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MAIA BIOTECHNOLOGY, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q/A)

Date:

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

                                   OPERATIONS

You should read the following discussion together with our financial statements
and the related notes included elsewhere in this Quarterly Report on Form 10-Q.
This discussion contains forward-looking statements that are based on our
current expectations, estimates and projections about our business and
operations. Our actual results may differ materially from those currently
anticipated and expressed in such forward-looking statements as a result of a
number of factors, including those which we discuss under “Risk Factors” and
elsewhere in this Quarterly Report on Form 10-Q.

Overview

We are a clinical stage biotechnology company engaged in the discovery,
development and commercialization of therapies targeting cancer. Our initial
disease target is lung cancer, a serious medical condition with an incidence of
over 235,000 new cases in the US in 2021, representing 12.4% of all cancers, and
over 131,000 deaths, or 21.7% of all cancers. Worldwide, lung cancer incidence
is over 2,200,000 per year (ranking second only after breast cancer), and
mortality over 1,800,000 (ranking first). Specifically, we are targeting
Non-Small Cell Lung Cancer (NSCLC), which represents 85% of all lung cancers.

We accomplished the following key milestones:

In November 2018, we in-licensed THIO from University of Texas Southwestern, in
Dallas. The patent license is global and exclusive for the duration of the
patients' lives.
•
In 2019, we completed a common stock seed round in the amount of $2 million.
•
In 2019, we generated the first data for THIO demonstrating complete regression
with no recurrence when administered in advance of atezolizumab (TecentriQ®;
Genentech), in colorectal and lung cancer preclinical models.
•
In the First Quarter 2020, we filed a provisional patent application for THIO in
sequential combination with checkpoint inhibitors, covering all tumor types. The
patent was allowed in the US in the First Quarter 2021 and expires in 2041.
•
In the First Quarter 2021, we entered into a Drug Supply Agreement with
Regeneron Pharmaceuticals, Inc. Under this agreement, Regeneron will provide
cemiplimab (LIBTAYO; anti-PD-1 checkpoint inhibitor) at no charge for the
THIO-101 trials, testing THIO administration for immune activation followed by
cemiplimab in NSCLC. This drug supply agreement replaces direct drug purchase
expense that we would be otherwise required to incur. In exchange, Regeneron
received development exclusivity in NSCLC for the duration of the trial which is
expected to be two years, meaning we cannot conduct trials in NSCLC with another
checkpoint inhibitor during the time of the trial. All other areas of study and
development in any other tumor types remain open.
•
In the First Quarter 2021, we initiated our clinical supply manufacturing (CMC)
under Good Manufacturing Practices (GMP) conditions to provide clinical supply
for THIO-101 and other development needs.
•
In the Second Quarter 2021, we completed a convertible note funding round in the
amount of approximately $8 million.
•
In the Third Quarter 2021 and Fourth Quarter 2021, we sold common shares of MAIA
for total proceeds of approximately $6.2 million.
•
In the First Quarter 2022, we completed the Crossover Round for total proceeds
of approximately $2.4 million.
•
In the First Quarter 2022, THIO received approval by the Bellberry Human
Research Ethics Committee (HREC) in Australia to initiate the THIO-101 Phase 2
clinical study.
•
In March 2022, the U.S. Food and Drug Administration (FDA) granted Orphan Drug
Designation (ODD) to THIO for the treatment of hepatocellular carcinoma, and in
May 2022, the FDA granted ODD to THIO

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for the treatment of small-cell lung cancer. The FDA's Office of Orphan Products
Development may grant orphan designation status to drugs and biologics that are
intended for the treatment, diagnosis or prevention of rare diseases, or
conditions that affect fewer than 200,000 people in the U.S. Orphan Drug
Designation provides certain benefits, including financial incentives, to
support clinical development and the potential for up to seven years of market
exclusivity for the drug for the designated orphan indication in the U.S. if the
drug is ultimately approved for its designated indication.
•
In May 2022, we completed the Additional Round for total proceeds of
approximately $99,999.
•
In May 2022, we entered into a research and collaboration agreement with the
Nationwide Children's Hospital to evaluate the potential of THIO in combination
with current standard-of-care therapies for brain cancer. The organizations will
conduct preclinical studies to assess the efficacy and safety of THIO in
combination with radiotherapy and immune checkpoint inhibitors in vitro and in
vivo models.
•
In July 2022, we completed our selection process for the clinical sites for our
Phase 2 study in Australia and Europe and our application to start the Phase 2
study in Australia has been approved. In July 2022, the first patient was
administered with THIO in our Phase 2 human trial (THIO-101) in Australia. We
have also submitted a similar application to conduct the same Phase 2 study in
Europe.
•
On July 28, 2022, the Company's shares of common stock began trading on the NYSE
American under the symbol MAIA. On August 1, 2022, the Company sold 2,000,000
shares of common stock at $5.00 per share for net proceeds of $10,000,000 in an
initial public offering prior to deducting underwriting discounts, commissions,
and other offering expenses. On August 3, 2022, the Company sold an additional
300,000 shares of common stock at $5.00 per share when the underwriter exercised
the overallotment for net proceeds of $1,500,000 prior to deducting underwriting
discounts, commissions, and other offering expenses. We believe we have raised
sufficient capital to fund the THIO-101 lead-in and preliminary efficacy of the
phase 2 THIO-101 trial.


Impact of the COVID-19 Pandemic on Our Operations

On January 30, 2020, the World Health Organization (“WHO”) announced a global
health emergency because of a new strain of coronavirus originating in Wuhan,
China
(the “COVID-19 Outbreak”) and the risks to the international community as
the virus spreads globally beyond its point of origin. In March 2020, the WHO
classified the COVID-19 Outbreak as a pandemic, based on the rapid increase in
exposure globally.

The full impact of the COVID-19 Outbreak continues to evolve as of the date of
this report. As a result, we cannot estimate the full magnitude that the
pandemic will have on our business. If the COVID-19 Outbreak continues, it may
have a material adverse effect on our financial condition, liquidity, and future
results of operations for the future. We are actively monitoring the impact of
the global pandemic on our financial condition, liquidity, operations, industry,
and workforce. Given the daily evolution of the COVID-19 Outbreak and the global
responses to curb its spread, we are not able to estimate the effects of the
COVID-19 Outbreak on our results of operations, financial condition, or
liquidity for the future. One of our initial clinical studies is taking place in
Australia, which initially imposed one of the strictest COVID-19-related
measures, including lock-downs. While are not currently experiencing any delays
or increased costs as a result of these measures, we may do so in the future.

Impact of the War in Ukraine on Our Operations

The short and long-term implications of Russia’s invasion of Ukraine are
difficult to predict at this time. The imposition of sanctions and counter
sanctions may have an adverse effect on the economic markets generally and could
impact our business, financial condition, and results of operations. Because of
the highly uncertain and dynamic nature of these events, the Company terminated
any planned research activities in Russia.


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Financial Operations Overview and Analysis for the Three Months Ended September
30, 2022
and 2021

Comparison of the three months ended September 30, 2022 and 2021


                                    Three Months Ended
                                      September 30,
                                                                               Change
                                 2022
                             (As Restated)           2021            Dollars         Percentage
Operating expenses:
Research and development
   expenses                 $     2,343,154     $    1,081,705     $  1,261,449         117%
General and
administrative
   expenses                       1,653,072          1,151,542          501,530          44%
Ratchet share expense             1,099,360                  -     $  1,099,360         100%
Total operating costs and
expenses                          5,095,586          2,233,247        2,862,339         128%
Loss from operations             (5,095,586 )       (2,233,247 )     (2,862,339 )       128%
Other income (expense):
Interest expense                     (1,716 )         (451,306 )        449,590        (100)%
Interest income                         348                708             (360 )       (51)%
Australian research and
   development incentives            65,111                  -           65,111         100%
Change in fair value of
embedded
   features                               -            (96,000 )         96,000        (100)%
Change in fair value of
warrant
   liability                        128,030           (100,780 )        228,810        (227)%
Loss on extinguishment of
   convertible notes and
convertible
   notes, related parties                 -         (2,322,943 )      2,322,943        (100)%
Other income (expense),
net                                 191,773         (2,970,321 )      3,162,094        (106)%
Net loss                         (4,903,813 )       (5,203,568 )        299,755         (6)%
Net loss attributable to
  noncontrolling
interests                                 -             (7,130 )          7,130        (100)%
Net loss attributable to
MAIA
   Biotechnology, Inc.
shareholders                $    (4,903,813 )   $   (5,196,438 )   $    292,625         (6)%



Operating Expenses

Research and development expenses

Research and development expenses increased by approximately $1,261,000 or 117%,
from approximately $1,082,000 for the three months ended September 30, 2021 to
approximately $2,343,000 for the three months ended September 30, 2022. The
increase was primarily related to the increase in clinical expenses related to
the clinical preparation and startup of THIO 101 trial of approximately
$667,000, an increase in payroll and bonus expenses of approximately $610,000
related to increased headcount of additional research and development employees,
an increase of approximately $111,000 in professional fees and other expenses,
offset by a decrease in stock-based compensation costs of approximately
$127,000.

General and administrative expenses

General and administrative expenses increased by approximately $502,000, or 44%
from approximately $1,152,000 for the three months ended September 30, 2021 to
approximately $1,653,000 for the three months ended September 30, 2022. The
increase was primarily related to an increase in payroll expense of
approximately $228,000, an increase in other expenses of approximately $472,000
related to the costs of operating as a public company, offset by a decrease in
stock-based compensation of approximately $119,000 and professional fees of
approximately $79,000.


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Ratchet Expense

Ratchet expense increased by approximately $1,099,000 or 100% for the three
months ended September 30, 2022 due to the issuance of ratchet shares to certain
investors.

Other expense, net

Other expense, net decreased by approximately $3,162,000 or 106% from other
expense of approximately $2,970,000 for the three months ended September 30,
2021
to other expense of approximately $192,000 for the three months ended
September 30, 2022. The change in other income (expense), net was primarily the
result of the following expenses in the three months ended September 30, 2021:
approximately $2,323,000 expense related to the loss on extinguishment of
convertible notes, approximately $451,000 expense related to the interest for
convertible notes, the change in the fair value of warrant liability expense of
approximately $101,000 related to interest for convertible notes, approximately
$96,000 of expense for the change in fair value of the bifurcated embedded
feature, and by the increase of approximately $65,000 of income related to the
Australian research and development incentives, and remeasurement of the warrant
liability of $128,000, for the three months ended September 30, 2022. This was
offset by approximately net $1,000 of interest for the three months ended
September 30, 2022.

Comparison of nine months ended September 30, 2022 and 2021


                                    Nine Months Ended
                                      September 30,
                                                                               Change
                                 2022
                             (As Restated)           2021            Dollars         Percentage
Operating expenses:
Research and development
  expenses                  $     6,539,948     $    1,988,450     $  4,551,498         229%
General and
administrative
  expenses                        4,341,880          2,798,766        1,543,114          55%
Ratchet share expense             1,099,360                  -     $  1,099,360         100%
Total operating costs and
expenses                         11,981,188          4,787,216        7,193,972         150%
Loss from operations            (11,981,188 )       (4,787,216 )     (7,193,972 )       150%
Other income (expense):
Interest expense                     (1,820 )         (827,539 )        825,719        (100)%
Interest income                       1,249              1,501             (252 )       (17)%
Australian research and
   development incentives           230,188                  -          230,188         100%
Change in fair value of
embedded
   features                               -           (203,000 )        203,000        (100)%
Change in fair value of
warrant
   liability                        128,030         (1,546,280 )      1,674,310        (108)%
Loss on extinguishment of
   convertible notes and
convertible
   notes, related parties                 -         (2,322,943 )      2,322,943        (100)%
Other income (expense),
net                                 357,647         (4,898,261 )      5,255,908        (107)%
Net loss                        (11,623,541 )       (9,685,477 )     (1,938,064 )        20%
Net loss attributable to
  noncontrolling
interests                                 -            (74,331 )         74,331        (100)%
Deemed dividend on
warrant
  modifications                    (450,578 )                -         (450,578 )       100%
Net loss attributable to
MAIA
  Biotechnology, Inc.
shareholders                $   (12,074,119 )   $   (9,611,146 )   $ (2,462,973 )        26%
                                                                              -




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Operating Expenses

Research and development expenses

Research and development expenses increased by approximately $4,551,000 or 229%,
from approximately $1,988,000 for the nine months ended September 30, 2021 to
approximately $6,540,000 for the nine months ended September 30, 2022. The
increase was primarily related to an increase in clinical expenses of
approximately $2,721,000 due to an increase in payments to clinical research
organizations and payments to consultants primarily related to the THIO 101
trial start-up and pre-clinical activities, an increase in payroll related
expenses and bonus expense of approximately $1,470,000 related to increased
headcount of eight research and development employees during the nine months
ended September 30, 2022, an increase of approximately $190,000 in professional
fees, and an increase in other expenses of approximately $193,000, offset by a
decrease in stock-based compensation of approximately $23,000.

General and administrative expenses

General and administrative expenses increased by approximately $1,543,000 or 55%
from approximately $2,799,000 for the nine months ended September 30, 2021 to
approximately $4,342,000 for the nine months ended September 30, 2022. The
increase was primarily attributable to the increased costs to create additional
infrastructure to support our operations as a public company. Increases included
an increase in payroll, bonus expenses and benefits of approximately $583,000
related to an increase in headcount over the same period last year, an increase
in professional fees for approximately $623,000, and an increase in other
expenses of approximately $592,000, offset by a decrease in stock-based
compensation expense of approximately $255,000 primarily due to the 2021 expense
related to founders’ stock-based compensation expense.

Ratchet Expense

Ratchet expense increased by approximately $1,099,000 or 100% for the nine
months ended September 30, 2022 due to the issuance of ratchet shares to certain
investors.

Other expense, net

Other income expense, decreased by approximately $5,255,000 or 107% from
approximately $4,898,000 of other expenses for the nine months ended September
30, 2021
to approximately $358,000 of other expense for the nine months ended
September 30, 2022. The change in other expense, net was primarily the result of
approximately $2,323,000 expense related to loss of extinguishment of
convertible notes, the approximately $1,546,000 of expense for the change in
fair value of the warrant liability, the change in the fair value of bifurcated
embedded feature of $203,000, and expense related to approximately $828,000
related to interest for convertible notes for the nine months ended September
30, 2021
. Other income increased by approximately $230,000 of income related to
the Australian research and development incentives, increased by $128,000 for
the remeasurement of the warrant liability and offset by approximately $1,000 of
interest expense for nine months ended September 30, 2022 .

Liquidity and Capital Resources

As of September 30, 2022, our cash totaled approximately $14,064,000 which
represented an increase of approximately $3,489,000 compared to December 31,
2021
. As of September 30, 2022, we had working capital of approximately
$12,324,000 which represents an increase of approximately $3,797,000 compared to
December 31, 2021. We have generated no revenues and we expect to continue to
incur operating losses for the foreseeable future and may never become
profitable. We are dependent on our ability to continue to raise equity and/or
debt financing to continue operations, until the attainment of profitable
operations.

Between April 22, 2022 and May 3, 2022, warrant holders exercised warrants,
resulting in the issuance of 153,000 shares of common stock for proceeds of
approximately $275,400.

On May 19, 2022, the Company sold 11,111 shares of common stock at $9.00 per
share for gross proceeds of $99,999 with no transaction costs. On August 1,
2022
, the Company sold 2,000,000 shares of common stock at $5 per share for
gross proceeds of $10,000,000 in an initial public offering. On August 3, 2022,
the Company sold an


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additional 300,000 shares of common stock at $5 per share for gross proceeds of
$1,500,000 per the overallotment option for the underwriter.

We will need to raise additional capital to fund our operations, to develop and
commercialize THIO, and to develop, acquire or in-license other products. We may
seek to fund our operations through additional public equity, or debt
financings, as well as other sources. We cannot make any assurances that
additional financings will be available to us and, if available, on acceptable
terms or at all. We believe that we currently have sufficient funds to support
funding of the THIO-101 lead-in and preliminary efficacy of the phase 2 THIO-101
through the next 12 months from the date of this filing. If the Company is
unable to raise the necessary funding, management will undertake cost cutting
measures to reduce compensation and reduce the scope of or delay its clinical
programs. This could negatively impact the Company’s business and could also
lead to the reduction of the Company’s operations.

Cash Flows

Cash Flows nine months ended September 30, 2022 and 2021


                                                                 Nine Months Ended
                                                                   September 30,

                                                               2022             2021
Net cash flows used in operating activities                $ (9,146,390 )   $ (2,515,658 )
Net cash flows provided by financing activities              12,670,074       12,804,705
Effect of foreign currency exchange rate changes on cash        (34,334 )              -
Net increase in cash and cash equivalents                  $  3,489,350     $ 10,289,047



Operating Activities

For the nine months ended September 30, 2022, net cash used in operating
activities was approximately $9,146,000, which consisted of a consolidated net
loss of approximately $11,624,000 offset by non-cash charges of approximately
$1, 831,000 in stock-based compensation., remeasurement of the warrant liability
of approximately $128,000 and expense related to the issuance of ratchet shares
of approximately $1,099,000. Total changes in operating assets and liabilities
of approximately $325,000 were driven by an approximate $412,000 increase in
prepaid expense and other assets, and an approximate $230,000 increase in the
Australia research and development incentives receivable offset by an increase
of approximately $317,000 in other accounts payable and accrued expenses.

For the nine months ended September 30, 2021, net cash used in operating
activities was approximately $2,516,000, which consisted of a net loss of
approximately $9,685,000 offset by non-cash charges of approximately $6,785,000
which primarily includes approximately $2,109,000 in stock-based compensation,
$2,323,000 loss on extinguishment of convertible notes, $203,000 related to the
change in fair value of embedded features, $597,000 amortization of debt
discount on convertible notes, a changes in the fair value of the warrant
liability of approximately $1,546,000, and approximately $7,000 loss on
settlement of bonus. Total changes in operating assets and liabilities of
approximately $385,000 were primarily driven by an approximate $345,000 increase
in accrued expenses, an approximate increase of $342,000 in accounts payable and
an approximate increase in accrued interest of $227,000 offset by and an
approximate increase in prepaid expenses and other assets of $522,000 and an
approximate decrease in amounts due to related parties of $7,000.

For the nine months ended September 30, 2022 the effect of foreign currency
exchange rate changes on cash decreased the cash balance as of September 30,
2022
by approximately $34,000.

Financing Activities

Net cash provided by financing activities was approximately $12,670,000 and
$12,805,000 for the nine months ended September 30, 2022 and 2021, respectively.
Net cash provided by financing activities for the nine months ended September
30, 2022
consisted primarily of gross proceeds from the sale of common stock in
the initial public offering of approximately $11,500,000, net proceeds from
issuance of common stock of approximately of $2,474,000 in a crossover round,
and proceeds from issuance of common stock upon exercise of warrants of


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approximately $385,000 and stock options of approximately $66,000 offset by
approximately $1,755,000 of the offering costs paid in the nine months ended
September 30, 2022. Total Net cash provided by financing activities for nine
months ended September 30, 2021 consisted of proceeds from issuance of
convertible notes totaling approximately $7,369,000, proceeds for issuance of
common stock net of transactions costs totaling approximately $5,366,000,
collections of subscriptions receivable of approximately $2,000, proceeds from
the paycheck protection program loan totaling approximately $63,000, and
proceeds from exercise of stock options of approximately $5,000.

Critical Accounting Policies and Significant Judgments and Estimates

Management’s discussion and analysis of our financial condition and results of
our operations is based on our consolidated financial statements, which have
been prepared in accordance with U.S. GAAP. The preparation of these financial
statements requires us to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. The most
significant estimates in the Company’s financial statements relate to the
valuation of common stock, stock options and warrants, the embedded features in
convertible notes, accruals for outsourced research and development activities,
and the valuation allowance of deferred tax assets. These estimates and
assumptions are based on current facts, historical experience and various other
factors believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities and the recording of expenses that are not readily apparent from
other sources. Actual results may differ materially and adversely from these
estimates. To the extent there are material differences between the estimates
and actual results, the Company’s future results of operations will be affected.

We define our critical accounting policies as those accounting principles that
require it to make subjective estimates and judgments about matters that are
uncertain and are likely to have a material impact on our financial condition
and results of operations, as well as the specific manner in which we apply
those principles. While our significant accounting policies are more fully
described in Note 1 to our financial statements, we believe the following are
the critical accounting policies used in the preparation of its financial
statements that require significant estimates and judgments.

Fair value of common stock

For all periods prior to the initial public offering, there was no public market
for our common stock. The Company sold shares of its common stock to third
parties beginning in September 2018 through June 2019 at $1.80 per share.
Subsequent to July 2019 the fair value of the shares of common stock underlying
our stock-based awards was estimated by our board of directors based in part on
valuations until we began selling shares of our common stock to third parties
beginning on July 15, 2021 through October 15, 2021 at $8.00 per share and
beginning on January 27, 2022 through February 27, 2022 at $9.00 per share. To
determine the fair value of our common stock underlying annual option grants to
officers and directors, our board of directors considered, among other things,
input from management, valuations of our common stock valuation firms in
accordance with the guidance provided by the American Institute of Certified
Public Accountants
2013 Practice Aid, Valuation of Privately-Held-Company Equity
Securities Issued as Compensation, and our board of directors’ assessment of
additional objective and subjective factors that it believed were relevant, and
factors that may have changed from the date of the most recent valuation through
the date of the grant.

These factors included, but were not limited to:

our results of operations and financial position, including our levels of
available capital resources;
•
our stage of development and material risks related to our business;
•
our business conditions and projections;
•
the valuation of publicly traded companies in the life sciences industry
sectors, as well as recently completed mergers and acquisitions of peer
companies;
•
the lack of marketability of our common stock as a private company;
•
the likelihood of achieving a liquidity event for our security holders, such as
an initial public offering or a sale of our company, given prevailing market
conditions;
•
the hiring of key personnel and the experience and expertise of management;
•
trends and developments in our industry; and
•
external market conditions affecting the life sciences industry sectors.

Our valuation as of February 28, 2021 indicated a fair value of our common stock
of $1.83 per share. For grants of stock awards and stock option awards during
the period February 28, 2021 through July 12, 2021, management set


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the exercise prices for those awards based on the February 28, 2021 valuation
until the Company initiated the sale of common stock at $8.00 per share which
was first competed on July 18, 2021 and followed by additional sales through
September 26, 2021. The Company set the exercise price of awards granted from
July 18, 2021 through October 30, 2021 at $8.00 per share.

In evaluating the fair value of our common stock during the period March 2021
through May 2021, management evaluated events and their potential impact on the
estimated fair value per share of the common stock. We considered events during
this period which would have an effect on the fair value of our common stock
such as milestones related to the clinical development and operations of our
drug substances and advances in the production of drug substances and our drug
product, however, there were no specific events that would indicate a definitive
change in the value of the Company.

Given that there were no specific events that caused the change in fair value of
our common stock from the indicated value of $1.83 as of February 28, 2021 to
the $8.00 per share realized from the sale of common stock initiated in mid
July, we performed a retrospective valuation of our common stock as of April 30,
2021
. The retrospective valuation as of April 30, 2021 also indicated a fair
value of our common stock of $1.83. In estimating the fair value of stock and
stock option awards, we used an estimated fair value of $1.83 for awards granted
from February 28, 2021 through May 31, 2021, based on the February 28, 2021 and
April 30, 2021 valuations. From June 1, 2021 through October 30, 2021, we used
an estimated of fair value of our common stock of $8.00 in valuing our stock and
stock option awards. We believe the fair values based on the valuations
materially represents the fair value of our common stock during the period
February 28, 2021 through May 31, 2021 since no single intervening specific
event indicated a definitive change in the value of the Company.

The February 28, 2021 and the April 30, 2021 valuations used the income approach
and the market approach in estimating the fair value of our common stock. The
market approach utilized guideline public companies in estimating fair value of
our stock. The income approach estimates enterprise value based on the estimated
present value of future cash flows the business is expected to generate over its
remaining life. The estimated present value is calculated using a discount rate
reflective of the risks associated with an investment in a similar company in a
similar industry or having a similar history of revenue growth. The market
approach measures the value of a business through an analysis of recent sales or
offerings of comparable investments or assets, and in our case, focused on
comparing us to a group of our peer companies. In applying this method,
valuation multiples are derived from historical and projected operating data of
the peer company group. We then apply the selected multiples to our operating
data to arrive at a range of indicated enterprise values of the Company. We then
subtracted the net debt to determine equity value.

During November 2021 and December 2021, the fair value of the Company’s common
stock was determined to be $8.69 and $8.87, respectively. For our valuations of
common stock performed November 2021 and December 2021, we used a hybrid method
of the Option Pricing Method (“OPM”) and the Probability-Weighted Expected
Return Method (“PWERM”). PWERM considers various potential liquidity outcomes.
Our approach included the use of an initial public offering scenario, a scenario
assuming continued operation as a private entity, and a dissolution scenario.
Under the hybrid OPM and PWERM, the per share value calculated under the OPM and
PWERM are weighted based on expected exit outcomes and the quality of the
information specific to each allocation methodology to arrive at a final
estimated fair value per share of the common stock before a discount for lack of
marketability is applied.

In the First Quarter of 2022, the Company made further progress in its clinical
programs, which included the approval of THIO by the Bellberry Human Research
Ethics Committee
(HREC) in Australia to initiate the THIO-101 Phase 2 clinical
study. Additionally, the Company completed its selection process for the
clinical sites for its Phase 2 study in Australia and Europe and its application
to start the Phase 2 study in Australia was approved. The Company also submitted
a similar application in the second quarter of 2022, to conduct the same Phase 2
study in Europe.

The events above resulted in the Company being able to complete sales of its
common stock to unrelated third-party investors beginning in January 27, 2022,
through February 28, 2022, of 263,729 shares of common stock at a price of $9.00
per share resulting in aggregate proceeds of approximately $2.4 million. In May
2022
, the Company


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completed additional sales of its common stock at a price of $9.00 per share
resulting in aggregate proceeds of approximately $0.1 million. Due to the lack
of any single specific event that would have indicated a definitive change in
the value of the Company, the fair value of the Company’s common stock from
January 27, 2022 through May 31, 2022, was determined based on sales of the
Company’s shares at arm’s length to unrelated third parties at $9.00 per share.
The fair value for common stock for June 2022 was determined based on the $5.00
per share for common stock initial public offering price.

Following the initial public offering, the fair value of our common stock, is
based on the closing price of the common stock in the public market.

Stock-based compensation

Our stock-based awards are classified as equity (restricted stock awards, stock
options, and warrants). We recognize related stock-based compensation expense
based on the grant date fair value of the awards. The fair value of restricted
stock awards is based on our common stock price. We estimate the fair value of
stock options and warrants using the Black-Scholes-Merton valuation model which
requires the use of subjective assumptions that could materially impact the
estimation of fair value and related compensation expense to be recognized. One
of these assumptions include the expected volatility of our stock price.
Developing this assumption requires the use of judgment. The Company lacks
company-specific historical and implied volatility information. Therefore, we
estimate our expected stock volatility based on the historical volatility of a
publicly traded set of peer companies. These estimates are highly subjective and
now that the initial public offering is completed these estimates will no longer
be necessary since the fair value will be based on the trading value of the
Company’s common stock.

Two of the assumptions used in the Black-Scholes-Merton valuation model are
historical volatility and fair value of common stock, both of which are subject
to uncertainty. Historical volatility is subject to uncertainty due to changes
in the market over time. The fair value of our common stock is subject to
uncertainty due to the possibility of changes in the results of our clinical
trials, which could impact the fair value of our common stock. The total expense
related to stock options is material to our financial statements on an annual
basis, and significant fluctuations in the volatility assumption or the fair
value of our common stock could result in material changes in related
compensation expense to be recognized.

Prepaid and Accrued Research and Development Expenses

As part of the process of preparing our consolidated financial statements, we
are required to estimate our prepaid and accrued research and development
expenses. This process involves reviewing open contracts and purchase orders,
communicating with our personnel to identify services that have been performed
on our behalf and estimating the level of service performed and the associated
cost incurred for the service when we have not yet been invoiced or otherwise
notified of the actual cost. We make estimates of our prepaid and accrued
research and development expenses as of each balance sheet date in our financial
statements based on facts and circumstances known to us at the time. We confirm
the accuracy of estimates with the service providers and make adjustments if
necessary. Examples of estimated prepaid and accrued research and development
expenses include expenses for:

Clinical Research Organizations (CROs) in connection with clinical studies;

Investigative sites in connection with clinical studies;

Vendors in connection with preclinical development activities; and

Vendors related to product manufacturing, development and distribution of
clinical materials.

We base our expenses related to clinical studies on our estimates of the
services received and efforts expended pursuant to contracts with multiple CROs
that conduct and manage clinical studies on our behalf. The financial terms of
these agreements are subject to negotiation, vary from contract to contract and
may result in uneven payment flows. The scope of services under these contracts
can be modified and some of the agreements may be canceled by either party upon
written notice. There may be instances in which payments made to our vendors
will exceed the level of services provided and result in a prepayment of the
clinical expense. Payments under some of these contracts depend on factors such
as the successful enrollment of subjects and the completion of clinical study
milestones. In accruing service fees, we estimate the time period over which
services will be performed and the level


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of effort to be expended in each period. If the actual timing of the performance
of services or the level of effort varies from our estimate, we adjust the
accrual or prepaid accordingly. Although we do not expect our estimates to be
materially different from amounts actually incurred, if our estimates of the
status and timing of services performed differ from the actual status and timing
of services performed we may report amounts that are too high or too low in any
particular period. To date, there have been no material differences between our
estimates and the amount actually incurred.


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© Edgar Online, source Glimpses

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