SAB BIOTHERAPEUTICS, INC. Management report and analysis of the financial situation and operating results. (Form 10-Q)
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the accompanying notes included in Part I, Item 1 of this Form 10-Q. Some of the information contained in this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. As a result of many factors, including those factors set forth in the section titled "Risk Factors," our actual results could differ materially from those discussed in or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled "Risk Factors." Please also refer to the section titled "Special Note Regarding Forward Looking Statements."
Special note regarding forward-looking statements
This Quarterly Report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding the Company's financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as "expect," "believe," "anticipate," "intend," "estimate," "seek" and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management's current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company's Annual Report on Form 10-K filed with the
U.S. Securities and Exchange Commission(the "SEC"). The Company's securities filings can be accessed on the EDGAR section of the SEC'swebsite at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
We are a clinical-stage biopharmaceutical company advancing a new class of immunotherapies based on its human polyclonal and monoclonal antibodies. We have applied advanced genetic engineering and antibody science to develop transchromosomic (Tc) bovine herds that produce fully human antibodies targeted to specific diseases, including infectious diseases such as COVID-19 and influenza, immune system disorders including T1D and organ transplantation, and cancer. Our versatile and scalable DiversitAb platform is applicable to a wide range of human diseases, capable of producing specifically targeted, high-potency immunotherapies. The platform has been expanded and validated through funding awarded from
U.S.government emerging disease and medical countermeasures programs, the most recent of which totals up to approximately $203.6 million. We are advancing clinical programs in two indications, and preclinical development in three indications. In addition, we are executing on two research collaborations with global pharmaceutical companies, including CSL Behringand an undisclosed collaboration. We generated total revenue of $11.8 millionand $16.9 millionfor the three months ended March 31, 2022and 2021, respectively. Our revenue to date has been primarily derived from government grants, including for the development of a COVID-19 therapeutic. Approximately $78.2 millionin funding remains for our current government grants, with an additional $1.6 millionremaining for our current government grants pending approval of extensions on the funding for two of the grants. 23
-------------------------------------------------------------------------------- We plan to focus a substantial portion of our resources on continued research and development efforts towards deepening our technology and expertise with our platform and as well as indications in infectious disease, autoimmune, and oncology indications. As a result, we expect to continue to make significant investments in these areas for the foreseeable future. We incurred research and development expenses of
$13.3 millionand $12.8 millionfor the three months ended March 31, 2022and 2021, respectively, and general and administrative expenses of $5.2 millionand $3.3 millionfor the three months ended March 31, 2022and 2021, respectively. We have also experienced significant growth in our workforce in recent periods, increasing from 139 employees as of December 31, 2021, to 148 employees as of March 31, 2022. We expect to continue to incur significant expenses, and we expect such expenses to increase substantially in connection with our ongoing activities, including as we:
invest in research and development activities to optimize and develop our DiversitAb platform;
develop new and advance preclinical and clinical progress pipeline programs;
market and find partners to market our products;
expand and improve operations to deliver products, including investments in manufacturing;
acquire businesses or technologies to support the growth of our business;
continue to establish, protect and defend our intellectual property and patent portfolio;
• operate as a public company.
To date, we have primarily funded our operations through government agreements, including for the development of a therapeutic antibody and rapid response program against COVID-19, as well as the issuance and sale of common stock. .
Our net income for the three months ended
March 31, 2022was $1.0 millionand our net income for the three months ended March 31, 2021was $1.4 million. As of March 31, 2022, we had an accumulated deficit of $28.1 millionwith cash and cash equivalents totaling $22.4 million.
February 2021, we submitted a forgiveness application related to our Paycheck Protection Program (or PPP) loan (PPP Loan). In March 2021, the U.S. Small Business Administration(SBA) approved the forgiveness of the PPP Loan, plus accrued interest. Business Combination On October 22, 2021, we consummated the Business Combination pursuant to that certain Agreement and Plan of Merger, dated June 21, 2021("Business Combination Agreement"), by and among Big Cypress Acquisition Corp.(BCYP), Big Cypress Merger Sub Inc., a Delawarecorporation and a direct wholly owned subsidiary of BCYP, and SAB Biotherapeutics, Inc., which changed its name to SAB Sciences, Inc.and became our wholly-owned subsidiary in connection with the Business Combination (and which we refer to now as Legacy SAB). Upon completion of the Business Combination, and pursuant to the terms of the Business Combination Agreement, the stockholders of Legacy SAB exchanged their Legacy SAB shares for our shares of common stock, and options to purchase shares of Legacy SAB were converted into options to purchase our shares of common stock. Additionally, (i) we issued 10,491,937 shares of common stock to the former stockholders of Legacy SAB, which are being held in escrow and which will be released if certain conditions are met prior to October 22, 2026, and (ii) we granted 1,508,063 contingently issuable restricted stock units to the holders of Legacy SAB options, which restricted stock units will be settled in our shares of common stock if the same conditions are met prior to October 22, 2026. For more information, see Note 1 to our consolidated financial statements, Nature of Business.
Key Factors Affecting Our Results of Operations and Future Performance
We believe that our financial performance has been, and in the foreseeable future will continue to be, primarily driven by multiple factors as described below, each of which presents growth opportunities for our business. These factors also pose important challenges that we must successfully address in order to sustain our growth and improve our results of operations. Our ability to successfully address these challenges is subject to various risks and uncertainties, including those described in the section captioned "Part I, Item 1A, Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2021, and supplemented with the following revised or additional risk factors in "Part II, Item 1A, Risk Factors." 24 --------------------------------------------------------------------------------
Components of operating results
Our revenue has historically been generated through grants from government and other (non-government) organizations. We currently have no commercially-approved products. Grant revenue is recognized for the period that the research and development services occur, as qualifying expenses are incurred or conditions of the grants are met. We concluded that payments received under these grants represent conditional, nonreciprocal contributions, as described in Accounting Standards Codification ("ASC") 958, Not-for-Profit Entities, and that the grants are not within the scope of ASC 606, Revenue from Contracts with Customers, as the organizations providing the grants do not meet the definition of a customer. Expenses for grants are tracked by using a project code specific to the grant, and the employees also track hours worked by using the project code.
For the three months ended
Total income from government grants was approximately
National Institute of Health- National Institute of Allergy and Infectious Disease("NIH-NIAID") (Federal Award #1R44AI117976-01A1) - this grant was for $1.4 millionand started in September 2019through August 2021. For the three months ended March 31, 2022and 2021, there was approximately $27,000and $56,000, respectively, in grant income recognized. The Company applied for an extension on the grant funding, and the extension is pending approval-we have not historically experienced challenges renewing grant funding. If approved, there is approximately $186,000in funding remaining for this grant as of March 31, 2022. NIH-NIAID (Federal Award #1R41AI131823-02) - this grant was for approximately $1.5 millionand started in April 2019through March 2021. The grant was subsequently amended to extend the date through March 2022. For the three months ended March 31, 2022and 2021, there was approximately $13,000and $9,000respectively, in grant income recognized. There is approximately $801,000in funding remaining for this grant as of March 31, 2022. NIH-NIAID through Geneva Foundation(Federal Award #1R01AI132313-01, Subaward #S-10511-01) - this grant was for approximately $2.7 millionand started in August 2017through July 2021. For the three months ended March 31, 2022and 2021 there was approximately $23,000and $0, respectively, in grant income recognized from this grant. The Company applied for an extension on the grant funding, and the extension is pending approval-we have not historically experienced challenges renewing grant funding. If approved, there is approximately $1.4 millionin funding remaining for this grant as of March 31, 2022. Department of Defense, Joint Program Executive Office for Chemical, Biological, Radiological and Nuclear Defense Enabling Biotechnologies ("JPEO") through Advanced Technology International- this grant was for a potential of $25 million, awarded in stages starting in August 2019and with potential stages running through February 2023. Additional contract modifications were added to this contract in 2020 and 2021 for work on a COVID therapeutic, bringing the contract total to $204 million. For the three months ended March 31, 2022and 2021, there was approximately $11.7 millionand $16.9 million, respectively, in grant income recognized from this grant. There is approximately $77.4 millionin funding remaining for this grant as of March 31, 2022.
Grants for the JPEO contract are cost reimbursement agreements, with reimbursement of our direct research and development expenses (labor and consumables) with overhead (based on actual, reviewed quarterly) and fees fixed (9%).
Research and development costs
Research and development expenses primarily consist of salaries, benefits, incentive compensation, stock-based compensation, laboratory supplies and materials for employees and contractors engaged in research and product development, licensing fees to use certain technology in our research and development projects, fees paid to consultants and various entities that perform certain research and testing on our behalf. Research and development expenses are tracked by target/project code. Indirect general and administrative costs are allocated based upon a percentage of direct costs. We expense all research and development costs in the period in which they are incurred. 25 --------------------------------------------------------------------------------
Research and development activities consist of discovery research for the development of our platform and the various indications on which we are working. Historically, we have not tracked our research and development expenditures on a product-candidate-by-product-candidate basis.
For the three months ended
March 31, 2022and 2021, we had contracts with multiple contract research organizations ("CRO") to conduct and complete clinical studies. In the case of SAB-185, the CRO has been contracted and paid by the US government. For SAB-176, PPD Development, LP, acting as CRO oversaw the Phase 1 safety study. The terms of that agreement are subject to confidentiality, and the status of the agreement is that it is current, in good standing and approximately 90% of the contract has been paid through December 31, 2021. SABhas also contracted with hVIVO Services Limitedto conduct the Phase 2a influenza study on SAB-176. The terms of that agreement are subject to confidentiality, and the status of the agreement is that it is current, in good standing and approximately 90% of the contract has been paid through March 31, 2022. We expect to continue to incur substantial research and development expenses as we conduct discovery research to enhance our platform and work on our indications. We expect to hire additional employees and continue research and development and manufacturing activities. As a result, we expect that our research and development expenses will continue to increase in future periods and vary from period to period as a percentage of revenue. Major components within our research and development expenses are salaries and benefits (laboratory & farm), laboratory supplies, animal care, contract manufacturing, clinical trial expense, outside laboratory services, project consulting, and facility expense. Our platform allows us to work on multiple projects with the same resources, as the research and development process of each product is very similar (with minimal differences in the manufacturing process). Research and development expenses by component for the three months ended March 31, 2022and 2021: Three Months Ended March 31, 2022 2021 Salaries & benefits $ 3,346,934 $ 2,015,631Laboratory supplies 1,926,698 3,805,074 Animal care 677,703 1,056,303 Contract manufacturing 4,429,203 3,635,633 Clinical trial expense 57,318 128,691 Outside laboratory services 1,216,094 944,632 Project consulting 401,324 421,741 Facility expense 1,228,039 670,077 Other expenses 41,031 104,222
Total research and development expenditure
General and administrative expenses
General and administrative expenses primarily consist of salaries, benefits, and stock-based compensation costs for employees in our executive, accounting and finance, project management, corporate development, office administration, legal and human resources functions as well as professional services fees, such as consulting, audit, tax and legal fees, general corporate costs and allocated overhead expenses. General and administrative expenses also include rent and facilities expenses allocated based upon total direct costs. We expect that our general and administrative expenses will continue to increase in future periods, primarily due to increased headcount to support anticipated growth in the business and due to incremental costs associated with operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a securities exchange and costs related to compliance and reporting obligations pursuant to the rules and regulations of the
SECand stock exchange listing standards, public relations, insurance and professional services. We expect these expenses to vary from period to period in absolute terms and as a percentage of revenue.
Non-operating income (expenses)
Gain on change in fair value of warrant liabilities
Gain on change in fair value of warrant liabilities includes changes in fair value of warrant liabilities.
Paycheck Protection Program SBA Loan Debt Extinguishing Gain
The gain on extinguishing the debt consists of the cancellation of the PPP loan, plus accrued interest.
Other income mainly consists of capital gains on disposals of fixed assets.
Interest income includes interest earned on cash balances in our bank accounts.
Interest expense primarily includes interest related to borrowings under notes payable for equipment.
income tax expense
Income tax expense consists primarily of federal and state domestic income taxes.
The following tables present our operating results for the three months ended
Three Months Ended March 31, 2022 2021 Revenue Grant revenue
$ 11,803,077 $ 16,927,734Total revenue 11,803,077 16,927,734 Operating expenses Research and development 13,324,344 12,782,004 General and administrative 5,186,072 3,331,806 Total operating expenses 18,510,416 16,113,810 Income (loss) from operations (6,707,339 )
Changes in fair value of warrant liabilities 7,849,572 - Gain on debt extinguishment of Paycheck Protection Program SBA Loan - 665,596 Interest expense (72,022 ) (75,192 ) Interest income 7,933 5,506 Total other income 7,785,483 595,910 Income before income taxes 1,078,144 1,409,834 Income tax expense 92,281 - Net income
$ 985,863 $ 1,409,83427
Comparison of the three months ended
Revenue Three Months Ended March 31, 2022 2021 Change % Change Revenue
$ 11,803,077 $ 16,927,734 $ (5,124,657 )(30.3 )% Total revenue $ 11,803,077 $ 16,927,734Revenue decreased by $5.1 million, or 30.3%, in the three months ended March 31, 2022as compared to the three months ended March 31, 2021primarily due to a decrease in work performed under the JPEO government grant. Included in revenues for the three months ended March 31, 2022is $0.3 millionfor fixed asset purchases, as compared to $1.8 millionfor fixed asset reimbursement and $1.5 millionfor animal purchases for the three months ended March 31, 2021. We anticipate future revenues will be substantially derived from current period directly reimbursable expenses such as laboratory supplies, labor costs, and consulting fees plus, when applicable, an overhead charge and a flat-rate fixed fee. Our belief is future period total revenues will trend roughly in line with total research and development expenses incurred in the same period. Research and Development Three Months Ended March 31, 2022 2021 Change % Change Research and development $ 13,324,344 $ 12,782,004 $ 542,3404.2 % Total research and development expenses $ 13,324,344 $ 12,782,004Research and development expenses increased by $0.6 million, or 4.4%, in the three months ended March 31, 2022as compared to the three months ended March 31, 2021, primarily due to increased headcount in the research and development function, contract manufacturing, increased clinical work, and increases in our production capacity and the associated expenses for materials and supplies supporting research and development activities. Please refer to the research and development expenses by component for the three months ended March 31, 2022and 2021 table above for additional information.
General and administrative
Three Months Ended
March 31, 20222021
Change % General and administrative change
55.7 % Total general and administrative expenses
$ 5,186,072 $ 3,331,806General and administrative expenses increased by $1.9 million, or 55.8%, in the three months ended March 31, 2022as compared to the three months ended March 31, 2021, primarily due to increases in business, regulatory consulting, and other compliance costs (year-over-year increase of $0.9 million, 103%); insurance costs (year-over-year increase of $0.7 million, 2,786%); and recruiting expenses (year-over-year increase of $0.1 million, 477%). Further, we recognized considerable increased expenses as a result of becoming a public company in 2021 (year-over-year increase for corporate governance and other support costs of $0.3 million, 173%). Non-operating Income Three Months Ended March 31, 2022 2021 Change % Change Changes in fair value of warrant liabilities $ 7,849,572$ - $ 7,849,572N/M Gain on debt extinguishment of Paycheck Protection Program SBA Loan - 665,596 (665,596 ) N/M Total non-operating income $ 7,849,572 $ 665,596Total non-operating income changed by $7.2 millionin the three months ended March 31, 2022as compared to the three months ended March 31, 2021, primarily due to changes in the fair value of the warrant liabilities, partially offset by the forgiveness of the PPP Loan, plus accrued interest, in 2021. 28 --------------------------------------------------------------------------------
Interest Expense Three Months Ended March 31, 2022 2021 Change % Change Interest expense
$ 72,022 $ 75,192 $ (3,170 )(4.2 )% Total interest expense $ 72,022 $ 75,192Interest expense remained largely unchanged in the three months ended March 31, 2022as compared to the three months ended March 31, 2021, driven by adding no new Finance Leases or other interest-bearing debt. Interest Income Three Months Ended March 31, 2022 2021 Change % Change Interest income $ 7,933 $ 5,506 $ 2,42744.1 % Total interest income $ 7,933 $ 5,506Interest income remained largely unchanged in the three months ended March 31, 2022as compared to the three months ended March 31, 2021, due to higher cash balances, offset by lower interest rates on money market funds, along with higher bank fees. Income Tax Expense Three Months Ended March 31, 2022 2021 Change % Change Income tax expense $ 92,281 $ - $ 92,281N/M Total income tax expense $ 92,281 $ - Income tax expense increased by approximately $92,000in the three months ended March 31, 2022as compared to the three months ended March 31, 2021, primarily attributable to the elimination of the existing option to deduct research and development expenditures and requirement for taxpayers to amortize them over five years pursuant to IRC Section 174. Starting in 2022, TCJA amendments to IRC Section 174 will no longer permit an immediate deduction for research and development (R&D) expenditures in the tax year that such costs are incurred. The 2022 first quarter effective income tax rate was impacted by the Section 174 capitalization requirement combined with the restriction on net operating losses to only reduce taxable income by 80%. We will continue to recognize income tax expense and make quarterly estimated tax payments under enacted tax rates and laws expected to be in effect for the current tax year.
Cash and capital resources
March 31, 2022and December 31, 2021, we had $22.4 millionand $33.2 million, respectively, of cash and cash equivalents. Additionally, as of December 31, 2021we had $6.3 millionin restricted cash held in escrow pending the final settlement of the Forward Share Purchase Agreement. Upon final settlement of the Forward Share Purchase Agreement, $817,060in cash was released to the Company and the remaining $5.5 millionwas delivered to Radcliffe for the repurchase of 546,658 shares of the Company's common stock. To date, we have primarily relied on grant revenue in the form of government grants and the sale of common stock. Our standard repayment terms for accounts receivable are thirty days from the invoice date. As a majority of our accounts receivable is from work performed under government grants, we have not had an uncollectible accounts receivable amount in over 5 years. We intend to continue to invest in our business and, as a result, may incur operating losses in future periods. We expect to continue to invest in research and development efforts towards expanding our capabilities and expertise along our platform and the indications we are working on, as well as building our business development team and marketing our solutions to partners in support of the growth of the business. Based on our current business plan, we believe the net proceeds from the Business Combination, together with our existing cash and cash equivalents and anticipated cash flows from operations, will be sufficient to meet our working capital and capital expenditure needs over at least the next twelve months. Our future capital requirements will depend on many factors, including, but not limited to our ability to successfully secure additional government grants and to secure contracts with new partners for the successful development and commercialization of our products. If we are unable to execute on our business plan and adequately fund operations, or if the business plan requires a level of spending in excess of cash resources, we may be required to negotiate partnerships in which we receive greater near-term payments at the expense of potential downstream revenue. Alternatively, we may need to seek additional equity or debt financing, which may not be available on terms acceptable to us or at all. To the extent that we raise additional capital through the sale of equity or convertible debt 29 -------------------------------------------------------------------------------- securities, the ownership interest of our shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common shareholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants restricting our ability to take specific actions, such as incurring additional debt, selling or licensing our assets, making product acquisitions, making capital expenditures, or declaring dividends. If we are unable to generate sufficient revenue or raise additional capital when desired, our business, financial condition, results of operations and prospects would be adversely affected.
Sources of liquidity
Since our inception, we have funded our operations primarily from revenue in the form of government grants and equity financing.
Equity financing and exercise of options
March 31, 2022, we have raised approximately $82.5 millionsince our inception from the issuance and sale of convertible preferred shares, net of issuance costs associated with such financings, the Business Combination with BCYP, and exercises of employee stock options. We are not currently eligible to file a shelf registration statement; however, we believe that shelf registration statements can contribute, when used, to greater financing flexibility. To that end, we plan to file a shelf registration statement on Form S-3 with the SEConce we are eligible to do so. Until such time, if ever, we can generate substantial product revenue to support our cost structure, we expect to finance our cash needs through a combination of government or non-profit grants, equity offerings, debt financings, collaborations, and other similar arrangements.
December 2017, the Company entered into a loan agreement for the purchase of a tractor for $116,661at a 3.6% interest rate. The loan included annual payments of $25,913for the next five years starting in December 2018. The tractor loan balance as of March 31, 2022and December 31, 2021was $25,013. The total amount of the remaining loan balance is due in full in the fourth quarter of 2022. On March 27, 2020, President Trumpsigned into law the "Coronavirus Aid, Relief and Economic Security Act ("CARES Act"). In April 2020, the Company entered into a loan agreement (the "PPP Loan") with First Premier Bankunder the Paycheck Protection Program (the "PPP"), which is part of the CARES Act administered by the United States Small Business Administration("SBA"). As part of the application for these funds, the Company, in good faith, certified that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. The certification further requires the Company to take into account its current business activity and its ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. Under the PPP, the Company received proceeds of approximately $661,612. In accordance with the requirements of the PPP, the Company utilized the proceeds from the PPP Loan primarily for payroll costs. The PPP Loan has a 1.00% interest rate per annum, matures in April 2022and is subject to the terms and conditions applicable to loans administered by the SBA under the PPP. Under the terms of PPP, all or certain amounts of the PPP Loan may be forgiven if they are used for qualifying expenses, as described in the CARES Act. The Company recorded the entire amount of the PPP Loan as debt. In February 2021, the Company submitted a forgiveness application related to its PPP Loan. In March 2021, the SBA approved the forgiveness of the PPP Loan, plus accrued interest. We recorded a gain on extinguishment of PPP Loan of $665,596for the forgiveness of the PPP Loan and accrued interest within gain on debt extinguishment of Paycheck Protection Program SBA Loan on the consolidated statement of operations for the three months ended March 31, 2021.
Please refer to note 10 of the Company’s consolidated financial statements, Notes payable, for more information on our debt.
The following table summarizes our cash flows for the three months ended
March 31, 2022and 2021: Three Months Ended March 31, 2022 2021 Net cash (used in) provided by operating activities $ (10,293,508 )$
Net cash used in investing activities (1,280,934 ) (1,890,156 ) Net cash used in financing activities (5,562,167 ) (45,471 ) Net (decrease) increase in cash, cash equivalents, and restricted cash
$ (17,136,609 ) $ 7,517,86830
Net cash from operating activities decreased by
$19.7 millionin the three months ended March 31, 2022as compared to the three months ended March 31, 2021, primarily due to a $5.1 milliondecrease in revenue, $2.0 millionincrease in general and administrative expenses, along with an increase non-cash working capital (excluding impacts of the Forward Purchase Agreement) of $5.1 million.
Net cash from investing activities increased by
$0.6 millionin the three months ended March 31, 2022as compared to the three months ended March 31, 2021, primarily due to a decrease in purchases of equipment and substantial completion of the HQ expansion. Financing Activities Net cash from financing activities decreased by $5.5 millionin the three months ended March 31, 2022as compared to the three months ended March 31, 2021, primarily due to the final settlement of the Forward Share Purchase Agreement whereby $5.5 millionof restricted cash was utilized for a repurchase of 546,658 shares of the Company's common stock.
Contractual obligations and commitments
The following table summarizes our contractual obligations and commitments as of
March 31, 2022: Payments Due by Period Less than Over Total 1 year 1-3 years 3-5 years 5 years Notes payable (1) $ 25,013 $ 25,013$
– $ – $ – Liabilities related to operating leases (2) 2,634,446 1,239,615 1,394,831
- - Finance lease liabilities (2) 6,719,586 427,061 805,413 802,992 4,684,120 Total
$ 9,379,045 $ 1,691,689 $ 2,200,244 $ 802,992 $ 4,684,120(1)
An annual payment remaining on the purchase of a tractor.
We are party to certain contractual arrangements for equipment, lab space, and an animal facility, which meet the definition of leases under FASB ASC Topic 842, Leases ("ASC 842").
We enter into contracts in the normal course of our business with third parties, including CROs. These payments are not included in the table above, as the amount and timing of these payments are not known.
We had approximately
$22.4 millionof federal net operating loss carryforwards as of March 31, 2022. Our carryforwards are subject to review and possible adjustment by the appropriate taxing authorities. Our effective tax rate will vary depending on the relative use of tax credits, changes in the valuation of our deferred tax assets and liabilities, applicability of any valuation allowances, limitation of application for our NOL carryforwards, and changes in tax laws in jurisdictions in which we operate. These carryforwards may generally be utilized in any future period but may be subject to limitations based upon changes in the ownership of our shares in a prior or future period. We have not quantified the amount of such limitations, if any. Beginning in 2022, the U.S.Tax Cuts and Jobs Act of 2017 ("TCJA") eliminated the existing option to deduct research and development expenditures and requires taxpayers to amortize them over five years pursuant to IRC Section 174. The new amortization period begins with the midpoint of any taxable year that IRC Section 174 costs are first incurred, regardless of whether the expenditures were made prior to or after July 1, and runs until the midpoint of year five for activities conducted in the United Statesor year 15 in the case of development conducted on foreign soil. The Company continues to record a valuation allowance on its net deferred tax assets. The valuation allowance increased by approximately $1.6 millionduring the three months ended March 31, 2022. The company has not recognized any reserves for uncertain tax positions. 31 --------------------------------------------------------------------------------
Off-balance sheet arrangements
We did not have, for the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Significant Accounting Policies and Estimates
We have prepared our consolidated financial statements in accordance with
U.S.GAAP. Our preparation of these consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in Note 2 to the Company's consolidated financial statements, Summary of Significant Accounting Policies, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Our income is mainly generated by grants from the government and other (non-governmental) organisations.
Grant revenue is recognized for the period that the research and development services occur, as qualifying expenses are incurred, or conditions of the grants are met. We concluded that payments received under these grants represent conditional, nonreciprocal contributions, as described in ASC 958, Not-for-Profit Entities, and that the grants are not within the scope of ASC 606, Revenue from Contracts with Customers, as the organizations providing the grants do not meet the definition of a customer. Expenses for grants are tracked by using a project code specific to the grant, and the employees also track hours worked by using the project code.
We recognize compensation cost relating to stock-based payment transactions using a fair-value measurement method, which requires all stock-based payments to employees, directors, and non-employee consultants, including grants of stock options, to be recognized in operating results as compensation expense based on fair value over the requisite service period of the awards. Prior to the Business Combination, the grant date fair value of our common stock was typically determined by our board of directors with the assistance of management and a third-party valuation specialist. Subsequent to the Business Combination, the board of directors elected to determine the fair value of our post-merger common stock based on the closing market price at closing on the date of grant. In determining the fair value of our stock-based awards, we utilize the Black-Scholes option-pricing model, which uses both historical and current market data to estimate fair value. The Black-Scholes option-pricing model incorporates various assumptions, such as the value of the underlying common stock, the risk-free interest rate, expected volatility, expected dividend yield, and expected life of the options. For awards with performance-based vesting criteria, we estimate the probability of achievement of the performance criteria and recognize compensation expense related to those awards expected to vest. No awards may have a term in excess of ten years. Forfeitures are recorded when they occur. Stock-based compensation expense is classified in our consolidated statements of operations based on the function to which the related services are provided. We recognize stock-based compensation expense over the expected term. 32
-------------------------------------------------------------------------------- In addition to considering the results of the independent third-party valuations, our board of directors considered various objective and subjective factors to determine the fair value of our common shares as of each grant date, which may be a date other than the most recent independent third-party valuation date, including:
the prices at which we most recently sold preferred stock and the superior rights and privileges of preferred stock over our common stock at the time of each grant;
the lack of liquidity of our shareholders’ equity as a private company;
our stage of development and business strategy and material risks relating to our business and industry;
our financial condition and results of operations, including our levels of available capital resources and expected results;
developments in our business, including the achievement of milestones such as entering into partnership agreements;
the valuation of publicly traded companies in the life sciences, biopharma and health technology sectors, as well as recently completed mergers and acquisitions of peer companies;
any external market conditions affecting our industry and trends within our industry;
the likelihood of achieving a liquidity event for the holders of our preferred shares and holders of our common shares, such as an initial public offering, or IPO, or a sale of our company, given prevailing market conditions; and
analysis of IPOs and market performance of similar companies in our industry.
The assumptions underlying these valuations represented management's best estimates, which involved inherent uncertainties and the application of management's judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, the fair value of our common shares and our stock-based compensation expense could be materially different. See Note 12 to the Company's consolidated financial statements, Stock Option Plan, for information concerning certain specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options granted for the three months ended
March 31, 2022and 2021. Stock-based compensation expense was $0.9 millionand $0.3 millionfor the three months ended March 31, 2022and 2021, respectively. As of March 31, 2022, we had $7.5 millionof total unrecognized stock-based compensation cost related to non-vested options, which we expect to recognize in future operating results over a weighted-average period of 2.27 years.
Valuations of Warrant Liabilities
We are required to periodically estimate the fair value of our Private Placement Warrant liabilities with the assistance of an independent third-party valuation firm. The assumptions underlying these valuations represented our best estimates, which involved inherent uncertainties and the application of significant levels of our judgment. The fair value of our Public Warrant liabilities are determined by reference to the quoted market price. The warrants are accounted for as liabilities in accordance with ASC 815-40, Derivatives and Hedging-Contracts in Entity's Own Equity, and were presented within warrant liabilities on the consolidated balance sheet as of
March 31, 2022and December 31, 2021. The initial fair value of the warrant liabilities were measured at fair value on the Closing Date, and changes in the fair value of the warrant liabilities were presented within changes in fair value of warrant liabilities in the consolidated statement of operations for the three months ended March 31, 2022. On the Closing Date, we established the fair value of the Private Placement Warrants utilizing both the Black-Scholes Merton formula and a Monte Carlo Simulation ("MCS") analysis. Specifically, we considered a MCS to derive the implied volatility in the publicly listed price of the Public Warrants. We then considered this implied volatility in selecting the volatility for the application of a Black-Scholes Merton model for the Private Placement Warrants. We determined the fair value of the Public Warrants by reference to the quoted market price. The Public Warrants were classified as a Level 1 fair value measurement, due to the use of the quoted market price, and the Private Placement Warrants held privately by Big Cypress Holdings LLC, a Delawarelimited liability company which acted as the Company's sponsor in connection with the IPO (the "Sponsor"), were classified as a Level 3 fair value measurement, due to the use of unobservable inputs. The initial measurement on the Closing Date for the Public Warrant liability was approximately $6.3 millionand the change in fair value of the Public Warrant liability was approximately $4.0 millionfor the year ended December 31, 2021. The change in fair value of the Public Warrant liability for the three months ended March 31, 2022was approximately $7.5 million33 -------------------------------------------------------------------------------- The key inputs into the valuations as of the March 31, 2022and December 31, 2021were as follows: March 31, December 31, 2022 2021 Risk-free interest rate 2.42 % 1.24 % Expected term remaining (years) 4.56
Implied volatility 49.0 % 43.0 % Closing common stock price on the measurement date
See Note 13 to the Company's consolidated financial statements, Fair Value Measurements, for information concerning certain specific assumptions we used in applying the Black-Scholes Merton formula and MCS to determine the estimated fair value of the Private Placement Warrants outstanding for the three months ended
March 31, 2022. Common Stock Valuations Prior to becoming a public company, we were required to periodically estimate the fair value of our common stock with the assistance of an independent third-party valuation firm, as discussed above, when issuing stock options and computing our estimated stock-based compensation expense. The assumptions underlying these valuations represented our best estimates, which involved inherent uncertainties and the application of significant levels of our judgment. In order to determine the fair value of our common stock, we considered, among other items, previous transactions involving the sale of our securities, our business, financial condition and results of operations, economic and industry trends, the market performance of comparable publicly traded companies, and the lack of marketability of our common stock.
After the business combination, we now determine the fair value of our common stock based on the closing market price on the date of grant.
Compensation expense related to stock-based transactions is measured and recognized in the financial statements at fair value of our post-merger common stock based on the closing market price at closing on the date of grant. Stock-based compensation expense is measured at the grant date based on the fair value of the equity award and is recognized as expense over the requisite service period, which is generally the vesting period, on the straight-line method. We estimate the fair value of each stock option award on the date of grant using the Black-Scholes option-pricing model. Determining the fair value of stock option awards at the grant date requires judgment, including estimating the expected volatility, expected term, risk-free interest rate, and expected dividends.
Rental debts and rights of use
We are party to certain contractual arrangements for equipment, lab space, and an animal facility, which meet the definition of leases under ASC 842. In accordance with ASC 842, we, as of
January 1, 2018(the date of adoption), recorded right-of-use assets and related lease liabilities for the present value of the lease payments over the lease terms. We utilized the practical expedient regarding lease and non-lease components and have combined such items into a single combined component. Our incremental borrowing rate was used in the calculation of our right-of-use assets and lease liabilities.
Recently issued accounting pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 3 to our consolidated financial statements, New Accounting Standards.
Impact of the COVID-19 pandemic
March 2020, the World Health Organizationdeclared the outbreak of a novel coronavirus, or COVID-19, as a pandemic, which continues to spread throughout the U.S.and worldwide. As with many companies around the world, our day-to-day operations were disrupted with the imposition of work from home policies and requirements for physical distancing for any personnel present in our offices and laboratories. The pandemic has also disrupted our activities as shelter-in-place orders, quarantines, supply chain disruptions, travel restrictions and other public health safety measures have impacted our ability to interact with our existing and potential partners for our activities. However, the COVID-19 pandemic did not materially impact our business, operating results, or financial condition. There is significant uncertainty as to the trajectory of the pandemic and its impacts on our business in the future. We could be materially and adversely affected by the risks, or the public perception of the risks, related to the COVID-19 pandemic or similar public health crises. Such crises could adversely impact our ability to conduct on-site laboratory activities, expand our laboratory facilities, secure critical supplies such as reagents, laboratory tools or immunized animals required for discovery research activities, and hire and retain key personnel. The ultimate extent of the impact of any epidemic, pandemic, outbreak, or other public health crisis on our business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of such epidemic, pandemic, 34 -------------------------------------------------------------------------------- outbreak, or other public health crisis and actions taken to contain or prevent the further spread, among others. Accordingly, we cannot predict the extent to which our business, financial condition and results of operations will be affected. We remain focused on maintaining our operations, liquidity and financial flexibility and continue to monitor developments as we deal with the disruptions and uncertainties from the COVID-19 pandemic.
Accounting election of the JOBS law
We qualify as an "emerging growth company" as defined in the JOBS Act. An emerging growth company may take advantage of reduced reporting requirements that are not otherwise applicable to public companies. These provisions include, but are not limited to:
be permitted to present only two years of audited financial statements and only two years of related management’s discussion and analysis of financial condition and results of operations in this Form 10-Q;
not be required to comply with auditor certification requirements on the effectiveness of our internal controls over financial reporting;
not being required to comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements (auditor discussion and analysis);
reduced disclosure requirements regarding executive compensation arrangements; and
exemptions from the requirements for a non-binding advisory vote on executive compensation and shareholder approval of any previously unapproved golden parachute payments.
We may use these provisions until the last day of our fiscal year in which the fifth anniversary of the completion of our initial public offering occurred. However, if certain events occur prior to the end of such five-year period, including if we become a "large accelerated filer," our annual gross revenue exceeds
$1.07 billion, or we issue more than $1.0 billionof non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period. We have elected to take advantage of certain of the reduced disclosure obligations in this Form 10-Q and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our shareholders may be different than the information you receive from other public companies in which you hold stock. The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards, until those standards apply to private companies. We have elected to take advantage of the benefits of this extended transition period and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards. Until the date that we are no longer an emerging growth company or affirmatively and irrevocably opt out of the exemption provided by Section 7(a)(2)(B) of the Securities Act upon issuance of a new or revised accounting standard that applies to our financial statements and that has a different effective date for public and private companies, we will disclose the date on which we will adopt the recently issued accounting standard. 35
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