.1 million.

 

Recent Developments

 

FDA Fast Track and Breakthrough Therapy Designation

 

On April 13, 2023, we announced that the U.S. Food and Drug Administration (“FDA”) granted Fast Track Designation for SAB-176, an investigational therapeutic for Type A and Type B influenza illness in high-risk patients, including those who have anti-viral resistant strains. Fast Track Designation is intended to facilitate development and expedite the review of drugs that treat serious conditions and fill an unmet medical need so a product can potentially be approved and reach patients more quickly. Fast Track Designation enables the company to have more frequent interactions with the FDA throughout the drug development process and allows for eligibility for priority review and accelerated approval if certain criteria are met, as well as a rolling review. The Fast Track Designation must continue to be met or FDA can withdraw the designation. In addition, on April 18, 2023, we announced that the FDA granted Breakthrough Therapy Designation for SAB-176. Breakthrough Therapy Designation is designed to expedite the development and review of medicine that is intended to treat a serious or life-threatening condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over therapies currently available on a clinically significant endpoints.
 
In addition to the Fast Track Designation and Breakthrough Therapy Designation, we also received FDA guidance and regulatory alignment on advancing SAB-176 into the next phase of development, including a Phase 2b trial study design. The study will evaluate the safety and efficacy of SAB-176 in high-risk patients with Type A or Type B influenza illness, including those who have anti-viral treatment resistant strains.
 

2023 Ladenburg Agreement

 

On March 21, 2023, we entered into an agreement (the “2023 Ladenburg Agreement”) with Ladenburg Thalmann & Co. Inc. (“Ladenburg”), pursuant to which, among other things, on March 24, 2023, we issued to Ladenburg a warrant (the “Ladenburg Warrants”) to purchase up to 300,000 shares of common stock, exercisable for three years from the date of issuance at $0.5424 per share. The issuance of the Ladenburg Warrants under the Ladenburg Agreement has been made pursuant to exemptions provided by Section 4(a)(2) of the Securities Act, as transactions not involving a public offering, and Rule 506 of Regulation D promulgated under the Securities Act. On May 1, 2023, we filed a registration statement on Form S-3 (File No. 333-271543) to register under the Securities Act, the shares underlying the Ladenburg Warrants, which registration statement was declared effective on May 9, 2023.

 

All cash payments contemplated by the 2023 Ladenburg Agreement are contained within accrued expenses and other current liabilities within our consolidated balance sheets  as of March 31, 2023 and December 31, 2022.

 

Key Factors Affecting Our Results of Operations and Future Performance

 

We believe that our financial performance has been, and in the foreseeable future will continue to be, primarily driven by multiple factors as described below, each of which presents growth opportunities for our business. These factors also pose important challenges that we must successfully address in order to sustain our growth and improve our results of operations. Our ability to successfully address these challenges is subject to various risks and uncertainties, including those described in the section captioned “Part I, Item 1A, Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and supplemented with the following revised or additional risk factors in “Part II, Item 1A, Risk Factors.”

 

 

Components of Results of Operations

 

Revenue

 

Our revenue has historically been generated through grants from government and other (non-government) organizations. We currently have no commercially approved products.

 

Grant revenue is recognized for the period that the research and development services occur, as qualifying expenses are incurred, or conditions of the grants are met. We concluded that payments received under these grants represent conditional, nonreciprocal contributions, as described in ASC 958, Not-for-Profit Entities, and that the grants are not within the scope of ASC 606, Revenue from Contracts with Customers, as the organizations providing the grants do not meet the definition of a customer. Expenses for grants are tracked by using a project code specific to the grant, and the employees also track hours worked by using the project code.

 

The total revenue for government grants was approximately $0.6 million and $11.8 million, respectively, during the three months ended March 31, 2023 and 2022.

 

For the three months ended March 31, 2023 and 2022, we worked on the following grants:

 

National Institute of Health – National Institute of Allergy and Infectious Disease (“NIH-NIAID”) (Federal Award #1R44AI117976-01A1) – this grant was for $1.4 million and started in September 2019 through August 2021. This grant was subsequently amended to extend the date through August 2022. No grant income was recognized for this grant for the three months ended March 31, 2023, and approximately $27 thousand of grant income was recognized for the three months ended March 31, 2022. This grant was completed in 2022. 

 

NIH-NIAID (Federal Award #1R41AI131823-02) – this grant was for approximately $1.5 million and started in April 2019 through March 2021. The grant was subsequently amended to extend the date through March 2023. Grant income recognized was approximately $192 thousand and $13 thousand, respectively, for the three months ended March 31, 2023 and 2022 There is approximately $237 thousand in funding remaining for this grant as of March 31, 2023.

 

NIH-NIAID through Geneva Foundation (Federal Award #1R01AI132313-01, Subaward #S-10511-01) – this grant was for approximately $2.7 million and started in August 2017 through July 2021. Grant income recognized was approximately $236 thousand and $23 thousand, respectively, for the three months ended March 31, 2023 and 2022. This grant was subsequently amended to extend the date through July 2023.There is approximately $226 thousand in funding remaining for this grant as of March 31, 2023.

 

JPEO through Advanced Technology International – this grant was for a potential of $25 million, awarded in stages starting in August 2019 and with potential stages running through February 2023. Additional contract modifications were added to this contract in 2020 and 2021 for work on a COVID therapeutic, bringing the contract total to $203.6 million. Grant income recognized was approximately $153 thousand and $11.7 million, respectively, for the three months ended March 31, 2023 and 2022. This grant was terminated in 2022. 

 

The grants for the JPEO Rapid Response contract are cost reimbursement agreements, with reimbursement of our direct research and development expense (labor and consumables) with an overhead charge (based on actual, reviewed quarterly) and a fixed fee (9%).

 

On August 3, 2022, we received notice from the DoD to terminate the JPEO Rapid Response contract, dated as of August 7, 2019 with the DoD most recently amended as of September 14, 2021, relating to a prototype research and development of Rapid Response Antibody Program and advanced clinical development through licensure and commercial manufacturing for SAB-185 (the “JPEO Rapid Response Contract Termination”).  We engaged in negotiations with the DoD to compensate the Company for services provided prior to the JPEO Rapid Response Contract Termination and costs we would be expected to bear in future periods. A termination and settlement proposal was submitted the DoD on September 9, 2022; we submitted a final invoice on December 15, 2022; and received payment from the DoD on or about January 12, 2023. The terms of the arrangement provide for a cost-reimbursable structure, and state that the parties will work in good faith equitable reimbursement for work performed toward accomplishment of the tasks provided in the agreement. At this time, other than certain deferred obligations (presented within deferred grant income within our consolidated unaudited balance sheet) potentially payable to the DoD solely due to subsequent negotiations with our third-party vendors, we believe and have been advised there is a reasonable, good faith basis for the position that no present or future obligations exist. Revenue recognized subsequent to the JPEO Rapid Response Contract Termination relates to satisfaction of residual obligations under the termination and settlement agreement—see Note 2, Summary of Significant Accounting Policies for further information about our established revenue recognition process.

 

Operating Expenses 

 

Research and Development Expenses

 

Research and development expenses primarily consist of salaries, benefits, incentive compensation, stock-based compensation, laboratory supplies and materials for employees and contractors engaged in research and product development, licensing fees to use certain technology in our research and development projects, fees paid to consultants and various entities that perform certain research and testing on our behalf. Research and development expenses are tracked by target/project code. Indirect general and administrative costs are allocated based upon a percentage of direct costs. We expense all research and development costs in the period in which they are incurred.

 

 

Research and development activities consist of discovery research for our platform development and the various indications we are working on. We have not historically tracked our research and development expenses on a product candidate-by-product candidate basis.

 

For the three months ended March 31, 2023 and 2022, we had contracts with multiple CRO to conduct and complete clinical studies. In the case of SAB-185, the CRO has been contracted and paid by the US government. For SAB-176, PPD Development, LP, acting as CRO oversaw the Phase 1 safety study. The terms of that agreement are subject to confidentiality, and the status of the agreement is that it is current, in good standing and approximately 95% of the contract has been paid as of  March 31, 2023. SAB has also contracted with hVIVO Services Limited to conduct the Phase 2a influenza study on SAB-176. The terms of that agreement are subject to confidentiality, and the status of the agreement is that it is current, in good standing and approximately 95% of the contract has been paid as of March 31, 2023.

 

We expect to continue to incur substantial research and development expenses as we conduct discovery research to enhance our platform and work on our indications. We expect to hire additional employees and continue research and development and manufacturing activities. As a result, we expect that our research and development expenses will continue to increase in future periods and vary from period to period as a percentage of revenue.

 

Major components within our research and development expenses are salaries and benefits (laboratory & farm), laboratory supplies, animal care, contract manufacturing, clinical trial expense, outside laboratory services, project consulting, and facility expense. Our platform allows us to work on multiple projects with the same resources, as the research and development process of each product is very similar (with minimal differences in the manufacturing process).

 

Research and development expenses by component for the three months ended March 31, 2023 and 2022:

 

   

Three Months Ended March 31,

 
   

2023

   

2022

 

Salaries & benefits

  $ 1,716,030     $ 3,346,934  

Laboratory supplies

    389,627       1,926,698  

Animal care

    582,068       677,703  

Contract manufacturing

          4,429,203  

Clinical trial expense

    47,608       57,318  

Outside laboratory services

    163,206       1,216,094  

Project consulting

    228,099       401,324  

Facility expense

    1,338,188       1,228,039  

Other expenses

    70,895       41,031  

Total research and development expenses

  $ 4,535,721     $ 13,324,344  

 

General and Administrative Expenses

 

General and administrative expenses primarily consist of salaries, benefits, and stock-based compensation costs for employees in our executive, accounting and finance, project management, corporate development, office administration, legal and human resources functions as well as professional services fees, such as consulting, audit, tax and legal fees, general corporate costs and allocated overhead expenses. General and administrative expenses also include rent and facilities expenses allocated based upon total direct costs. We expect that our general and administrative expenses will continue to increase in future periods, primarily due to increased headcount to support anticipated growth in the business and due to incremental costs associated with operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a securities exchange and costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC and stock exchange listing standards, public relations, insurance and professional services. We expect these expenses to vary from period to period in absolute terms and as a percentage of revenue.

 

 

Nonoperating (Expense) Income

 

Gain on change in fair value of warrant liabilities

 

Gain on change in fair value of warrant liabilities consists of the changes in the fair value of the warrant liabilities.

 

Interest income

 

Interest income consists of interest earned on cash balances in our bank accounts.

 

Interest expense

 

Interest expense consists primarily of interest related to borrowings under notes payable for equipment, abated rent, and insurance financing.

 

Income Tax Expense (Benefit)

 

Income tax expense (benefit) consists primarily of domestic federal and state income taxes.

 

Results of Operations

 

The following tables set forth our results of operations for the three months ended March 31, 2023 and 2022:

 

   

Three Months Ended March 31,

 
   

2023

   

2022

 

Revenue

               

Grant revenue

  $ 581,101     $ 11,803,077  

Total revenue

    581,101       11,803,077  

Operating expenses

               

Research and development

    4,535,721       13,324,344  

General and administrative

    3,447,389       5,186,072  

Total operating expenses

    7,983,110       18,510,416  

Loss from operations

    (7,402,009 )     (6,707,339 )

Other income (expense)

               

Changes in fair value of warrant liabilities

    82,586       7,849,572  

Interest expense

    (92,385 )     (72,022 )

Interest income

    57,988       7,933  

Total other income

    48,189       7,785,483  

Income (loss) before income taxes

    (7,353,820 )     1,078,144  

Income tax expense

          92,281  

Net income (loss)

  $ (7,353,820 )   $ 985,863  

 

Comparison of the three months ended March 31, 2023 and 2022

 

Revenue

 

   

Three Months Ended March 31,

                 
   

2023

   

2022

   

Change

   

% Change

 

Revenue

  $ 581,101     $ 11,803,077     $ (11,221,976 )     (95.1 )%

Total revenue

  $ 581,101     $ 11,803,077                  

 

Revenue decreased by $11.2 million, or 95.1%, in the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, primarily due to the JPEO Rapid Response Contract Termination. Included in revenues for the three months ended March 31, 2023, are closeout activities and charges of $52 thousand for supplies, $151 thousand for labor and $378 thousand for outside research and manufacturing services, as compared to $2.9 million for supplies, $3.1 million for labor, and $5.8 for outside research and manufacturing services for the three months ended March 31, 2022.

 

We anticipate future revenues will be substantially derived from current period directly reimbursable expenses such as laboratory supplies, labor costs, and consulting fees plus, when applicable, an overhead charge and a flat-rate fixed fee. As a result of the JPEO Rapid Response Contract Termination, we expect future revenues to be lower as our primary pipeline development targets of Clostridioides difficile Infection, influenza, and immune system disorders remain independently financed as we explore potential partnerships, co-development opportunities, and licensing arrangements.

 

 

Research and Development

 

   

Three Months Ended March 31,

                 
   

2023

   

2022

   

Change

   

% Change

 

Research and development

  $ 4,535,721     $ 13,324,344     $ (8,788,623 )     (66.0 )%

Total research and development expenses

  $ 4,535,721     $ 13,324,344                  

 

Research and development expenses decreased by $8.8 million, or 66%, for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, primarily due to decreases in laboratory supplies (year-over-year decrease of $1.5 million, 49.3%), contract manufacturing costs (year-over-year decrease of $4.4 million, 100%), salaries and benefits (year-over-year decrease of $1.4 million, 49.3%), outside lab services due to the JPEO Rapid Response Contract Termination (year-over-year decrease of $1.0 million, 86.2%), project consulting (year-over-year decrease of $0.2 million, 47.5%) and overhead costs (year-over-year decrease of $0.3 million, 46.0%).

 

The overall decrease in research and development expense was primarily due to targeted cost reduction measures pausing certain unfunded research activities for SAB-185, and prioritizing our earlier stage lead therapeutic candidates in Type 1 diabetes, respiratory and gastrointestinal diseases. Future period research and development expenses will decrease relative to comparable prior periods as we no longer expect to incur costs of contract manufacturing, outside laboratory services, project consulting, and facilities costs related to the production of SAB-185.

 

General and Administrative

 

   

Three Months Ended March 31,

                 
   

2023

   

2022

   

Change

   

% Change

 

General and administrative

  $ 3,447,389     $ 5,186,072     $ (1,738,683 )     (33.5 )%

Total general and administrative expenses

  $ 3,447,389     $ 5,186,072                  

 

General and administrative expenses decreased by $1.7 million, or 33.5%, in the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, primarily due to insurance costs (year-over-year decrease of $0.4 million, 53.4%); salaries and benefits (year-over-year decrease of $0.8 million, 40.5%); project consulting (year-over-year decrease of $0.3 million, 61.3%); and other administrative support fees relating to IT, human resources, and legal (year-over-year decrease of $0.2 million, 27.2%). The decrease was primarily due to discretionary cost reduction measures and increased efficiencies as we continue to mature as a publicly traded company.

 

We anticipate that our general and administrative expenses will increase in the future as they relate to audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer liability insurance, investor relations costs and other costs associated with being a public company. Additionally, if and when we believe a regulatory approval of a product candidate appears likely, we anticipate an increase in staffing and related expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidates.

 

Non-operating Income

 

   

Three Months Ended March 31,

                 
   

2023

   

2022

   

Change

     

% Change

 

Changes in fair value of warrant liabilities

  $ 82,586     $ 7,849,572     $ (7,766,986 )    

(98.9)%

 

Total non-operating income

  $ 82,586     $ 7,849,572                  

 

Total non-operating income decreased by $7.8 million, or 98.9%, in the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 due to the change in fair value of warrant liabilities.

 

Interest Expense

 

   

Three Months Ended March 31,

                 
   

2023

   

2022

   

Change

   

% Change

 

Interest expense

  $ 92,385     $ 72,022     $ 20,363       28.3 %

Total interest expense

  $ 92,385     $ 72,022                  

 

Interest expense remained largely unchanged in the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, driven by adding no new Finance Leases or other interest-bearing debt. We expect interest expense to increase in future periods as the accrued interest payable under the 8% Unsecured Convertible Note is realized.

 

Interest Income

 

   

Three Months Ended March 31,

                 
   

2023

   

2022

   

Change

   

% Change

 

Interest income

  $ 57,988     $ 7,933     $ 50,055       631.0 %

Total interest income

  $ 57,988     $ 7,933                  

 

Interest income increased by $50 thousand, or 631% during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, due to higher interest rates along with higher interest earning cash balances.

 

Liquidity and Capital Resources

 

As of March 31, 2023 and December 31, 2022, we had $13.1 million and $15.1 million, respectively, of cash and cash equivalents.

 

 

Our standard repayment terms for accounts receivable are thirty days from the invoice date. As a majority of our accounts receivable is from work performed under government grants, we have not had an uncollectible accounts receivable amount in over 5 years.

 

We intend to continue to invest in our business and, as a result, may incur operating losses in future periods. We expect to continue to invest in research and development efforts towards expanding our capabilities and expertise along our platform and the primary pipeline development targets we are working on, as well as building our business development team and marketing our solutions to partners in support of the growth of the business.

 

We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates, and begin commercialization of our products. As a result, we will require additional capital to fund our operations in order to support our long-term plans, in particular, following the JPEO Rapid Response Contract Termination.

 

We have incurred operating losses for the past several years. While we intend to continue to keep operating expenses at a reduced level there can be no assurance that our current level of operating expenses will not increase or that other uses of cash will not be necessary. Based on our current level of operating expenses, existing cash and cash equivalents will not be sufficient to cover operating cash needs through the twelve months following the date these financials are made available for issuance. We intend to seek additional capital through equity and/or debt financings, collaborative or other funding arrangements. Should we seek additional financing from outside sources, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital when required or on acceptable terms, we may be required to scale back or discontinue the advancement of product candidates, reduce headcount, liquidate our assets, file for bankruptcy, reorganize, merge with another entity, or cease operations.

 

Sources of Liquidity

 

Since our inception, we have financed our operations primarily from revenue in the form of government grants and from equity financings.

 

Equity Financings and Option Exercises

 

As of March 31, 2023, we have raised approximately $90.3 million since our inception from the issuance and sale of convertible preferred shares, net of issuance costs associated with such financings, the Business Combination with BCYP, proceeds from the Private Placement, and exercises of employee stock options.

 

On May 9, 2023, we filed a shelf registration statement on Form S-3 (the “Shelf Registration Statement”). Whereby from time to time, we may offer and sell up to an aggregate of $50,000,000 of any combination of Common Stock, Preferred Stock, Debt Securities, Warrants, Rights, and Units, either individually or in combination. We may also offer common stock or preferred stock upon conversion of debt securities, common stock upon conversion of preferred stock, or common stock, preferred stock or debt securities upon the exercise of warrants. We may also issue units comprised of one or more shares of common stock, shares of preferred stock, debt securities, warrants and/or rights in any combination. The Shelf Registration Statement has not yet been declared effective by the Securities and Exchange Commission.

 

Notes payable

 

8% Unsecured Convertible Note
 
Pursuant to the Fourth Amendment to our lease with Sanford Health, we agreed to a period of Abated Rent from October 1, 2022 to September 30, 2023 pertaining to our leased laboratory bay at the Sanford Research Center. In exchange for the Abated Rent, effective as of October 1, 2022, we issued to Sanford Health an 8% unsecured, convertible promissory note (the “8% Unsecured Convertible Note”).
 
Pursuant to the 8% Unsecured Convertible Note, we shall pay the sum of approximately $542 thousand (the “Principal”) plus accrued and unpaid interest thereon on September 31, 2024 (the “Maturity Date”). Simple interest shall accrue on the outstanding Principal from and after the date of the October Note and shall be payable on the Maturity Date. Sanford Health shall have the right, but not the obligation, to convert all or any part of the outstanding Principal of the 8% Unsecured Convertible Note, together with any accrued and unpaid interest thereon to the date of such conversion, into such number of fully paid and non-assessable shares of our common stock, at any time and from time to time, prior to the later of the Maturity Date and the date on which the 8% Unsecured Convertible Note is paid in full, subject to certain restrictions, at a conversion price per share of Common Stock equal to greater of (x) $1.50 and (y) the price at which the we sells shares of common stock in any bona fide private or public equity financing prior to the Maturity Date.

 

Insurance Financing

 

We obtained financing for certain Director & Officer liability insurance policy premiums. The agreement assigns First Insurance Funding (Lender) a first priority lien on and security interest in the financed policies and any additional premium required in the financed policies including (a) all returned or unearned premiums, (b) all additional cash contributions or collateral amounts assessed by the insurance companies in relation to the financed policies and financed by Lender, (c) any credits generated by the financed policies, (d) dividend payments, and (e) loss payments which reduce unearned premiums. If any circumstances exist in which premiums related to any Financed Policy could become fully earned in the event of loss, Lender shall be named a loss-payee with respect to such policy.

 

The total premiums, taxes and fees financed is approximately $1.2 million with an annual interest rate of 5.47%. In consideration of the premium payment by Lender to the insurance companies or the Agent or Broker, we unconditionally promise to pay Lender the amount Financed plus interest and other charges permitted under the Agreement. At March 31, 2023 and December 31, 2022, we recognized approximately $444 thousand and $773 thousand, respectively, as insurance financing note payable in its consolidated balance sheet. We will pay the insurance financing through installment payments with the last payment being on September 22, 2023.

 

Please refer to Note 9, Notes Payable, in our consolidated unaudited financial statements for additional information on our debt.

 

 

 

Cash Flows

 

The following table summarizes our cash flows for the three months ended March 31, 2023 and 2022:

 

   

Three Months Ended March 31,

 
   

2023

   

2022

 

Net cash used in operating activities

  $ (1,605,723 )   $ (9,537,725 )

Net cash used in investing activities

    (21,300 )     (1,280,934 )

Net cash used in financing activities

    (359,790 )     (6,317,950 )

Net decrease in cash, cash equivalents, and restricted cash

  $ (1,986,813 )   $ (17,136,609 )

 

Operating Activities

 

Net cash used by operating activities decreased by $7.9 million in the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, primarily due to an decreased in non-cash working capital of $7.9 million. Year-over-year changes in cash used by operating activities is explained by shifts in the non-cash working capital balances as we continue to advance our lead programs after the JPEO Rapid Response Contract Termination. 

 

Investing Activities

 

Net cash used by investing activities decreased by $1.2 million in the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, primarily due to a decrease in purchases of equipment as new equipment purchases under the JPEO Rapid Response Contract were substantially completed in 2021. Capital asset purchases completed in 2022 relate substantially to leasehold improvements at the Corporate Headquarters and completion of the clinical manufacturing facility at the Sanford Research Center.

 

Financing Activities

 

Net cash used by financing activities decreased by $5.9 million in the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, primarily due to the final settlement of the Forward Purchase Agreement whereby $5.5 million of restricted cash was utilized for a repurchase of 546,658 shares of our common stock in the three months ended March 31, 2022. 

 

Contractual Obligations and Commitments

 

The following table summarizes our contractual obligations and commitments as of March 31, 2023:

 

   

Payments Due by Period

 
   

Total

   

Less than 1 year

   

1-3 years

   

3-5 years

   

Over 5 years

 

Notes payable

  $ 986,122     $ 444,478     $ 541,644     $     $  

Operating lease liabilities (1)

    778,906       410,588       368,318              

Finance lease liabilities (1)

    6,292,526       403,918       802,992       802,992       4,282,624  

Total

  $ 8,057,554     $ 1,258,984     $ 1,712,954     $ 802,992     $ 4,282,624  

 

 

(1)

We are party to certain contractual arrangements for equipment, lab space, and an animal facility, which meet the definition of leases under FASB ASC Topic 842, Leases (“ASC 842”).

 

We enter into contracts in the normal course of business with third parties, including CROs. These payments are not included in the table above, as the amount and timing of such payments are not known.

 

As of March 31, 2023, there were no material changes outside of the ordinary course of business to our commitments and contractual obligations.

 

 

Income Taxes

 

The effective income tax rate for the three months ended March 31, 2023 is 0%, compared with an effective tax rate of (0.20%) for the year ended December 31, 2022. The prior year tax rate reflects a tax provision on a pre-tax loss.

 

We continue to record a full valuation allowance on our net deferred tax assets. The valuation allowance increased by approximately $1.6 million during the three months ended March 31, 2023. We have not recognized any reserves for uncertain tax positions.

 

Going Concern

 

A fundamental principle of the preparation of financial statements in accordance with GAAP is the assumption that we will continue in existence as a going concern, which contemplates continuity of operations and the realization of assets and settlement of liabilities occurring in the ordinary course of business.

 

As of March 31, 2023, we have experienced net losses, negative cash flows from operations and had an accumulated deficit of $55.2 million. We anticipate to continue to generate losses for the foreseeable future, and expects the losses to increase as we continue the development of, and seek regulatory approvals for, product candidates, and begin commercialization of products. As a result, we will require additional capital to fund operations in order to support long-term plans, in particular, following the JPEO Rapid Response Contract Termination. These factors raise substantial doubt about our ability to continue as a going concern for the one-year period following the date that these financial statements were issued.

 

To continue as a going concern, we will need, among other things, to raise additional capital resources. We plan to seek additional funding through a combination of equity or debt financings, or other third-party financing, collaborative or other funding arrangements. Should we seek additional financing from outside sources, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital when required or on acceptable terms, we may be required to scale back or discontinue the advancement of product candidates, reduce headcount, liquidate our assets, file for bankruptcy, reorganize, merge with another entity, or cease operations.

 

The unaudited consolidated financial statements for March 31, 2023, have been prepared on the basis that we will continue as a going concern, and does not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability for us to continue as a going concern.
 

Off-Balance Sheet Arrangements

 

We did not have, for the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

 

Critical Accounting Policies and Estimates

 

We have prepared our consolidated financial statements in accordance with U.S. GAAP. Our preparation of these consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from these estimates under different assumptions or conditions.

 

While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements, Summary of Significant Accounting Policies, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our consolidated financial statements.

 

 

Revenue Recognition

 

Our revenue is primarily generated through grants from government and other (non-government) organizations.

 

Grant revenue is recognized for the period that the research and development services occur, as qualifying expenses are incurred, or conditions of the grants are met. We concluded that payments received under these grants represent conditional, nonreciprocal contributions, as described in ASC 958, Not-for-Profit Entities, and that the grants are not within the scope of ASC 606, Revenue from Contracts with Customers, as the organizations providing the grants do not meet the definition of a customer. Expenses for grants are tracked by using a project code specific to the grant, and the employees also track hours worked by using the project code.

 

Stock-Based Compensation

 

We recognize compensation cost relating to stock-based payment transactions using a fair-value measurement method, which requires all stock-based payments to employees, directors, and non-employee consultants, including grants of stock options, to be recognized in operating results as compensation expense based on fair value over the requisite service period of the awards. Prior to the Business Combination, the grant date fair value of our common stock was typically determined by our board of directors with the assistance of management and a third-party valuation specialist. Subsequent to the Business Combination, the board of directors elected to determine the fair value of our post-merger common stock based on the closing market price at closing on the date of grant. In determining the fair value of our stock-based awards, we utilize the Black-Scholes option-pricing model, which uses both historical and current market data to estimate fair value. The Black-Scholes option-pricing model incorporates various assumptions, such as the value of the underlying common stock, the risk-free interest rate, expected volatility, expected dividend yield, and expected life of the options. For awards with performance-based vesting criteria, we estimate the probability of achievement of the performance criteria and recognize compensation expense related to those awards expected to vest. No awards may have a term in excess of ten years. Forfeitures are recorded when they occur. Stock-based compensation expense is classified in our consolidated statements of operations based on the function to which the related services are provided. We recognize stock-based compensation expense over the expected term.

 

In addition to considering the results of the independent third-party valuations, our board of directors considered various objective and subjective factors to determine the fair value of our common shares as of each grant date, which may be a date other than the most recent independent third-party valuation date, including:

 

 

the prices at which we most-recently sold preferred shares and the superior rights and preferences of the preferred shares relative to our common shares at the time of each grant;

 

the lack of liquidity of our equity as a private company;

 

our stage of development and business strategy and the material risks related to our business and industry;

 

our financial condition and operating results, including our levels of available capital resources and forecasted results;

 

developments in our business, including the achievement of milestones such as entering into partnering agreements;

 

the valuation of publicly traded companies in the life sciences, biopharmaceutical and healthcare technology sectors, as well as recently completed mergers and acquisitions of peer companies;

 

any external market conditions affecting our industry, and trends within our industry;

 

the likelihood of achieving a liquidity event for the holders of our preferred shares and holders of our common shares, such as an initial public offering, or IPO, or a sale of our company, given prevailing market conditions; and

 

the analysis of IPOs and the market performance of similar companies in our industry.

 

The assumptions underlying these valuations represented management’s best estimates, which involved inherent uncertainties and the application of management’s judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, the fair value of our common shares and our stock-based compensation expense could be materially different.

 

See Note 11, Stock Option Plan, to our consolidated financial statements for information concerning certain specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options granted for the three months ended March 31, 2023 and 2022.

 

Stock-based compensation expense was $0.6 million and $0.9 million, respectively, for the three months ended March 31, 2023 and 2022.

 

As of March 31, 2023, we had $4.5 million of total unrecognized stock-based compensation cost related to non-vested options, which we expect to recognize in future operating results over a weighted-average period of 3.52 years. Total unrecognized compensation cost related to non-vested restricted stock awards as of March 31, 2023 was approximately $0.6 million and is expected to be recognized within future operating results over a weighted-average period of 3.55 years.

 

 

Warrant Liabilities Valuations

 

Liability Classified Warrants

 

We are required to periodically estimate the fair value of our Private Placement Warrant liabilities with the assistance of an independent third-party valuation firm. The assumptions underlying these valuations represented our best estimates, which involved inherent uncertainties and the application of significant levels of our judgment. The fair value of our Public Warrant liabilities are determined by reference to the quoted market price.

 

The warrants are accounted for as liabilities in accordance with ASC 815-40, Derivatives and HedgingContracts in Entitys Own Equity, and were presented within warrant liabilities on the consolidated balance sheets as of March 31, 2023 and December 31, 2022. The initial fair value of the warrant liabilities were measured at fair value on the Closing Date, and changes in the fair value of the warrant liabilities were presented within changes in fair value of warrant liabilities in the consolidated statements of operations for the three months ended March 31, 2023 and 2022.

 

On the Closing Date, we established the fair value of the Private Placement Warrants utilizing both the Black-Scholes Merton formula and a MCS analysis. Specifically, we considered a MCS to derive the implied volatility in the publicly listed price of the Public Warrants. We then considered this implied volatility in selecting the volatility for the application of a Black-Scholes Merton model for the Private Placement Warrants. We determined the fair value of the Public Warrants by reference to the quoted market price.

 

The Public Warrants were classified as a Level 1 fair value measurement, due to the use of the quoted market price, and the Private Placement Warrants held privately by assignees of Big Cypress Holdings LLC, were classified as a Level 3 fair value measurement, due to the use of unobservable inputs.

 

The  measurement as of December 31, 2022 for the Public Warrant liability was approximately $10 thousand and the change in fair value of the Public Warrant liability was approximately  $2 thousand for the three months ended March 31, 2023.

 

The key inputs into the valuations as of the March 31, 2023 and December 31, 2022 were as follows:

 

   

March 31, 2023

   

December 31, 2022

 

Risk-free interest rate

    3.75 %     4.00 %

Expected term remaining (years)

    3.56       3.81  

Implied volatility

    94.0 %     82.0 %

Closing common stock price on the measurement date

  $ 0.44     $ 0.59  

 

Equity Classified Warrants

 

On December 7, 2022, as a part of our 2022 Private Placement, we issued PIPE Warrants to investors to purchase up to 7,363,377 shares of Common Stock. The PIPE Warrants, including those purchased by the participating directors of SAB are exercisable beginning six months from the date of issuance at an exercise price equal to $1.08 per share, and are exercisable for five years from the date of issuance. We also issued our placement agent, Brookline Capital Markets, PIPE Placement Agent Warrants to purchase up to an aggregate of 210,913 shares of Common Stock. The Placement Agent Warrants have an exercise price equal to $1.35 per share and are exercisable six months from the date of issuance and expires five years from the date of issuance.

 

On March 21, 2023, we entered into a settlement agreement with Ladenburg (the “2023 Ladenburg Agreement”), effective March 23, 2023. In connection with the 2023 Ladenburg Agreement, on March 24, 2023, we issued to Ladenburg a warrant to purchase up to 300,000 shares of common stock, exercisable for three years from the date of issuance at $0.5424 per share.

 

We determined the Ladenburg Warrants, PIPE Warrants, and PIPE Placement Agent Warrants met all necessary criteria to be accounted for as equity in accordance with ASC 815-40, Derivatives and HedgingContracts in Entitys Own Equity. As such, they are presented within additional paid-in capital within our consolidated statements of changes in stockholders’ equity (deficit) and consolidated balance sheets.

 

Warrants classified