# Clene Inc.: Form 10-Q for the period ended Sep 30, 2022

- Company: [Clene Inc.](/companies/clnn.md) (CIK 1822791)
- Form: 10-Q
- Filed: 2022-11-07
- Accepted by EDGAR: Nov 7, 2022, 13:00 ET
- Period: 2022-09-30
- Accession: 0000950170-22-022333
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1822791/000095017022022333/clnn-20220930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1822791/000095017022022333/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-01 to 2022-09-30 | $174.0k | us-gaap:Revenues |
| Revenue | 9 months, 2022-01-01 to 2022-09-30 | $239.0k | us-gaap:Revenues |
| Research and development | 3 months, 2022-07-01 to 2022-09-30 | $6.4m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2022-01-01 to 2022-09-30 | $24.1m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2022-07-01 to 2022-09-30 | −$9.8m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-01-01 to 2022-09-30 | −$36.7m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2022-07-01 to 2022-09-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-01-01 to 2022-09-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | −$11.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-01-01 to 2022-09-30 | −$28.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.17 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-01-01 to 2022-09-30 | −$0.46 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.17 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-01-01 to 2022-09-30 | −$0.46 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-01 to 2022-09-30 | 63,508,928 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-01-01 to 2022-09-30 | 63,234,757 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-01-01 to 2022-09-30 | −$31.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-01-01 to 2022-09-30 | $3.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2022-09-30 | $7.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-09-30 | $21.5m | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-30 | $36.0m | us-gaap:Assets |
| Current liabilities | at 2022-09-30 | $6.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-09-30 | $45.3m | us-gaap:Liabilities |
| Shareholders' equity | at 2022-09-30 | −$9.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 74,384 characters.

*The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements reflecting our or management team’s expectations, hopes, beliefs, intentions, or strategies regarding our future operations. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would,” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the section titled “Risk Factors” in our Annual Report on Form 10-K. We undertake no obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws. Unless the context otherwise requires, for purposes of this section, the terms the “Company,” “we,” “us,” or “our” are intended to mean the business and operations of Clene Inc. and its consolidated subsidiaries.*

### Business Overview

We are a clinical-stage pharmaceutical company pioneering the discovery, development, and commercialization of novel clean-surfaced nanotechnology (“CSN®”) therapeutics. CSN® therapeutics are comprised of atoms of transition elements that, when assembled in nanocrystal form, possess unusually high, unique catalytic activities not present in those same elements in bulk form. These catalytic activities drive, support, and maintain beneficial metabolic and energetic cellular reactions within diseased, stressed, and damaged cells.

Our patent-protected, proprietary position affords us the potential to develop a broad and deep pipeline of novel CSN therapeutics to address a range of diseases with high impact on human health. We began in 2013 by innovating an electro-crystal-chemistry drug development platform that draws from advances in nanotechnology, plasma and quantum physics, material science, and biochemistry. Our platform process results in nanocrystals with faceted structures and surfaces that are free of the chemical surface modifications that accompany other production methods. Many traditional methods of nanoparticle synthesis involve the unavoidable deposition of potentially toxic organic residues and stabilizing surfactants on the particle surfaces. Synthesizing stable nanocrystals that are both nontoxic and highly catalytic has overcome this significant hurdle in harnessing transition metal catalytic activity for human therapeutic use.

Our clean-surfaced nanocrystals exhibit catalytic activities many-fold higher than multiple other commercially available nanoparticles, produced using various techniques, that we have comparatively evaluated. We now have multiple drug assets currently in development and/or clinical trials for applications in neurology, infectious disease, and oncology. Our development and clinical efforts are currently focused on addressing the high unmet medical needs in two areas: first, those related to central nervous system disorders including Amyotrophic Lateral Sclerosis (“ALS”), Multiple Sclerosis (“MS”), and Parkinson’s Disease (“PD”); and second, those related to COVID-19, a highly infectious viral respiratory disease with serious and sometimes fatal co-morbidities.

We currently have no drugs approved for commercial sale and have not generated any revenue from drug sales. We have never been profitable and have incurred operating losses in each year since inception. We generate revenue from sales of dietary supplements through our wholly owned subsidiary, dOrbital, Inc., or through an exclusive license with 4Life Research LLC (“4Life”), a stockholder and related party. We anticipate these revenues to be small compared to our operating expenses and to the revenue we expect to generate from potential future sales of our drug candidates, for which we are currently conducting clinical trials. We incurred a loss from operations of $9.8 million and $10.5 million for the three months ended September 30, 2022 and 2021, respectively; and $36.7 million and $35.9 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022 and December 31, 2021, we had an accumulated deficit of $192.2 million and $163.3 million, respectively.

We expect to continue investing in product development and we expect to incur additional losses in the future to fund our operations and conduct product research and development. We also recognize the need to raise additional capital to fully implement our business plan. The long-term continuation of our business plan is dependent upon the generation of sufficient revenues from our products to offset expenses and capital expenditures. In the event that we do not generate sufficient revenues and are unable to obtain funding, we will be forced to delay, reduce, or eliminate some or all of our research and development programs, product portfolio expansion, commercialization efforts, or capital expenditures, which could adversely affect our business prospects, ability to meet long-term liquidity needs, or we may be unable to continue operations.

### Recent Developments of Our Clinical Programs

**CNM-Au8®:** We recently reported topline data from the Phase 2/3 Healey ALS Platform Trial, to establish the safety and efficacy of CNM-Au8® in patients with ALS. The primary endpoint of slope of change in ALS Functional Rating Scale Revised (“ALSFRS-R”) scores adjusted for mortality was not significant (2% slowing, 95% CI: -20% to +19%) at 24 weeks. Secondary endpoints of Combined Assessment of Function and Survival (“CAFS”) and Slow Vital Capacity (“SVC”) were also not met at 24 weeks across the combined 30 mg and 60 mg CNM-Au8 doses.

The prespecified exploratory analyses of the secondary survival endpoint demonstrated a greater than 90% reduction in risk of death alone or in risk of death/permanently assisted ventilation at 24 weeks, when adjusted for baseline imbalances in risk (p=0.028 to p=0.075, unadjusted for multiple comparisons) with the CNM-Au8 30 mg dose. These survival results were statistically consistent for the 30 mg dose between the regimen only and full analysis sets, which included shared placebo from other regimens participating in the Healey ALS Platform Trial (Regimens A, B, and D). This survival signal is consistent with results previously reported by us in the Phase 2 RESCUE-ALS clinical trial with CNM-Au8.

The full analyses, including data on a subject level basis and exploratory efficacy parameters, are expected to be received from the Sean M. Healey & AMG Center for ALS at Massachusetts General Hospital (the “Healey Center”) by the end of 2022 and we expect to announce the results in the first quarter of 2023. Additionally, we expect data on biomarkers of neurodegeneration in the first quarter of 2023. The open-label extension will continue to follow participants for an additional 52-week treatment period and we expect matured survival data in the second quarter of 2023. We are in discussions with the Healey Center to offer a broader Expanded Access Program of CNM-Au8 30 mg for eligible participants of closed regimens and others.

Based on these topline findings, we have selected the CNM-Au8 30 mg dose for continued development in ALS. The CNM-Au8 60 mg dose did not demonstrate a significant survival benefit. CNM-Au8 was well tolerated, and there were no drug-related serious adverse events or significant safety findings reported. We are presently discussing the design of an international Phase 3 study with expert ALS clinical advisors with the 30 mg dose, RESTORE-ALS.

We recently presented updated interim data from the RESCUE-ALS clinical trial long-term open-label extension at the American Association of Neuromuscular & Electrodiagnostic Medicine (“AANEM”) Annual Meeting. The updated interim data demonstrated treatment with CNM-Au8 significantly improved long-term survival versus original placebo randomization, and compared to the European Network to Cure ALS (“ENCALS”) predicted median survival.

We plan to work closely with regulatory health authorities from the U.S. Food and Drug Administration (“FDA”) and European Medicines Agency, ALS experts, and patient representatives to determine the proper path to support potential approval. We do not know when or if we will be able to file a New Drug Application (“NDA”) with the FDA based on our accumulation of clinical evidence until we meet with the FDA in an end of Phase 2 meeting which is expected in mid-2023 after we receive the biomarker data and efficacy parameters that is forthcoming from the Healey ALS Platform Trial. We have paused our commercial expansion project at our Elkton, Maryland facility until we receive further clarity from the FDA on the path forward for CNM-Au8. The expansion of our North East, Maryland facility is on schedule; the North East, Maryland facility can meet current and future clinical development demand.

We recently reported positive topline data from our Phase 2 VISIONARY-MS clinical trial which evaluated the efficacy and safety of CNM-Au8 in stable relapsing remitting MS patients. The trial was stopped prematurely due to COVID-19 pandemic operational challenges, limiting enrollment to 73 out of the 150 planned participants. Due to the limited enrollment, the threshold for significance was pre-specified at p=0.10 prior to database lock. The primary analysis was conducted in a modified intent to treat (“mITT”) population, which censored invalid data. The mITT population excluded data from a single site (n=9) with Low Contrast Letter Acuity (“LCLA”) testing execution errors and the timed 25-foot walk data from one subject with a change in mobility assist device. The ITT results were directionally consistent with the mITT results, although the ITT results were not significant. The trial met the primary endpoint of change from baseline in LCLA at 48 weeks compared to placebo. The trial also met the secondary endpoints of mean standardized change from baseline in the modified MS Functional Composite (“mMSFC”) and mMSFC average rank score.

The primary and secondary results from baseline to week 48 were:

- Primary outcome: LCLA letter change in the clinically affected eye (least squares \[“LS”\] mean difference, 3.13; 95% CI: -0.08 to 6.33, p = 0.056);
- Secondary outcomes:
- mMSFC mean standardized change (LS mean difference, 0.28; 95% CI: 0.04 to 0.52, p = 0.0207);
- mMSFC average rank score (LS mean difference, 13.38; 95% CI: 2.83 to 23.94, p = 0.0138); and
- time to first repeated clinical improvement to week 48 (45% vs. 29%, log-rank p=0.3991).

Consistent improvements favoring CNM-Au8 were observed across multiple paraclinical biomarkers, including multifocal visual evoked potentials amplitude and latency, optical coherence tomography, and MRI endpoints, including magnetization transfer ratio and diffusion tensor imaging metrics. Placebo treated patients, in contrast, generally worsened as expected across these measures during the 48-week period. These data provide independently assessed quantitative physiological evidence that supports the potential neuroprotective and remyelinating effects of CNM-Au8. CNM-Au8 was well-tolerated, and there were no significant safety findings reported. The open-label extension of VISIONARY-MS is ongoing.

We also completed the first dosing cohort of REPAIR-MS, an open-label, investigator blinded Phase 2 clinical trial, and have initiated a second dosing cohort in non-active progressive MS patients which is expected to be complete in the second half of 2023.

**CNM-ZnAg:** We have one Phase 2 clinical trial that recently concluded the blinded treatment period. The objective of this study is to investigate the efficacy and safety of CNM-ZnAg for the treatment of COVID-19. As pre-specified in the protocol, due to insufficient hospitalization events in the randomized study population, the primary and secondary endpoints were interchanged. The primary endpoint is now time to substantial alleviation of COVID-19 symptoms up to 28-days, over a continuous period greater than or equal to 48 hours. The key secondary endpoints include (i) time to complete alleviation of COVID-19 symptoms up to 28-days, over a continuous period greater than or equal to 48 hours; and (ii) the proportion of participants who are hospitalized, require hospitalization, or are deceased from baseline to day 28 (the original primary endpoint). Topline results are anticipated in the fourth quarter of 2022.

The chart below reflects the growing body of evidence for CSN therapeutics from our completed and ongoing clinical programs.

### Recent Competition Update

Despite the great need for an effective disease-modifying treatment for ALS and significant research efforts by the pharmaceutical industry to meet this need, there have been limited clinical successes and no curative therapies approved to date. In May 2022, the FDA approved an orally administered version of edaravone, which has been available since 2017 as an intravenous infusion for the treatment of ALS. In July 2022, the FDA accepted an NDA for tofersen, an investigational drug from Biogen Inc., for the treatment of superoxide dismutase 1 ALS. The NDA has been granted priority review with a Prescription Drug User Fee Act goal date of April 25, 2023. Additionally, in September 2022, the FDA approved AMX0035, now branded as Relyvrio, a drug from Amylyx Pharmaceuticals, Inc. for the treatment of ALS. AMX0035 previously received a conditional approval by Health Canada in June 2022. In September 2022, Biohaven Pharmaceutical Holding Company Ltd. announced its drug candidate, verdiperstat, did not demonstrate efficacy for the treatment of ALS in the Healey ALS Platform Trial.

### Impact of the COVID-19 Pandemic

The COVID-19 pandemic, which began in December 2019 and has spread worldwide, has caused many governments to implement measures to slow the spread of the COVID-19 outbreak. The COVID-19 pandemic and government measures taken in response have had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred, supply chains have been disrupted, and facilities and production have been suspended. The future progression of the COVID-19 pandemic and its effects on our business and operations remain uncertain. The COVID-19 pandemic may affect our ability to initiate and complete preclinical studies and clinical trials, delay the initiation of future clinical trials, disrupt regulatory activities, or have other adverse effects on our business and operations. In particular, we and our third-party contract research organizations (“CROs”) have faced disruptions that have affected our ability to initiate and complete preclinical studies, caused manufacturing disruptions, and created delays at clinical trial site initiation and clinical trial enrollment, leading to the early conclusion of an ongoing clinical trial. The COVID-19 pandemic has already caused significant disruptions in the financial markets, and may continue to cause such disruptions, which could impact our ability to raise additional funds to support our operations. Moreover, the COVID-19 pandemic has significantly impacted economies worldwide and could result in adverse effects on our business and operations.

We are monitoring the potential impact of the COVID-19 pandemic on our business, financial condition, results of operations, and cash flows. While the COVID-19 pandemic has led to various research restrictions and led to pauses and early conclusion of certain of our clinical trials, these impacts have been temporary and to date we have not experienced material business disruptions or incurred impairment losses in the carrying values of our assets as a result of the COVID-19 pandemic. We are not aware of any specific related event or circumstance that would require us to revise the estimates reflected in our condensed consolidated financial statements. The extent to which the COVID-19 pandemic will directly or indirectly impact our business, financial condition, results of operations, and cash flows, including planned and future clinical trials and research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19, the actions taken to contain or treat it, and the duration and intensity of the related effects.

### Reverse Recapitalization with Tottenham and Clene Nanomedicine

On December 30, 2020 (the “Closing Date”), Chelsea Worldwide Inc., our predecessor, consummated a business combination (the “Reverse Recapitalization”) by and among Clene Nanomedicine, Inc. (“Clene Nanomedicine”), Tottenham Acquisition I Limited (“Tottenham”), Chelsea Worldwide Inc. (“PubCo”), a Delaware corporation and wholly-owned subsidiary of Tottenham, Creative Worldwide Inc. (“Merger Sub”), a Delaware corporation and wholly-owned subsidiary of PubCo, and Fortis Advisors LLC, a Delaware limited liability company as the representative of our stockholders. Prior to the Reverse Recapitalization, Tottenham was incorporated in the British Virgin Islands as a blank check company for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization, or other similar business combination with one or more businesses or entities. Prior to the Reverse Recapitalization, there was not a public market for the shares of Clene Nanomedicine common stock.

The Reverse Recapitalization was effected in two steps: (i) Tottenham was reincorporated to the state of Delaware by merging with and into PubCo; and (ii) Merger Sub was merged with and into Clene Nanomedicine, resulting in Clene Nanomedicine becoming a wholly-owned subsidiary of PubCo. On the Closing Date, PubCo changed its name from Chelsea Worldwide Inc. to Clene Inc. and listed its shares of common stock, par value $0.0001 per share (“Common Stock”) on the Nasdaq Capital Market (“Nasdaq”) under the symbol “CLNN.”

#### Earn-Out Shares

In connection with the Reverse Recapitalization, certain of Clene Nanomedicine’s common stockholders are entitled to receive earn-out payments (the “Clene Nanomedicine Contingent Earn-out”), and Tottenham’s former officers and directors and Norwich Investment Limited (collectively, the “Initial Stockholders”) are entitled to receive earn-out payments (the “Initial Stockholders Contingent Earn-out,” and both collectively the “Contingent Earn-outs”) based on achieving certain milestones. The Contingent Earn-outs have been classified as liabilities in the condensed consolidated balance sheets and were initially measured at fair value on the date of the Reverse Recapitalization and are subsequently remeasured to fair value at each reporting date. The change in fair value of the Contingent Earn-outs has been recorded in the condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2022 and 2021.

### Financial Overview

Our financial condition, results of operations, and the period-to-period comparability of our financial results are principally affected by the following factors:

### Research and Development Expense

The discovery and development of novel drug candidates require a significant investment of resources over a prolonged period of time, and a core part of our strategy is to continue making sustained investments in this area. As a result of this commitment, our pipeline of drug candidates has been advancing and expanding, with two clinical-stage drug candidates currently being investigated.

Historically, substantially all of our research and development expenses relate to CNM-Au8, our lead asset. Our research and development expenses are affected by the timing and advancement of our existing product pipeline as well as the timing and quantity of new drug programs commenced. Drug candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to per patient clinical trial site fees for larger clinical trials, the costs of opening and monitoring clinical sites, CRO activity, and manufacturing expenses. We anticipate that our research and development expenses will increase significantly due to the increase in clinical trial expenses incurred to develop our drug candidates.

Research and development costs are charged to operations as incurred. Research and development costs include payroll and personnel expenses, including salaries and related benefits and stock-based compensation expense for employees engaged in research and development functions; clinical trial supplies and materials to support our clinical trials; payments to CROs, principal investigators, and clinical trial sites; costs associated with preclinical activities; consulting costs; and allocated overhead, including rent, equipment, utilities, depreciation, insurance, and facilities maintenance costs. We account for nonrefundable advance payments for goods and services that will be used in future research and development activities initially as an asset and then as expenses when the goods have been received or when the service has been performed rather than when the payment is made.

Our clinical trial accrual process seeks to account for expenses resulting from obligations under contracts with CROs, consultants, and under clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts. We reflect the appropriate trial expenses in the condensed consolidated financial statements by matching the appropriate expenses with the period in which services and efforts are expended. In the event advance payments are made to a CRO, the payments will be recorded as a prepaid asset, which will be expensed over the period of time the contracted services are performed.

### General and Administrative Expense

General and administrative expenses consist primarily of payroll and personnel expenses, including salaries and related benefits and stock-based compensation expense; professional fees for legal, accounting, tax, and information technology services; fees for directors’ and officers’ insurance; expenses for business development activities and investor and public relations; utilities and facility expenses; travel expenses; rental fees; consulting fees; and other administrative expenses.

Our expectation for our general and administrative expenses in future periods is contingent on the outcome of our end of Phase 2 meeting with the FDA, which is expected in mid-2023 after we receive the biomarker data and efficacy parameters that is forthcoming from the Healey ALS Platform Trial, and our discussions with regulatory health authorities, ALS experts, and patient representatives to determine the proper path to support potential approval.

If we are able to file an NDA with the FDA based on our accumulation of clinical evidence, we would expect our general and administrative expenses to increase in future periods to support increases in our drug development activities and as we build out our commercial capabilities in advance of receiving regulatory approval. This potential increase will likely include increased headcount, increased stock compensation expenses, expanded infrastructure including certain sales and marketing activities performed ahead of regulatory approval, and increased insurance expenses.

If we are not able to file an NDA based on our accumulation of clinical evidence, we would need to continue investing in clinical research activities and we would expect our general and administrative expenses to decrease in future periods as we decrease commercial expansion projects, including at our Elkton, Maryland facility, and as we implement cost-saving initiatives, including potentially delaying or reducing launch plus commercialization efforts, reduction in executive compensation, a hiring freeze, and elimination of certain staff positions.

### Total Other Income (Expense), Net

Total other income (expense), net, consists primarily of (i) changes in the fair value of our (a) common stock warrant liability and (b) Contingent Earn-outs, (ii) interest income and interest expense, (iii) interest income and expense resulting from changes in fair value of our notes payable, (iv) gains and losses on extinguishment of notes payable, (v) gains and losses on termination of leases, and (vi) the Australia research and development credit.

We also received grants issued by non-government entities which require us to comply with conditions attached to the grants. Income from grants is recognized in the period during which the related qualifying expenses are incurred, provided that the conditions under which the grants were provided have been met. We receive tax incentives from the Australian government in the form of cash subsidies for research and development activities related to clinical trial activities conducted by our Australian subsidiary, which are recognized as other income upon compliance with certain conditions.

### Results of Operations

Our results of operations for the three and nine months ended September 30, 2022 and 2021 were as follows:

*(in thousands)*

|  | Three Months Ended September 30, 2022 | 2021 | Change Dollars% |  | Nine Months Ended September 30, 2022 | 2021 | Change Dollars% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Product revenue | $130 | $63 | $67 | 106% | $139 | $400 | $(261) | (65)% |
| Royalty revenue | 44 | 47 | (3) | (6)% | 100 | 124 | (24) | (19)% |
| Total revenue | 174 | 110 | 64 | 58% | 239 | 524 | (285) | (54)% |
| Operating expenses: |  |  |  |  |  |  |  |  |
| Cost of revenue | 19 | 14 | 5 | 36% | 19 | 812 | (793) | (98)% |
| Research and development | 6,403 | 6,146 | 257 | 4% | 24,149 | 18,893 | 5,256 | 28% |
| General and administrative | 3,557 | 4,400 | (843) | (19)% | 12,807 | 16,739 | (3,932) | (23)% |
| Total operating expenses | 9,979 | 10,560 | (581) | (6)% | 36,975 | 36,444 | 531 | 1% |
| Loss from operations | (9,805) | (10,450) | 645 | 6% | (36,736) | (35,920) | (816) | (2)% |
| Total other income (expense), net | (1,171) | 39,325 | (40,496) | (103)% | 7,872 | 21,544 | (13,672) | (63)% |
| Net income (loss) before income taxes | (10,976) | 28,875 | (39,851) | (138)% | (28,864) | (14,376) | (14,488) | (101)% |
| Income tax benefit | — | 69 | (69) | (100)% | — | 213 | (213) | (100)% |
| Net income (loss) | $(10,976) | $28,944 | $(39,920) | (138)% | $(28,864) | $(14,163) | $(14,701) | (104)% |

### Revenue

Product revenue totaled $0.1 million and $0.1 million for the three months ended September 30, 2022 and 2021, respectively; and $0.1 million and $0.4 million for the nine months ended September 30, 2022 and 2021, respectively, in our Supplements segment related to (i) sales of an aqueous zinc-silver ion dietary (mineral) supplement sold by our wholly-owned subsidiary, dOrbital, Inc., under the trade name “rMetx™ ZnAg Immune Boost,” or under a supply agreement with 4Life under the trade name “Zinc Factor,” and (ii) sales of KHC46, an aqueous gold dietary (mineral) supplement of very low-concentration, sold under a supply agreement with 4Life under the trade name “Gold Factor.” During the three and nine months ended September 30, 2022, changes in product revenue were due to the timing of purchases of Zinc Factor and Gold Factor by 4Life under the supply agreement.

Royalty revenue totaled $44,000 and $47,000 for the three months ended September 30, 2022 and 2021, respectively; and $0.1 million and $0.1 million for the nine months ended September 30, 2022 and 2021, respectively, under an exclusive and royalty-bearing license agreement with 4Life relating to the sale of Gold Factor. For more details on the supply and license agreements, see Note 17 to our condensed consolidated financial statements.

### Cost of Revenue

Cost of revenue totaled $19,000 and $14,000 for the three months ended September 30, 2022 and 2021, respectively; and $19,000 and $0.8 million for the nine months ended September 30, 2022 and 2021, respectively, relating to production and distribution costs for the sales of Gold Factor, Zinc Factor, and rMetx™ dietary supplements.

### Research and Development Expense

Research and development expense for the three and nine months ended September 30, 2022 and 2021 was as follows:

*(in thousands)*

|  | Three Months Ended September 30, 2022 | 2021 | Change Dollars% |  | Nine Months Ended September 30, 2022 | 2021 | Change Dollars% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| CNM-Au8 | $2,083 | $2,402 | $(319) | (13)% | $7,916 | $6,908 | $1,008 | 15% |
| CNM-ZnAg | 638 | 153 | 485 | 317% | 2,531 | 670 | 1,861 | 278% |
| Unallocated | 711 | 794 | (83) | (10)% | 3,894 | 2,081 | 1,813 | 87% |
| Personnel | 2,120 | 1,939 | 181 | 9% | 7,380 | 5,373 | 2,007 | 37% |
| Stock-based compensation | 851 | 858 | (7) | (1)% | 2,428 | 3,861 | (1,433) | (37)% |
| Total research and development | $6,403 | $6,146 | $257 | 4% | $24,149 | $18,893 | $5,256 | 28% |

The change in research and development expenses was primarily due to the following:

(i) a decrease in expenses related to our lead drug candidate, CNM-Au8, for the three months ended September 30, 2022, primarily due to a decrease in expenses in the REPAIR-PD, RESCUE-ALS, and VISIONARY-MS clinical trials due to completion of the blinded period of each trial, and a decrease in pre-clinical and non-clinical expenses;

(ii) an increase in expenses related to our lead drug candidate, CNM-Au8, for the nine months ended September 30, 2022 primarily due to the progression of the clinical development process, including the timing of calendar payments for our participation in the Healey ALS Platform Trial and an increase in expenses in the REPAIR-MS clinical trial due to initiation of a second dosing cohort, which was partially offset by a decrease in expenses in the REPAIR-PD, RESCUE-ALS, and VISIONARY-MS clinical trials due to completion of the blinded period of each trial, and a decrease in pre-clinical and non-clinical expenses;

(iii) an increase in expenses related to CNM-ZnAg, primarily due to the progression of the clinical development process, including full enrollment in the clinical trial for treatment of COVID-19;

(iv) an increase in unallocated expenses for the nine months ended September 30, 2022, primarily due to increased rent and utility expenses related to our newly-leased facility in Elkton, Maryland and our expanded facility in North East, Maryland; increased research, manufacturing, and materials expenses; and decreased grant revenue; partially offset by decreased depreciation expense;

(v) an increase in personnel expenses, primarily due to our increased headcount; and

(vi) a decrease in stock-based compensation expense, primarily due to a decrease in stock-based compensation expense from restricted stock awards, partially offset by an increase in stock-based compensation expense from stock options.

### General and Administrative Expense

General and administrative expense for the three and nine months ended September 30, 2022 and 2021 was as follows:

*(in thousands)*

|  | Three Months Ended September 30, 2022 | 2021 | Change Dollars% |  | Nine Months Ended September 30, 2022 | 2021 | Change Dollars% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Directors’ and officersʼ insurance | $849 | $929 | $(80) | (9)% | $2,547 | $2,832 | $(285) | (10)% |
| Legal | 87 | 389 | (302) | (78)% | 414 | 1,034 | (620) | (60)% |
| Finance and accounting | 217 | 227 | (10) | (4)% | 901 | 2,568 | (1,667) | (65)% |
| Public and investor relations | 124 | 264 | (140) | (53)% | 593 | 1,141 | (548) | (48)% |
| Personnel | 706 | 787 | (81) | (10)% | 3,147 | 2,416 | 731 | 30% |
| Stock-based compensation | 1,247 | 1,567 | (320) | (20)% | 4,056 | 6,084 | (2,028) | (33)% |
| Other | 327 | 237 | 90 | 38% | 1,149 | 664 | 485 | 73% |
| Total general and administrative | $3,557 | $4,400 | $(843) | (19)% | $12,807 | $16,739 | $(3,932) | (23)% |

The change in general and administrative expense was primarily due to the following:

(i) a decrease in directors’ and officers’ insurance fees;

(ii) a decrease in legal fees after completing the Reverse Recapitalization and subsequent registration statement filings with the SEC, decreased patent and trademark expenses, decreased fees related to financing and fundraising, and a decrease in other general corporate legal fees;

(iii) a decrease in finance and accounting fees after completing the Reverse Recapitalization and subsequent filings with the SEC, including decreased fees from consultants and other financial vendors; decreased fees for various institutions, investment bankers, advisors, and auditors; partially offset by an increase in tax fees;

(iv) a decrease in fees related to our public and investor relations efforts;

(v) an increase in personnel expenses for the nine months ended September 30, 2022, primarily due to our increased headcount in the first half of 2022;

(vi) a decrease in stock-based compensation expense, primarily due to a decrease in stock-based compensation expense from restricted stock awards, partially offset by an increase in stock-based compensation expense from stock options; and

(vii) an increase in other expenses, primarily due to an increase in expenses related to business development, travel, information technology, supplies and equipment, corporate and liability insurance, and depreciation; and increased rent and utility expenses related to our newly-leased facility in Elkton, Maryland and our expanded facility in North East, Maryland; partially offset by a decrease in office and professional expenses.

### Total Other Income (Expense), Net

Total other income (expense), net, for the three and nine months ended September 30, 2022 and 2021 was as follows:

*(in thousands)*

|  | Three Months Ended September 30, 2022 | 2021 | Change Dollars% |  | Nine Months Ended September 30, 2022 | 2021 | Change Dollars% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest expense | $(857) | $80 | $(937) | (1,171)% | $(2,390) | $(497) | $(1,893) | (381)% |
| Gain on extinguishment of notes payable | — | — | — | 0% | — | 647 | (647) | (100)% |
| Gain on termination of lease | — | — | — | 0% | 420 | — | 420 | 100% |
| Change in fair value of common stock warrant liability | 149 | 414 | (265) | (64)% | 151 | 547 | (396) | (72)% |
| Change in fair value of Clene Nanomedicine contingent earn-out liability | (1,591) | 35,042 | (36,633) | (105)% | 6,662 | 18,072 | (11,410) | (63)% |
| Change in fair value of Initial Stockholders contingent earn-out liability | (205) | 3,439 | (3,644) | (106)% | 849 | 1,710 | (861) | (50)% |
| Australia research and development credit | 1,346 | 364 | 982 | 270% | 2,001 | 1,078 | 923 | 86% |
| Other income (expense), net | (13) | (14) | 1 | 7% | 179 | (13) | 192 | 1,477% |
| Total other income (expense), net | $(1,171) | $39,325 | $(40,496) | (103)% | $7,872 | $21,544 | $(13,672) | (63)% |

The change in total other income (expense), net, was primarily due to the following:

(i) an increase in interest expense primarily due to increased interest expense and amortization of debt discount and debt issuance costs on notes payable, partially offset by a decrease in the carrying value of the 2019 MD Loan and 2019 Cecil Loan due to changes in the price of our Common Stock on Nasdaq;

(ii) gain on extinguishment of debt due to forgiveness of a Paycheck Protection Program loan (the “PPP Loan”) by the United States (“U.S.”) Small Business Administration during the nine months ended September 30, 2021;

(iii) gain on termination of lease due to the termination of an operating lease for office space for the nine months ended September 30, 2022;

(iv) a gain from a decrease in fair value of the Clene Nanomedicine Contingent Earn-out liability and Initial Stockholders Contingent Earn-out liability for the nine months ended September 30, 2022 and 2021 and the three months ended September 30, 2021; and a loss from an increase in the fair value of the liabilities for the three months ended September 30, 2022. The changes in fair value were due to changes in the price of our Common Stock on Nasdaq and updates in the valuation model assumptions (see “Critical Accounting Policies and Estimates”);

(v) income due to the Australia research and development credit. We recognized Australia research and development credit in an amount equal to the qualifying expenses incurred in each period multiplied by the applicable reimbursement percentage; and

(vi) other income (expense), net, primarily due to interest income on cash, cash equivalents, and marketable securities and realized gains and losses on foreign currency transactions.

### Taxation

### United States

We are incorporated in the state of Delaware and subject to statutory U.S. federal corporate income tax at a rate of 21% for the three and nine months ended September 30, 2022 and 2021. We are also subject to state income tax in Utah and Maryland, at a rate of 4.85% and 8.25%, respectively, for the three and nine months ended September 30, 2022 and 2021. As of September 30, 2022 and December 31, 2021, we recorded a full valuation allowance against our net deferred tax assets due to the uncertainty as to whether such assets will be realized resulting from our three-year cumulative loss position and the uncertainty surrounding our ability to generate pre-tax income in the foreseeable future.

### Australia

Our wholly-owned subsidiary, Clene Australia Pty Ltd (“Clene Australia”), was established in Australia on March 5, 2018 and is subject to corporate income tax at a rate of 25% for the three and nine months ended September 30, 2022 and 2021, respectively. Clene Australia income tax benefit totaled $0 and $0.1 million for the three months ended September 30, 2022 and 2021, respectively; and $0 and $0.2 million for the nine months ended September 30, 2022 and 2021, respectively. We recorded other income of $1.3 million and $0.4 million for the three months ended September 30, 2022 and 2021, respectively; and $2.0 million and $1.1 million for the nine months ended September 30, 2022 and 2021, respectively, for research and development credits pertaining to Clene Australia for the 2022 and 2021 tax years, respectively.

### Netherlands

Our wholly-owned subsidiary, Clene Netherlands B.V., was established in the Netherlands on April 21, 2021 and is subject to corporate income tax at a rate of 15% up to €395,000 of taxable income and 25.8% for taxable income in excess of €395,000. Clene Netherlands B.V. had no taxable income or provision for income taxes for the three and nine months ended September 30, 2022 and 2021.

### Liquidity and Capital Resources

### Sources of Capital

We have incurred significant losses and negative cash flows from operations since our inception. We expect to incur additional losses in the future to fund our operations and conduct product research and development. We recognize the need to raise additional capital to fully implement our business plan. The long-term continuation of our business plan is dependent upon the generation of sufficient revenues from our products to offset expenses and capital expenditures. In the event that we do not generate sufficient revenues and are unable to obtain funding, we will be forced to delay, reduce, or eliminate some or all of our research and development programs, product portfolio expansion, commercialization efforts, or capital expenditures, which could adversely affect our business prospects, ability to meet long-term liquidity needs, or we may be unable to continue operations.

Since our inception, we have dedicated substantially all of our resources to the development of our drug candidates. We have financed our operations principally through the following sources:

- gross proceeds of $130.2 million from equity financing, including sales of common stock, preferred stock, warrants to purchase common stock, and our ATM offering program;
- gross proceeds of $32.3 million from borrowings under convertible promissory notes;
- gross proceeds of $21.9 million from borrowings under notes payable;
- gross proceeds of $9.4 million from the Reverse Recapitalization;
- gross proceeds of $5.4 million from refundable research and development tax credits;
- gross proceeds of $2.3 million from grants from various organizations; and
- gross proceeds of $0.9 million from stock option exercises.

We also received indirect financial support for the Healey ALS Platform Trial, administered by Massachusetts General Hospital, which conducted a platform trial for the treatment of ALS with certain drug candidates, including CNM-Au8, at significantly lower costs than we would have otherwise incurred if we had conducted a comparably designed clinical trial at reasonable market rates.

### Going Concern

We incurred a loss from operations of $9.8 million and $10.5 million for the three months ended September 30, 2022 and 2021, respectively; and $36.7 million and $35.9 million for the nine months ended September 30, 2022 and 2021, respectively. Our accumulated deficit was $192.2 million and $163.3 million as of September 30, 2022 and December 31, 2021, respectively. Our cash, cash equivalents, and marketable securities totaled $16.2 million and $50.3 million as of September 30, 2022 and December 31, 2021, respectively, and net cash used in operating activities was $31.3 million and $25.0 million for the nine months ended September 30, 2022 and 2021, respectively.

We have incurred significant losses and negative cash flows from operations since our inception. We have not generated significant revenues since our inception, and we do not anticipate generating significant revenues unless we successfully complete development and obtain regulatory approval for commercialization of a drug candidate. We expect to incur additional losses in the future, particularly as we advance the development of our clinical-stage drug candidates, continue research and development of our preclinical drug candidates, and initiate additional clinical trials of, and seek regulatory approval for, these and other future drug candidates.

Our management performs strategic reviews of our operating plans and budgets, considering the status of our product development programs, human capital, capital needs and resources, and current capital market conditions. Based on these reviews, our Board of Directors and management make adjustments to our operating plans and budgets to allocate our projected cash expenditures. Notwithstanding these ongoing adjustments, we project that within the next twelve months, we will not have sufficient cash and other resources on hand to sustain our current operations or meet our obligations as they become due, and we must obtain additional financing. Additionally, pursuant to our term loan with Avenue Venture Opportunities Fund, L.P. (“Avenue”), we must maintain unrestricted cash and cash equivalents of at least $5.0 million to avoid acceleration of the full balance of the loan. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

To mitigate our funding needs, we intend to implement plans to raise additional funding, including exploring equity financing and offerings, debt financing, licensing or collaboration arrangements with third parties, as well as potentially utilizing additional funds available under our term loan with Avenue, subject to certain contingent conditions (see Note 9), as well as our existing at-the-market facility. These plans are subject to market conditions and reliance on third parties, and there is no assurance that effective implementation of our plans will result in the necessary funding to continue current operations. In October 2022, we announced an equity offering which provided net cash proceeds of $10.8 million. We are also in the process of implementing cost-saving initiatives, including potentially delaying or reducing research and development programs and commercialization efforts, reduction in executive compensation, a hiring freeze, and elimination of certain staff positions. We have concluded that our plans do not alleviate the substantial doubt about our ability to continue as a going concern beyond one year from the date the condensed consolidated financial statements are issued.

The accompanying condensed consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As a result, the accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amounts, or the amounts and classification of liabilities that may result should we be unable to continue as a going concern.

### Short-Term Material Cash Requirements

For at least the next twelve months, our primary capital requirements are to fund our operations, including research and development, personnel, regulatory, and other clinical trial costs related to development of our lead drug candidate, CNM-Au8; and general and administrative costs to support our drug development and pre-commercial activities in advance of receiving regulatory approval for our drug candidates.

Firm commitments for funds include approximately $0.1 million and $1.0 million of payments under finance and operating lease obligations, respectively; payment of principal and interest on notes payable totaling $5.9 million; and commitments under various agreements for capital expenditures totaling $1.7 million related to the construction of our manufacturing facilities. We expect to meet our short-term liquidity requirements primarily through cash on hand. Additional sources of funds include equity financing, debt financing, or other capital sources.

We enter into agreements in the normal course of business with CROs for clinical trials and with vendors for preclinical studies and other services and products for operating purposes, which are cancelable at any time by us, subject to payment of our remaining obligations under binding purchase orders and, in certain cases, nominal early termination fees. These commitments are not deemed significant.

### Long-Term Material Cash Requirements

Beyond the next twelve months, our primary capital requirements are to fund our operations, including research and development, personnel, regulatory, and other clinical trial costs related to development of our lead drug candidate, CNM-Au8; and general and administrative costs to support our drug development activities in advance of receiving regulatory approval for our drug candidates. Additional funds may be spent to initiate new clinical trials, at our discretion. Known obligations beyond the next twelve months include $0.1 million and $7.8 million of payments under finance and operating lease obligations, respectively; and interest and principal repayment of notes payable of $20.3 million. We expect to meet our long-term liquidity requirements primarily through equity financing, debt financing, or other capital sources.

### Use of Funds

Our cash flows for the nine months ended September 30, 2022 and 2021 were as follows:

*(in thousands)*

|  | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(31,295) | $(25,018) |
| Net cash used in investing activities | (12,446) | (661) |
| Net cash provided by financing activities | 875 | 27,130 |
| Effect of foreign exchange rate changes on cash | (155) | (116) |
| Net increase (decrease) in cash | $(43,021) | $1,335 |

Our primary use of cash in all periods presented was to fund our research and development, regulatory and other clinical trial costs, and general corporate expenditures.

#### Operating Activities

Net cash used in operating activities was $31.3 million for the nine months ended September 30, 2022, which resulted from a net loss of $28.9 million, adjusted for non-cash items totaling $0.1 million and a net change in operating assets and liabilities of $2.6 million. Significant non-cash items included (i) depreciation expense of $0.7 million relating to laboratory and office equipment and leasehold improvements; (ii) non-cash lease expense of $0.3 million; (iii) stock-based compensation expense of $6.5 million; (iv) gain on termination of lease of $0.4 million; (v) accretion of debt discount of $0.7 million; (vi) non-cash interest expense of $0.1 million; and (vii) the changes in fair value of the Clene Nanomedicine and Initial Stockholders Contingent Earn-outs of $6.7 million and $0.8 million, respectively, and the change in fair value of common stock warrant liability of $0.2 million. The changes in fair value of these instruments were primarily driven by the decrease of the closing price of our Common Stock on Nasdaq. The net change in operating assets and liabilities was primarily attributable to the following: (a) an increase in accounts receivable of $0.1 million and an increase in accounts payable of $0.2 million due to the timing of vendor invoicing and payments; (b) an increase in prepaid expenses and other current assets of $0.9 million due to the timing of vendor invoicing and payments, the timing of receipt of metals to be used in research and development, and an increase in Australia research and development credit receivable; (c) a decrease in accrued liabilities of $1.5 million primarily due to decreased accrued compensation and benefits; and (d) a decrease in operating lease obligations of $0.4 million.

Net cash used in operating activities was $25.0 million for the nine months ended September 30, 2021, which resulted from a net loss of $14.2 million, adjusted for non-cash items totaling $10.4 million and a net change in operating assets and liabilities of $0.5 million. Non-cash items primarily consisted of the following: (i) depreciation expense of $0.7 million, (ii) stock-based compensation expense of $9.9 million, (iii) change in fair value of Clene Nanomedicine Contingent Earn-out of $18.1 million, (iv) change in fair value of Initial Stockholders Contingent Earn-out of $1.7 million, (iv) gain on extinguishment of debt of $0.6 million and increase in interest accrued on notes payable and accretion of debt discount of $0.1 million. The net change in operating assets and liabilities was primarily attributable to the following: (a) a decrease in inventory of $0.2 million, (b) an increase in accounts receivable of $48,000, (c) an increase in prepaid expenses and other current assets of $1.2 million due to the increase in Australia research and development credit receivable, metal to be used in research and development, and directors and officers insurance; partially offset by a decrease in CRO prepayments, (d) an increase in accounts payable of $0.4 million, (e) a decrease in operating lease obligations of $0.1 million, (f) an increase in accrued liabilities of $0.5 million due to the timing of vendor invoicing and payments, and (g) a decrease in deferred income tax of $0.2 million.

#### Investing Activities

Net cash used in investing activities was $12.4 million for the nine months ended September 30, 2022, which consisted of (i) purchases of marketable securities of $24.6 million and (ii) purchases of property and equipment of $3.5 million, offset primarily by (iii) proceeds from maturity of marketable securities of $8.0 million and (iv) proceeds from sale of marketable securities of $7.6 million. Net cash used in investing activities was $0.7 million for the nine months ended September 30, 2021, which consisted of purchases of property and equipment.

#### Financing Activities

Net cash provided by financing activities was $0.9 million for the nine months ended September 30, 2022, which primarily consisted of (i) proceeds from exercise of stock options of $0.3 million, (ii) at-the-market offering proceeds of $0.1 million net of $4,000 placement agent commissions, and (iii) proceeds from the issuance of notes payable of $0.7 million, offset primarily by (iv) payments of finance lease obligations of $0.1 million, (v) payment of debt issuance costs of $30,000, and (vi) payment of deferred offering costs of $0.1 million. Net cash provided by financing activities was $27.1 million for the nine months ended September 30, 2021, which primarily consisted of (i) proceeds from exercise of stock options of $0.4 million, (ii) proceeds from the issuance of notes payable of $20.0 million offset by payments of debt issuance costs of $0.5 million, and (iii) proceeds from the May 2021 private placement of common stock of $9.3 million, offset primarily by (iv) payments of finance lease obligations of $0.1 million and (v) payments of deferred offering costs of $1.9 million.

#### Maryland DHCD Loans

In February 2019, we entered into a loan agreement (the “2019 MD Loan”) with the Department of Housing and Community Development (“DHCD”), a principal department of the State of Maryland. The agreement provides for a term loan of $0.5 million bearing simple interest at an annual rate of 8.00%. We are subject to affirmative and negative covenants until maturity, including providing information about the Company and our operations; limitations on our ability to retire, repurchase, or redeem our common or preferred stock, options, and warrants other than per the terms of the securities; and limitations on our ability to pay dividends of cash or property. There are no financial covenants associated with the 2019 MD Loan. We are not in violation of any covenants. The 2019 MD Loan established “Phantom Shares” at issuance based on 119,907 shares of Common Stock. Repayment of the full balance is due on February 22, 2034, with the repayment amount and carrying value equal to the greater of the balance of principal plus accrued interest or the value of the Phantom Shares. The value of the Phantom Shares is based on the closing price of our Common Stock on Nasdaq at the end of each reporting period. As of September 30, 2022 and December 31, 2021, the note was recorded at principal plus accrued interest in the condensed consolidated balance sheets.

In May 2022, we entered into a loan agreement (the “2022 MD Loan”) with DHCD which provides for a term loan of up to $3.0 million bearing simple interest at an annual rate of 6.00% for the purchase of certain personal property (the “Assets”) related to the production of pharmaceutical drugs. As of September 30, 2022, we had drawn $0.7 million under the term loan, with the remainder available upon our submission of disbursement requests to purchase the Assets. The 2022 MD Loan matures on July 1, 2027 (the “Maturity Date”). The first twelve payments, commencing on July 1, 2022, are deferred. Immediately thereafter, there shall be eighteen monthly installments of interest-only based on the actual amount advanced under the loan, each up to a maximum amount of $15,000; followed by thirty monthly installments of principal and interest, each in the amount of $33,306, which is due and payable even if the entire loan has not been advanced prior to the date such monthly payment is due and payable, with a balloon payment of all accrued and unpaid interest and principal due on the Maturity Date. We recorded $31,000 of debt issuance costs that are being amortized over the contractual term using the effective interest method. Pursuant to the 2022 MD Loan, DHCD was granted a continuing security interest in the Assets as collateral. Under a priority of liens agreement by and between DHCD and Avenue Venture Opportunities Fund, L.P. (“Avenue”), an existing secured creditor of the Company, DHCD’s continuing security interest in the Assets shall be a first priority lien.

#### Advance Cecil Inc. Loan

In April 2019, we entered into a loan agreement (the “2019 Cecil Loan”) with Advance Cecil Inc., a non-stock corporation formed under the laws of the state of Maryland. The agreement provides for a term loan of $0.1 million bearing simple interest at an annual rate of 8.00%. We are subject to affirmative covenants until maturity, including providing information about the Company and our operations. There are no financial covenants associated with the 2019 Cecil Loan. We are not in violation of any covenants. The 2019 Cecil Loan established “Phantom Shares” at issuance based on 23,981 shares of Common Stock. Repayment of the full balance is due on April 30, 2034, with the repayment amount and carrying value equal to the greater of the balance of principal plus accrued interest or the value of the Phantom Shares. The value of the Phantom Shares is based on the closing price of our Common Stock on Nasdaq at the end of each reporting period. As of September 30, 2022 and December 31, 2021, the note was recorded at principal plus accrued interest in the condensed consolidated balance sheets.

#### Avenue Loan

In May 2021, we entered into a loan agreement (the “2021 Avenue Loan”) with Avenue. The agreement provides for a 42-month term loan of up to $30.0 million. The first tranche is $20.0 million (“Tranche 1”), of which $15.0 million was funded at close and $5.0 million was funded in September 2021. We incurred issuance costs of $0.6 million of which $46,951 was expensed immediately. The remaining unfunded tranche of $10.0 million (“Tranche 2”) is available until December 31, 2022. Funding of Tranche 2 is subject to (a) our receipt of $5.0 million financing through the state of Maryland; (b) our achievement of a statistically significant result in certain clinical trials (“Performance Milestone 1”); (c) our receipt of net proceeds of at least $30.0 million from the sale and issuance of our equity securities between May 2, 2021 and December 31, 2022; and (d) mutual agreement of us and Avenue. The 2021 Avenue Loan bears interest at a variable rate equal to the sum of (i) the greater of (a) the prime rate or (b) 3.25%, plus (ii) 6.60%. As of September 30, 2022 and December 31, 2021, the interest rate was 12.85% and 9.85%, respectively. Payments are interest-only for the first 12 months and have been extended an additional 12 months (the “First Interest-only Period Extension”) based on our achievement of Performance Milestone 1. Payments may be extended up to 36 months if we (i) achieve the First Interest-only Period Extension and (b) draw from Tranche 2. The loan principal will amortize equally from the end of the interest period to the expiration of the 42-month term on December 1, 2024. On the maturity date, an additional payment equal to 4.25% of the funded loans, currently equal to $0.9 million (the “Final Payment”), is due in addition to the remaining unpaid principal and accrued interest. The Final Payment was recorded as a debt premium and is being amortized over the contractual term using the effective interest method. The Final Payment is related to the loan host and is not bifurcated pursuant to Accounting Standards Codification (“ASC”) 815, *Derivatives and Hedging (“*ASC 815”). We are subject to affirmative and negative covenants until maturity in the absence of prepayments, including providing information about the Company and our operations; limitation on our ability to retire, repurchase, or redeem our Common Stock, options, and warrants other than per the terms of the securities; and limitations on our ability to pay dividends of cash or property. Also pursuant to the 2021 Avenue Loan, we are required to maintain unrestricted cash and cash equivalents of at least $5.0 million, provided that upon our (i) achievement of Performance Milestone 1, and (ii) receiving of net proceeds of at least $30.0 million from the sale and issuance of our equity securities, we shall no longer be subject to financial covenants. We are not in violation of any covenants. Avenue also has the ability to make all obligations under the 2021 Avenue Loan immediately due and payable upon occurrence of certain events of default or material adverse effects, as outlined in the loan agreement. The 2021 Avenue Loan is collateralized by substantially all of our assets other than intellectual property, including our capital stock and the capital stock of our subsidiaries, in which Avenue is granted a continuing security interest.

Pursuant to the agreement, we granted Avenue a warrant to purchase 115,851 shares of Common Stock (the “Avenue Warrant”) at an exercise price of $8.63 per share. Upon the funding of Tranche 2, the Avenue Warrant shall be adjusted to include an additional estimated 184,133 shares of Common Stock, which is equal to 5% of the principal amount of Tranche 2, divided by the five (5)-day VWAP per share as of the end of trading on the last trading day before the issuance of Tranche 2. We accounted for the Tranche 2 contingently-issuable warrant at inception of the 2021 Avenue Loan in accordance with ASC 815 and the fair value and issuable shares are remeasured at each reporting period.

Avenue has the right, in its discretion, but not the obligation, at any time between May 21, 2022 through May 21, 2024, while the loan is outstanding, to convert up to $5.0 million of principal into Common Stock (the “Conversion Feature”) at a price per share equal to 120% of the Avenue Warrant exercise price. The Conversion Feature is subject to certain minimum price and volume conditions of our Common Stock on Nasdaq. The Conversion Feature did not meet the requirements for separate accounting and is not accounted for as a derivative instrument. The number of shares of Common Stock contingently issuable upon conversion is 482,703 shares. We classified $5.0 million of the 2021 Avenue Loan as convertible notes payable as of September 30, 2022 and December 31, 2021, with unamortized debt discount and issuance costs of $0.2 million and $0.4 million, respectively.

#### At-the-Market Facility

On April 14, 2022, we entered into an Equity Distribution Agreement (the “ATM Facility”) with Canaccord Genuity LLC and Oppenheimer & Co. Inc., as placement agents (the “Placement Agents”). In accordance with the terms of the ATM Facility, we may offer and sell shares of Common Stock having an aggregate offering price of up to $50.0 million from time to time through the Placement Agents. The issuance and sale of Common Stock, if any, by us under the ATM Facility will be made pursuant to our registration statement on Form S-3 (file number 333-264299), which was declared effective by the Securities and Exchange Commission on April 26, 2022 , and our prospectus supplement relating to the offering.

Subject to terms of the ATM Facility, the Placement Agents are not required to sell any specific number or dollar amount of Common Stock but will act as our placement agents, using commercially reasonable efforts to sell, on our behalf, all of the Common Stock requested by us to be sold, consistent with the Placement Agents’ normal trading and sales practices, on terms mutually agreed between the Placement Agents and us. The Placement Agents will be entitled to compensation under the terms of the ATM Facility at a fixed commission rate of 3.0% of the gross proceeds from each issuance and sale of Common Stock, if any.

During the three and nine months ended September 30, 2022, we sold 40,000 shares of Common Stock under the ATM Facility and generated gross proceeds of $0.1 million. Commissions paid to the Placement Agents were insignificant.

### Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles. The preparation of these condensed consolidated financial statements requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, revenues, costs, and expenses. We evaluate our estimates and judgments on an ongoing basis, and our actual results may differ from these estimates. We base our estimates on historical experience, known trends and events, contractual milestones, and other various factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

We consider the following estimates to be critical as they involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations. See Note 2 to our condensed consolidated financial statements for a description of other significant accounting policies.

### Contingent Earn-Out Liabilities

In connection with the Reverse Recapitalization, certain stockholders are entitled to the Contingent Earn-outs payments based on achievement of certain milestones. In accordance with ASC 815, we classified the Contingent Earn-outs as liabilities and measured them at fair value on the date of the Reverse Recapitalization. We remeasure the liabilities at each reporting date and record the change in fair value as a component of other income (expense), net, in the condensed consolidated statements of operations and comprehensive income (loss). We estimate the fair value using a Monte Carlo valuation model, which requires significant judgment. The unobservable inputs include the expected stock price volatility, the risk-free interest rate, and the expected term.

As of September 30, 2022 and December 31, 2021, the unobservable inputs were as follows:

|  | September 30, 2022 | December 31, 2021 |
| --- | ---: | ---: |
| Expected stock price volatility | 115.00% | 105.00% |
| Risk-free interest rate | 4.20% | 1.10% |
| Expected dividend yield | 0.00% | 0.00% |
| Expected term | 3.25 years | 4.00 years |

The change in fair value of the Clene Nanomedicine Contingent Earn-out resulted in a loss of $1.6 million and gain of $35.0 million for the three months ended September 30, 2022 and 2021, respectively; and gains of $6.7 million and $18.1 million for the nine months ended September 30, 2022 and 2021, respectively. The change in fair value of the Initial Stockholders Contingent Earn-out resulted in a loss of $0.2 million and gain of $3.4 million for the three months ended September 30, 2022 and 2021, respectively; and gains of $0.8 million and $1.7 million for the nine months ended September 30, 2022 and 2021, respectively.

### Convertible Notes

Pursuant to the 2021 Avenue Loan, $5.0 million of the outstanding principal is subject to the Conversion Feature. In accordance with Accounting Standards Update (“ASU”) 2020-06, *Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity*, we classified this portion as convertible notes payable in the condensed consolidated balance sheets and did not bifurcate the Conversion Feature from the host contract. Consequently, we account for the convertible note as a single liability measured at its amortized cost. As of September 30, 2022 and December 31, 2021, the convertible note was carried at $4.8 million and $4.6 million, respectively.

### Common Stock Warrant Liability

Pursuant to the 2021 Avenue Loan, we issued the Avenue Warrant. In accordance with ASC 815, we recognized both the issued Tranche 1 warrant and the Tranche 2 warrant issuable pursuant to the potential draw of Tranche 2 as liabilities measured at fair value. As we did not complete a bona fide round of equity financing by March 31, 2022, the exercise price and underlying shares of the Tranche 1 warrant became fixed and therefore qualified for equity classification. We remeasured the Tranche 1 warrant liability to fair value as of March 31, 2022 and recognized the change in fair value in the condensed consolidated statements of operations and comprehensive income (loss) and the Tranche 1 warrant liability was reclassified to additional paid-in-capital. We remeasure the Tranche 2 warrant liability at each reporting date and record the change in fair value as a component of other income (expense), net, in the condensed consolidated statements of operations and comprehensive income (loss).

We estimate the fair value using a Black-Scholes option-pricing model, with a probability weight related to the potential draw of Tranche 2, which requires significant judgment. The unobservable inputs include the expected stock price volatility, risk-free interest rate, expected term, and the probability of drawing Tranche 2. As of September 30, 2022 and December 31, 2021, the unobservable inputs were as follows:

|  | September 30, 2022 | December 31, 2021 |
| --- | ---: | ---: |
| Expected stock price volatility | 115.00% | 105.00% |
| Risk-free interest rate | 4.20% | 1.20% |
| Expected dividend yield | 0.00% | 0.00% |
| Expected term | 3.47 years | 3.89 – 4.39 years |
| Probability of drawing Tranche 2 | 5.00% | 50.00% |

39

We recorded a change in fair value of the common stock warrant liability of $0.1 million and $0.4 million for the three months ended September 30, 2022 and 2021, respectively; and $0.2 million and $0.5 million for the nine months ended September 30, 2022 and 2021, respectively.

### Income Taxes

We account for uncertainty in income taxes by applying a two-step process to determine the amount of tax benefit to be recognized in the condensed consolidated financial statements. First, the tax position is evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. Additionally, we assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies. The estimation of these factors requires significant judgment. Based on our evaluation of these factors, we have not recorded income tax benefits for the net operating losses or for research and development tax credits or other deferred tax assets due to uncertainty of realizing benefits from these items.

### Stock-Based Compensation

We account for stock-based compensation arrangements using a fair value-based method for costs related to all share-based payments including stock options and stock awards. The fair value is recognized over the period during which a grantee was required to provide services in exchange for the option award and service-based stock awards, known as the requisite service period (usually the vesting period), on a straight-line basis. For stock awards with market conditions, the fair value is recognized over the period based on the expected milestone achievement dates as the derived service period (usually the vesting period), on a straight-line basis. For stock awards with performance conditions, the grant-date fair value of these awards is the market price on the applicable grant date, and compensation expense will be recognized when the conditions become probable of being satisfied. We will recognize a cumulative true-up adjustment once the conditions become probable of being satisfied as the related service period had been completed in a prior period. We elect to account for forfeitures as they occur, rather than estimating expected forfeitures.

We estimate the fair value of stock options using a Black-Scholes option-pricing model, which requires significant judgment. The unobservable inputs include the expected price volatility, risk-free interest rate, expected dividend yield, and expected term. For the nine months ended September 30, 2022 and 2021, the unobservable inputs were as follows:

| Expected stock price volatility Risk-free interest rate | Nine Months Ended September 30, 2022 89.57% – 98.13% 1.65% – 3.00% | 2021 84.80% – 87.40% 0.59% – 0.94% |
| --- | ---: | ---: |
| Expected dividend yield | 0.00% | 0.00% |
| Expected term of options | 5.00 – 6.98 years | 6.00 years |

We estimate the fair value of restricted stock awards using a Monte Carlo valuation model to simulate the achievement of certain stock price milestones. The unobservable inputs include the expected stock price volatility, risk-free interest rate, and expected term. No restricted stock awards were granted during the nine months ended September 30, 2022 and 2021.

## Controls and procedures

As filed, 7,103 characters.

### Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2022, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”). As a result of this evaluation, our principal executive officer and principal financial officer have concluded that, as of September 30, 2022, our disclosure controls and procedures were not effective due to the material weaknesses in internal control over financial reporting described below. Notwithstanding the identified material weaknesses, management, including our principal executive officer and principal financial officer, believes the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly represent, in all material respects, our financial condition, results of operations and cash flows as of and for the periods presented in accordance with United States Generally Accepted Accounting Principles.

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission (the “SEC”) rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

### Material Weaknesses in Internal Control over Financial Reporting

In connection with the audit of our financial statements as of and for the years ended December 31, 2021 and 2020, our management identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses identified relate to the fact that we did not design or maintain an effective control environment commensurate with our financial reporting requirements. This deficiency in our control environment contributed to the following additional material weaknesses related to control activities and information and communication within our internal control over financial reporting:

- we did not design and maintain controls over the preparation and review of reconciliations and the review and segregation of duties over manual journal entries, including controls over the completeness and accuracy of information; and
- we did not design and maintain information technology (“IT”) general controls for IT systems that are relevant to the preparation of the financial statements. Specifically, we did not design and maintain: (a) user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to financial applications, programs, and data to our appropriate personnel; (b) program change management controls to ensure that IT program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized, and implemented appropriately; (c) computer operations controls to ensure that data backups are authorized and monitored; and (d) testing and approval controls for program development to ensure that new software development is aligned with business and IT requirements.

Each of the control deficiencies described above could result in a misstatement of one or more account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, our management has determined that each of the control deficiencies described above constitute material weaknesses.

### Material Weakness Remediation

Management continues to be actively engaged and committed to taking the steps necessary to remediate the control deficiencies that constituted the above material weakness. During 2021, we made the following enhancements to our control environment:

- we have strengthened the experience of our internal accounting team, to provide oversight, structure and reporting lines, and to provide additional review over our disclosures, including hiring a new Vice President, Finance and Controller;
- we have engaged external consultants to assist with the evaluation of complex accounting and financial reporting related areas and to assist with the documentation around accounting and financial reporting policies and procedures;
- we engaged external consultants to assist in the design, implementation, and documentation of internal controls that address the relevant risks and provide for appropriate evidence of performance of the internal control; and
- we implemented a new Enterprise Resource Planning (“ERP”) system that will significantly enhance the information technology general controls environment.

Our remediation activities are continuing during 2022. In addition to the above actions, we expect to engage in additional activities, or have completed additional activities, including, but not limited to:

- adding more technical accounting resources to enhance our control environment;
- until we have sufficient technical accounting resources, engaging external consultants to provide support and to assist us in our evaluation of more complex applications of GAAP, and to assist us with documenting and assessing our accounting policies and procedures; and
- implemented a new ERP to enhance the accuracy of our financial records, enable the enforcement of systematic segregation of duties, and improve our information technology general controls environment.

We continue to enhance corporate oversight over process-level controls and structures to ensure that there is appropriate assignment of authority, responsibility, and accountability to enable remediation of our material weaknesses. We believe that our remediation plan will be sufficient to remediate the identified material weakness and strengthen our internal control over financial reporting. As we continue to evaluate, and work to improve, our internal control over financial reporting, management may determine that additional measures to address control deficiencies or modifications to the remediation plan are necessary.

### Changes in Internal Control over Financial Reporting

Other than changes described under “—*Material Weakness Remediation,”* there were no changes in our internal control over financial reporting during the quarter ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 812 characters.

Our business, financial condition, and results of operations can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in Part I, Item 1A, Risk Factors of our 2021 Annual Report on Form 10-K which was filed with the SEC on March 11, 2022. There have been no material changes to the risk factors since previously disclosed in the 2021 Annual Report on Form 10-K. Any one or more of these factors could, directly or indirectly, cause our actual financial condition and results of operations to vary materially from past, or from anticipated future, financial condition and results of operations. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, results of operations, and stock price.

Filed Nov 7, 2022.
Source: SEC EDGAR, the filing index for accession 0000950170-22-022333. Last ingested by Listed: Oct 24, 2026, 15:15 ET. No prices; not investment advice.