SAB Biotherapeutics, Inc.: Form 10-Q for the period ended Sep 30, 2023

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

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Quarterly Report” or “Form 10-Q”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Exchange Act of 1934, as amended (the "Exchange Act"), as amended, that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements involved known and unknown risks, relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. In addition, historic results, including but not limited to those related to IND enabling GLP safety/toxicology of SAB-142; discovery data of SAB-195; Phase 1 & Phase 2a results of SAB-176; and Phase 1, 1b, 2, and 3 results for SAB-185 do not guarantee that future research or trials will suggest the same conclusions, nor that historic results referred to herein will be interpreted in the same manner due to future preclinical and clinical trial results or otherwise. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the sections entitled “Risk Factors” in this Quarterly Report, our most recent Annual Report on Form 10-K, subsequent Quarterly Reports on Form 10-Q, and other periodic reports filed with the Securities and Exchange Commission (the “SEC”) and available at https://www.sec.gov/. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except as expressly required by applicable law, we disclaim any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements.

Overview

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

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

We formed SAB Australia, in order to qualify for the Australian government’s research and development tax credit for research and development dollars spend in Australia. The primary purpose of SAB Australia is to conduct clinical trials for SAB-142. We expect to commence a Phase 1 trial in the fourth quarter of 2023.

We generated total revenue of $1.3 million and $3.6 million for the three months ended September 30, 2023 and 2022, respectively, and $1.9 million and $21.7 million for the nine months ended September 30, 2023 and 2022, respectively. Our revenue to date has been primarily derived from government grants.

We plan to focus a substantial portion of our resources on continued research and development efforts towards deepening our technology and expertise with our platform and as well as indications in infectious disease and autoimmune indications. As a result, we expect to continue to make significant investments in these areas for the foreseeable future. We incurred research and development expenses of $4.0 million and $7.4 million, respectively, for the three months ended September 30, 2023 and 2022, and $12.2 million and $29.3 million, respectively, for the nine months ended September 30, 2023 and 2022. We incurred general and administrative expenses of $2.6 million and $4.0 million for the three months ended September 30, 2023 and 2022, respectively, and $8.9 million and $13.5 million for the nine months ended September 30, 2023 and 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 expand our DiversitAb platform;
• develop new and advance preclinical and clinical progress of pipeline programs;
• market to and secure partners to commercialize our products;
• expand and enhance operations to deliver products, including investments in manufacturing;
• acquire businesses or technologies to support the growth of our business;
• continue to establish, protect and defend our intellectual property and patent portfolio;
• operate as a public company.

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

We generated a net loss of $5.1 million and $7.1 million, respectively, for the three months ended September 30, 2023 and 2022, and a net loss of $19.3 million and $10.9 million for the nine months ended September 30, 2023 and 2022. As of September 30, 2023, we had an accumulated deficit of $67.2 million with cash and cash equivalents totaling $2.4 million.

Recent Developments

September 2023 Private Placement

On September 29, 2023, we entered into the September 2023 Purchase Agreement with certain accredited investors, pursuant to which we agreed to issue and sell, in the “September 2023 Offering, (i) 7,500 shares of Series A-1 Preferred Stock, for an aggregate offering price of $7.5 million, (ii) Preferred Tranche A Warrants to acquire shares of Series A-1 Preferred Stock or Series A-3 Preferred Stock, for an aggregate exercise price of $70.5 million, (iii) Preferred Tranche B Warrants to acquire shares of Series A-3 Preferred Stock, for an aggregate exercise price of $52.0 million, and (iv) Preferred Tranche C Warrants to purchase Series A-3 Preferred Stock, for an aggregate exercise price of $130.0 million.

On October 3, 2023, we closed on the issuance of the 7,500 shares of Series A-1 Preferred Stock. In connection with the issuance of the 7,500 shares of Series A-1 Preferred Stock, gross proceeds as of September 30, 2023 were $7.5 million, before deducting fees to be paid to the placement agent and our financial advisors and other offering expenses payable by us. We intend to use the net proceeds from the September 2023 Offering for working capital purposes and other general corporate purposes and to advance its SAB-142-101 clinical trial.

Pursuant to the Certificate of Designation, each share of Series A-1 Preferred Stock, subject to the Stockholder Approval, converts automatically into our shares of common stock, par value $0.0001 per share, and/or, if applicable, our shares of Series A-2 Preferred Stock, par value $0.0001 per share, in lieu of common stock.

Subject to the terms and limitations contained in the Certificate of Designation:

• The Series A-1 Preferred Stock issued in the September 2023 Offering will not become convertible until our stockholders approve (i) the issuance of all common stock issuable upon conversion of the Issued Preferred Stock and the Preferred Warrant Shares, (ii) the issuance of the Preferred Warrant Shares upon exercise of the Preferred Warrants and (iii) an amendment to our Certificate of Incorporation to increase the number of authorized shares of common stock from 490,000,000 to 800,000,000.
• On the first trading day following the announcement of the Stockholder Approval, each share of Series A-1 Preferred Stock will automatically convert into common stock, at the conversion price of $0.63 per share, provided that to the extent such conversion would cause a holder of Series A-1 Preferred Stock to exceed the applicable beneficial ownership limitation, such holder will receive shares of Series A-2 Preferred Stock in lieu of common stock.
• At the option of the holder, each share of Series A-2 Preferred Stock and Series A-3 Preferred Stock will be convertible into common stock, at the Conversion Price.

The Preferred Tranche A Warrants are exercisable commencing on the Issuance Date (as defined in the Form of Preferred Tranche A Warrant) until the earlier of (i) fifteen (15) trading days following the date of public announcement of the fulsome data set from the Sanofi S.A. Protect trial and (ii) December 15, 2023. If any purchaser in the September 2023 Offering fails to exercise their Preferred Tranche A Warrant in full prior to its expiration date, such purchaser will forfeit all Preferred Tranche A Warrants, Preferred Tranche B Warrants and Preferred Tranche C Warrants issued to such purchaser.

The Preferred Tranche B Warrants are exercisable commencing on the Exercisability Date (as defined in the Form of Preferred Tranche B Warrant) until the later of (i) 15 days following our announcement of data from its SAB-142-101 clinical trial and (ii) March 31, 2025.

The Preferred Tranche C Warrants are exercisable commencing on the Exercisability Date (as defined in the Form of Preferred Tranche C Warrant) until the five (5) year anniversary of the Exercisability Date.

Prior to the extended mandatory exercise time, certain investors informed us that they would not exercise their mandatorily exercisable Preferred Tranche A Warrants. Certain of the investors agreed to assume and exercise 16,269 of the 27,115 unexercised Preferred Tranche A Warrants and received 10,846 of the Preferred Tranche B Warrants and 27,115 of the Preferred Tranche C Warrants from the transferring Investors. The balance of the unexercised Preferred Tranche A Warrants and the remaining Tranche B Warrants and Tranche C Warrants issued to the Investors who failed to exercise their Tranche B Warrants were cancelled. Following these updates to the offering, we issued 59,654 shares of Series A-1 Preferred Stock for aggregate proceeds of $59.65 million upon the exercise of the Tranche A Warrants. In addition, we now have outstanding 42,846 Tranche B Warrants to acquire shares of Series A-3 Preferred Stock for an aggregate exercise price of $42.85 million, and 107,115 Tranche C Warrants to purchase Series A-3 Preferred Stock for an aggregate exercise price of approximately $107.1 million.

Between October 2023 and November 2023, an aggregate of 59,654 Preferred Tranche A Warrants were exercised for an aggregate of 59,654 shares of Series A-1 Preferred Stock for an aggregate of approximately $59.7 million in proceeds.

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 throughout our analysis within Components of Results of Operations below, each of which presents growth opportunities for our business. These factors also pose important challenges that we must successfully address in order to sustain our growth and improve our results of operations. Our ability to successfully address these challenges is subject to various risks and uncertainties, including those described in the section captioned “Part I, Item 1A, Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and supplemented with the following revised or additional risk factors in “Part II, Item 1A, Risk Factors.”

Components of Results of Operations

Revenue

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

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

The total revenue for government grants was approximately $1.3 million and $3.6 million, respectively, for the three months ended September 30, 2023 and 2022, and $1.9 million and $21.7 million, respectively, for the nine months ended September 30, 2023 and 2022.

NIH-NIAID (Federal Award #1R44AI117976-01A1) – this grant was for $1.4 million and the original term was September 2019 through August 2021. This grant was subsequently amended to extend the end date to August 2022. No grant income was recognized for this grant for the three and nine months ended September 30, 2023. No grant income was recognized for this grant for the three months ended September 30, 2022, and approximately $30 thousand of grant income was recognized for the nine months ended September 30, 2022.This grant was completed in 2022.

NIH-NIAID (Federal Award #1R41AI131823-02) – this grant was for approximately $1.5 million and had an original term of April 2019 through March 2021. The grant was subsequently amended to extend the end date to March 2023. No grant income was recognized for this grant for the three months ended September 30, 2023 and approximately $192 thousand of grant income was recognized for the nine months ended September 30, 2023, and approximately $150 thousand and $281 thousand of grant income was recognized for the three and nine months ended September 30, 2022, respectively. This grant was completed as of June 30, 2023.

NIH-NIAID through Geneva Foundation (Federal Award #1R01AI132313-01, Subaward #S-10511-01) – this grant was for approximately $2.7 million and had an original term of August 2017 through July 2021. The grant was subsequently amended to extend the end date to July 2023. No grant income was recognized for this grant for the three months ended September 30, 2023, and approximately $273 thousand for the nine months ended September 30, 2023, and approximately $39 thousand and $88 thousand of grant income was recognized for the three and nine months ended September 30, 2022, respectively. This grant was completed as of June 30, 2023.

DoD JPEO through Advanced Technology International – this grant was for a potential of $25 million, awarded in stages starting in August 2019 and with potential stages running through February 2023. Additional contract modifications were added to this contract in 2020 and 2021 for work on a COVID therapeutic, bringing the contract total to $203.6 million. Grant income recognized was approximately $1.3 million and $1.5 million for the three months ended September 30, 2023 and 2022, respectively, and $1.5 million and $21.3 million for the nine months ended September 30, 2023 and 2022, respectively. This grant was terminated in 2022.

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

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

Operating Expenses

Research and Development Expenses

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

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

For the three and nine months ended September 30, 2023 and 2022, we had contracts with multiple CRO to conduct and complete clinical studies. In the case of SAB-185, the CRO has been contracted and paid by the US government. For SAB-176, PPD Development, LP, acting as CRO oversaw the Phase 1 safety study. The terms of that agreement are subject to confidentiality, and the status of the agreement is that it is current, in good standing and 100% of the contract has been paid as of September 30, 2023. SAB has also contracted with hVIVO Services Limited to conduct the Phase 2a influenza study on SAB-176. The terms of that agreement are subject to confidentiality, and the status of the agreement is that it is current, in good standing and 100% of the contract has been paid as of September 30, 2023.

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

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

Research and development expenses by component for the three months ended September 30, 2023 and 2022:

Research and development expenses by component for the nine months ended September 30, 2023 and 2022:

General and Administrative Expenses

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

Nonoperating (Expense) Income

Gain (loss) on change in fair value of warrant liabilities

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

Other Income (expense)

Other income primarily consists of income associated with the refundable portion of Australian research and development tax credits.

Interest income

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

Interest expense

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

Results of Operations

The following tables set forth our results of operations for the three months ended September 30, 2023 and 2022:

The following tables set forth our results of operations for the nine months ended September 30, 2023 and 2022:

Comparison of the three and nine months ended September 30, 2023 and 2022

Revenue

30

Revenue decreased by $2.3 million, or 64.7% , in the three months ended September 30, 2023 as compared to the three months ended September 30, 2022, primarily due to the JPEO Rapid Response Contract Termination. Included in revenues for the three months ended September 30, 2023, are closeout activities and charges of $0.4 million for supplies, and $0.9 million for outside research manufacturing services, as compared to $0.6 million for labor, and $2.5 million for supplies, for the three months ended September 30, 2022.

Revenue decreased by $19.8 million, or 91.1%, in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, primarily due to the JPEO Rapid Response Contract Termination. Included in revenues for the nine months ended September 30, 2023, are closeout activities and charges of $0.1 million for labor, $0.5 million for supplies, $1.4 million for outside research manufacturing services, as compared to $6.7 million for labor, $7.0 million for supplies, and $5.7 million for outside manufacturing services for the nine months ended September 30, 2022.

As a result of the JPEO Rapid Response Contract Termination, we expect future revenues to be lower as our primary pipeline development target of Type 1 diabetes remains independently financed as we explore potential partnerships, co-development opportunities, and licensing arrangements.

Research and Development

Research and development expenses decreased by $3.3 million, or 45.3% , for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022, primarily due to decreases in laboratory supplies (year-over-year decrease of $1.6 million, 89.7%), contract manufacturing costs (year-over-year decrease of $0.04 million, 8%), salaries and benefits (year-over-year decrease of $1.1 million, 41.1%), outside lab services due to the JPEO Rapid Response Contract Termination (year-over-year decrease of $0.6 million, 77.4%), project consulting (year-over-year decrease of $0.1 million, 108.1%) and offset by overhead costs (year-over-year increase of $0.1 million, 8.7%).

Research and development expenses decreased by $17.1 million, or 58.3%, for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, primarily due to decreases in laboratory supplies (year-over-year decrease of $4.9 million, 79.9%), contract manufacturing costs (year-over-year decrease of $4.8 million, 92%), salaries and benefits (year-over-year decrease of $4.7 million, 48.4%), outside lab services due to the JPEO Rapid Response Contract Termination (year-over-year decrease of $2.1 million, 79.6%), project consulting (year-over-year decrease of $0.4 million, 56.5%) and overhead costs (year-over-year decrease of $0.2 million, 3.9%).

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

General and Administrative

31

General and administrative expenses decreased by $1.5 million, or 36.4%, in the three months ended September 30, 2023 as compared to the three months ended September 30, 2022, primarily due to salaries and benefits (year-over-year decrease of $0.3 million, 18.2%), project consulting (year-over-year decrease of $0.3 million, 82.2%), and other administrative support fees relating to IT, human resources, and legal (year-over-year decrease of $0.5 million, 34.5%. The decrease was primarily due to discretionary cost reduction measures and increased efficiencies as we continue to mature as a publicly traded company.

General and administrative expenses decreased by $4.6 million, or 33.9%, in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, primarily due to insurance costs (year-over-year decrease of $1.2 million, 53.5%), salaries and benefits (year-over-year decrease of $2.0 million, 35.8%), project consulting (year-over-year decrease of $0.8 million, 63.0%), and other administrative support fees relating to IT, human resources, and legal (year-over-year decrease of $0.6 million, 13.2%). The decrease was primarily due to discretionary cost reduction measures and increased efficiencies as we continue to mature as a publicly traded company.

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

Non-operating Income

Total non-operating income decreased by $0.5 million, or 64.8% in the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 primarily due to the change in fair value of warrant liabilities (year-over-year decrease of $0.6 million, 77.2%), and Australian research and development tax credit (year-over-year increase of $0.1 million, 6264.3%).

Total non-operating income decreased by $10.4 million or 100.0% in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 primarily due to changes in the fair value of the warrant liabilities (year-over-year decrease of $10.5 million, 100.9%) and Australian research and development tax credit (new in the current fiscal year).

Interest Expense

Interest expense in the three months ended September 30, 2023 was consistent with interest expense in the three months ended September 30, 2022 with the added interest expense on the 8% Unsecured Convertible Note in the current fiscal period offset by higher interest expenses associated with our finance leases in the same period of the prior year.

Interest expense increased in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, driven by adding the 8% Unsecured Convertible Note.

Interest Income

Interest income decreased by $3 thousand, or 17.4%, during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022, primarily due to lower interest earning cash balances.

Interest income increased by $60 thousand, or 145.3% during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, primarily due to higher interest rates and interest earning cash balances.

Liquidity and Capital Resources

As of September 30, 2023 and December 31, 2022, we had $2.4 million and $15.0 million, respectively, of cash and cash equivalents.

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

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

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

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

Sources of Liquidity

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

Equity Financings and Option Exercises

As of September 30, 2023, we have raised approximately $90.2 million since our inception from the issuance and sale of convertible preferred shares, net of issuance costs associated with such financings, a Business Combination, proceeds from the Private Placement, and exercises of employee stock options.

On May 9, 2023, we filed a shelf registration statement on Form S-3 (the “Shelf Registration Statement”). Whereby from time to time, we may offer and sell up to an aggregate of $50,000,000 of any combination of Common Stock, Preferred Stock, Debt Securities, Warrants, Rights, and Units, either individually or in combination. We may also offer common stock or preferred stock upon conversion of debt securities, common stock upon conversion of preferred stock, or common stock, preferred stock or debt securities upon the exercise of warrants. We may also issue units comprised of one or more shares of common stock, shares of preferred stock, debt securities, warrants and/or rights in any combination. The Shelf Registration Statement was declared effective by the SEC on May 17, 2023.

Notes payable

8% Unsecured Convertible Note

Pursuant to the Fourth Amendment to our lease with Sanford Health, we agreed to a period of Abated Rent from October 1, 2022 to September 30, 2023 pertaining to our leased laboratory bay at the Sanford Research Center. In exchange for the Abated Rent, effective as of October 1, 2022, we issued to Sanford Health an 8% unsecured, convertible promissory note.

Pursuant to the 8% Unsecured Convertible Note, we shall pay the sum of approximately $542 thousand plus accrued and unpaid interest thereon on September 31, 2024. Simple interest shall accrue on the outstanding Principal from and after the date of the 8% Unsecured Convertible Note and shall be payable on the Maturity Date. Sanford Health shall have the right, but not the obligation, to convert all or any part of the outstanding Principal of the 8% Unsecured Convertible Note, together with any accrued and unpaid interest thereon to the date of such conversion, into such number of fully paid and non-assessable shares of our common stock, at any time and from time to time, prior to the later of the Maturity Date and the date on which the 8% Unsecured Convertible Note is paid in full, subject to certain restrictions, at a conversion price per share of common stock equal to greater of (x) $1.50 and (y) the price at which the we sells shares of common stock in any bona fide private or public equity financing prior to the Maturity Date.

Insurance Financing

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

The total premiums, taxes and fees financed is approximately $1.2 million with an annual interest rate of 5.47%. In consideration of the premium payment by Lender to the insurance companies or the Agent or Broker, we unconditionally promise to pay Lender the amount Financed plus interest and other charges permitted under the Agreement. We paid the financing through installment payments with the last payment for the current note being September 22, 2023. We recognized no insurance financing note payable in our condensed financial statements as of September 30, 2023 and recognized approximately $773 thousand of insurance financing note payable in our condensed financial statements as of December 31, 2022.

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

Cash Flows

The following table summarizes our cash flows for the nine months ended September 30, 2023 and 2022:

Operating Activities

Net cash used by operating activities decreased by $10.2 million in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, primarily due to a decrease in cash used in operating activities related to change in our operating assets and liabilities of $7.8 million and a decrease in our net loss adjusted for non-cash items of $2.4 million. Y ear-over-year changes in cash used by operating activities is explained by shifts in the non-cash working capital balances as we continue to advance our lead programs after the JPEO Rapid Response Contract Termination.

Investing Activities

Net cash used by investing activities decreased by $1.9 million in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, primarily due to a decrease in purchases of equipment. Capital asset purchases completed in 2022 relate substantially to leasehold improvements at the Corporate Headquarters and completion of the clinical manufacturing facility at the Sanford Research Center

Financing Activities

Net cash used by financing activities decreased by $6.5 million in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, primarily due to the final settlement of the Forward Purchase Agreement whereby $5.5 million of restricted cash was utilized for a repurchase of 546,658 shares of our common stock in the nine months ended September 30, 2022.

Contractual Obligations and Commitments

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

As of September 30, 2023, there were no material changes outside of the ordinary course of business to our commitments and contractual obligations.

Income Taxes

The effective income tax rate for the third quarter of 2023 is 0.00%, compared with an effective tax rate of (0.20%) for the year ending December 31, 2022. The prior year tax rate reflects a tax provision on a pre-tax loss.

We continue to record a valuation allowance on our net deferred tax assets. The valuation increased by approximately $4.1 million for the nine months ended September 30, 2023. We have not recognized any reserves for uncertain tax positions.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

We have prepared our condensed financial statements in accordance with U.S. GAAP. Our preparation of these condensed 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, Summary of Significant Accounting Policies, in our condensed financial statements we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our condensed financial statements.

Research and development expenses

Costs incurred in connection with research and development activities are expensed as incurred. These include 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 behalf of us, and expenses related to animal care, research-use equipment depreciation, salaries, benefits, and stock-based compensation granted to employees in research and development functions.

We had contracts with multiple CROs to complete studies as part of research grant agreements. These costs include upfront, milestone and monthly expenses as well as reimbursement for pass through costs. All research and development costs are expensed as incurred except when we are accounting for nonrefundable advance payments for goods or services to be used in future research and development activities. In these cases, these payments are capitalized at the time of payment and expensed in the period the research and development activity is performed. As actual costs become known to us, we adjust our accrual; such changes in estimate may be a material change in our clinical study accrual, which could also materially affect our results of operations.

Revenue Recognition

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

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

Stock-Based Compensation

We recognize compensation cost relating to stock-based payment transactions using a fair-value measurement method, which requires all stock-based payments to employees, directors, and non-employee consultants, including grants of stock options, to be recognized in operating results as compensation expense based on fair value over the requisite service period of the awards. The board of directors elected to determine the fair value of our 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 condensed statements of operations based on the function to which the related services are provided. We recognize stock-based compensation expense over the expected term.

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

• the prices at which we most-recently sold preferred shares and the superior rights and preferences of the preferred shares relative to our common shares at the time of each grant;
• the lack of liquidity of our equity as a private company;
• our stage of development and business strategy and the material risks related to our business and industry;
• our financial condition and operating results, including our levels of available capital resources and forecasted results;
• developments in our business, including the achievement of milestones such as entering into partnering agreements;
• the valuation of publicly traded companies in the life sciences, biopharmaceutical and healthcare technology sectors, as well as recently completed mergers and acquisitions of peer companies;
• any external market conditions affecting our industry, and trends within our industry;
• the likelihood of achieving a liquidity event for the holders of our preferred shares and holders of our common shares, such as an initial public offering, or IPO, or a sale of our company, given prevailing market conditions; and
• the analysis of IPOs and the market performance of similar companies in our industry.

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

See Note 11, Stock Option Plan, in our condensed financial statements for information concerning certain specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options granted for the three and nine months ended September 30, 2023 and 2022.

Stock-based compensation expense was $0.6 million and $0.6 million, respectively, for the three months ended September 30, 2023 and 2022, and $1.9 million and $2.0 million, respectively, for the nine months ended September 30, 2023 and 2022.

As of September 30, 2023, we had $3.6 million of total unrecognized stock-based compensation cost related to non-vested options, which we expect to recognize in future operating results over a weighted-average period of 3.14 years. Total unrecognized compensation cost related to non-vested stock awards as of September 30, 2023 was approximately $0.6 million and is expected to be recognized within future operating results over a weighted-average period of 3.11 years.

Warrant Liabilities Valuations

Liability Classified Warrants

We are required to periodically estimate the fair value of our Private Placement Warrant liabilities with the assistance of an independent third-party valuation firm. The assumptions underlying these valuations represented our best estimates, which involved inherent uncertainties and the application of significant levels of our judgment. The fair value of our Public Warrant liability is 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 condensed balance sheets as of September 30, 2023 and December 31, 2022. The initial fair value of the warrant liabilities were measured at fair value on the Closing Date, and changes in the fair value of the warrant liabilities were presented within changes in fair value of warrant liabilities in the condensed statements of operations for the three and nine months ended September 30, 2023 and 2022.

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

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

The measurement as of September 30, 2023 and December 31, 2022 for the Private Placement Warrant liability was approximately $15 thousand and $10 thousand, respectively, and the change in fair value of the Private Placement Warrant liability was approximately $6 thousand and $4 thousand, respectively, the three and nine months ended September 30, 2023.

The key inputs into the valuations as of the September 30, 2023 and December 31, 2022 were as follows:

Equity Classified Warrants

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

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

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

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

The initial fair value of each PIPE Warrant and PIPE Placement Agent Warrant issued was determined using the Black-Scholes option-pricing model. All relevant terms and conditions for the PIPE Warrant and PIPE Placement Agent Warrant are identical with the exception of the exercise prices of $1.08 and $1.35, respectively.

The key inputs into the valuations as of the initial measurement date were as follows:

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

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

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

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

See Note 12, Fair Value Measurements, in our condensed financial statements 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 as of September 30, 2023.

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.

We determine the fair value of our common stock based on the closing market price at closing on the date of grant.

Compensation expense related to stock-based transactions is measured and recognized in the financial statements at fair value of 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.

Lease Liabilities and Right-of-Use Assets

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, New Accounting Standards, in our condensed financial statements.

JOBS Act Accounting Election

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:

• being 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 being required to comply with the auditor attestation 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 obligations regarding executive compensation arrangements; and
• exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

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 $1.235 billion, or we issue more than $1.0 billion of 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.

Concentration of Credit Risk

We received 100% of our total revenue through grants from government organizations for the three and nine months ended September 30, 2023 and 2022, respectively. To date, no receivables have been written off.

Interest Rate Risk

As of September 30, 2023 and December 31, 2022, we had a cash and cash equivalents of $2.4 million and $15.0 million, respectively, all of which was maintained in bank accounts and money market funds in the U.S. Our primary exposure to market risk is to interest income volatility, which is affected by changes in the general level of interest rates. A 10% change in the market interest rates would not have a material effect on our business, financial condition, or results of operations.

Foreign Currency Risk

We conduct materially all of our business in U.S. dollars and, thus, are not exposed to financial risks from exchange rate fluctuations between the U.S. dollar and other currencies.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer has evaluated the effectiveness of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based on the evaluation as of September 30, 2023, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 2023. Management has concluded that there is a material weakness in the design and operating effectiveness of the Company’s review controls surrounding technical accounting matters and significant and/or unusual transactions.

Plan for Remediation of Material Weakness

We continue to work to strengthen our internal control over financial reporting and are committed to ensuring that such controls are designed and operating effectively. We are implementing process and control improvements to address the above material weakness as follows:

• We have supplemented existing accounting resources with external advisors to assist with performing certain technical accounting activities. We have hired an additional full-time employee with technical accounting expertise and public company experience. Management will continue to supplement existing internal resources as needed. In addition, Management will continue to review the qualifications of our finance organization to ensure our personnel have the appropriate technical and SOX related expertise.
• We have begun the process of implementing a contract management platform that will integrate functions governing the initiation, authorization, and execution of contracts with enhancements for our existing contract review control. This tool will improve the ability of the finance organization to review new and renewed contracts for potential financial reporting implications.

We are committed to continuing to improve our internal control processes related to these matters and will continue to review our financial reporting controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, we may take additional measures to address deficiencies or modify certain of the remediation measures described above. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.

Changes in Internal Control Over Financial Reporting

There were no changes, except for the remediation effort described above, in our internal control over financial reporting that occurred during the three months ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The risk factors described in the section captioned “Part I, Item 1A, Risk Factors” in our Annual Report on Form 10-K for the

fiscal year ended December 31, 2022, are incorporated herein, and supplemented with the following revised or additional risk factors.

We are a clinical-stage biopharmaceutical company and have incurred significant losses since our inception. We realized net loss in the fiscal year ended December 31, 2022 and the interim period through September 30, 2023, we may incur losses for the foreseeable future and may not be able to generate sufficient revenue to maintain profitability.

We are a clinical-stage biopharmaceutical company. We expect to experience variability in revenue and expenses which makes it difficult to evaluate our business and prospects. As such, we have incurred and anticipate that we will continue to incur significant operating losses in the foreseeable future. Our historical losses resulted principally from costs incurred in research and development, preclinical testing, clinical development of product candidates as well as costs incurred for research programs and from general and administrative costs associated with these operations. In the future, we intend to continue to conduct research and development, preclinical testing, clinical trials, and regulatory compliance activities that, together with anticipated general and administrative expenses, will result in incurring further significant losses for the next several years. We expect that our operating expenses will continue to increase significantly, including as we:

• continue the research and development of our clinical- and preclinical-stage product candidates and discovery stage programs, including the clinical trials of SAB-142 and SAB-176;
• advance our preclinical-stage product candidates into clinical development;
• invest in our technology and platform;
• seek to identify, acquire and develop additional product candidates, including through business development efforts to invest in or in-license other technologies or product candidates;
• seek regulatory approvals for any product candidates that successfully complete clinical trials;
• market and sell our solutions to existing and new partners;
• hire additional clinical, quality control, medical, scientific and other technical personnel to support our operations;
• maintain, expand, enforce, protect, and defend our intellectual property portfolio;
• create additional infrastructure to support operations;
• add operational, financial, and management information systems and personnel to support operations as a public company;
• undertake any pre-commercialization activities to establish sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products on our own or jointly with third parties; and
• experience any delays or encounter issues with any of the above.

Biopharmaceutical product development entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate efficacy or an acceptable safety profile, gain regulatory approval, secure market access and reimbursement and become commercially viable, and therefore any investment in us is highly speculative. Accordingly, before making an investment in us, you should consider our prospects, factoring in the costs, uncertainties, delays, and difficulties frequently encountered by companies in clinical development, especially clinical-stage biopharmaceutical companies such as ours. Any predictions you make about our future success or viability may not be as accurate as they would otherwise be if we had a longer operating history or a history of successfully developing and commercializing pharmaceutical products. We may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving our business objectives.

Our expenses could increase beyond expectations for a variety of reasons, including as a result of our growth strategy and the increase in the scope and complexity of our operations. In executing our strategy and plans to invest in enhancing and scaling our business, we will need to generate significant additional revenue to achieve and maintain future profitability. We may not be able to generate sufficient revenue to achieve profitability and our recent and historical growth should not be considered indicative of future performance.

We conduct certain research and development operations through our Australian wholly-owned subsidiary. If we lose our ability to operate in Australia, or our subsidiary is unable to receive the research and development tax credit allowed by Australian regulations or are required to refund any research and development tax credit previously received or reserve for such credit in our financial statements, our business and result of operations could suffer.

We formed a new Australian subsidiary, SAB Australia, to conduct various preclinical and clinical activities for SAB-142 in Australia. Due to the geographical distance and lack of employees currently in Australia, as well as our lack of experience operating in Australia, we may not be able to efficiently or successfully monitor, develop and commercialize our lead products in Australia, including conducting clinical trials. Furthermore, we have no assurance that the results of any clinical trials that we conduct for our product candidates in Australia will be accepted by the FDA or applicable foreign authorities.

In addition, current Australian tax regulations provide for a refundable research and development tax credit equal to 43.5% of qualified expenditures. Although we have previously claimed a refundable research and development tax credit there is a possibility that we may not be able to claim such credit or we might qualify for a lesser credit. If we lose our ability to operate SAB Australia, or if in the future we are ineligible or unable to receive the research and development tax credit or are required to refund any research and development tax credit previously received or have to reserve for such credit in our financial statements, or if the Australian government significantly reduces or eliminates the tax credit, our business and results of operation may be adversely affected.

The sale of the securities registered for resale by the Company and future sales of substantial amounts of our securities in the public market (including the shares of common stock issuable upon conversion of shares of preferred stock), or the perception that such sales may occur, may cause the market price of our securities to decline significantly.

We are obligated to registered for sale up to 344,626,954 shares of common stock by certain selling stockholders, in connection with a private placement of securities consummated in October 2023. The shares of common stock offered for resale by these selling stockholders represent approximately 658.7% of total common stock outstanding as of October 30, 2023. The amount of common stock offered for resale by the selling stockholders exceeds the number of shares of common stock currently outstanding because a significant portion of the shares of common stock offered for resale are not currently outstanding and are issuable upon the conversion of shares of Series A-1 Convertible Preferred Stock or conversion of Series A-1 or Series A-3 Convertible Preferred Stock (collectively the “Preferred Stock”) issuable upon exercise of tranche A warrants, tranche B warrants, and tranche C warrants. The sale of these securities in the public market, or the perception that holders of a large number of securities intend to sell their securities, could reduce the market price of our common stock and public warrants.

Although each stockholder for whom the shares of common stock registered for resale is not permitted to convert their Preferred Stock into shares of common stock to the extent that after giving effect to such conversion, such holder would (together with such holder’s affiliates and related parties) beneficially own in excess of 4.99% (or 9.99% at the election of the holder) of the shares of common stock outstanding immediately after giving effect to such conversion, the market price of our common stock could decline if the holders of such shares sell them over time or are perceived by the market as intending to sell them.