SEC Filing - Kiromic BioPharma, Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2022


☐	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: 001-39169

Kiromic BioPharma, Inc.

(Exact name of registrant as specified in its charter)


Delaware		46-4762913
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)


7707 Fannin Street, Suite 140, Houston, TX		77054
(Address of Principal Executive Offices)		Zip Code

(832) 968-4888

(Registrant’s telephone number)

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


Title of Each Class	Trading symbol	Name of Exchange on which registered
Common Stock, par value $0.001 per share	KRBP	The Nasdaq Stock Market

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, a smaller reporting company, or an emerging growth company. See the definitions of “large-accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


	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 ☒

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As of November 14, 2022, there were 18,246,718 shares of the registrant’s common stock outstanding.

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PART I
FINANCIAL INFORMATION

Item 1.	Financial Statements	5
	Condensed Consolidated Balance Sheets as of September 30, 2022 (Unaudited) and December 31, 2021	5
	Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 2022 and 2021 (Unaudited)	6
	Condensed Consolidated Statements of Stockholders’ Equity for the three months and nine months ended September 30, 2022 and 2021 (Unaudited)	7
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (Unaudited)	9
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	43
Item 4.	Controls and Procedures	43

PART II
OTHER INFORMATION

Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 6.	Exhibits	49
Signatures		52

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Note Regarding Forward-Looking Statements

Various statements made in this Quarterly Report on Form 10-Q are forward-looking and involve risks and uncertainties. All statements that address activities, events or developments that we intend, expect or believe may occur in the future are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements give our current expectations or forecasts of future events and are not statements of historical or current facts. These statements include, among others, statements about:

●

our goals and strategies;

●

our future business development, financial condition and results of operations;

●

our expected timing of human clinical trials and other related milestones;

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expected changes in our revenue, costs or expenditures;

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our ability to obtain financing in amounts sufficient to fund our operations and continue as a going concern and avoid seeking protection under Chapters 7 or 11 of the United States Bankruptcy Code;

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difficulties or delays in the product development process, including the results of preclinical studies or clinical trials;

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difficulties or delays in the regulatory approval process;

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manufacturing, sales, marketing and distribution of any of our products that may be successfully developed and approved for commercialization;

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growth of and competition trends in our industry;

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our expectations regarding demand for, and market acceptance of, our products;

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our expectations regarding our relationships with investors, institutional funding partners and other parties we collaborate with;

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fluctuations in general economic and business conditions in the markets in which we operate; including those fluctuations caused by COVID-19;

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our ability to raise capital when needed;

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relevant government policies and regulations relating to our industry; and

●

the outcome of any pending or threatened litigation.

Forward-looking statements also include statements other than statements of current or historical fact, including, without limitation, all statements related to any expectations of revenues, expenses, cash flows, earnings or losses from operations, cash required to maintain current and planned operations, capital or other financial items; any statements of the plans, strategies and objectives of management for future operations; any plans or expectations with respect to product research, development and commercialization, including regulatory approvals; any other statements of expectations, plans, intentions or beliefs; and any statements of assumptions underlying any of the foregoing. We often, although not always, identify forward-looking statements by using words or phrases such as “may," "could," "will,"

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"should," "would," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," "potential," "project" or "continue".

The following are some of the factors that could cause actual results to differ materially from the anticipated results or other expectations expressed, anticipated or implied in our forward-looking statements:

●

the extent to which the COVID-19 pandemic impacts our business, our customers’ businesses, the medical community and the global economy;

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the effectiveness and timeliness of our preclinical studies and clinical trials, and the usefulness of the data;

●

our expectations regarding the timing and clinical development of our product candidates;

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our ability to achieve profitable operations and access to needed capital;

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fluctuations in our operating results;

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the success of current and future license and collaboration agreements

●

our dependence on contract research organizations, vendors and investigators;

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effects of competition and other developments affecting development of products;

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market acceptance of our products;

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protection of intellectual property and avoiding intellectual property infringement;

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product liability; and

●

other factors described in our filings with the SEC.

We cannot guarantee that the results and other expectations expressed, anticipated or implied in any forward-looking statement will be realized. The risks set forth under Item 1A and our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and subsequent quarterly reports on Form 10-Q describe major risks to our business, and you should read and interpret any forward-looking statements together with these risks. A variety of factors, including these risks, could cause our actual results and other expectations to differ materially from the anticipated results or other expectations expressed, anticipated or implied in our forward-looking statements. Should known or unknown risks materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected in the forward-looking statements. You should bear this in mind as you consider any forward-looking statements.

Our forward-looking statements speak only as of the dates on which they are made. We do not undertake any obligation to publicly update or revise our forward-looking statements even if experience or future changes makes it clear that any projected results expressed or implied in such statements will not be realized, except as may be required by law.

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PART I —FINANCIAL INFORMATION

Item 1. Financial Statements

KIROMIC BIOPHARMA, INC.

Condensed Consolidated Balance Sheets


	September 30,		December 31,
	2022 (Unaudited)		2021
Assets
Current Assets:
Cash and cash equivalents	$	432,700	$	25,353,900
Accounts receivable		—		16,200
Prepaid expenses and other current assets		1,705,500		1,699,400
Total current assets		2,138,200		27,069,500
Property and equipment, net		8,685,500		3,629,000
Operating lease right-of-use asset		2,164,500		—
Other assets		31,100		31,100
Total Assets	$	13,019,300	$	30,729,600

Liabilities and Stockholders’ Equity:
Current Liabilities:
Accounts payable	$	6,494,100	$	2,214,300
Accrued expenses and other current liabilities		604,000		741,000
Note payable		—		454,500
Accrued litigation liability		3,463,000		—
Operating lease liability - short term		547,800		—
Total current liabilities		11,108,900		3,409,800
Operating lease liability - long term		1,626,300		—
Total Liabilities		12,735,200		3,409,800

Commitments and contingencies (Note 8)
Stockholders’ Equity:
Common stock, $0.001 par value: 300,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 15,843,191 shares and 15,488,516 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively		9,300		9,300
Preferred stock, $0.0001 par value: 60,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 24,000,000 shares designated as Series A-1 Preferred Stock and 16,500,000 shares designated as Series B Preferred Stock as of September 30, 2022 and December 31, 2021.		—		—
Additional paid-in capital		95,154,500		94,527,000
Accumulated deficit		(94,879,700)		(67,216,500)
Total Stockholders’ Equity		284,100		27,319,800

Total Liabilities and Stockholders’ Equity	$	13,019,300	$	30,729,600

See accompanying notes to the condensed consolidated financial statements

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KIROMIC BIOPHARMA, INC.

Condensed Consolidated Statements of Operations

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Operating expenses:
Research and development	$	3,784,200	$	3,486,700	$	10,590,700	$	8,030,400
General and administrative		4,611,700		2,655,600		13,602,600		7,040,700
Total operating expenses		8,395,900		6,142,300		24,193,300		15,071,100
Loss from operations		(8,395,900)		(6,142,300)		(24,193,300)		(15,071,100)
Other income (expense)
Gain on loan extinguishment		—		—		—		105,800
Other income		—		18,000		—		18,000
Litigation settlement loss contingency		(3,463,000)		—		(3,463,000)		—
Interest expense		(1,400)		(500)		(6,900)		(6,300)
Total other income (expense)		(3,464,400)		17,500		(3,469,900)		117,500
Net loss	$	(11,860,300)	$	(6,124,800)	$	(27,663,200)	$	(14,953,600)
Net loss per share, basic and diluted	$	(0.75)	$	(0.40)	$	(1.78)	$	(1.50)
Weighted average common shares outstanding, basic and diluted		15,840,454		15,366,075		15,706,079		10,048,170

See accompanying notes to the condensed consolidated financial statements

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KIROMIC BIOPHARMA, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)


	Three and Nine Months Ended September 30, 2022
	Common Stock			Additional Paid-
	Number of			In		Accumulated
	Shares	Amount		Capital		Deficit		Total
Balance at January 1, 2022	15,488,516	$	9,300	$	94,527,000	$	(67,216,500)	$	27,319,800
Common stock discount amortization	—		—		85,100		—		85,100
Warrants underlying common stock issuance	—		—		(85,100)		—		(85,100)
Released restricted stock units	97,071		—		—		—		—
Stock compensation expense	—		—		80,100		—		80,100
Net loss	—		—		—		(7,367,800)		(7,367,800)
Balance at March 31, 2022	15,585,587	$	9,300	$	94,607,100	$	(74,584,300)	$	20,032,100
Common stock discount amortization	—		—		85,900		—		85,900
Warrants underlying common stock issuance	—		—		(85,900)		—		(85,900)
Released restricted stock units	253,525		—		—		—		—
Stock compensation expense	—		—		184,200		—		184,200
Net loss	—		—		—		(8,435,100)		(8,435,100)
Balance at June 30, 2022	15,839,112	$	9,300	$	94,791,300	$	(83,019,400)	$	11,781,200
Warrants underlying common stock issuances discount amortization	—		—		86,900		—		86,900
Warrants underlying common stock issuances	—		—		(86,900)		—		(86,900)
Released restricted stock units	4,079		—		—		—		—
Stock compensation expense	—		—		363,200		—		363,200
Net loss	—		—		—		(11,860,300)		(11,860,300)
Balance at September 30, 2022	15,843,191	$	9,300	$	95,154,500	$	(94,879,700)	$	284,100

See accompanying notes to the condensed consolidated financial statements

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KIROMIC BIOPHARMA, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)


	Three and Nine Months Ended September 30, 2021
	Common Stock			Additional Paid-
	Number of			In		Accumulated
	Shares	Amount		Capital		Deficit		Total
Balance at January 1, 2021	7,332,999	$	1,200	$	52,988,700	$	(41,627,800)	$	11,362,100
Common stock discount amortization	—		—		24,700		—		24,700
Warrants underlying common stock issuance	—		—		(24,700)		—		(24,700)
Stock compensation expense	—		—		945,200		—		945,200
Net loss	—		—		—		(3,854,500)		(3,854,500)
Balance at March 31, 2021	7,332,999	$	1,200	$	53,933,900	$	(45,482,300)	$	8,452,800
Common stock discount amortization	—		—		24,900		—		24,900
Warrants underlying common stock issuance	—		—		(24,900)		—		(24,900)
Exercised stock options	18,891		100		125,300		—		125,400
Released restricted stock units	35,610		—		—		—		—
Stock compensation expense	—		—		1,268,600		—		1,268,600
Net loss	—		—		—		(4,974,300)		(4,974,300)
Balance at June 30, 2021	7,387,500	$	1,300	$	55,327,800	$	(50,456,600)	$	4,872,500
Common stock issuance net of issuance costs and discount amortization	8,000,000		8,000		36,144,400		—		36,152,400
Warrants underlying common stock issuances discount amortization	—		—		(85,500)		—		(85,500)
Warrants underlying common stock issuances	—		—		1,051,200		—		1,051,200
Common shares issued for Insilico Solutions LLC Membership Purchase Agreement	50,189		—		400,000		—		400,000
Restricted stock units issued for Insilico Solutions LLC Membership Purchase Agreement	33,177		—		140,000		—		140,000
Released restricted stock units	6,652		—		—		—		—
Stock compensation expense	—		—		1,105,300		—		1,105,300
Net loss	—		—		—		(6,124,800)		(6,124,800)
Balance at September 30, 2021	15,477,518	$	9,300	$	94,083,200	$	(56,581,400)	$	37,511,100

See accompanying notes to the condensed consolidated financial statements

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KIROMIC BIOPHARMA, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended
	September 30,
	2022		2021
Cash flows from operating activities:
Net loss	$	(27,663,200)	$	(14,953,600)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation		1,118,500		331,200
Amortization		—		2,200
Stock compensation expense		627,500		3,319,100
Gain on loan extinguishment		—		(105,800)
Operating lease interest expense		273,000		—
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable		16,200		20,200
Prepaid expenses and other current assets		(6,100)		(168,500)
Accounts payable		2,928,100		216,000
Accrued expenses and other current liabilities		(137,000)		182,900
Accrued litigation liability		3,463,000		—
Operating lease liability		(263,400)		—
Net cash used for operating activities		(19,643,400)		(11,156,300)
Cash flows from investing activities:
Purchases of property and equipment, net of effects from acquisitions		(4,823,300)		(797,500)
Cash received from acquisition		—		84,000
Net cash used for investing activities		(4,823,300)		(713,500)
Cash flows from financing activities:
Proceeds from issuance of common stock		—		40,000,000
Issuance cost		—		(2,881,900)
Exercise of stock options		—		125,400
Loan repayments		(454,500)		(362,400)
Net cash provided by financing activities		(454,500)		36,881,100
Net change in cash and cash equivalents		(24,921,200)		25,011,300
Cash and cash equivalents:
Beginning of year		25,353,900		10,150,500
End of period	$	432,700	$	35,161,800

Supplemental disclosures of non-cash investing and financing activities:
Accruals for property and equipment	$	1,351,700	$	46,500
Cash paid for interest on note payable	$	6,900	$	6,300
Common stock issuance for acquisition	$	—	$	400,000
Restricted stock units granted for acquisition	$	—	$	140,000
Acquisitions net of cash acquired	$	—	$	456,000
ASC 842 right-of-use asset/liability implementation	$	2,232,700	$	—
Right-of-use asset/liability acquired through lease liability	$	204,800	$	—

See accompanying notes to the condensed consolidated financial statements

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KIROMIC BIOPHARMA, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.	ORGANIZATION

Nature of Business

Kiromic BioPharma, Inc. and subsidiaries (the "Company") is a clinical stage fully integrated biotherapeutics company formed under the Texas Business Organizations Code in December 2012.

The Company is an artificial intelligence-driven, end-to-end CAR-T and gene therapy company, developing the first multi-indication allogeneic CAR-T cell therapy, that exploits the natural potency of Gamma Delta T-cells (“GDTs”) to target solid cancers. The Company maintains offices in Houston, Texas. The Company has not generated any revenues to date.

From a development standpoint, the Company utilizes innovative engineered and non-engineered GDT manufacturing technologies and is developing proprietary, virus-free gene editing tools, to develop novel therapies for solid tumors that we believe will be effective and cost-efficient. The Procel, Isocel, and Deltacel product platform candidates consist of allogeneic cell therapy candidates that are currently in the preclinical development stage. Our Procel product candidate consists of engineered GDTs targeting PD-L1. Our Isocel product candidate consists of engineered GDTs targeting Mesothelin Isoform 2 positive tumors (“Iso-Meso”). Our Deltacel product candidate consists of non-engineered GDTs that have been expanded, enriched, and activated ex-vivo through a proprietary process, and are used to treat solid tumors regardless of the specific tumor antigen expression.

The Company currently has one clinical trial candidate with the Procel product candidate platform titled ALEXIS-PRO-1. The Company currently has one clinical trial candidate with the Isocel product candidate platform titled ALEXIS-ISO-1. The ALEXIS-PRO-1 clinical trial candidate is our allogeneic GDT therapy product candidate targeting PD-L1. The ALEXIS-ISO-1 clinical trial candidate is our allogeneic GDT therapy product candidate targeting an isoform of Mesothelin that is preferentially present on tumor cells, namely Iso-Meso.

The Company filed two investigational new drug (“IND”) applications in May 2021 for ALEXIS-PRO-1 and ALEXIS-ISO-1. The Food and Drug Administration (“FDA”) placed these applications under a clinical hold in June 2021. On July 13, 2021, the Company received the FDA’s formal clinical hold letters, which asked the Company to address key components regarding the chemical, manufacturing, and control components of the IND applications. Those components included tracing of all reagents used in manufacturing, flow chart of manufacturing processes, and certificate of analysis. The Company is currently working on addressing the FDA’s comments.

Going Concern— These condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

The Company has incurred significant losses and negative cash flows from operations since inception and expects to incur additional losses until such time that it can generate significant revenue from the commercialization of its product candidates. The Company had negative cash flow from operations of $19,643,400 for the nine months ended September 30, 2022, and an accumulated deficit of $94,879,700 as of September 30, 2022. To date, the Company has relied on equity and debt financing to fund its operations. The Company’s product candidates are still in the early stages of development, and substantial additional financing will be needed by the Company to fund its operations and ongoing research and development efforts prior to the commercialization, if any, of its product candidates. The Company does not have sufficient cash on hand or available liquidity to meet its obligations through the twelve months following the date the condensed consolidated financial statements are issued. This condition raises substantial doubt about the Company’s ability to continue as a going concern.

Given its projected operating requirements and its existing cash and cash equivalents, management’s plans include evaluating different strategies to obtain the required funding of future operations. These plans may include, but are not limited to, obtaining funding from current or new investors. However, there can be no assurance that the Company will be able to secure financing, or if available, that it will be sufficient to meet its needs or on favorable terms. Therefore, the plans cannot be deemed probable of being implemented. As a result, the Company has concluded that management’s

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plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern. In the event the Company is unable to secure financing sufficient to allow it to meet its obligations as they become due, the Company may need to file a voluntary petition for relief under the United States Bankruptcy Code in order to implement a restructuring plan or liquidation.

The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information (Accounting Standards Codification ("ASC") 270, Interim Reporting) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information necessary for a full presentation of financial position, results of operations, and cash flows in conformity with GAAP. Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. In the opinion of management, the condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the results of the Company for the periods presented.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Form 10-K for the year ended December 31, 2021. The results of operations for the period ended September 30, 2022 are not necessarily indicative of the operating results that may be expected for a full year. The condensed consolidated balance sheet as of December 31, 2021 contains financial information taken from the audited Company consolidated financial statements as of that date.

All intercompany balances were eliminated upon consolidation.

Use of Estimates—The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include determination of the fair value of common stock and related stock-based compensation, warrants to purchase common stock underlying shares of Series B Preferred Stock and public offering common stock, and estimating services incurred by third-party service providers used to recognize research and development expense.

Concentrations of Credit Risk and Other Uncertainties—Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents. Substantially all of the Company’s cash and cash equivalents were deposited in accounts at a small number of national financial institutions. Account balances may at times exceed federally-insured limits. The Company has not incurred losses related to these cash and cash equivalents deposited at financial institutions and management believes that the Company is not exposed to significant credit risk due to the financial strength of the depository institutions in which the cash is held.

The Company is subject to certain risks and uncertainties from changes in any of the following areas that the Company believes could have a material adverse effect on future financial position or results of operations: the ability to obtain regulatory approval and market acceptance of, and reimbursement for, the Company’s product candidates; the performance of third-party clinical research organizations and manufacturers; protection of the intellectual property; litigation or claims against the Company based on intellectual property, patent, product, regulatory or other factors; the Company’s ability to attract and retain employees necessary to support commercial success; and changes in the industry or customer requirements including the emergence of competitive products with new capabilities.

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Income Taxes—The Company files federal and state income tax returns, utilizing the accrual basis of accounting. Income taxes are provided for the tax effects of transactions reported in the condensed consolidated financial statements and consist of taxes currently due and deferred taxes. Certain transactions of the Company may be subject to accounting methods for income tax purposes, which differ from the accounting methods used in preparing these condensed consolidated financial statements in accordance with GAAP. Accordingly, the net income or loss of the Company reported for income tax purposes may differ from the balances reported for those same items in the accompanying condensed consolidated financial statements.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which such temporary differences are expected to be recovered or settled. The Company records valuation allowances to reduce deferred income tax assets to the amount that is more likely than not to be realized.

The Company records uncertain tax positions in accordance with ASC 740, Income Taxes, on the basis of a two-step process in which (1) the Company determines whether it is more-likely-than-not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying condensed consolidated statements of operations. No such interest or penalties were recognized during the three and nine months ended September 30, 2022 or 2021.

Research and Development Expense—The Company expenses research and development costs as incurred. Research and development expenses include personnel and personnel-related costs, costs associated with the Company’s clinical development activities including costs of outside consultants and contractors, the submission and maintenance of regulatory filings, equipment and supplies used in developing products prior to market approval and an allocation of certain overhead costs such as facility and related expenses.

The Company accrues and expenses costs of services provided by contract research organizations in connection with preclinical studies and contract manufacturing organizations engaged to manufacture clinical trial material, costs of licensing technology, and costs of services provided by research organizations and service providers. Upfront payments and milestone payments made for the licensing of technology are expensed as research and development in the period in which they are incurred if the technology is not expected to have any alternative future uses other than the specific research and development project for which it was intended. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed rather than when the payment is made.

Stock-Based Compensation—The Company records stock compensation expense related to the 2017 Equity Incentive Plan (the “2017 Plan”) and the 2021 Omnibus Equity Incentive Plan (the “2021 Plan”) in accordance with ASC 718, Compensation—Stock Compensation. The Company measures and recognizes stock compensation expense for all stock-based awards, including stock options, based on estimated fair values recognized using cliff vesting or the straight-line method over the requisite service period. The fair value of stock options is estimated on the grant date using the Black-Scholes option-valuation model (the “Black-Scholes model”). The calculation of stock-based compensation expense requires that the Company make assumptions and judgments about the variables used in the Black-Scholes model, including the fair value of the Company’s common stock, expected term, expected volatility of the underlying common stock, and risk-free interest rate. Forfeitures are accounted for when they occur.

The Company estimates the grant-date fair value of stock options using the Black-Scholes model and the assumptions used to value such stock options are determined as follows:

Expected Term. The expected term represents the period that the Company’s stock options are expected to be outstanding. Due to limitations on the sale or transfer of the Company’s common stock under the lock-up agreements and market standoff components of the stock option agreements, the Company does not believe its historical exercise pattern is indicative of the pattern it will experience after restricted periods expire. The Company uses the Staff Accounting Bulletin (“SAB”) No. 110, simplified method to calculate the expected term, which is the average of the contractual term and vesting period.

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Risk-Free Interest Rate. The Company bases the risk-free interest rate used in the Black-Scholes model on the implied yield available on US Treasury zero-coupon issues with a term equivalent to that of the expected term of the stock options for each stock option group.

Volatility. The Company determines the price volatility based on the historical volatilities of industry peers as it has no trading history for its common stock price. The Company intends to continue to consistently apply this process using the same or a similar peer group of public companies, until a sufficient amount of historical information regarding the volatility of its own common stock price becomes available, or unless circumstances change such that the identified peer companies are no longer similar, in which case other suitable peer companies whose common stock prices are publicly available would be utilized in the calculation.

Dividend Yield. The expected dividend assumption is based on the Company’s current expectations about its anticipated dividend policy. To date, the Company has not declared any dividends and, therefore, the Company has used an expected dividend yield of zero.

Common Stock Valuations. During the three and nine months ended September 30, 2022 and 2021, the closing price listed on the Nasdaq Capital Market for the Company’s common stock on the date of the grant was used as the common stock valuation. Future expense amounts for any particular period could be affected by changes in assumptions or market conditions.

Segment Data—The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions.

Recently Issued Accounting Pronouncements—From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position, results of operations, or cash flows upon adoption.

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which requires lessees to recognize the following for all leases (with the exception of short-term leases) at the commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. In July 2018, the FASB issued ASU 2018-11 to amend certain aspects of Topic 842. These amendments provide entities with an additional (and optional) transition method to adopt Topic 842. Under this transition method, an entity initially applies the transition requirements in Topic 842 at that Topic’s effective date with the effects of initially applying Topic 842 recognized as a cumulative effect adjustment to the opening balance of retained earnings (or other components of equity or net assets, as appropriate) in the period of adoption. On October 16, 2019, the FASB changed the effective date of this standard applicable to the Company as an emerging growth company to January 1, 2022. Accordingly, the Company has adopted Topic 842 beginning in the first quarter of 2022. Modified retroactive transition approach will be required for operating leases existing at or entered into after the beginning of the earliest comparative period presented. The Company notes that adopting the new standard resulted in recording a lease liability and right-of-use asset associated with the Company’s facility lease agreement and subsequent amendments thereto totaling $2,232,700, as of January 1, 2022.

In June 2016, FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326). The amendments in ASU 2016-13 affect entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in ASU 2016-13 require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. On October 16, 2019, the FASB has changed the effective date of this standard applicable to the Company as an emerging growth company to January 1, 2023. The Company is currently evaluating the potential impact of this standard on its financial position, results of operations, and cash flows.

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3.NET LOSS PER SHARE OF COMMON STOCK

Basic and diluted net loss per share of common stock is determined by dividing net loss less deemed dividends by the weighted-average shares of common stock outstanding during the period. For all periods presented, the shares of common stock underlying the stock options, and restricted stock units have been excluded from the calculation because their effect would be anti-dilutive. Therefore, the weighted-average shares of common stock outstanding used to calculate both basic and diluted loss per share of common stock are the same. The following table illustrates the computation of basic and diluted earnings per share:


	Three Months Ended				Nine Months Ended
	September 30,				September30,
	2022		2021		2022		2021
Net loss	$	(11,860,300)	$	(6,124,800)	$	(27,663,200)	$	(14,953,600)
Less: Initial Public Offering Common Stock discount amortization		(25,200)		(25,200)		(74,800)		(74,800)
Less: Public Offering Common Stock discount amortization		(61,700)		(60,300)		(183,100)		(60,300)
Net loss attributable to common shareholders, basic and diluted	$	(11,947,200)	$	(6,210,300)	$	(27,921,100)	$	(15,088,700)
Weighted average common shares outstanding, basic and diluted		15,840,454		15,366,075		15,706,079		10,048,170
Net loss per common share, basic and diluted	$	(0.75)	$	(0.40)	$	(1.78)	$	(1.50)

For the three months ended September 30, 2022 and 2021, there were 0 and 6,698 restricted stock units that were potentially dilutive securities excluded from the computations of diluted weighted-average shares of common stock. For the nine months ended September 30, 2022 and 2021, there were 0 and 73,366 restricted stock units that were potentially dilutive securities excluded from the computations of diluted weighted-average shares of common stock.

In addition, while not considered potentially dilutive securities under the treasury stock method, there were 595,049 vested and outstanding restricted stock units that had not been released to grantees as of September 30, 2022 which were not included in calculation of weighted average common shares outstanding, basic and diluted. The Company plans to release these shares to the grantees before the end of the year. Since there is a possibility that any portion of those shares could be sold as part of the release, the shares will be released in compliance with the Company’s insider trading policy when there is an open trading window and grantees are not in possession of any material non-public information.

4.	PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of September 30, 2022 and December 31, 2021:


	September 30,		December 31,
	2022		2021
Equipment	$	2,722,800	$	1,593,100
Leasehold improvements		7,193,700		1,464,700
Office furniture, fixtures, and equipment		137,300		16,600
Software		359,500		359,500
Construction in progress		422,200		1,226,600
		10,835,500		4,660,500
Less: Accumulated depreciation		(2,150,000)		(1,031,500)
Total	$	8,685,500	$	3,629,000

Depreciation expense was $536,600 and $128,800 for the three months ended September 30, 2022 and 2021, respectively, and $1,118,500 and $331,200 for the nine months ended September 30, 2022 and 2021, respectively. Depreciation expense is allocated between research and development and general and administrative operating expenses on the condensed consolidated statements of operations.

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5.ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following as of September 30, 2022 and December 31, 2021:


	September 30,		December 31,
	2022		2021
Accrued consulting and outside services	$	137,400	$	467,100
Accrued compensation		466,600		273,900
Total	$	604,000	$	741,000

6.LOAN PAYABLE

On May 1, 2020, the Company received a loan in the principal amount of $115,600 (the “SBA Loan”) under the Paycheck Protection Program (“PPP”), which was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (the “SBA”).

During the year ended December 31, 2020, the Company applied for forgiveness of the SBA Loan in accordance with the terms of the CARES Act. On February 16, 2021, the SBA granted forgiveness of the SBA Loan and all applicable interest. On the date of forgiveness, the principal and accrued interest totaled $105,800. The forgiveness was classified as a gain on loan extinguishment in the condensed consolidated statement of operations the condensed consolidated statement of operations during the nine months ended September 30, 2021.

7.NOTE PAYABLE

In November 2021, the Company entered into a financing arrangement for its Director and Officer Insurance policy. The total amount financed was approximately $665,900 with an annual interest rate of 4.59%, to be paid over a period of ten months. As of September 30, 2022 and December 31, 2021, the remaining payable balance on the financed amount was $0 and $454,500, respectively.

8.COMMITMENTS AND CONTINGENCIES

License Agreements—The Company has entered into a number of licensing arrangements for various intellectual property and licensed patent rights for technologies being developed for commercial sale. As part of these arrangements, the Company is subject to contingent milestone payments in accordance with agreed-upon development objectives, as well as future royalty payments on product sales of the underlying assets. As of September 30, 2022 and December 31, 2021, the Company has not incurred any milestone or royalty liabilities related to these license agreements.

Legal Proceedings— On March 22, 2021, Jason Terrell (“Terrell”), a former consultant and former director of the Company, commenced an action against us in the Court of Chancery of the State of Delaware, C.A. No. 2021-0248-MTZ (the “Action”). In the Action, Terrell seeks a declaratory judgment that the Company is obligated to issue him (i) options to purchase 500,000 shares of common stock at a price of $0.50 per share pursuant to an alleged 2014 consulting agreement, and (ii) options to purchase an additional 500,005 shares of common stock at a price of $0.17 per share pursuant to an alleged January 2017 non-employee director options agreement. In his complaint, Terrell also claimed that, pursuant to the operative certificate of incorporation, he is entitled to indemnification from us for attorneys’ fees and costs he incurs in connection with the Action because the Action arises in connection with his position as a former director.

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The Company disputes Terrell’s claims and allegations in the Action and intends to vigorously defend against them. On May 21, 2021, the Company filed a motion to dismiss Terrell’s claims in the actions with prejudice, arguing that (i) Terrell’s options-related claims fail because his 2014 and January 2017 agreements were explicitly superseded by a later options agreement, under which Terrell relinquished his prior options; and (ii) Terrell is not entitled to indemnification because the Action relates to contracts between the Company and Terrell in his personal capacity, and not in connection with any activities or duties of Terrell in his official capacity as former director. In response to the motion, filed on June 21, 2021, Terrell withdrew his claim for indemnification, but opposed the portion seeking dismissal of his declaratory judgment claim. The motion was fully briefed with the filing of the Company’s reply brief on July 7, 2021.

Oral argument was held before the Vice Chancellor on October 20, 2021. During oral argument, the Vice Chancellor invited the parties to submit supplemental letter briefs on the question of whether the Court of Chancery even had the authority to adjudicate the Action in light of the delegation of authority in Terrell’s most recent stock option agreement with the Company (the “SOA”) to the Company’s Compensation Committee to resolve all disputes regarding the interpretation of the SOA. The parties submitted simultaneous supplemental letters briefs on this issue on November 15, 2021. On January 20, 2022, the Vice Chancellor issued her decision on our motion to dismiss, ruling that the Action is stayed until the Compensation Committee itself resolves whether it has sole authority to resolve the parties’ contract interpretation dispute.

Subsequently, the parties agreed upon a process for coordinating submissions and/or presentations to the Compensation Committee. The parties made their respective written submissions to the Compensation Committee on March 31, 2022, and on July 21, 2022, the Compensation Committee determined that (i) the Compensation Committee has sole authority under the SOA to resolve the parties’ contract interpretation dispute, and (ii) Terrell’s most recent options agreement superseded and nullified any option rights Terrell may have had under his prior agreements. On August 2, 2022, the Vice Chancellor issued an order dismissing the Action for lack of subject matter jurisdiction.

On August 23, 2022, Terrell filed a notice of appeal of the Vice Chancellor’s order of dismissal to the Delaware Supreme Court. That same day, the Delaware Supreme Court set a briefing schedule for the appeal, under which Terrell’s opening brief and appendix were due October 7, 2022, Kiromic’s answering brief and appendix are due November 7, 2022, and Terrell’s reply appellate brief is due 15 days thereafter. Terrell filed his opening brief and appendix on October 7, 2022, and Kiromic is set to file its answering brief on November 7, 2022. The Delaware Supreme Court has not yet designated this appeal for oral argument.

In a separate matter, on or about August 17 and 23, 2021, Tony Tontat, who at the time was the Chief Financial Officer and a member of the Board, submitted substantially identical reports (the “Complaints”) through the Company’s complaint hotline. These Complaints, alleged, among other topics, risks associated with the Company’s public disclosures in securities filings and in statements made to the public, investors, and potential investors regarding (i) the anticipated timing of the FDA authorization of the IND applications and (ii) the anticipated timing of human clinical trials. These Complaints were subsequently submitted to the Audit Committee of the Board.

After receiving the Complaints, the Audit Committee recommended that the Board form, and the Board did in turn form, a Special Committee comprised of three independent directors (the “Special Committee”) to review the Complaints and other related issues (the “Internal Review”). The Special Committee retained an independent counsel to assist it in conducting the Internal Review.

On February 2, 2022, following the conclusion of the Internal Review, the Company’s Special Committee reported the results of its Internal Review to the Board. The Board approved certain actions to address the fact that the Company had received communications from the FDA on June 16 and June 17, 2021 that the FDA was placing the IND applications that the Company submitted to the FDA on May 14 and May 17, 2021 for the ALEXIS-PRO-1 and ALEXIS-ISO-1 product candidates, respectively, on clinical hold (the “June 16 and 17 FDA Communications”). The Company did not disclose the June 16 and 17, 2021 FDA Communications in the Registration Statement on Form S-1 (Registration No. 333-257427) that was filed on June 25, 2021 and declared effective on June 29, 2021, nor the final prospectus contained therein dated June 29, 2021 (collectively, the “Registration Statement”). The Company then consummated a public offering of $40 million of its common stock pursuant to the Registration Statement on July 2, 2021. On July 13, 2021, the Company received the FDA’s formal clinical hold letters, which asked the Company to address key components regarding the chemical, manufacturing, and control components of the IND applications. On July 16, 2021, the Company

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issued a press release disclosing that it had received comments from the FDA on the two INDs, but did not use the term “clinical hold.” The Company did not disclose the clinical hold in its Form 10-Q for the fiscal quarter ended June 30, 2021 that was filed with the Securities and Exchange Commission on August 13, 2021. On August 13, 2021, the Company issued a press release announcing that these INDs were placed on clinical hold.

As a result of the disclosure omission of the June 16 and 17 FDA Communications, on March 7, 2022, entities related to Sabby Management LLC (the “Sabby Entities”) and Empery Asset Management, LP (the “Empery Entities”) filed a complaint in the United States District Court for the Southern District of New York asserting claims against the Company and certain current and former officers and directors of the Company for alleged violations of Sections 11, 12, and 15 of the Securities Act of 1933 in connection with the purchase of common stock through the Company’s public offering that closed on July 2, 2021. On July 1, 2022, the defendants filed motions to dismiss the complaint. In response, on July 22, 2022, the plaintiffs amended their complaint to, among other things, include the Company’s underwriters on the July 2, 2021 public offering, ThinkEquity LLC, as a defendant. The plaintiffs seek unspecified damages; rescission to the extent they still hold the Company’s securities, or if sold, rescissory damages; reasonable costs and expenses, including attorneys’ and experts’ fees; and other unspecified equitable and injunctive relief. The two parties reached a settlement agreement in principle on September 26, 2022, which the Company’s board of directors approved on September 27, 2022. The settlement contained a cash component of $75,000 payable to Sabby Entities and $75,000 to Empery Entities.

As part of the settlement, the Company also agreed to issue convertible notes (the “Settlement Notes”) in the aggregate principal amount of $1,656,720 to each of the Empery Entities and the Sabby Entities. The Settlement Notes are convertible into shares (the “Conversion Shares”) of the Company’s common stock at an initial conversion price per share of $0.3068 and can be convertible into a maximum of 5,400,000 shares of the Company’s common stock to each of the Empery Entities and Sabby Entities, subject to the adjustment of the conversion price and a beneficial ownership limitation equivalent to 9.99%. This settlement loss is considered probable and resulted in an expense charged as a separate line item within Other expenses on the condensed consolidated statement of operations and related accrued litigation liability totaling $3,463,000 on the balance sheet. This amount excludes any legal and others costs that were incurred in connection with the defense of this action, and any legal and other costs incurred by the other defendants that we are required to reimburse. Subject to certain exceptions, the Company is obligated to indemnify the defendants in this action, including ThinkEquity, for their reasonable costs incurred in connection with this action and those costs could be substantial. On November 2, 2022, the United States District Court for the Southern District of New York granted a motion jointly filed by the plaintiffs and defendants, pursuant to which the Settlement Notes will be unrestricted and exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), and the Conversion Shares, when issued upon conversion of the Settlement Notes in accordance with the terms set forth therein, will also be unrestricted and exempt from the registration requirements of the Securities Act. Similarly, the Company has evaluated that it is reasonably possible that other unasserted claims in future litigation and losses may occur. However, the Company is unable to estimate any possible range of loss attributed to other unasserted claims at this time.

On August 5, 2022, Ronald H. Karp filed a class action complaint in the United States District Court for the Southern District of New York covering the same subject matter as the Sabby Entities’ and Empery Entities’ claim discussed above asserting claims against the Company and certain current and former officers and directors for alleged violations of Sections 11, 12, and 15 of the Securities Act of 1933 in connection with the purchase of common stock through the Company’s public offering that closed on July 2, 2021 and Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 promulgated thereunder in connection with the certain statements and acts made by the defendants between June 25, 2021 and August 13, 2021. The Company has evaluated the Karp class claims and has determined that it is not possible to estimate a potential range of loss at this time.

The Company regularly assesses all contingencies and believes, based on information presently known, the Company is not involved in any other matters that would have a material effect on the Company’s financial position, results of operations or cash flows.

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9.LEASES

The Company adopted FASB ASU No. 2016-02, Leases (Topic 842) on January 1, 2022, using the modified retrospective method, in which it did not restate prior periods. Upon adoption, the Company elected the package of practical expedients permitted under the transition guidance within Topic 842 which, among other things, allowed the Company to carry forward the historical lease classification.

In our implementation of ASU No. 2016-02 the Company elected to discount lease obligations using our incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments. The Company’s incremental borrowing rate represents the rate of interest that it would have to pay to borrow over a similar term an amount equal to the lease payments in a similar economic environment. The Company considers publicly available data for instruments with similar terms and characteristics when determining its incremental borrowing rates. In addition, we elected the practical expedient to account for the lease and non-lease components on a combined basis. The Company intends to use the full lease term under the existing lease agreement as the lease term, which is currently set to expire on April 30, 2026. As of September 30, 2022, the Company is not able to determine if any renewal options will be exercised.

The Company leases its premises in Houston, Texas under an operating lease which was renewed on November 19, 2020. This renewed lease agreement will commence under an operating lease agreement that is noncancelable from commencement until May 1, 2024.

On March 22, 2021, the Company’s board of directors approved a lease expansion within its premises in Houston, Texas. The amended lease agreement commenced on August 1, 2021 under an operating lease agreement that is noncancelable from commencement until May 1, 2024. The amended lease agreement adds approximately 15,385 square feet. The Company has the option to cancel the lease thereafter until the agreement expires on May 1, 2026. The termination date is effective after a 90-day notice of cancellation.

Two further amendments were executed in 2021. The agreements commenced on November 1, 2021, and December 1, 2021 under an operating lease agreement that is noncancelable from commencement until May 1, 2024. The amended lease agreement adds approximately 3,684 square feet. The Company has the option to cancel the lease thereafter until the agreement expires on May 1, 2026. The termination date is effective after a 90-day notice of cancellation.

An amendment to the lease agreement was executed in January 2022 and commenced May 1, 2022. The amendment will add approximately 9,352 square feet. The Company has the option to cancel the lease thereafter until the agreement expires on May 1, 2026. The termination date is effective after a 90-day notice of cancellation. In year one and two monthly rent is $4,800 per month, in year three and four monthly rent is $4,896 per month, and in year five monthly rent is $5,000 per month.

If the Company exercises the cancellation option, the Company must also pay the lessor a termination payment equal to three months of base rent.

The following table indicates the balance sheet line items that include the right-of-use assets and lease liabilities for our operating lease:


	September 30,
	2022
	Operating lease
Right-of-Use Asset
Operating lease	$	2,164,500
Total right-of use asset		2,164,500

Lease Liabilities
Operating lease - short term	$	(547,800)
Operating lease - long term		(1,626,300)
Total lease liabilities		(2,174,100)

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For the three and nine months ended September 30, 2022, the components of lease expense were as follows:


	Three Months Ended			Nine Months Ended
	September 30,			September 30,
Operating lease cost allocated to research and development expense	$	132,700		$	346,400
Operating lease cost allocated to general and administrative expense		38,900			145,200
Total lease expense	$	171,600		$	491,600
Weighted-average remaining lease term		3.59			3.59
Weighted-average discount rate		7.12	%		7.12	%

As of September 30, 2022 the maturities of the Company’s operating lease liabilities were as follows:


Maturity of Lease Liabilities		Operating lease
2022	$	169,400
2023		684,300
2024		687,700
2025		694,300
2026		232,600
Total lease payments		2,468,300
Less: imputed interest		(294,200)
Present value of lease payments		2,174,100

The Company maintains a month to month lease in Arlington, VA, which is considered a short term lease. The Company elected to exclude this lease from the determination of the right-of-use asset and lease liability, as permitted under ASC 842. The Company will recognize the lease payments in profit or loss in the statement of operations on a straight-line basis over the term of the lease. The monthly rent expense as of June 30, 2022 is $2,500 per month. For the three and nine months ended September 30, 2022, short-term lease expense was $7,500 and $22,500, respectively.

Under ASC 840, rent expense recognized under the leases was $126,900 and $270,800 for the three and nine months ended September 30, 2021.

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10.STOCKHOLDERS’ EQUITY

Common Stock—As of September 30, 2022 and December 31, 2021, the Company has a single class of common stock.

On July 2, 2021, the Company received net proceeds of $37,118,100 from its public offering, after deducting underwriting discounts and commissions of $2,494,900 and other offering expenses of $457,000 incurred. The Company issued and sold 8,000,000 shares of common stock in the public offering at a price of $5.00 per share.

Below is a table that outlines the initial value of issuances allocated to the IPO and public offering of common stock and the IPO and public offering common stock discount amortization, during the three and nine months ended September 30:


	2022		2021
Common Stock
Balance at January 1,	$	48,264,300	$	11,975,400
Common stock initial public offering discount amortization		24,700		24,700
Common stock public offering discount amortization		60,400		—
Balance at March 31,	$	48,349,400	$	12,000,100
Common stock initial public offering discount amortization		24,900		24,900
Common stock public offering discount amortization		61,000		—
Balance at June 30,	$	48,435,300	$	12,025,000
Common stock issuance from public offering, net of underwriting discounts and commissions and other offering expenses		—		37,118,100
Common stock public offering discount		—		(1,051,200)
Common stock initial public offering discount amortization		25,200		25,200
Common stock public offering discount amortization		61,700		60,300
Balance at September 30,	$	48,522,200	$	48,177,400

Representative’s Warrants—In connection with the IPO on October 15, 2020, the Company granted the underwriters warrants (the “Underwriters’ Warrants”) to purchase an aggregate of 62,500 shares of common stock at an exercise price of $15.00 per share, which is 125% of the initial public offering price. The Underwriters’ Warrants have a five-year term and were not exercisable prior to April 13, 2021. All of the Underwriters’ Warrants were outstanding and exercisable at September 30, 2022.

These warrants were equity classified. As of September 30, 2022 and December 31, 2021, the warrant fair values of $182,500 and $257,300, respectively, is reflected as additional paid-in capital.

In connection with the public offering on July 2, 2021, the Company granted the underwriters warrants (the “Additional Underwriters’ Warrants”) to purchase an aggregate of 400,000 shares of common stock at an exercise price of $6.25 per share, which is 125% of the initial public offering price. The Additional Underwriters’ Warrants have a five-year term and are not exercisable prior to January 2, 2022. All of the Additional Underwriters’ Warrants were outstanding at September 30, 2022.

These warrants were equity classified. As of September 30, 2022 and December 31, 2021, the fair value of the warrants was $746,200 and $929,300, respectively, and is reflected as additional paid-in capital.

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11.STOCK-BASED COMPENSATION

2017 Stock Incentive Plan— Stock Options

There were no stock option grants from the 2017 Plan during the nine months ended September 30, 2022. The Black-Scholes option-pricing model was used to estimate the fair value of stock option grants with the following weighted-average assumptions for the nine months ended September 30, 2021:


	September 30,
	2021
Risk-free interest rate	1.09	%
Expected volatility	83.34	%
Expected life (years)	6.22
Expected dividend yield	0	%

The following table summarizes the activity for all stock options outstanding at September 30 under the 2017 Plan:


	2022			2021
		Weighted			Weighted
		Average			Average
		Exercise			Exercise
	Shares	Price		Shares	Price
Options outstanding at beginning of year	380,909	$	8.57	489,718	$	10.03
Granted	—		—	147,038		8.47
Exercised	—		—	(18,891)		6.64
Cancelled and forfeited	(42,037)		9.19	(64,427)		17.67
Balance at September 30	338,872	$	8.49	553,438	$	8.84
Options exercisable at September 30:	336,108	$	8.53	369,020	$	8.87
Weighted average grant date fair value for options granted during the year:		$	—		$	8.47

The intrinsic value of the options exercised during the nine months ended September 30, 2021 was $33,000. In addition, the weighted average remaining contractual life for the options is 5.28 years and 6.49 years as of September 31, 2022 and 2021, respectively. The options have no intrinsic value as of September 30, 2022 or 2021, respectively.

Total stock compensation expense recognized from stock-based compensation awards classified as stock options were recognized in the condensed consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021 as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Research and development	$	9,000	$	44,500	$	61,000	$	86,400
General and administrative		8,000		32,500		23,000		189,400
Total	$	17,000	$	77,000	$	84,000	$	275,800

On August 20, 2020, the Board canceled and terminated 15,792 stock options, granted during the quarter ended June 30, 2020, to four non-employees. Thereafter, on August 20, 2020, the Board granted 21,112 stock options to the same individuals with a grant date fair value of $12.81 per share. There were 3,959 stock option grants that were considered vested on the grant date. The effects of the stock option modifications resulted in $0 and $34,900 of stock compensation expense allocable to general and administrative for the three and nine months ended September 30, 2021, respectively. Included in that amount were $0 and $16,000 of incremental compensation costs resulting from the modifications for the three and nine months ended September 30, 2021, respectively. There were no effects stock option modifications during the three and nine months ended September 30, 2022.

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As of September 30, 2022, total unrecognized stock compensation expense is $20,900 related to unvested stock options to be recognized over the remaining weighted-average vesting period of 0.42 years.

2017 Stock Incentive Plan—Restricted Stock Units

The 2017 Plan permits the Company to grant equity awards for up to 1,708,615 shares of the Company’s common stock awards, including incentive stock options; non-statutory stock options; and conditional share awards to employees, directors, and consultants of the Company. All granted shares that are canceled, forfeited, or expired are returned to the 2017 Plan and are available for grant in conjunction with the issuance of new common stock awards. Restricted stock units (“RSUs”) vest over a specified amount of time or when certain performance metrics are achieved by the Company.

In the nine months ended September 30, 2022 and 2021, the fair value of the shares of common stock underlying restricted stock units was determined by the closing stock price listed on the Nasdaq Capital Market on the grant date.

The following table summarizes the activity for all RSUs outstanding at September 30 under the 2017 Plan:


	2022			2021
		Weighted Average			Weighted Average
		Grant Date			Grant Date
		Fair Value			Fair Value
	Shares	Per Share		Shares	Per Share
Nonvested RSUs at beginning of year, as restated	510,851	$	12.48	946,245	$	12.81
Granted	—		—	166,660		7.98
Vested	(11,980)		9.90	(37,802)		6.51
Cancelled and forfeited	(338,988)		12.75	(136,445)		12.79
Nonvested RSUs at September 30,	159,883	$	12.18	938,658	$	12.28

Subsequent to the issuance of the December 31, 2021 consolidated financial statements, the Company identified an error related to the calculation of the number of vested shares of restricted stock units related to the Company’s 2017 Equity Incentive Plan. The Company used an incorrect number of vested shares of restricted stock units for the year ended December 31, 2021. Accordingly, the Company restated the number of vested shares of restricted stock units for the year ended December 31, 2021 from 37,802 shares to 393,909 shares, and the resulting total non-vested restricted stock units at December 31, 2021 from 866,958 shares to 510,851 shares. Additionally, the weighted average grant date fair value of vested shares for the year ended December 31, 2021 was restated from $6.51 per share to $11.21 per share, and the weighted average grant date fair value for total nonvested restricted stock units as of December 31, 2021 was restated from $12.16 per share to $12.48 per share. This change did not have any impact on our earnings per share calculations, nor did it have any impact on any previous disclosures related to potentially dilutive securities excluded from the computations of diluted weighted-average shares of common stock outstanding. The Company has evaluated the materiality of this error and concluded that it is not material to the December 31, 2021 consolidated financial statements. Further, the Company will also prospectively restate the previously reported financial information for the related error in future and annual filings for the year ending December 31, 2022.

Total stock compensation expense recognized from stock-based compensation awards classified as restricted stock units were recognized in the condensed consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021, as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Research and development	$	17,300	$	99,400	$	31,200	$	2,000,600
General and administrative		21,100		866,900		16,400		939,800
Total	$	38,400	$	966,300	$	47,600	$	2,940,400

On August 20, 2020, the board of directors canceled and terminated 709,334 RSUs, granted during the quarter ended June 30, 2020. The cancelled RSUs were originally granted to five individuals with a grant date fair value of $12.87 per share. Thereafter, on August 20, 2020, the board of directors granted 946,245 RSUs to the same individuals with a grant

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date fair value of $12.81 per share. None of the RSU grants were considered vested on the grant date. The RSU grants were modified for three employees and two non-employees.

The effects of the RSU modifications resulted in $62,300 and $108,500 of stock compensation expense allocable to research and development and general and administrative, respectively, during the three months ended September 30, 2021. Included in those amounts were incremental compensation costs of $11,500 and $25,300 of stock compensation expense allocable to research and development and general and administrative, respectively, during the three months ended September 30, 2021.

The effects of the RSU modifications resulted in $598,900 and $1,286,800 of stock compensation expense allocable to research and development and general and administrative, respectively, during the nine months ended September 30, 2021. Included in those amounts were incremental compensation costs of $52,500 and $115,200 of stock compensation expense allocable to research and development and general and administrative, respectively, during the nine months ended September 30, 2021.

There was no effect from RSU modifications during the three and nine months ended September 30, 2022.

2021 Stock Incentive Plan—Restricted Stock Units

The 2021 Plan permits the Company to grant equity awards for up to 1,217,292 shares of the Company’s common stock awards, including incentive stock options; non-statutory stock options; and conditional share awards to employees, directors, and consultants of the Company. All granted shares that are canceled, forfeited, or expired are returned to the 2021 Plan and are available for grant in conjunction with the issuance of new common stock awards. RSUs vest over a specified amount of time or when certain performance metrics are achieved by the Company.

In the nine months ended September 30, 2022, the fair value of the shares of common stock underlying restricted stock units was determined by the closing stock price listed on the Nasdaq Capital Market on the grant date.

The following table summarizes the activity for all RSUs outstanding at September 30, 2022 and 2021 under the 2021 Plan:


	2022			2021
		Weighted Average			Weighted Average
		Grant Date			Grant Date
		Fair Value			Fair Value
	Shares	Per Share		Shares	Per Share
Nonvested RSUs at beginning of year	62,049	$	5.52	—	$	—
Granted	738,298		0.41	102,613		5.20
Vested	(595,581)		1.28	(37,900)		4.75
Cancelled and forfeited	(7,936)		4.22	—		—
Nonvested RSUs at September 30,	196,830	$	1.44	64,713	$	5.46


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Research and development	$	21,800	$	11,000	$	47,500	$	11,000
General and administrative		220,000		51,000		249,800		91,900
Total	$	241,800	$	62,000	$	297,300	$	102,900

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2021 Stock Incentive Plan — Stock Options

The Black-Scholes option-pricing model was used to estimate the fair value of stock options with the following weighted average assumptions for the three and nine months ended September 30:


	2022
Risk-free interest rate	2.99	%
Expected volatility	119.55	%
Expected life (years)	5.1
Expected dividend yield	0	%

In the nine months ended September 30, 2022, the fair value of the common shares underlying the stock options was determined by the closing stock price listed on the Nasdaq Capital Market on the grant date.

The following table summarizes the activity for all stock options outstanding at September 30 under the 2021 Plan:


	2022
		Weighted
		Average
		Exercise
	Shares	Price
Options outstanding at beginning of year	—	$	—
Granted	734,400		0.43
Exercised	—		—
Cancelled and forfeited	—		—
Balance at September 30	734,400	$	0.43
Options exercisable at September 30:	550,800	$	0.43
Weighted average grant date fair value for options granted during the year:		$	0.36

In addition, the stock options had weighted average remaining contractual life of 9.75 years. The stock options generated stock compensation expense of $66,000 and $198,600 during the three and nine months ended September 30, 2022. All of the stock compensation expense was allocated to general and administrative expense on the condensed consolidated statement of operations.

As of September 30, 2022, total unrecognized stock compensation expense is $65,300, related to unvested stock options to be recognized over the remaining weighted-average vesting period of 0.25 years.

12.INCOME TAXES

The Company’s effective tax rate from continuing operations was 0% for the three and nine months ended September 30, 2022 and 2021. The Company recorded no income tax provision for the three and nine months ended September 30, 2022 or 2021.

The provision for income taxes during the interim reporting periods is calculated by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss for the reporting period. Each quarter, the estimate of the annual effective tax rate is updated, and if the estimated effective tax rate changes, a cumulative adjustment is made. There is a potential for volatility of the effective tax rate due to several factors, including changes in the mix of the pre-tax income and the jurisdictions to which it relates, changes in tax laws, business reorganizations and settlements with taxing authorities.

The income tax rates vary from the US federal statutory rate of 21% primarily due to the full valuation allowance on the Company’s deferred tax assets. The Company has recorded the full valuation allowance based on an evaluation of both

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positive and negative evidence, including latest forecasts and cumulative losses in recent years. The Company has concluded that it was more likely than not that none of its deferred tax assets would be realized.

13.SUBSEQUENT EVENTS

Joseph Podmore Class Action Litigation

On October 3, 2022, Joseph Podmore (“Podmore”) filed a class action complaint in the United States District Court for the Southern District of New York covering the same subject matter as the Sabby Entities’ and Empery Entities’ claim discussed above asserting claims against the Company and certain current and former officers and directors for alleged violations of Sections 11, 12, and 15 of the Securities Act in connection with the purchase of common stock through the Company’s public offering that closed on July 2, 2021 and Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 promulgated thereunder in connection with the certain statements and acts made by the defendants between June 25, 2021 and August 13, 2021. The Company has evaluated the Podmore class claims and has determined that it is not possible to estimate a potential range of loss at this time.

Stipulation of Settlement and Mutual Release with Sabby Entities and Empery Entities

On October 10, 2022, the Company and certain current and former officers and directors of the Company (together with the Company, the “Defendants”) entered into a Stipulation of Settlement and Mutual Release (the “Initial Settlement Agreements”) with the Empery Entities and with the Sabby Entities (collectively, the “Plaintiffs”), respectively, in connection with a case filed by the Plaintiffs against the Defendants for alleged violations of Sections 11, 12, and 15 of the Securities Act in connection with the purchase of Company’s common stock through the Company’s public offering that closed on July 2, 2021. The Plaintiffs and the Defendants agreed to dismiss the case with prejudice against all Defendants (including ThinkEquity, LLC) with no admission of liability. As part of the Settlement, the Company agreed to (a) make a $75,000 cash payment to each of the Empery Entities and Sabby Entities and (b) issue the Settlement Notes in the aggregate principal amount of $1,656,720 to each of the Empery Entities and Sabby Entities. The Settlement Notes are convertible into shares of the Company’s common stock (the “Conversion Shares”) at an initial conversion price per share of $0.3068 (the “Conversion Price”), subject to a beneficial ownership limitation equivalent to 9.99% (“Beneficial Ownership Limitation”).

On October 27, 2022, the Defendants entered into an Amended Stipulation of Settlement and Mutual Release with the Empery Entities (the “Amended Empery Settlement Agreement”) and Sabby (together with the Amended Empery Settlement Agreement, the “Amended Settlement Agreements”), respectively. On November 2, 2022, the Court granted the Joint Motion, pursuant to which the Settlement Notes will be unrestricted and exempt from the registration requirements of the Securities Act, and the Conversion Shares, when issued upon conversion of the Settlement Notes in accordance with the terms set forth therein, will also be unrestricted and exempt from the registration requirements of the Securities Act.

Standby Equity Purchase Agreement Financing

On October 13, 2022, the Company entered into a Standby Equity Purchase Agreement (the “SEPA”) with YA II PN, Ltd. (the “Investor”). Pursuant to the SEPA, the Company has the right to sell to the Investor up to $5,000,000 (the “Commitment Amount”) of its shares of common stock, par value $0.001 per share (“Common Stock”), subject to increase by an additional $3,000,000 of Common Stock at the Company’s election (the “Commitment Increase”), at the Company’s request any time during the commitment period commencing on October 13, 2022 and terminating on the earliest of (i) the first day of the month following the 24-month anniversary of the SEPA or (ii) the date on which the Investor has paid for shares of Common Stock equal to the Commitment Amount.

The shares would be purchased at 95.0% of the Market Price (as defined in the agreement) and would be subject to certain limitations, including that the Investor could not purchase any shares that would result in it owning more than 9.99% of the outstanding Common Stock after such purchase (the "Ownership Limitation") or an aggregate of 19.9% of the outstanding Common Stock as of the date of the SEPA (the "Exchange Cap"). The Exchange Cap will not apply under

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certain circumstances, including to any sales of Common Stock under the SEPA that equal or exceed $0.3111, representing the lower of (i) the closing price of the Common Stock as reflected on Nasdaq.com immediately preceding the date of the SEPA, or (ii) the average closing price of the Common Stock for the five trading days immediately preceding the date of the SEPA.

Pursuant to the SEPA, the Company also paid a subsidiary of the Investor, a structuring fee in the amount of $10,000 and issued to the Investor 603,318 shares of Common Stock as a commitment fee on October 13, 2022 (the “Commitment Shares”). In the event of the Commitment Increase, the Company will issue to the Investor an additional number of shares of Common Stock determined by dividing $120,000 by the average of the daily VWAPs for the five trading days prior to the date of delivery by the Company of written notice of the Commitment Increase.

In connection with the SEPA agreement, on October 31, 2022, the Company entered into a letter agreement with an accredited investor (the “Investor”), pursuant to which the Company agreed to issue to the Investor 1,000,000 shares (the “Shares”) of the Company’s common stock in consideration of the Investor’s services to the Company in identifying investors. The Company issued the Shares to the Investor on October 31, 2022. The Shares were issued in reliance upon the exemption from the registration requirements of the Securities Act, provided by Section 4(a)(2) of the Securities Act as sales by an issuer not involving any public offering.

Senior Secured Convertible Note Financing

On October 21, 2022 (the “Issuance Date”), the Company issued a 25% Senior Secured Convertible Promissory Note (the “Note”) to an accredited investor. The Note has a principal amount of $2,000,000, bears interest at a rate of 25% per annum (the “Stated Rate”) and matures on October 21, 2023 (the “Maturity Date”), on which date the principal balance and accrued but unpaid interest are due and payable. The Stated Rate will increase to 27% per annum or the highest rate then allowed under applicable law (whichever is lower) upon occurrence of an event of default, including the failure by the Company to make payment of principal or interest due under the Note on the Maturity Date, and any commencement by the Company of a case under any applicable bankruptcy or insolvency laws.

The Note is convertible into shares of the Company’s Common Stock, at an initial conversion price of $0.35 per share, subject to a beneficial ownership limitation equivalent to 9.99% (the “Beneficial Ownership Limitation”) and a share cap of 3,287,699 shares (the “Share Cap”), representing 19.9% of the total issued and outstanding shares of Common Stock as of October 20, 2022.

The unpaid principal of and interest on the Note constitute unsubordinated obligations of the Company and are senior and preferred in right of payment to all subordinated indebtedness and equity securities of the Company outstanding as of the Issuance Date; provided, however, that the Company may incur or guarantee additional indebtedness after the Issuance Date, whether such indebtedness are senior, pari passu or junior to the obligations under the Note, which are secured by all of the Company’s right, title and interest, in and to, (i) all fixtures (as defined in the Uniform Commercial Code, the “UCC”) and equipment (as defined in the UCC), and (ii) all of the Company’s intellectual property as specified in the Note, subject to certain exclusions as described in the Note.

Pursuant to the Note, the Company is required to file a Registration Statement with the SEC to register the conversion shares within 30 days after the Conversion Share Delivery Date (as defined in the Note) and shall use its commercially reasonable efforts to have the Registration Statement declared effective by the SEC.

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

The following management’s discussion and analysis of financial condition and results of operations provides information that management believes is relevant to an assessment and understanding of our plans and financial condition. The following financial information is derived from our financial statements and should be read in conjunction with such financial statements and notes thereto set forth elsewhere herein.

Our Business

Overview

Kiromic BioPharma, Inc. (together with its subsidiary, “we,” “us,” “our” or the “Company”) is an Artificial Intelligence (“AI”) driven, end-to-end allogeneic cell therapy company, currently developing multi-indication allogeneic T cell therapies that exploits the natural potency of Gamma Delta T cells (“GDTs”) to target solid tumors. Our end-to-end approach consists of target discovery and validation, product development, and current good manufacturing practices (“cGMP”), which we believe will allow us to leverage a new framework for the next generation of cell therapies. We also have new technologies in development that we believe will support our end-to-end approach.

From a development standpoint, we utilize innovative engineered and non-engineered GDT manufacturing technologies and are developing proprietary, virus-free gene editing tools, to develop novel therapies for solid tumors that we believe will be effective and cost-efficient. Our Procel, Isocel, and Deltacel product platform candidates consist of allogeneic cell therapy candidates that are currently in the preclinical development stage. Our Deltacel product candidate consists of non-engineered GDTs that have been expanded, enriched, and activated ex-vivo through a proprietary process, and will be used to treat solid tumors regardless of the specific tumor antigen expression. Our Procel product candidate consists of engineered GDTs and will be used to target PD-L1. Our Isocel product candidate consists of engineered GDTs and will be used to target Mesothelin Isoform 2 positive tumors (“Iso-Meso”).

We currently have two FDA submitted clinical trial candidates, one with the Procel product candidate platform titled ALEXIS-PRO-1, and one clinical trial candidate with the Isocel product candidate platform titled ALEXIS-ISO-1. The IND applications for these trial candidates have been on a clinical hold since June 2021, and we are working on addressing the FDA’s comments. Our ALEXIS-PRO-1 clinical trial candidate is our allogeneic GDT therapy product candidate targeting PD-L1. Our ALEXIS-ISO-1 clinical trial candidate is our allogeneic GDT therapy product candidate targeting an isoform of Mesothelin that is preferentially present on tumor cells, namely Iso-Meso. The IND applications for these trial candidates have been on a clinical hold since June 2021. We are currently working on addressing the FDA’s comments. Given that the Company has aligned its operations toward progressing the Deltacel product candidate while maintaining our other product candidates, we expect the clinical hold on ALEXIS-PRO-1 and ALEXIS-ISO-1 will be lifted after we have sufficient financing and corresponding resources to do so.

We also have an active Sponsored Research Agreement (the “SRA”) with The University of Texas MD Anderson Cancer Center (“MD Anderson”) Principal Investigator to facilitate the development of our Deltacel, Procel, and Isocel product candidates. We believe this SRA will generate sufficient in-vivo pre-clinical data to enhance our GDT product platform, supporting three new IND submissions: (1) Deltacel in combination with a standard anti-tumor modality (“IND #1”); (2) Procel in combination with a standard anti-tumor modality (“IND #2”); and (3) Isocel in combination with a standard anti-tumor modality (“IND #3”). These three new INDs have not yet been submitted to the FDA, and are described In further detail below. The beginning of the clinical trial activation process will begin after the following two events: (1) the IND receives FDA authorization to begin the clinical trial (which would take place 30 days after receipt by the FDA, unless the FDA raises concerns or questions regarding the proposed clinical trials and places the trial on a clinical hold within that 30-day time period); and (2) commencing the review and approval process by an independent institutional review board (“IRB”) or ethics committee at the selected clinical trial site(s).

IND #1 will evaluate Deltacel GDTs in combination with a standard anti-tumor modality. We are planning to submit this IND during the first quarter of 2023, and believe clinical trial activation may begin during the second quarter of 2023. IND #2 combines a standard anti-tumor modality and our genetically engineered product candidate targeting PD-L1, which is the target associated with the ALEXIS-PRO-1 clinical trial candidate on the Procel product candidate platform. IND #3 combines a standard anti-tumor modality and our genetically engineered product candidate targeting Iso-Meso, the target associated with the ALEXIS-ISO-1 clinical trial candidate on the Isocel product candidate platform. Since the Company has aligned its operations with the Deltacel product candidate and IND #1, we are planning to submit INDs for

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IND #2 and IND #3 when we obtain sufficient financing to support the progression of the development of those additional clinical trial candidates.

We have not generated any revenue from sales to date, and we continue to incur significant research and development and other expenses related to our ongoing operations. As a result, we are not and have never been profitable and have incurred losses in each period since we began principal business operations in 2012. As discussed in more detail below, the Company is currently in discussions with financing sources in an attempt to secure short-term financing to continue operations and fund other liquidity needs through the end of the year. In the absence of such financing, management anticipates that existing cash resources will not be sufficient to meet operating and liquidity needs beyond December 2022.

Recent Developments

Terminated Equity Offering

On June 27, 2022, the Company filed a registration statement on Form S-1 (Registration No. 333-265860) with the Securities and Exchange Commission (the “SEC”), pursuant to which it planned to offer up to 62,500,000 shares of common stock (and/or pre-funded warrants in lieu thereof) and warrants to purchase up to 62,500,000 shares of the Company’s common stock in an underwritten public offering. The Company and ThinkEquity LLC, the underwriter (the “Underwriter”) of this planned offering were conducting road shows with potential investors when the plaintiffs in the securities litigation described below filed an amended complaint to add the Underwriter as a defendant in the lawsuit.

As discussed in more detail under Part II. “Item 1. Legal Proceedings”, on March 7, 2022, entities related to Sabby Management LLC and Empery Asset Management, LP filed a complaint in the United States District Court for the Southern District of New York alleging claims against the Company and certain current and former officers and directors of the Company. On July 22, 2022, the plaintiffs amended their complaint to, among other things, include the Underwriter as a defendant. As a result, the Underwriter suspended the offering, including the roadshows. As a result, on August 12, 2022, the Company terminated the engagement of the Underwriter for cause due to, among other reasons, its unwillingness to continue with the offering. As discussed below, the Company is currently in discussions with financing sources in an attempt to secure short-term financing to continue operations and fund other liquidity needs through the end of the year. However, there is no assurance that the Company will be able to secure financing on acceptable terms, if at all.

Settlement Update

On October 10, 2022, we and certain current and former officers and directors (together with us, the “Defendants”) entered into a Stipulation of Settlement and Mutual Release (the “Initial Settlement Agreements”) with the Empery Entities and with the Sabby Entities (collectively, the “Plaintiffs”), respectively, in connection with a case filed by the Plaintiffs against the Defendants for alleged violations of Sections 11, 12, and 15 of the Securities Act in connection with the purchase of Company’s common stock through the Company’s public offering that closed on July 2, 2021. Pursuant to the Initial Settlement Agreements, the Plaintiffs and the Defendants agreed to dismiss the case with prejudice against all Defendants (including ThinkEquity, LLC) with no admission of liability. As part of the Settlement, the Company agreed to (a) make a $75,000 cash payment to each of the Empery Entities and Sabby Entities and (b) issue the Settlement Notes in the aggregate principal amount of $1,656,720 to each of the Empery Entities and Sabby Entities. The Settlement Notes are convertible into shares of the Company’s common stock (the “Conversion Shares”) at an initial conversion price per share of $0.3068 (the “Conversion Price”), subject to a beneficial ownership limitation equivalent to 9.99% (“Beneficial Ownership Limitation”).

Both Initial Settlement Agreements were conditioned upon the Company obtaining financing no later than October 18, 2022 for aggregate gross proceeds to the Company of not less than $5 million (the “Conditional Financing”), after which within one business day the parties should promptly submit a joint motion seeking approval of the Initial Settlement Agreements under Section 3(a)(10) of the Securities Act (the “Joint Motion”) from the United States District Court for the Southern District of New York (the “Court”).

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removed the satisfaction of the Conditional Financing as a condition to the Settlement and provided that the parties shall file the Joint Motion no later than October 25, 2022. The Amended Empery Settlement Agreement shall become void if the Court does not approve the Joint Motion by November 15, 2022, subject to extension by the Empery Entities.

On November 2, 2022, the Court granted the Joint Motion, pursuant to which the Settlement Notes will be unrestricted and exempt from the registration requirements of the Securities Act, and the Conversion Shares, when issued upon conversion of the Settlement Notes in accordance with the terms set forth therein, will also be unrestricted and exempt from the registration requirements of the Securities Act.

Going Concern and Liquidity

We do not have sufficient cash on hand and available liquidity to meet our obligations through the twelve months following the date the condensed consolidated financial statements are issued. Therefore, this condition raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans were updated to evaluate different strategies to obtain the required funding of future operations. These plans may include, but are not limited to, additional funding from current or new investors; however, if we are unable to raise additional funding to meet working capital needs, we will be forced to delay or reduce the scope of our research programs and/or limit or cease operations. The negative cash flows and lack of financial resources raised substantial doubt as to our ability to continue as a going concern, and that substantial doubt has not been alleviated. Therefore, this condition raises substantial doubt about the Company’s ability to continue as a going concern. See Note 1 to the Company’s Condensed Consolidated Financial Statements, “Going Concern” for further details.

The Company’s estimated cash and cash equivalents were $1,325,300 as of October 31, 2022. The Company is currently in discussions with financing sources in an attempt to secure short-term financing to continue operations and fund other liquidity needs through the end of the year. The Company has begun working with a financial advisor to assist it with its efforts to obtain financing. In the absence of such financing, management anticipates that existing cash resources will not be sufficient to meet operating and liquidity needs beyond December 2022. However, management is currently evaluating various cost reduction actions, including additional reductions in the Company’s workforce and suspending research and development expenditures on one or more product candidates, in order to reduce the Company’s expenditures and preserve cash. We are not able to predict whether any such cost reduction actions will be successful.

As a result of the pending securities litigation and the Company’s current liquidity position, management can provide no assurance that the Company will be able to obtain financing on acceptable terms, if at all. If financing is available, it may not be on favorable terms and may have a significant dilutive effect on our existing stockholders. In the event we are unable to secure financing sufficient to allow us to meet our obligations as they become due, we may need to file a voluntary petition for relief under the United States Bankruptcy Code in order to implement a restructuring plan or liquidation. See Part II, Item 1A. “Risk Factors” for further details.

Financing Update

On October 13, 2022, we entered into a Standby Equity Purchase Agreement (the “SEPA”) with YA II PN, Ltd. (the “Investor”). Pursuant to the SEPA, we shall have the right, but not the obligation, to sell to the Investor up to $5,000,000 (the “Commitment Amount”) of its shares of common stock, par value $0.001 per share (“Common Stock”), subject to increase by an additional $3,000,000 of Common Stock at our election (the “Commitment Increase”), at our request any time during the commitment period commencing on October 13, 2022 and terminating on the earliest of (i) the first day of the month following the 24-month anniversary of the SEPA and (ii) the date on which the Investor shall have made payment of any advances requested pursuant to the SEPA for shares of the Common Stock equal to the Commitment Amount. Each sale that we request under the SEPA (an “Advance”) may be for the greater of (i) an amount of shares of Common Stock equal to the average of the daily traded amount of the Common Stock during the five trading days immediately preceding the notice of an Advance or (ii) $1,000,000. The shares would be purchased at 95.0% of the Market Price (as defined below) and would be subject to certain limitations, including that the Investor could not purchase any shares that would result in it owning more than 9.99% of the outstanding Common Stock after such purchase (the "Ownership Limitation") or an aggregate of 19.9% of the outstanding Common Stock as of the date of the SEPA (the "Exchange Cap"). The Exchange Cap will not apply under certain circumstances, including to any sales of Common Stock

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under the SEPA that equal or exceed $0.3111, representing the lower of (i) the closing price of the Common Stock as reflected on Nasdaq.com immediately preceding the date of the SEPA, or (ii) the average closing price of the Common Stock for the five trading days immediately preceding the date of the SEPA. “Market Price” is defined in the SEPA as the lowest of the daily VWAPs (as defined below) of the Common Stock during each of the three consecutive trading days commencing on the day of the our submission of an Advance notice to the Investor. “VWAP” is defined in the SEPA to mean, for any trading day, the daily volume weighted average price of the Common Stock for such date on the Nasdaq Capital Market as reported by Bloomberg L.P. during regular trading hours.

Pursuant to the SEPA, we also paid YA Global II SPV, LLC, a subsidiary of the Investor, a structuring fee in the amount of $10,000 and issued to the Investor 603,318 shares of Common Stock as a commitment fee on October 13, 2022 (the “Commitment Shares”). In the event of the Commitment Increase, we will issue to the Investor an additional number of shares of Common Stock determined by dividing $120,000 by the average of the daily VWAPs for the five trading days prior to the date of delivery by our written notice of the Commitment Increase.

On October 21, 2022 (the “Issuance Date”), we issued a 25% Senior Secured Convertible Promissory Note (the “Note”) to an accredited investor. The Note has a principal amount of $2,000,000, bears interest at a rate of 25% per annum (the “Stated Rate”) and matures on October 21, 2023 (the “Maturity Date”), on which the principal balance and accrued but unpaid interest under the Note shall be due and payable. The Stated Rate will increase to 27% per annum or the highest rate then allowed under applicable law (whichever is lower) upon occurrence of an event of default, including the failure by the Company to make payment of principal or interest due under the Note on the Maturity Date, and any commencement by the Company of a case under any applicable bankruptcy or insolvency laws.

The Note is convertible into shares (the “Conversion Shares”) of our Common Stock, at an initial conversion price of $0.35 per share (the “Conversion Price”), subject to a beneficial ownership limitation equivalent to 9.99% (the “Beneficial Ownership Limitation”) and a share cap of 3,287,699 shares (the “Share Cap”), representing 19.9% of the total issued and outstanding shares of Common Stock as of October 20, 2022, in the event that the Conversion Price is lower than $0.3268 per share, representing the lower of the closing price immediately preceding the Issuance Date or the average closing price of the Common Stock for the five trading days immediately preceding the Issuance Date.

The unpaid principal of and interest on the Note constitute our unsubordinated obligations and are senior and preferred in right of payment to all our subordinated indebtedness and equity securities outstanding as of the Issuance Date; provided, however, that we may incur or guarantee additional indebtedness after the Issuance Date, whether such indebtedness are senior, pari passu or junior to the obligations under the Note, which are secured by all of our right, title and interest, in and to, (i) all fixtures (as defined in the Uniform Commercial Code, the “UCC”) and equipment (as defined in the UCC), and (ii) all of our intellectual property as specified in the Note, subject to certain exclusions as described in the Note.

Pursuant to the Note, we are required to file a Registration Statement with the SEC to register the Conversion Shares within 30 days after the Conversion Share Delivery Date (as defined in the Note) and shall use its commercially reasonable efforts to have the Registration Statement declared effective by the SEC.

Clinical Update

On October 6, 2022, we announced that we received validating written feedback on October 4, 2022 from the FDA pursuant to our Type B Pre-IND meeting request regarding our development strategy for IND #1. The purpose of the Pre-IND meeting request was to seek alignment with and to obtain FDA guidance on our proposed development strategy about the chemistry, manufacturing, and controls, nonclinical studies, and clinical study plan for IND #1 for treating subjects with Non-Small Cell Lung Cancer. We plan to leverage this FDA Pre-IND written confirmatory feedback and recommendations into a robust IND submission package for a projected clinical trial activation by the end of the first quarter of 2023.

In the same press release, we also reiterated our focus on the Deltacel aligned development strategy. Accordingly we announce that we streamlined its operations and aligned key resources to advance its Deltacel product candidate while maintaining its other product candidates Procel and Isocel. As part of that aligned strategy and following a thorough evaluation to maximize operational efficiencies, we eliminated 20 positions or approximately 29% of our workforce.

On June 30, 2022, we completed construction on our expanded cGMP manufacturing facility in Houston. Such expansion is one of the conditions required for the Company to begin the activation of its cell therapy clinical trial for

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the Deltacel product candidate. The completion also addresses a key component in the clinical hold communication the Company received from the FDA in June 2021.

On June 21, 2022, we announced our revised pipeline to prioritize submission of IND #1, the Deltacel product candidate in combination with a standard antitumor modality. We believe that this action advances our non-viral, non-engineered product candidate while also reducing costs, and mitigating current supply chain headwinds associated with a virus-based approach. We also announced that we will also pursue new INDs for IND #2 and IND #3, which are our Procel and Isocel product candidates in combination with a standard antitumor modality in 2023.

In the same press release, we announced our revised clinical timeline, which is superseded by this report. Our expectations on timing changed based on the nature and amount of financing we have been able to secure, and any cost reduction actions the Company has taken in order to reduce the Company’s expenditures and preserve cash.

Results from our Internal Review

On or about August 17 and 23, 2021, Tony Tontat, who at the time was the Chief Financial Officer and a member of the Board of Directors (“the Board”), submitted substantially identical reports (the “Complaints”) through our complaint hotline. These Complaints, alleged, among other topics, risks associated with our public disclosures in our securities filings and in statements made to the public, investors, and potential investors regarding (i) the anticipated timing of the U.S. Food and Drug Administration’s (“FDA”) authorization of our investigational new drug (“IND”) applications and (ii) the anticipated timing of human clinical trials. These Complaints were subsequently submitted to the Audit Committee of the Board.

On February 2, 2022, following the conclusion of the Internal Review, the Special Committee reported the results of its Internal Review to the Board. The Board approved certain actions to address the fact that we had received communications from the FDA on June 16 and June 17, 2021 that the FDA was placing our IND applications that we submitted to the FDA on May 14 and May 17, 2021 for the ALEXIS-PRO-1 and ALEXIS-ISO-1 product candidates, respectively, on clinical hold (the “June 16 and 17, 2021 FDA Communications”). On July 13, 2021, we received the FDA’s formal clinical hold letters, which asked us to address key components regarding the chemical, manufacturing, and control components of the IND applications. On July 16, 2021, we issued a press release disclosing that it had received comments from the FDA on our two INDs, but did not use the term “clinical hold.” On August 13, 2021, we issued a press release announcing that these INDs were placed on clinical hold. We did not disclose the June 16 and 17, 2021 FDA Communications in (i) our Registration Statement on Form S-1 (Registration No. 333-257427) that was filed on June 25, 2021 and declared effective on June 29, 2021, nor the final prospectus contained therein dated June 29, 2021 (collectively, the “Registration Statement”); or (ii) our Form 10-Q for the fiscal quarter ended June 30, 2021 that was filed with the Securities and Exchange Commission on August 13, 2021. We consummated a public offering of $40 million of our common stock pursuant to the Registration Statement on July 2, 2021.

In the course of the Internal Review, the Special Committee also identified that Mr. Tontat submitted incorrect information regarding his educational background to us. Specifically, although Mr. Tontat represented to us that he held a BA in Economics from Harvard University, it was determined that he had actually received an ALB, a degree conferred by the Harvard Extension School. We have implemented changes to our vetting process for prospective director and officer candidates including the implementation of thorough background checks to verify background information provided by such candidates.

Upon completion of the Internal Review, we voluntarily contacted the SEC to report certain information about the Internal Review. Since that time, we have been voluntarily cooperating with requests for information from the SEC and intend to fully cooperate with any further requests from the SEC.

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In November 2022, we received a Grand Jury Subpoena (the “Subpoena”) from the U.S. Department of Justice requesting certain information from the company in connection with an ongoing investigation being conducted by the Federal Grand Jury in the Southern District of Texas. The Company is not a target of this investigation at this time.

Remediation Actions resulting from the Internal Review

The Board approved the inclusion of certain Risk Factors for inclusion in its periodic reports. See Part II, Item 1A. Risk Factors in the Form 10-K for the year ended December 31, 2021 for further information.

On January 10, 2022, the Board approved the formation of a Disclosure Committee comprised of certain members of the management including (i) its Chief Executive Officer; (ii) the executive in charge of overseeing submissions of any nature to the FDA; (iii) its Chief Financial Officer; (iv) its General Counsel, if any; (v) its Controller, if any; (vi) any other finance executive overseeing financial disclosures; (vii) the executive in charge of investor relations, if any; and (viii) such other employees as the Chief Financial Officer, who serves as chairman of the Disclosure Committee, may invite from time to time. The Disclosure Committee shall be responsible for preparing and reviewing all corporate disclosures made by us to our security holders, the Securities and Exchange Commission and/or the broader investment community to ensure that such disclosures (i) shall be accurate and complete; (ii) shall fairly present, in all material respects, our financial condition, results of operations and cash flows; and (iii) shall be made on a timely basis in accordance with all applicable requirements of (A) the Securities Exchange Act of 1934, as amended and the rules and regulations promulgated thereunder, (B) the Securities Act of 1933, as amended and the rules and regulations promulgated thereunder (C) the Nasdaq Stock Market or such other stock exchange on which the our securities may be traded and (D) any other applicable laws or legal requirements. The Board adopted and approved the Disclosure Committee Charter.

The Board terminated Maurizio Chiriva-Internati as Chief Executive Officer for cause on January 27, 2022, after the Special Committee’s Internal Review found evidence of conduct that the Board believed was inconsistent with the company policies. Under the terms of the Executive Employment Agreement between Dr. Chiriva and the Company effective as of July 1, 2020, as amended October 21, 2021, as the result of the termination of his employment, Dr. Chiriva also is deemed to have resigned as a Director on the Board effective as of January 27, 2022.

The Board named Pietro Bersani as Interim Chief Executive Officer, effective as of January 27, 2022. A search for a permanent Chief Executive Officer will be commenced with the assistance of an executive recruiter. Mr. Bersani has resigned from all Committees of the Board.

The Board named independent Director Michael Nagel as Chairperson of the Board, effective as of January 27, 2022.

The Board approved the appointment of Frank Tirelli as a member of the Board to fill a vacancy, effective as of January 28, 2022. The Board has determined that Mr. Tirelli is “independent” as that term is defined under Nasdaq Listing Rule 5605(a)(2). Mr. Tirelli has been named Chairperson of the Audit Committee effective January 28, 2022. He was also nominated and appointed as a member of the Nominating and Corporate Governance Committee effective March 1, 2022. Mr. Tirelli was nominated by our Nominating and Corporate Governance Committee of the Board after a thorough review of all his background, relevant experience, and professional and personal reputations.

On February 10, 2022, we and Dr. Scott Dahlbeck (“Dr. Dahlbeck”) entered into a Modification to Employment Agreement dated as of February 9, 2022 (the “Dahlbeck Agreement”). The Dahlbeck Agreement amends and supersedes certain terms of the Employment Agreement dated as of January 1, 2020, between the Company and Dr. Dahlbeck. Pursuant to the Dahlbeck Agreement, effective as of February 9, 2022, Dr. Dahlbeck’s title was changed to Chief of Staff, and he ceased to be our Chief Medical Officer and Head of Clinical.

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On February 10, 2022, we and Mr. Gianluca Rotino (“Mr. Rotino”) entered into a Transition and Consulting Agreement dated as of February 9, 2022 (the “Rotino Agreement”). Pursuant to the terms of the Rotino Agreement, effective as of February 9, 2022, Mr. Rotino’s employment as our Chief Strategy and Innovation Officer terminated and the Company retained Mr. Rotino to provide consulting services to the Company for a period of nine months (or until November 9, 2022). Notwithstanding the foregoing, the Rotino Agreement may be terminated by either us or Mr. Rotino upon 30 days’ prior written notice, except no such prior notice shall be required in the event we terminate the Rotino Agreement for cause.

Under the terms of the Executive Employment Agreement between Mr. Rotino and the Company effective as of July 1, 2020, as amended October 21, 2020, as the result of the termination of Mr. Rotino’s employment, Mr. Rotino is deemed to have resigned as a member of the Board effective as of February 9, 2022.

The Board approved the appointment of Karen Reeves as a member of the Board to fill a vacancy, effective as of February 14, 2022. The Board has determined that Dr. Reeves is “independent” as that term is defined under Nasdaq Listing Rule 5605(a)(2). Dr. Reeves was nominated and appointed to be the Nominating and Corporate Governance Committee Chairperson and a member of the Compensation Committee effective March 1, 2022. Dr. Reeves was nominated by our Nominating and Corporate Governance Committee of the Board after a thorough review of all her background, relevant experience, and professional and personal reputations.

Principal Factors Affecting Our Financial Performance

Our operating results are primarily affected by the following factors:

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slow or delayed IND applications;

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slow or delayed clinical trial enrollment;

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patent reinforcement and prosecution; and

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changes in laws or the regulatory environment affecting our company.

Emerging Growth Company

We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:

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have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;

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comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

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submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and

●

disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take

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advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year (a) following the fifth anniversary of our initial public offering, which was October 15, 2020, (b) the date in which our total annual gross revenues exceed $1.07 billion, or (c) the date in which we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (ii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

Components of Results of Operations

Revenue

To date, we have not generated any revenue from product sales and do not expect to generate any revenue from product sales in the foreseeable future. We will record revenue from collaboration agreements, including amounts related to upfront payments, annual fees for licenses of our intellectual property and research and development funding. However, none of those agreements have been executed as of the issuance date of this report.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts and the development of our product candidates. These include the following:

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salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions;

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expenses incurred under agreements with third parties, including contract research organizations and other third parties that conduct preclinical research and development activities and clinical trials on our behalf;

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costs of developing and scaling our manufacturing process and manufacturing drug products for use in our preclinical studies and future clinical trials, including the costs of contract manufacturing organizations, that will manufacture our clinical trial material for use in our preclinical studies and potential future clinical trials;

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costs of outside consultants, including their fees and related travel expenses;

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costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials;

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license payments made for intellectual property used in research and development activities; and

●

facility-related expenses, which include direct depreciation costs and expenses for rent and maintenance of facilities and other operating costs if specifically, identifiable to research activities.

Research and development activities are central to our business model. We expect that our research and development expenses will comprise a larger percentage of our total expenses as we initiate Phase 1 clinical trials for our IND #1, ALEXIS-PRO-1, IND #2, ALEXIS-ISO-1, and IND #3 trial candidates and continue to discover and develop additional candidates. However, management is currently evaluating various cost reduction actions, including suspending research and development expenditures on one or more product candidates, in order to reduce the Company’s expenditures and preserve cash. As of the date of this quarterly report, we are not able to predict on what product candidates and how much expenditures we plan to reduce. However, we expect that our research and development and general and administrative costs will increase over the long-term, even if we are able to successfully reduce our costs in the short-term in order to preserve cash in light of the Company’s current liquidity situation.

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We cannot determine with certainty the duration and costs of future clinical trials of our Deltacel, Procel, and Isocel product candidates, or any other product candidate we may develop or if, when or to what extent we will generate revenue from the commercialization and sale of any product candidate for which we obtain marketing approval. We may never succeed in obtaining marketing approval for any product candidate. The duration, costs and timing of clinical trials and development of our IND #1, ALEXIS-PRO-1, IND #2, ALEXIS-ISO-1, and IND #3 trial candidates and any other our trial candidate we may develop will depend on a variety of factors, including:

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the scope, rate of progress, expense and results of clinical trials of our IND #1, ALEXIS-PRO-1, IND #2, ALEXIS-ISO-1, and IND #3 trial candidates, as well as of any future clinical trials of other product candidates and other research and development activities that we may conduct;

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uncertainties in clinical trial design and patient enrollment rates;

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the actual probability of success for our product candidates, including their safety and efficacy, early clinical data, competition, manufacturing capability and commercial viability;

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significant and changing government regulation and regulatory guidance;

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the timing and receipt of any marketing approvals;

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the expense of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and

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our ability to effectively address the deficiencies elucidated in the FDA’s clinical hold letters for our IND applications related to key chemical manufacturing and control components.

A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in our clinical trials due to slower than expected patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation for personnel in our executive, finance, business development, operations and administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; travel expenses; and facility-related expenses, which include direct depreciation costs and expenses for rent and maintenance of facilities and other operating costs that are not specifically attributable to research activities.

We expect that our general and administrative expenses will increase in the future as we increase our personnel headcount to support our continued research activities, development, and manufacturing of product candidates. We also have incurred and expect to continue to incur increased expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with Nasdaq and SEC requirements; director and officer insurance costs; and investor and public relations costs.

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Results of Operations

Comparison of the Three Months Ended September 30, 2022 and 2021

The following table sets forth key components of our results of operations for the three months ended September 30, 2022 and 2021.


	Three Months Ended
	September 30,				Increase (Decrease)
	2022		2021		$		%
Operating expenses:
Research and development	$	3,784,200	$	3,486,700	$	297,500	8.53	%
General and administrative		4,611,700		2,655,600		1,956,100	73.66	%
Total operating expenses		8,395,900		6,142,300		2,253,600	36.69	%
Loss from operations		(8,395,900)		(6,142,300)		2,253,600	36.69	%
Other income (expense)
Other income		—		18,000		18,000	100.00	%
Litigation settlement loss contingency		(3,463,000)		—		3,463,000	100.00
Interest expense		(1,400)		(500)		900	180.00	%
Total other expense		(3,464,400)		17,500		3,481,900	19,896.57	%
Net loss	$	(11,860,300)	$	(6,124,800)	$	5,735,500	93.64	%

Research and development expenses. Our research and development expenses increased by $297,500, or 8.53%, to $3,784,200 for the three months ended September 30, 2022, from $3,486,700 for the three months ended September 30, 2021. The following table summarizes our research and development expenses by product candidate or development program:


	Three Months Ended
	September 30,				Increase (Decrease)
	2022		2021		$		%
Direct research and development expenses by trial candidate:
IND #1	$	452,900	$	—	$	452,900	100.00	%
ALEXIS-PRO-1		860,900		20,300		840,600	4,140.89	%
ALEXIS-ISO-1		27,600		434,100		(406,500)	(93.64)	%
Platform development, early-stage research and unallocated expenses:
Employee-related costs		969,200		1,288,200		(319,000)	(24.76)	%
Laboratory supplies and services		475,900		384,200		91,700	23.87	%
Outsourced research and development		147,300		984,400		(837,100)	(85.04)	%
Laboratory equipment and maintenance		33,600		31,200		2,400	7.69	%
Facility-related costs		797,000		204,800		592,200	289.16	%
Intellectual Property		18,700		137,300		(118,600)	(86.38)	%
Other research and development costs		1,100		2,200		(1,100)	(50.00)	%
Total research and development expenses	$	3,784,200	$	3,486,700	$	297,500	8.53	%

These cost increases were primarily incurred to support GDT manufacturing as well as preparing our product candidates for IND resubmission.

Clinical Trial Candidate Manufacturing and Experimentation: $887,000 increase in spending during the nine months ended September 30, 2022, from manufacturing expanded GDTs in the recently expanded GMP facilities.

Reduced Executive Employee Salaries and Allocation: Employee-related costs decreased by $319,000. Our former CEO was terminated at the beginning of 2022, resulting in a significant reduction in salaries allocable to

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research and development. Further, our current Chief of Staff’s salary was re-allocated from research and development to general and administrative effective February 2022. His former title was Chief Medical Officer and Head of Clinical. In the three months ended September 30, 2022 and 2021, our average headcount increased to 41 employees from 32 employees allocable to research and development and clinical trials preparation, but this increase in headcount offset the impact from the discussion above.

Reduced Intellectual Property Costs: Intellectual Property expenses were reduced by $118,600 due to the Company’s alignment towards maintaining our key product candidates (Deltacel, Procel, and Isocel) while certain non-key and legacy technologies had patent applications which either expired or were abandoned.

General and administrative expenses. Our general and administrative expenses increased by $1,956,100, or 73.66%, to $4,611,700 for the three months ended September 30, 2022, from $2,655,600 for the three months ended September 30, 2021.

During the three months ended September 30, 2022, the increase primarily resulted from an increase in legal services of $1,246,100 as well as an increase in employee related expenses of $889,300.

The increase in legal expenses of $1,246,100 was primarily driven by incurred fees of $1,116,000 in expenses related to the Internal Review and related matters.

Employee related expenses were impacted by increases to headcount. During the three months September 30, 2022 and 2021, the average headcount for employees allocated to general and administrative purposes increased to 19 employees from 11.5 employees, respectively.

Litigation settlement loss contingency. We began settlement discussion with the Sabby Entities and Empery Entities during September 2022. We reached a settlement agreement in principle with both Sabby Entities and Empery Entities on September 26, 2022, which the Company’s board of directors approved on September 27, 2022. The settlement contained a cash component of $75,000 payable to Sabby Entities and $75,000 to Empery Entities. As part of the settlement, the Company also agreed to issue convertible notes (the “Settlement Notes”) in the aggregate principal amount of $1,656,720 to each of the Empery Entities and the Sabby Entities. The Settlement Notes are convertible into shares (the “Conversion Shares”) of the Company’s common stock at an initial conversion price per share of $0.3068 and can be convertible into a maximum of 5,400,000 shares of the Company’s common stock to each of the Empery Entities and Sabby Entities, subject to the adjustment of the conversion price and a beneficial ownership limitation equivalent to 9.99%.

Net loss. As a result of the cumulative effect of the factors described above, our net loss increased to $11,860,300 during the three months ended September 30, 2022, compared to $6,124,800 during the three months ended September 30, 2021.

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Comparison of the Nine Months Ended September 30, 2022 and 2021

The following table sets forth key components of our results of operations for the nine months ended September 30, 2022 and 2021.


	Nine Months Ended
	September 30,				Increase (Decrease)
	2022		2021		$		%
Operating expenses:
Research and development	$	10,590,700	$	8,030,400	$	2,560,300	31.88	%
General and administrative		13,602,600		7,040,700		6,561,900	93.20	%
Total operating expenses		24,193,300		15,071,100		9,122,200	60.53	%
Loss from operations		(24,193,300)		(15,071,100)		9,122,200	60.53	%
Other income (expense)
Gain on loan extinguishment		—		105,800		105,800	100.00	%
Other income		—		18,000		18,000	100.00	%
Litigation settlement loss contingency		(3,463,000)		—		3,463,000	100.00
Interest expense		(6,900)		(6,300)		600	9.52	%
Total other income (expense)		(3,469,900)		117,500		3,587,400	3,053.11	%
Net loss	$	(27,663,200)	$	(14,953,600)	$	12,709,600	84.99	%

Research and development expenses. Our research and development expenses increased by $2,560,300, or 31.88%, to $10,590,700 for the nine months ended September 30, 2022, from $8,030,400 for the nine months ended September 30, 2021. The following table summarizes our research and development expenses by product candidate or development program:


	Nine Months Ended
	September 30,				Increase (Decrease)
	2022		2021		$		%
Direct research and development expenses by trial candidate:
IND #1	$	452,900	$	—	$	452,900	100.00	%
ALEXIS-PRO-1		1,297,700		54,200		1,243,500	2,294.28	%
ALEXIS-ISO-1		298,400		1,326,200		(1,027,800)	100.00	%
Platform development, early-stage research and unallocated expenses:
Employee-related costs		3,743,000		3,073,700		669,300	21.78	%
Laboratory supplies and services		1,388,000		743,900		644,100	86.58	%
Outsourced research and development		1,207,700		1,880,400		(672,700)	(35.77)	%
Laboratory equipment and maintenance		264,500		91,100		173,400	190.34	%
Facility-related costs		1,785,400		569,100		1,216,300	213.72	%
Intellectual Property		139,100		286,100		(147,000)	(51.38)	%
Other research and development costs		14,000		5,700		8,300	145.61	%
Total research and development expenses	$	10,590,700	$	8,030,400	$	2,560,300	31.88	%

These cost increases were primarily incurred to support GDT manufacturing as well preparing our product candidates for IND resubmission.

Augmented our research and development team: in the nine months ended September 30, 2022 and 2021, our average headcount increased to 37.5 employees from 29.5 employees allocable to research and development and clinical trials preparation, resulting in an increase of $669,300 in Employee-related costs.

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Clinical Trial Candidate Manufacturing and Experimentation: $668,600 increase in spending during the nine months ended September 30, 2022, from manufacturing expanded GDTs in the recently expanded cGMP facilities.

Facilities Construction and Expansion: We amended our lease agreement at our Houston, TX facility and completed construction on our cGMP facility during the nine months ended September 30, 2022, which resulted in increased depreciation expenses and rent payments compared to the nine months ended September 30, 2021. This resulted in an increase of $1,216,300 in facilities related costs.

General and administrative expenses. Our general and administrative expenses increased by $6,581,900, or 93.20%, to $13,437,500 for the nine months ended September 30, 2022, from $7,040,700 for the nine months ended September 30, 2021.

During the nine months ended September 30, 2022, the increase primarily resulted from an increase in legal fees of $3,862,400, and an increase in employee related expenses of $3,052,000.

The increase in legal expenses was primarily related to the Internal Review. Between October 1 2021 and September 30, 2022, we incurred $6,249,700 in legal fees and other professional fees directly related to the Internal Review and related matters.

Employee related expenses were impacted by increases to headcount. During the nine months September 30, 2022 and 2021, the headcount for employees allocated to general and administrative purposes increased to 13.5 employees from 10 employees, respectively.

Gain on loan extinguishment. Gain on loan extinguishment was $0 and $105,800 for the nine months ended September 30, 2022 and 2021, respectively. During the year ended December 31, 2020, we applied for forgiveness of the SBA Loan in accordance with the terms of the CARES Act. On February 16, 2021 the SBA granted forgiveness of the SBA Loan and all applicable interest. On the date of forgiveness, the principal and accrued interest totaled $105,800.

Net loss. As a result of the cumulative effect of the factors described above, our net loss increased to $27,663,200 during the nine months ended September 30, 2022, compared to $14,953,600 during the nine months ended September 30, 2021.

Liquidity and Capital Resources

As of September 30, 2022, we had cash and cash equivalents of $432,700. As of October 31, 2022, we had cash and cash equivalents of $1,325,300. We do not currently have any approved products and have never generated any revenue from product sales. To date, we have financed our operations primarily with proceeds from the sale of our convertible promissory notes, preferred stock, common stock from the initial public offering and follow-on offering.

We have known material contractual obligations which will require cash to meet their requirements. These applicable obligations include our facility lease agreement, our employment contracts, and our financing arrangement for our Director and Officer Insurance Policy. We also plan to deploy cash for other research and development and general and

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administrative operating expenses. Our ability to continue meeting these contractual obligations will be reliant upon our ability to secure significant additional capital funding.

As described above under “Going Concern and Liquidity,” in the absence of financing, management anticipates that existing cash resources will not be sufficient to meet operating and liquidity needs beyond December 2022. Management is currently evaluating various cost reduction actions, including possible reductions in the Company’s workforce and suspending research and development expenditures on one or more product candidates, in order to reduce the Company’s expenditures and preserve cash. We are limited in our ability to reduce expenditures for known contractual obligations. As a result, we are not able to predict whether any cost reduction actions will be successful or how much longer any such actions will allow the Company to continue to operate without financing.

As previously disclosed, we have incurred significant operating losses since inception, and we expect to incur significant expenses and operating losses for the foreseeable future as we advance the preclinical and clinical development of our product candidates. We expect that our research and development and general and administrative costs will increase over the long-term, even if we are able to successfully reduce our costs in the short-term in order to preserve cash in light of the Company’s current liquidity situation. These costs include conducting preclinical studies and clinical trials for our product candidates, contracting with clinical research organizations and building out internal capacity to have product candidates manufactured to support preclinical studies and clinical trials, expanding our intellectual property portfolio and providing general and administrative support for our operations. As a result, substantial doubt exists regarding the going concern assumption on our condensed consolidated financial statements. Therefore, these condition raises substantial doubt about our ability to continue as a going concern.

As described above, our recent planned underwritten public offering was not successful and we are currently seeking short-term financing to be able to continue our operations past December 2022. If we are successful in obtaining short-term financing to fund our operations beyond the end of the year, we intend to seek significant additional capital funding to develop our platform, additional hiring of scientific professionals, hiring other general and administrative employees, and clinical trials. However, there can be no assurance that such efforts will be successful or that, in the event that they are successful, the terms and conditions of any such financings will be favorable. Further, the results of our Internal Review demonstrated that we had ineffective disclosure controls and procedures during the first quarter of 2022 and earlier periods, which resulted in our failure to disclose certain information, which has resulted in litigation which has adversely affected our ability to raise capital. Further, there are other factors which may make financing our operations more difficult, including potential governmental investigation, continued elevated legal and accounting professional fees associated with the Internal Review and securities litigation, and other risk factors listed in Item 1A. of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021. In consideration of our plans, substantial doubt is not alleviated.

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Summary of Cash Flow

The following table sets forth a summary of our cash flows for the periods presented:


	Nine Months Ended September 30,
	2022		2021
Net cash used in operating activities	$	(19,643,400)	$	(11,156,300)
Net cash used in investing activities		(4,823,300)		(713,500)
Net cash provided by financing activities		(454,500)		36,881,100
Net increase (decrease) in cash and cash equivalents		(24,921,200)		25,011,300
Cash and cash equivalents at beginning of the period		25,353,900		10,150,500
Cash and cash equivalents at end of the period		432,700		35,161,800

Cash flows from operating activities

Net cash used in operating activities was $19,643,400 for the nine months ended September 30, 2022, as compared to $11,156,300 for nine months ended September 30, 2021. In the nine months ended September 30, 2022, the primary cash outflows were from the net loss of $27,663,200 compared to $14,953,600 during the nine months ended September 30, 2021. Net cash used in operating activities increased by a total of $8,487,100 period-over-period. We primarily used cash to augment our headcount, develop our trial candidates, and to pay for legal and professional fees. See “Results of Operations” above for further details.

Cash flows from investing activities

Net cash used for in investing activities was $4,823,300 for the nine months ended September 30, 2022, as compared to $713,500 for the nine months ended September 30, 2021. Our net cash used in investing activities primarily consisted of purchases of property and equipment. This increase was primarily driven by cash outflows from equipment and leasehold improvements attributed to our cGMP facilities located in our leased facility in Houston, Texas.

Cash flows from financing activities

During the nine months ended September 30, 2022 we paid $454,500 towards our financing arrangement for our Director and Officer Insurance policy. Cash inflows from financing activities was $36,881,100 during the nine months ended September 30, 2021 which primarily consisted of the public offering which closed on July 2, 2021. This public offering sold 8,000,000 shares of common stock with net proceeds of $37,118,100.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements for any of the periods presented.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with United States generally accepted accounting principles (“U.S. GAAP”) requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements.

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Fair Value Measurements—The carrying value of our cash and cash equivalents, prepaid expenses and other assets, accounts payable, accrued expenses and other current liabilities approximate their fair value due to their short-term nature.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In estimating the fair value of an asset or a liability, we take into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.

We account for financial instruments in accordance with Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures. ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below:

Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2—Quoted prices in non-active markets or in active markets for similar assets or liabilities, observable inputs other than quoted prices, and inputs that are not directly observable but are corroborated by observable market data.

Level 3—Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

There were no changes in the fair value hierarchy leveling during the three and nine months ended September 30, 2022 and 2021.

Stock-Based Compensation— We record stock compensation expense related to our 2017 Equity Incentive Plan and 2021 Omnibus Equity Incentive Plan in accordance with ASC 718, Compensation—Stock Compensation. We measure and recognize stock compensation expense for all stock-based awards, including stock options and restricted stock units (“RSUs”).

Stock compensation expense for RSUs is based on estimated fair values recognized using the straight-line method over the requisite service period, as long as the performance obligations in the RSU agreement are deemed probable by management. Stock compensation expense for stock options is based on estimated fair values recognized using the straight-line method over the requisite service period. The fair value of stock options is estimated on the grant date using the Black-Scholes option-valuation model. The calculation of stock-based compensation expense requires that we make assumptions and judgments about the variables used in the Black- Scholes option-valuation model, including the fair value of our common stock, expected term, expected volatility of the underlying common stock, and risk-free interest rate. Forfeitures are accounted for when they occur.

We estimate the grant-date fair value of stock options using the Black-Scholes option-valuation model. During the three and nine months ended September 30, 2022 and 2021, all stock option equity grants under the 2017 Equity Incentive Plan and 2021 Omnibus Equity Incentive Plan contained assumptions used to value such stock options, and were determined as follows:

Expected Term. The expected term represents the period that our stock options are expected to be outstanding. We have used the SAB No. 110, simplified method to calculate the expected term, which is the average of the contractual term and vesting period. We do not plan to continue to use the SAB 110 simplified method after we have sufficient trading history as a publicly traded company.

Risk-Free Interest Rate. We base the risk-free interest rate used in the Black-Scholes option-valuation model on the implied yield available on US Treasury zero-coupon issues with a term equivalent to that of the expected term of the stock options for each stock option group.

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Volatility. We determine the price volatility based on the historical volatilities of industry peers as we have limited trading history for our common stock price. We intend to continue to consistently apply this process using the same or a similar peer group of public companies, until a sufficient amount of historical information regarding the volatility of our own common stock price becomes available, or unless circumstances change such that the identified peer companies are no longer similar, in which case other suitable peer companies whose common stock prices are publicly available would be utilized in the calculation.

Dividend Yield. The expected dividend assumption is based on our current expectations about our anticipated dividend policy. To date, we have not declared any dividends and, therefore, we used an expected dividend yield of zero.

Common Stock Valuations. During the three and nine months ended September 30, 2022 and 2021, we used our listed Nasdaq Capital Market closing price on the grant date to determine common stock valuation.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information under this item.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Under the supervision, and with the participation, of our current management, including our CEO and CFO, we evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of September 30, 2022. Based on this evaluation of our disclosure controls and procedures, our management, including our CEO and CFO, have concluded that our disclosure controls and procedures were not effective as of September 30, 2022 because of the material weaknesses in our internal control over financial reporting described below.

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Changes in Internal Control over Financial Reporting

As disclosed under Item 9A., Controls and Procedures in our Annual Report on Form 10-K for the year ended December 31, 2021, we identified material weaknesses in our internal control over financial reporting because we (i) do not have a formal process for period end financial closing and reporting; (ii) we have insufficient resources to conduct an effective monitoring and oversight function independent from our operations; and (iii) we did not have a control to appropriately communicate relevant information from the FDA to appropriate parties on a timely basis. These material weaknesses resulted in an increased risk of material misstatement in the financial statements, and in our failure to timely disclose the June 16 and 17, 2021 FDA Communications.

We believe that we are addressing the material weaknesses identified in connection with the audit of our financial statements for the year ended December 31, 2021 and prior periods through measures including:

implementation of additional internal control processes and procedures regarding the financial close and reporting process, procure to pay process, and human resources and payroll process;

designing those controls with the appropriate segregation of duties; and

the recruitment of a full-time accounting and finance personnel, including, but not limited to, personnel focused upon enhanced scrutiny of accounting entries in the areas where we have observed material weaknesses in our internal control over financial reporting.

As a remedial measure to address the Company’s material weakness in internal control over financial reporting as a result of the Internal Review, on January 10, 2022, the Board approved the formation of a Disclosure Committee comprised of certain members of the Company’s management including (i) its Chief Executive Officer; (ii) the executive in charge of overseeing submissions of any nature to the FDA; (iii) its Chief Financial Officer; (iv) its General Counsel, if any; (v) its Controller; (vi) any other finance executive overseeing financial disclosures; (vii) the executive in charge of investor relations, if any; and (viii) such other employees as the Chief Financial Officer, who serves as chairman of the Disclosure Committee, may invite from time to time. The Disclosure Committee is responsible for preparing and reviewing all corporate disclosures made by the Company to its security holders, the Securities and Exchange Commission and/or the broader investment community to ensure that such disclosures (i) shall be accurate and complete; (ii) shall fairly present, in all material respects, the Company’s financial condition, results of operations and cash flows; and (iii) shall be made on a timely basis in accordance with all applicable requirements of (A) the Exchange Act and the rules and regulations promulgated thereunder, (B) the Securities Act of 1933, as amended and the rules and regulations promulgated thereunder (C) the Nasdaq Stock Market or such other stock exchange on which the Company’s securities may be traded and (D) any other applicable laws or legal requirements.

Our management is monitoring these material weaknesses and will continue to evaluate whether the remedial actions initiated by the Company will remediate these material weaknesses. However, our management concluded that these material weaknesses still existed as of September 30, 2022. In order to consider these material weaknesses to be fully remediated, we believe additional time is needed to demonstrate effectiveness of the remediation.

Except as disclosed above, there have been no other changes in our internal control over financial reporting for the quarter ended September 30, 2022.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time in the future, we may become involved in litigation or other legal proceedings that arise in the ordinary course of business.

Dr. Terrell Claim

On March 22, 2021, Jason Terrell (“Terrell”), a former consultant for and director of the Company, commenced an action against us in the Court of Chancery of the State of Delaware, C.A. No. 2021-0248-MTZ (the “Action”). In the Action, Terrell seeks a declaratory judgment that we are obligated to issue him (i) options to purchase 500,000 shares of our common stock at a price of $0.50 per share pursuant to an alleged 2014 consulting agreement, and (ii) options to purchase an additional 500,005 shares of our common stock at a price of $0.17 per share pursuant to an alleged January 2017 non-employee director options agreement. In his complaint, Terrell also claimed that, pursuant to our operative certificate of incorporation, he is entitled to indemnification from us for attorneys’ fees and costs he incurs in connection with the Action because the Action arises in connection with his position as a former director.

We dispute Terrell’s claims and allegations in the Action and intend to vigorously defend against them. On May 21, 2021, we filed a motion to dismiss Terrell’s claims in the actions with prejudice, arguing that (i) Terrell’s options-related claims fail because his 2014 and January 2017 agreements were explicitly superseded by a later options agreement, under which Terrell relinquished his prior options; and (ii) Terrell is not entitled to indemnification because the Action relates to contracts between the Company and Terrell in his personal capacity, and not in connection with any activities or duties of Terrell in his official capacity as former director. In response to the motion, filed on June 21, 2021, Terrell withdrew his claim for indemnification, but opposed the portion seeking dismissal of his declaratory judgment claim. The motion was fully briefed with the filing of our reply brief on July 7, 2021.

Oral argument was held before the Vice Chancellor on October 20, 2021. During oral argument, the Vice Chancellor invited the parties to submit supplemental letter briefs on the question of whether the Court of Chancery even had the authority to adjudicate the Action in light of the delegation of authority in Terrell’s most recent stock option agreement with the Company (the “SOA”) to our Compensation Committee to resolve all disputes regarding the interpretation of the SOA. The parties submitted simultaneous supplemental letters briefs on this issue on November 15, 2021. On January 20, 2022, the Vice Chancellor issued her decision on our motion to dismiss, ruling that the Action is stayed until the Compensation Committee itself resolves whether it has sole authority to resolve the parties’ contract interpretation dispute.

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Sabby and Empery Claim

Sabby Volatility Warrant Master Fund Ltd., et al. v. Kiromic BioPharma, Inc. et al., Case No. 22-cv-1927 (SDNY). On March 7, 2022, entities related to Sabby Management LLC (the “Sabby Entities”) and Empery Asset Management, LP (the “Empery Entities”) filed a complaint in the United States District Court for the Southern District of New York asserting claims against the Company and certain current and former officers and directors of Kiromic BioPharma, Inc. the Company for alleged violations of Sections 11, 12, and 15 of the Securities Act of 1933 in connection with the purchase of common stock through the Company’s public offering that closed on July 2, 2021. On July 1, 2022, the defendants filed motions to dismiss the complaint. In response, on July 22, 2022, the plaintiffs amended their complaint to, among other things, include ThinkEquity LLC as a defendant. The plaintiffs seek unspecified damages; rescission to the extent they still hold Kiromic securities, or if sold, rescissory damages; reasonable costs and expenses, including attorneys’ and experts’ fees; and other unspecified equitable and injunctive relief. The Court directed the defendants to respond to the amended complaint by August 12, 2022. At the parties’ request, the Court extended the defendants’ response date to September 12, 2022 to allow the parties time to discuss a potential resolution. The two parties reached a settlement agreement in principle on September 26, 2022, which the Company’s board of directors approved on September 27, 2022. The settlement contained a cash component of $75,000 payable to Sabby Entities and $75,000 to Empery Entities. The settlement contained a cash component of $75,000 payable to Sabby Entities and $75,000 to Empery Entities. As part of the settlement, the Company also agreed to issue convertible notes (the “Settlement Notes”) in the aggregate principal amount of $1,656,720 to each of the Empery Entities and the Sabby Entities. The Settlement Notes are convertible into shares (the “Conversion Shares”) of the Company’s common stock at an initial conversion price per share of $0.3068 and can be convertible into a maximum of 5,400,000 shares of the Company’s common stock to each of the Empery Entities and Sabby Entities, subject to the adjustment of the conversion price and a beneficial ownership limitation equivalent to 9.99%. This settlement loss is considered probable and resulted in an expense charged as a separate line item within Other expenses on the condensed consolidated statement of operations and related accrued litigation liability totaling $3,463,400 on the balance sheet. This amount excludes any legal and others costs that we were incurred in connection with the defense of this action, and any legal and other costs incurred by the other defendants that we are required to reimburse. Subject to certain exceptions, the Company is obligated to indemnify the defendants in this action, including ThinkEquity, for their reasonable costs incurred in connection with this action and those costs could be substantial. Further, the settlement is subject to the District Court in the Southern District of New York’s approval before delivery of the economic value from the Company to Sabby and Empery Entities is consummated. Similarly, the Company has evaluated that it is reasonably possible that other unasserted claims in future litigation and losses may occur. However, the Company is unable to estimate any possible range of loss attributed to other unasserted claims at this time.

On October 10, 2022, the Company and certain current and former officers and directors of the Company (together with the Company, the “Defendants”) entered into a Stipulation of Settlement and Mutual Release (the “Initial Settlement Agreement”) with entities related to Empery Asset Management, LP (the “Empery Entities”) and entered into an Initial Settlement Agreement with Sabby Volatility Warrant Master Fund Ltd. (“Sabby”, together with the Empery Entities, the “Plaintiffs”), respectively, in connection with a case filed by the Plaintiffs against the Defendants for alleged violations of Sections 11, 12, and 15 of the Securities Act of 1933, as amended (the “Securities Act”) in connection with the purchase of Company’s common stock through the Company’s public offering that closed on July 2, 2021. Pursuant to the Initial Settlement Agreements, the Plaintiffs and the Defendants agreed to dismiss the case with prejudice against all Defendants (including ThinkEquity, LLC) with no admission of liability (the “Settlement”). As part of the Settlement, the Company agreed to (a) make a $75,000 cash payment to each of the Empery Entities and Sabby and (b) issue convertible notes (the “Settlement Notes”) in the aggregate principal amount of $1,656,720 to each of the Empery Entities and Sabby. The Settlement Notes are convertible into shares of the Company’s common stock (the “Conversion Shares”) at an initial conversion price per share of $0.3068 (the “Conversion Price”), subject to a beneficial ownership limitation equivalent to 9.99% (“Beneficial Ownership Limitation”).

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On October 27, 2022, the Defendants entered into an Amended Stipulation of Settlement and Mutual Release with the Empery Entities (the “Amended Empery Settlement Agreement”) and Sabby (together with the Amended Empery Settlement Agreement, the “Amended Settlement Agreements”), respectively. Both Amended Settlement Agreements removed the satisfaction of the Conditional Financing as a condition to the Settlement and provided that the parties shall file the Joint Motion no later than October 25, 2022. The Amended Empery Settlement Agreement shall become void if the Court does not approve the Joint Motion by November 15, 2022, subject to extension by the Empery Entities.

Karp Class Action

Ronald H. Karp, et al. v. Kiromic BioPharma, Inc. et al., Case No. 22-6690 (SDNY). On August 5, 2022, Ronald H. Karp, filed a class action complaint in the United States District Court for the Southern District of New York covering the same subject matter as the Sabby Entities’ and Empery Entities’ claims discussed above and asserting claims against the Company and certain current and former officers and directors of the Company for alleged violations of Sections 11, 12, and 15 of the Securities Act of 1933 in connection with the purchase of common stock through the Company’s public offering that closed on July 2, 2021 and Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 promulgated thereunder in connection with the certain statements and acts made by the defendants between June 25, 2021 and August 13, 2021. The Company has evaluated the Karp class claims and has determined that it is not possible to estimate a potential range of loss at this time.

We intend to defend ourselves vigorously against this securities litigation and any similar claims, but are unable to predict the outcome of any such litigation. Even if we are successful, securities litigation is costly to defend and diverts management’s attention away from the business. These legal proceedings have already had a material adverse impact on us as it has caused the underwriter in our recently planned public offering to suspend the offering and it is making it more difficult to obtain financing.

We are not currently party to any other legal proceedings that we believe could have a material adverse effect on our business, operating results or financial condition.

Podmore Class Action

On October 3, 2022, Joseph Podmore (“Podmore”) filed a class action complaint in the United States District Court for the Southern District of New York covering the same subject matter as the Sabby Entities’ and Empery Entities’ claim discussed above asserting claims against the Company and certain current and former officers and directors for alleged violations of Sections 11, 12, and 15 of the Securities Act of 1933 in connection with the purchase of common stock through the Company’s public offering that closed on July 2, 2021 and Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 promulgated thereunder in connection with the certain statements and acts made by the defendants between June 25, 2021 and August 13, 2021. The Company has evaluated the Podmore class claims and has determined that it is not possible to estimate a potential range of loss at this time.

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ITEM 1A. RISK FACTORS.

An investment in our securities involves a high degree of risk. Before making an investment decision, you should carefully consider the risks described below and the risk factors previously disclosed in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on April 8, 2022 (the “Annual Report”), and the risk factors previously disclosed in our Quarterly Reports on Form 10-Q subsequently filed after the Annual Report. Our business, prospects, financial condition, or operating results could be harmed by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial. The trading price of our securities could decline due to any of these risks, and, as a result, you may lose all or part of your investment.

We may not be able to continue as a going concern and holders of our common stock could suffer a total loss of their investment.

We do not have sufficient cash on hand and available liquidity to meet our obligations through the twelve months following the date the condensed consolidated financial statements are issued. The Company’s estimated cash and cash equivalents were $1,325,300 as of October 31, 2022. We will need to obtain financing in order to fund our operations past September 2022. Any failure or delay to secure such financing could force us to delay, limit or terminate our operations, make reductions in our workforce, liquidate all or a portion of our assets and/or seek protection (“Bankruptcy Protection”) under Chapters 7 or 11 of the United States Bankruptcy Code.

In the event we pursue Bankruptcy Protection, we will be subject to the risks and uncertainties associated with such proceedings.

In the event we file for relief under the United States Bankruptcy Code, our operations, our ability to develop and execute our business plan and our continuation as a going concern will be subject to the risks and uncertainties associated with bankruptcy proceedings, including, among others: our ability to execute, confirm and consummate a plan of reorganization; the additional, significant costs of bankruptcy proceedings and related fees; our ability to obtain sufficient financing to allow us to emerge from bankruptcy and execute our business plan post-emergence, and our ability to comply with terms and conditions of that financing; our ability to continue our operations in the ordinary course; our ability to maintain our relationships with our consumers, business partners, counterparties, employees and other third parties; our ability to obtain, maintain or renew contracts that are critical to our operations on reasonably acceptable terms and conditions; our ability to attract, motivate and retain key employees; the ability of third parties to use certain limited safe harbor provisions of the United States Bankruptcy Code to terminate contracts without first seeking Bankruptcy Court approval; the ability of third parties to force us to into Chapter 7 proceedings rather than Chapter 11 proceedings and the actions and decisions of our stakeholders and other third parties who have interests in our bankruptcy proceedings that may be inconsistent with our operational and strategic plans. Any delays in our bankruptcy proceedings would increase the risks of our being unable to reorganize our business and emerge from bankruptcy proceedings and may increase our costs associated with the bankruptcy process or result in prolonged operational disruption for the Company. Also, we would need the prior approval of the bankruptcy court for transactions outside the ordinary course of business during the course of any bankruptcy proceedings, which may limit our ability to respond timely to certain events or take advantage of certain opportunities. Because of the risks and uncertainties associated with any bankruptcy proceedings, we cannot accurately predict or quantify the ultimate impact of events that could occur during any such proceedings. There can be no guarantees that if we seek Bankruptcy Protection we will emerge from Bankruptcy Protection as a going concern or that holders of our common stock will receive any recovery from any bankruptcy proceedings.

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In the event we are unable to pursue Bankruptcy Protection under Chapter 11 of the United States Bankruptcy Code, or, if pursued, successfully emerge from such proceedings, it may be necessary for us to pursue Bankruptcy Protection under Chapter 7 of the United States Bankruptcy Code for all or a part of our businesses. In such event, a Chapter 7 trustee would be appointed or elected to liquidate our assets for distribution in accordance with the priorities established by the United States Bankruptcy Code. We believe that liquidation under Chapter 7 would result in significantly smaller distributions being made to our stakeholders than those we might obtain under Chapter 11 primarily because of the likelihood that the assets would have to be sold or otherwise disposed of in a distressed fashion over a short period of time rather than in a controlled manner and as a going concern.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 6. EXHIBITS.

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Exhibit No.		Description of Exhibit
3.1		Fourth Amended and Restated Certificate of Incorporation of Kiromic BioPharma, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on October 21, 2020)
3.2		Second Amended and Restated Bylaws of Kiromic BioPharma, Inc. (incorporated by reference to Exhibit 3.5 to the Company’s Registration Statement on Form S-1/A filed on October 6, 2020)
10.1		Stipulation of Settlement and Mutual Release, dated October 10, 2022, by and among Kiromic Biopharma, Inc., Empery Asset Master, Ltd. and other parties (incorporated by reference to Exhibit 10.1 to Form 8-K filed on October 14, 2022)
10.2		Stipulation of Settlement and Mutual Release, dated October 10, 2022, by and among Kiromic Biopharma, Inc., Sabby Volatility Warrant Master Fund Ltd. and other parties (incorporated by reference to Exhibit 10.2 to Form 8-K filed on October 14, 2022)
10.3		Form of the Subordinated Convertible Promissory Note (incorporated by reference to Exhibit 10.3 to Form 8-K filed on October 14, 2022)
10.4		Standby Equity Purchase Agreement, dated October 13, 2022, by and between Kiromic Biopharma, Inc. and YA II PN, Ltd. (incorporated by reference to Exhibit 10.1 to Form 8-K filed on October 19, 2022)
10.5		Form of the 25% Senior Secured Convertible Promissory Note (incorporated by reference to Exhibit 10.1 to Form 8-K filed on October 27, 2022)
10.6		Amended Stipulation of Settlement and Mutual Release, dated October 27, 2022, by and among Kiromic Biopharma, Inc., Empery Asset Master, Ltd. and other parties (incorporated by reference to Exhibit 10.1 to Form 8-K filed on November 2, 2022)
10.7		Amended Stipulation of Settlement and Mutual Release, dated October 27, 2022, by and among Kiromic Biopharma, Inc., Sabby Volatility Warrant Master Fund Ltd. and other parties (incorporated by reference to Exhibit 10.2 to Form 8-K filed on November 2, 2022)
31.1		Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1#		Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2#		Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1		Disclosure Committee Charter (incorporated by reference to Exhibit 99.1 to Form 8-K filed on February 2, 2022)
101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

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# In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Exchange Act or deemed to be incorporated by reference into any filing under the Exchange Act or the Securities Act of 1933 except to the extent that the Company specifically incorporates it by reference.

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SIGNATURES

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

5
Date: November 14, 2022	KIROMIC BIOPHARMA, INC.

	/s/ Pietro Bersani
	Name: Pietro Bersani
	Title: Chief Executive Officer
	(Principal Executive Officer)

	/s/ Daniel Clark
	Name: Daniel Clark
	Title: Chief Financial Officer
	(Principal Financial and Accounting Officer)

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Pietro Bersani, certify that:


	1.		I have reviewed this quarterly report on Form 10-Q of Kiromic BioPharma, Inc.;


	2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


	b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2022

/s/ Pietro Bersani

Pietro Bersani

Chief Executive Officer

(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Daniel Clark, certify that:


	1.		I have reviewed this quarterly report on Form 10-Q of Kiromic BioPharma, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2022

/s/ Daniel Clark

Daniel Clark

Chief Financial Officer

(Principal Financial and Accounting Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

The undersigned Chief Executive Officer of KIROMIC BIOPHARMA, INC. (the “Company”), DOES HEREBY CERTIFY that:

1.The Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.Information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

IN WITNESS WHEREOF, the undersigned has executed this statement on November 14, 2022.

/s/ Pietro Bersani

Pietro Bersani

Chief Executive Officer

(Principal Executive Officer)

A signed original of this written statement required by Section 906 has been provided to Kiromic BioPharma, Inc. and will be retained by Kiromic BioPharma, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

The forgoing certification is being furnished to the Securities and Exchange Commission pursuant to § 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

The undersigned Chief Financial Officer of KIROMIC BIOPHARMA, INC. (the “Company”), DOES HEREBY CERTIFY that:

2.Information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

IN WITNESS WHEREOF, the undersigned has executed this statement on November 14, 2022.

aniel

/s/ Daniel Clark

Daniel Clark

Chief Financial Officer

(Principal Financial and Accounting Officer)