GridAI Technologies Corp 8-K/A, filed May 8, 2024
GridAI Technologies Corp. (GRDX)
About this 8-K/A
GridAI Technologies Corp filed this 8-K/A on May 8, 2024, reporting on events of March 13, 2024.
Items reported
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Amendment No. 1)
CURRENT REPORT
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Explanatory Note
On March 14, 2024, First Wave BioPharma, Inc. (the “Company”) filed a Current Report on Form 8-K (the “Original Form 8-K”) with the Securities and Exchange Commission in connection with the Company’s merger with ImmunogenX, Inc. (“IMGX”). This Amendment No.1 on Form 8-K/A amends the Original Form 8-K to file (i) the financial statements of IMGX required by Item 9.01(a) of Form 8-K (the “IMGX Financial Statements”), (ii) the pro forma financial information required by Item 9.01(b) of Form 8-K (together with the IMGX Financial Statements, the “IMGX Financial Information”), and (iii) a consent from Holthouse Carlin & Van Trigt LLP (“HCVT”) to incorporate by reference HCVT’s audit report included in the IMGX Financial Information into certain of the Company’s registration statements. The IMGX Financial Information and the consent of HCVT were not included in the Original Form 8-K in reliance on the instructions to such item. Except as described above, all other information in the Original Form 8-K remains unchanged.
| Item 9.01 | Financial Statements and Exhibits. |
(a) Financial statements of business acquired
Information responsive to Item 9.01(a) of Form 8-K is set forth in the financial statements filed as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.
(b) Pro forma financial information
Information responsive to Item 9.01(b) of Form 8-K is filed as Exhibit 99.2 to this Current Report on Form 8-K and is incorporated herein by reference.
(d) Exhibits
| Exhibit Number |
Description | |
| 23.1 | Consent of Holthouse Carlin & Van Trigt LLP | |
| 99.1 | Audited financial statements of ImmunogenX Inc. for the fiscal years ended December 31, 2023, 2022 and 2021. | |
| 99.2 | Unaudited pro-forma consolidated financial information of the Company and ImmunogenX Inc. for the period ended December 31, 2023. | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| First Wave BioPharma, Inc. | ||
| Date: May 8, 2024 | By: | /s/ Sarah Romano |
| Sarah Romano | ||
| Chief Financial Officer | ||
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-1 (File Nos. 333-219385, 333-235768, 333-252087, 333-267423, and 333-272404), Form S-8 (File Nos. 333-220781, 333-271122, 333-271124, and 333-274118) and Form S-3 (File Nos. 333-231035, 333-240129, 333-252623, 333-256476, 333-262276, 333-266375, 333-268660, 333-270723, 333-272783, 333-274634, and 333-276429) of our report dated March 13, 2024, related to the financial statements of ImmunogenX, Inc. as of December 31, 2023, 2022 and 2021, and for the years then ended, which appears in the Form 8-K/A of First Wave BioPharma, Inc. dated May 8, 2024. Our report on the financial statements of ImmunogenX, Inc. includes an explanatory paragraph about the existence of substantial doubt concerning its ability to continue as a going concern.
/s/ Holthouse Carlin & Van Trigt LLP
Irvine, California
May 8, 2024
Exhibit 99.1
ImmunogenX, Inc.
FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITOR’S REPORT
December 31, 2023, 2022 AND 2021
ImmunogenX, Inc.
TABLE OF CONTENTS
December 31, 2023, 2022 AND 2021
| Page No. | |
| Independent Auditor’s Report | 1 – 2 |
| Financial Statements: | |
| Balance Sheets | 3 |
| Statements of Operations | 4 |
| Statements of Changes in Stockholders’ Deficit | 5 |
| Statements of Cash Flows | 6 |
| Notes to Financial Statements | 7 – 25 |
INDEPENDENT AUDITOR’S REPORT
To the Board of Directors of
ImmunogenX, Inc.:
Opinion
We have audited the accompanying financial statements of ImmunogenX, Inc. (the “Company”), which comprise the balance sheets as of December 31, 2023, 2022 and 2021, and the related statements of operations, changes in stockholders’ deficit, and cash flows for the years then ended, and the related notes to the financial statements.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023, 2022 and 2021, and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Emphasis of Matter Regarding Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has incurred recurring net losses and negative cash flows from operations because of the Company being in the pre-revenue stage. The Company’s current obligations and net losses combined with the uncertainty regarding future financing raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.
Change in Accounting Principle
As discussed in Note 2 to the financial statements, the Company changed its method of accounting for leases effective January 1, 2021, due to the early adoption of Financial Accounting Standards Board Accounting Standards Codification 842, Leases. Our opinion is not modified with respect to this matter.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are available to be issued.
Page 1
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with generally accepted auditing standards, we:
| · | Exercise professional judgment and maintain professional skepticism throughout the audit. |
| · | Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. |
| · | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed. |
| · | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. |
| · | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during our audits.
/s/ Holthouse Carlin & Van Trigt LLP
Irvine, California
March 13, 2024
Page 2
IMMUNOGENX INC.
BALANCE SHEETS
| AS OF DECEMBER 31, | 2023 | 2022 | 2021 | |||||||||
| ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | 251,266 | $ | 95,342 | $ | 1,486,844 | ||||||
| Prepaid expenses and other current assets | 3,068,344 | 1,869,860 | 6,466 | |||||||||
| Total current assets | 3,319,610 | 1,965,202 | 1,493,310 | |||||||||
| Property and equipment, net | 20,853 | 26,454 | 39,691 | |||||||||
| Operating lease right-of-use asset, net | 10,704 | 42,680 | 74,454 | |||||||||
| Patents, net | 668,451 | 782,246 | 896,042 | |||||||||
| Other intangible assets | 19,200 | 19,200 | 19,200 | |||||||||
| Other assets | 63,558 | 96,137 | - | |||||||||
| Total assets | $ | 4,102,376 | $ | 2,931,919 | $ | 2,522,697 | ||||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||||||
| Current liabilities: | ||||||||||||
| Accounts payable | $ | 399,283 | $ | 626,127 | $ | 207,926 | ||||||
| Accrued expenses and other current liabilities | 2,008,888 | 509,384 | 187,963 | |||||||||
| Current portion of operating lease liability | 9,129 | 24,675 | 30,668 | |||||||||
| Related party promissory note | 393,282 | 269,481 | 592,222 | |||||||||
| Revolving line of credit | 6,360,000 | 2,810,000 | - | |||||||||
| Total current liabilities | 9,170,582 | 4,239,667 | 1,018,779 | |||||||||
| Operating lease liability, net of current portion | - | 9,129 | 33,805 | |||||||||
| Convertible notes (at fair value) | 8,663,804 | 3,668,574 | 2,948,457 | |||||||||
| Note payable | 500,000 | 500,000 | 500,000 | |||||||||
| Total liabilities | 18,334,386 | 8,417,370 | 4,501,041 | |||||||||
| Stockholders' deficit: | ||||||||||||
| Preferred stock, $0.0001 par value; 2,260,054 shares authorized; 2,260,054 shares issued and outstanding | 226 | 226 | 226 | |||||||||
| Common stock, $0.0001 par value; 2,000,000 shares authorized; 1,009,925 shares issued and outstanding | 101 | 100 | 99 | |||||||||
| Additional paid-in capital | 4,608,364 | 4,496,928 | 4,380,877 | |||||||||
| Accumulated deficit | (18,840,701 | ) | (9,982,705 | ) | (6,359,546 | ) | ||||||
| Total stockholders' deficit | (14,232,010 | ) | (5,485,451 | ) | (1,978,344 | ) | ||||||
| Total liabilities and stockholders' deficit | $ | 4,102,376 | $ | 2,931,919 | $ | 2,522,697 | ||||||
See accompanying notes to the financial statements.
Page 3
IMMUNOGENX INC.
STATEMENTS OF OPERATIONS
| FOR THE YEARS ENDED DECEMBER 31, | 2023 | 2022 | 2021 | |||||||||
| Operating expenses: | ||||||||||||
| General and administrative | $ | 2,308,851 | $ | 1,932,116 | $ | 1,474,494 | ||||||
| Research and development | 2,828,531 | 2,268,205 | 1,892,303 | |||||||||
| Total operating expenses | 5,137,382 | 4,200,321 | 3,366,797 | |||||||||
| Other income (expense): | ||||||||||||
| Grant income | 910,577 | 1,090,595 | 1,630,858 | |||||||||
| Paycheck Protection Program loan forgiveness | - | - | 120,023 | |||||||||
| Change in fair value of convertible notes | (3,615,230 | ) | (190,117 | ) | (48,017 | ) | ||||||
| Interest expense | (1,083,056 | ) | (374,588 | ) | (126,159 | ) | ||||||
| Other income, net | 67,886 | 52,072 | 131,627 | |||||||||
| Total other income (expense), net | (3,719,823 | ) | 577,962 | 1,708,332 | ||||||||
| Income before provision for income taxes | (8,857,205 | ) | (3,622,359 | ) | (1,658,465 | ) | ||||||
| Provision for state income taxes | 791 | 800 | 1,722 | |||||||||
| Net loss | $ | (8,857,996 | ) | $ | (3,623,159 | ) | $ | (1,660,187 | ) | |||
See accompanying notes to the financial statements.
Page 4
IMMUNOGENX INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
| FOR THE YEARS ENDED | Preferred Stock | Common Stock | Paid-In | Accumulated | ||||||||||||||||||||||||
| DECEMBER 31, 2023, 2022, AND 2021 | Shares | Amount | Shares | Amount | Capital | Deficit | Total | |||||||||||||||||||||
| Balance as of December 31, 2020 | 2,260,054 | $ | 226 | 980,450 | $ | 98 | $ | 4,322,473 | $ | (4,699,359 | ) | $ | (376,562 | ) | ||||||||||||||
| Common stock granted | - | - | 14,670 | 1 | 22,929 | - | 22,930 | |||||||||||||||||||||
| Stock-based compensation - stock options | - | - | - | - | 35,475 | - | 35,475 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (1,660,187 | ) | (1,660,187 | ) | |||||||||||||||||||
| Balance as of December 31, 2021 | 2,260,054 | $ | 226 | 995,120 | $ | 99 | $ | 4,380,877 | $ | (6,359,546 | ) | $ | (1,978,344 | ) | ||||||||||||||
| Common stock granted | - | - | 8,590 | 1 | 17,597 | - | 17,598 | |||||||||||||||||||||
| Stock-based compensation - stock options | - | - | - | - | 48,583 | - | 48,583 | |||||||||||||||||||||
| Equity-classified stock warrant | - | - | - | - | 49,871 | - | 49,871 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (3,623,159 | ) | (3,623,159 | ) | |||||||||||||||||||
| Balance as of December 31, 2022 | 2,260,054 | $ | 226 | 1,003,710 | $ | 100 | $ | 4,496,928 | $ | (9,982,705 | ) | $ | (5,485,451 | ) | ||||||||||||||
| Common stock granted | - | - | 6,215 | 1 | 12,907 | - | 12,908 | |||||||||||||||||||||
| Stock-based compensation - stock options | - | - | - | - | 66,235 | - | 66,235 | |||||||||||||||||||||
| Equity-classified stock warrant | - | - | - | - | 32,294 | - | 32,294 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (8,857,996 | ) | (8,857,996 | ) | |||||||||||||||||||
| Balance as of December 31, 2023 | 2,260,054 | $ | 226 | 1,009,925 | $ | 101 | $ | 4,608,364 | $ | (18,840,701 | ) | $ | (14,232,010 | ) | ||||||||||||||
See accompanying notes to the financial statements.
Page 5
IMMUNOGENX INC.
STATEMENTS OF CASH FLOWS
| FOR THE YEARS ENDED DECEMBER 31, | 2023 | 2022 | 2021 | |||||||||
| Cash flows from operating activities: | ||||||||||||
| Net loss | $ | (8,857,996 | ) | $ | (3,623,159 | ) | $ | (1,660,187 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
| Reduction of operating right-of-use asset | 31,977 | 31,774 | 31,492 | |||||||||
| Payment-in-kind interest | 23,801 | 27,259 | 51,325 | |||||||||
| Depreciation and amortization of property and equipment | 9,510 | 13,237 | 13,282 | |||||||||
| Amortization of patents | 113,796 | 113,796 | 113,796 | |||||||||
| Amortization of deferred debt issuance costs | 30,000 | 7,500 | - | |||||||||
| Amortization of loan commitment fee | 34,873 | 6,234 | - | |||||||||
| Change in fair value of convertible notes | 3,615,230 | 190,117 | 48,017 | |||||||||
| Common stock granted | 12,907 | 17,597 | 22,929 | |||||||||
| Stock-based compensation - stock options | 66,235 | 48,583 | 35,475 | |||||||||
| Paycheck Protection Program loan forgiveness | - | - | (120,023 | ) | ||||||||
| Change in operating assets and liabilities: | ||||||||||||
| Prepaid expenses and other current assets | (1,198,484 | ) | (1,863,394 | ) | (8,381 | ) | ||||||
| Accounts payable | (226,844 | ) | 418,201 | 106,525 | ||||||||
| Accrued expenses and other current liabilities | 1,499,503 | 321,422 | 93,157 | |||||||||
| Operating lease liability | (24,675 | ) | (30,669 | ) | (36,597 | ) | ||||||
| Net cash used in operating activities | (4,870,167 | ) | (4,321,502 | ) | (1,309,190 | ) | ||||||
| Cash flows from investing activities: | ||||||||||||
| Purchases of property and equipment | (3,909 | ) | - | (18,441 | ) | |||||||
| Cash used in investing activities | (3,909 | ) | - | (18,441 | ) | |||||||
| Cash flows from financing activities: | ||||||||||||
| Proceeds from note payable | - | - | 350,000 | |||||||||
| Proceeds from line of credit | 3,550,000 | 2,750,000 | - | |||||||||
| Proceeds from related party promissory notes | 200,000 | - | - | |||||||||
| Repayments on promissory notes | - | (250,000 | ) | (100,000 | ) | |||||||
| Proceeds from convertible notes | 1,280,000 | 430,000 | 2,375,000 | |||||||||
| Proceeds from Paycheck Protection Program loan | - | - | 66,607 | |||||||||
| Repayments on Paycheck Protection Program loan | - | - | (28,569 | ) | ||||||||
| Net cash provided by financing activities | 5,030,000 | 2,930,000 | 2,663,038 | |||||||||
| Net change in cash and cash equivalents | 155,924 | (1,391,502 | ) | 1,335,407 | ||||||||
| Cash and cash equivalents, beginning of year | 95,342 | 1,486,844 | 151,437 | |||||||||
| Cash and cash equivalents, end of year | $ | 251,266 | $ | 95,342 | $ | 1,486,844 | ||||||
| Supplemental disclosures of cash flow information: | ||||||||||||
| Cash paid during the year for: | ||||||||||||
| Interest | $ | 30,168 | $ | 5,028 | $ | - | ||||||
| State taxes | $ | 791 | $ | 800 | $ | 1,722 | ||||||
| Non-cash operating and financing activities: | ||||||||||||
| Operating right-of-use asset obtained in exchange for lease liability | $ | - | $ | - | $ | 105,946 | ||||||
| Issuance of equity-classified stock warrants | $ | 32,294 | $ | 49,871 | $ | - | ||||||
| Reclass of related party promissory notes to convertible notes | $ | 100,000 | $ | 100,000 | $ | 400,000 | ||||||
| Borrowings on line of credit for deferred debt issuance costs | $ | - | $ | 60,000 | $ | - | ||||||
See accompanying notes to the financial statements.
Page 6
ImmunogenX, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 2023, 2022 AND 2021
| 1. | ORGANIZATION AND NATURE OF BUSINESS |
Founded in 2013 as a California LLC, ImmunogenX, Inc. (the “Company”) is a private, clinical stage, biotherapeutics company, headquartered in Newport Beach, California, with a research facility in North Carolina, formed to address critical needs for individuals with suspected or diagnosed celiac disease. On January 1, 2021, the Company converted to a corporation and incorporated in the state of Delaware. Research efforts are focused on therapy, disease management, and food safety. The Company has patented formulations related to the use of latiglutenase, a digestive enzyme that degrades unintended ingestion of gluten in the body. Another key area of research involves a method of monitoring intestinal villi atrophy by measuring the level of a drug metabolite that is strongly dependent on the villi heath.
Through December 31, 2023, the Company has been primarily engaged in developing its biopharmaceutical products, research and development, and raising capital through equity and debt offerings. The Company has not commenced principal revenue producing operations and has incurred significant expenditures for the research and development of the Company’s biopharmaceutical products. Once the Company’s planned principal operations commence, its focus will be on the manufacturing, refining, licensing, and marketing of its biopharmaceuticals and the continued research and development of new associated biopharmaceutical products.
The Company's activities are subject to significant risks and uncertainties, including being unable to secure additional funding to make the Company's current biopharmaceuticals operational before another company develops similar biopharmaceutical products. In addition, FDA approval is required for the Company’s products at the completion of successful human clinical trials.
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation The accompanying financial statements have been prepared on an accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), where revenues and expenses are recorded as earned and incurred, respectively.
Use of Estimates The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, certain disclosures at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include certain prepaid expenses, certain accrued expenses, and estimates regarding the fair value of debt and equity instruments. Actual results may differ from these estimates under different assumptions or conditions.
Fair Value Measurements The Company accounts for the fair value of its financial instruments in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement (“ASC 820”). Non-recurring, nonfinancial assets and liabilities are also accounted for under the provisions of ASC 820.
ASC 820 defines fair value, establishes a framework for measuring fair value under US GAAP and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date.
Page 7
ImmunogenX, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 2023, 2022 AND 2021
Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value.
The Company’s management used the following methods and assumptions to estimate the fair value of its financial instruments:
| Levels | Hierarchy | |
| 1 | Pricing inputs are quoted prices available in active markets for identical assets or liabilities as of the reporting date. | |
| 2 | Pricing inputs are quoted prices for similar investments, or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration with observable market data. Level 2 includes assets and liabilities valued at quoted prices adjusted for legal or contractual restrictions specific to these assets and liabilities. | |
| 3 | Pricing inputs are unobservable, supported by little or no market activity, and reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. |
The Company’s management incorporated Level 3 inputs, including assumptions to estimate the fair value of its stock warrants (see Note 7), convertible notes (see Note 9), and stock options (see Note 12).
Cash and Cash Equivalents Cash and cash equivalents is comprised of cash on hand, deposits in banks, and highly liquid investments with an original maturity of three months or less.
Financial Instruments and Concentrations of Business and Credit Risk Financial instruments that potentially subject the Company to concentrations of business and credit risks consist of cash and cash equivalents and accounts payable.
The Company maintains cash balances that can, at times, exceed amounts insured by the Federal Deposit Insurance Corporation. The Company has not experienced any losses in these accounts and believes it is not exposed to any significant credit risk in this area.
The Company’s accounts payable can expose the Company to business risks such as supplier concentrations, which the Company mitigates by attempting to diversify its supply chain. For the year ended December 31, 2023, one supplier accounted for 68% of purchases and 15% of accounts payable as of December 31, 2023. For the year ended December 31, 2022, one supplier accounted for 74% of total purchases and 54% of accounts payable as of December 31, 2022. For the year ended December 31, 2021, two suppliers accounted for 36% of total purchases and 1% of accounts payable as of December 31, 2021.
Pre-Launch Inventories The Company does not capitalize pre-launch inventory costs, including raw materials and inventory production, until future commercialization is considered probable and the future economic benefit is expected to be realized or if there is an alternative future use. Capitalizing pre-launch inventory costs will not occur prior to obtaining regulatory approval, commercialization is considered probable, and future economic benefit can be asserted. The Company records such costs as research and development expenses in the statement of operations in the period incurred.
Page 8
ImmunogenX, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 2023, 2022 AND 2021
Research and Development Costs Research and development costs are charged to expense as costs are incurred in performing research and development activities in accordance with FASB ASC Topic 730, Research and Development (“ASC 730”). Such costs include overhead costs, clinical study and related clinical manufacturing costs, license and milestone fees, contract services, manufacturing costs for pre-launch inventories, and other related costs. Up-front fees and milestones paid to third parties in connection with research and development activities are expensed as incurred.
Property and Equipment Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization expense are calculated using the straight-line method over the estimated useful lives of the related assets, which range from 3 to 7 years. Leasehold improvements are amortized over the shorter of their estimated useful lives or the term of the related lease.
Betterments, renewals, and extraordinary repairs that materially extend the useful life of the asset are capitalized; other repairs and maintenance charges are expensed as incurred. The cost and related accumulated depreciation and amortization applicable to assets retired are removed from the accounts, and the gain or loss on disposition, if any, is recognized in the statements of income and operations.
Intangible Assets Intangible assets are stated at acquisition cost less accumulated amortization. Intangible assets recorded in asset acquisitions are measured based on their cost, which is generally allocated to the assets on a relative fair value basis on the date of acquisition.
In accordance with FASB ASC Topic 350, Intangibles, Goodwill and Other (“ASC 350”), identifiable intangible assets acquired in a business combination or asset acquisition and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually and more frequently if events and circumstances indicate that the asset might be impaired. ASC 350 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment in accordance with FASB ASC Topic 360, Property, Plant and Equipment (“ASC 360”).
ASC 350 requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment in accordance with ASC 360. Based on the application of impairment testing as discussed above, management deemed that the fair value of intangible assets with estimable useful lives exceeds their carrying values; accordingly, no impairment of these intangible assets has been recorded for the years ended December 31, 2023, 2022, and 2021.
Patents Patent costs related to filing and pursuing patent applications, including direct application fees and legal and consulting expenses, are expensed as incurred, as the recoverability of such expenses is uncertain. Additionally, costs to maintain existing patents are also expensed as incurred. These costs are included in general and administrative expenses on the accompanying statement of operations.
In accordance with FASB ASC Topic 805, Business Combinations (“ASC 805”), costs to acquire filed patents as a part of an asset purchase or business combination are capitalized and, subsequently, amortized over their estimated useful lives and reviewed for impairment in accordance with ASC 360. For the years ended December 31, 2023, 2022, and 2021, no impairment of these patents has been recorded. Amortization is calculated using the straight-line method over the estimated useful lives of the patents, which range from 8.5 to 18 years.
Page 9
ImmunogenX, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 2023, 2022 AND 2021
Impairment of Long-Lived Assets In accordance with FASB ASC Topic 360, Property, Plant and Equipment (“ASC 360”), long-lived assets such as property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized on long-lived assets when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of the assets. In such cases, the carrying value of these assets is adjusted to their estimated fair value and assets held for sale are adjusted to their estimated fair value less estimated selling expenses. No impairment losses of long-lived assets or intangible assets with estimated useful lives were recognized for the years ended December 31, 2023, 2022, and 2021.
Deferred Debt Issuance Costs Deferred debt issuance costs represent costs paid in connection with obtaining long-term financing. Fees associated with long-term debt and revolving lines of credit are capitalized and subsequently amortized using the straight-line method which approximates the effective-interest method, over the term of the related debt agreement. In accordance with FASB Account Standard Update (“ASU”) 2015-03, Interest-Imputation of Interest (Subtopic 835-30), deferred debt issuance costs are presented, net of accumulated amortization, as an asset for amounts relating to revolving lines of credit and as direct deductions from the face amounts of all other related long-term debt (see Note 7).
Convertible Notes In accordance with FASB ASC Topic 815, Derivatives and Hedging (“ASC 815”), certain financial instruments with characteristics of liabilities and equity may have embedded derivatives that are required to be bifurcated and accounted for separately from the host contract, unless the fair value option is elected. With the election of the fair value option, an irrevocable election is made to initially and subsequently measure the hybrid financial instrument in its entirety at fair value, with changes in fair value reported in earnings as they occur, except for changes in value related to the Company’s own creditworthiness, which would be recognized in other comprehensive income. The Company elected the fair value option, and accordingly, recognized losses related to the change in fair value for the years ended December 31, 2023, 2022, and 2021 in the amounts of $3,615,230, $190,117, and $48,017, respectively, which is included in other income or expenses on the accompanying statements of operations.
In August 2020, the FASB issued 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), which simplifies the accounting for convertible instruments by eliminating the cash conversion and the beneficial conversion feature accounting models for convertible debt and convertible preferred stock. For privately held companies, ASU 2020-06 is effective for annual reporting periods beginning after December 15, 2023, with early adoption permitted. The Company elected to early adopt ASU 2020-06 as of January 1, 2021 by applying the modified retrospective transition method. As of January 1, 2021, the Company did not have any financial instruments outstanding that falls within the scope of ASU 2020-06; accordingly, there was no impact to opening equity.
Related Party Promissory Note Promissory notes payable to a related party are stated at unpaid principal and interest balances. Interest on the notes is payment-in-kind (PIK), accrued, compounded annually, and added to the principal balance of the underlying notes.
Paycheck Protection Program Loan In May 2020 and March 2021, the Company received loans in the amounts of $81,985 (the “1st Draw”) and $66,607 (the “2nd Draw”), respectively, pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020. The PPP is administered by the U.S. Small Business Administration (the “SBA”). The Company accounts for the loans under the PPP (the “PPP Loan”) as a financial liability in accordance with FASB ASC Topic 470, Debt (“ASC 470”). The Company does not impute additional interest at a market rate even though the stated interest rate under the PPP may be below market. Transactions, where interest rates are prescribed by governmental agencies, are excluded from the scope of FASB ASC Subtopic 835-30, Interest – Imputation of Interest (“ASC 835-30”). In accordance with ASC 470, the proceeds from the PPP Loan remained recorded as a liability until the loan was wholly forgiven.
Page 10
ImmunogenX, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 2023, 2022 AND 2021
On August 18, 2021, $53,416 along with interest of $689 related to the 1st Draw was forgiven by the SBA, and a repayment was made for the remaining principal balance of $28,569. On October 19, 2021, the entire principal balance of the 2nd Draw along with interest of $385 was forgiven by the SBA. The forgiven loan balances and interest are included in other income and expenses on the accompanying statements of operations for the year ended December 31, 2021.
Economic Injury Disaster Loan On June 30, 2020, the Company received a loan from the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the Company’s business. Pursuant to the Loan Authorization and Agreement (the “SBA Loan Agreement”), the Company received a principal amount of $150,000. On August 12, 2021, the Company received approval from the SBA to increase the principal loan amount to $500,000. In accordance with ASC 470, the Company accounts for the loan as a financial liability. The Company does not input additional interest at a market rate even though the stated interest rate under the EIDL may be below market. Transactions, where interest rates are prescribed by governmental agencies, are excluded from the scope of ASC 835-30. In accordance with ASC 470, the proceeds from the EIDL will remain recorded as a liability until either (1) the loan is, in part or wholly, forgiven and the Company has been legally released; or (2) the loan has been repaid. As of December 31, 2023, 2022, and 2021, the Company had an outstanding balance of $500,000 at the end of each year, which is included in note payable on the accompanying balance sheets.
Stock Warrants Warrants that were issued to obtained a line of credit (the “LOC”) are measured at fair value as of the grant date, classified as equity, and included in additional paid-in-capital on the accompanying balance sheets as of December 31, 2023 and 2022. The warrants are equivalent to a loan commitment fee, therefore; these costs are capitalized on the balance sheet and amortized on a straight-line basis over the stated term of the LOC (see Note 7).
Stock-Based Compensation The Company accounts for its stock-based compensation in accordance with FASB ASC Topic 718, Compensation – Stock Compensation (“ASC 718”), which requires all stock-based compensation to employees and non-employees, including grants of non-employee stock awards, to be recognized in the statement of operations based on the fair value of those awards calculated using a valuation model on the grant date. In accordance with ASC 718, compensation expense related to stock-based payments are recorded on a straight-line basis over the requisite service period based on the grant date fair value of the awards. In addition, the Company has elected to account for forfeitures when they occur in accordance with ASC 718.
Leases The Company incurs leasing costs in connection to various non-cancelable leases. Effective January 1, 2021, the Company elected to early adopt FASB ASC Topic 842, Leases, (“ASC 842”).
In accordance with ASC 842, at lease inception, the Company determines whether an arrangement is or contains a lease, and whether they will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations. For operating and finance leases: right-of-use (“ROU”) assets are recognized at the commencement date based on the present value of the future minimum lease payments over the lease term using the rate implicit in the lease, plus unamortized initial direct costs, plus any prepayments, less any unamortized lease incentives received; lease liabilities are recognized at the commencement date based on the present value of the future minimum lease payments over the lease term using the rate implicit in the lease. ROU assets represent the Company’s right to use leased assets over the term of the lease. Lease liabilities represent the Company’s contractual obligations to make lease payments over the lease terms.
Page 11
ImmunogenX, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 2023, 2022 AND 2021
Lease terms may include renewal or extension options to the extent they are reasonably certain to be exercised at lease commencement. When the rate implicit in the lease is not determinable, ASC 842 prescribes the use of the Company’s incremental borrowing rate at the commencement date, or a risk-free rate for privately held companies.
Operating leases and short-term leases recognize rent expense on a straight-line basis over the lease term. Finance leases recognize amortization and interest expense over the lease term. ROU assets are measured at cost, less any accumulated amortization and/or impairment losses over the period from the commencement date to the earlier of the end of the useful life of the ROU asset or the end of the lease term. Lease liabilities are measured on an amortized cost basis, which are increased to reflect interest on the liability and decreased to reflect the lease payments made during the period.
The Company made a policy election to use the risk-free discount rate to determine the ROU assets and lease liabilities related to its operating leases; finance leases use the rates implicit in the leases. In addition, the Company elected the short-term lease exception policy, permitting the Company to exclude the recognition requirements for leases with terms of 12 months or less from lease inception.
Grant Assistance Grant assistance from the government is recognized as income when grant is awarded or, if conditional, immediately once the condition is substantially met. Since US GAAP does not contain specific authoritative accounting guidance that addresses the recognition and measurement of government assistance received by a business entity, the Company accounted for the government grants by analogy to FASB ASC Topic 958-605, Not-for-Profit Entities – Revenue Recognition (“ASC 958-605”). Additionally, ASC 958-605 permits the recognition in earnings on a gross basis as grant revenue or other income. Accordingly, the Company elected to recognize the grant proceeds in other income and expenses on the accompanying statements of operations. For the years ended December 31, 2023, 2022, and 2021, the Company recognized grant income in the amounts of $910,577, $1,090,595, and $1,630,858, respectively.
Advertising and Marketing Advertising and marketing costs are expensed as incurred. The Company incurred advertising and marketing costs of $50,042, $87,081, and $88,388, which are included in general and administrative expenses on the accompanying statements of operations for the years ended December 31, 2023, 2022 and 2021, respectively.
Income Taxes The Company is a registered C-corporation in the state of Delaware. Under federal and state laws, C-corporations are subject to federal and state income taxes. The Company files income tax returns in the U.S. federal jurisdiction and California. The Company is subject to U.S. federal and state and local income tax examinations by tax authorities for the prior three years for federal returns and for the prior four years for state returns. No examinations are currently pending.
The Company uses the asset and liability method of accounting for income taxes in accordance with FASB ASC Topic 740, Income Taxes, where deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date. The Company provides a valuation allowance against its deferred tax assets when circumstances indicate that it will, more likely than not, no longer be realized.
Page 12
ImmunogenX, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 2023, 2022 AND 2021
The Company follows the provisions of uncertain tax positions as addressed in FASB ASC Subtopic 740-10, Income Taxes - Overall. The Company did not recognize any liabilities for unrecognized tax benefits as of December 31, 2023, 2022, and 2021, and has taken no tax positions as of December 31, 2023, 2022, and 2021 for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. The Company recognizes interest accrued related to unrecognized tax benefits in operating expenses. As of December 31, 2023, 2022, and 2021, the Company had no accruals for interest and penalties and no such interest or penalties were recognized during the years ended December 31, 2023, 2022, and 2021.
Measurement of Credit Losses on Financial Instruments In June 2016, the Financial Accounting Standards Board (“FASB”) issued amended guidance which replaced the incurred loss impairment methodology for measurement of credit losses on financial instruments with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates (the “current expected credit losses model” or “CECL”). Under the CECL, the allowance for losses on financial assets, measured at amortized cost, reflects management’s estimate of credit losses over the remaining expected life of such assets.
The Company adopted CECL as of January 1, 2023, using the modified retrospective method, with the cumulative-effect adjustment to the opening balance of stockholders’ equity as of the adoption date. As the Company is a clinical-stage company with minimal financial instruments that can be subject to credit losses, the cumulative effect of adopting CECL is immaterial.
| 3. | LIQUIDITY, RISKS, AND UNCERTAINTIES |
The Company is subject to the risks common to start-up, pre-revenue companies, including, among other factors, undercapitalization, cash shortages, limitations with respect to personnel, financial and other resources and lack of revenues. Drug development companies typically incur substantial losses during the product development and FDA testing phase of operations, and do not generate revenues until after the drug has received FDA approval, which cannot be assured, and the Company has started to sell the product.
For the years ended December 31, 2023, 2022, and 2021, the Company recorded net losses totaling $8,857,996, $3,623,159, $1,660,187, respectively, and net cash used in operating activities totaled $4,870,167, $4,321,502, $1,309,190, respectively. Cash flows are primarily dependent on debt financing and government grants.
Page 13
ImmunogenX, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 2023, 2022 AND 2021
| 4. | PROPERTY AND EQUIPMENT |
Property and equipment consist of the following:
| As of December 31, | 2023 | 2022 | 2021 | |||||||||
| Computer equipment | $ | 50,587 | $ | 46,678 | $ | 46,678 | ||||||
| Furniture and equipment | 28,874 | 28,874 | 28,874 | |||||||||
| Equipment | 23,881 | 23,881 | 23,881 | |||||||||
| 103,342 | 99,433 | 99,433 | ||||||||||
| Less: accumulated depreciation and amortization | (82,489 | ) | (72,979 | ) | (59,742 | ) | ||||||
| Property and equipment, net | $ | 20,853 | $ | 26,454 | $ | 39,691 | ||||||
Depreciation and amortization expense related to property and equipment for the years ended December 31, 2023, 2022, and 2021, amounted to $9,510, $13,237, and $13,282, respectively and are reported in general and administrative expenses on the accompanying statements of operations.
| 5. | PATENTS AND OTHER INTANGIBLE ASSETS |
Patents and other intangible assets were recorded in connection with an asset acquisition that occurred in 2016, The fair values of the patents and identifiable intangible assets were determined on a non-recurring basis by a third-party valuation specialist, in accordance with ASC 805.
The fair values of the patents and identifiable intangible assets acquired were determined using the income approach, specifically the risk-adjusted discounted cash flow method, and the cost approach, specifically the replacement value method, respectively. Significant assumptions used in estimating the fair value of the acquired intangible assets fall within Level 3 of the fair value hierarchy described by ASC 820, which includes forecasted revenue and expenses, probability of technical success, and replacement costs.
Patents and other intangible assets consisted of the following:
| As of December 31, 2023 | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||
| Patents | $ | 1,569,333 | $ | (900,882 | ) | $ | 668,451 | |||||
| Intellectual property | 19,200 | - | 19,200 | |||||||||
| Total | $ | 1,588,533 | $ | (900,882 | ) | $ | 687,651 | |||||
| As of December 31, 2022 | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||
| Patents | $ | 1,569,333 | $ | (787,087 | ) | $ | 782,246 | |||||
| Intellectual property | 19,200 | - | 19,200 | |||||||||
| Total | $ | 1,588,533 | $ | (787,087 | ) | $ | 801,446 | |||||
Page 14
ImmunogenX, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 2023, 2022 AND 2021
| As of December 31, 2021 | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||
| Patents | $ | 1,569,333 | $ | (673,291 | ) | $ | 896,042 | |||||
| Intellectual property | 19,200 | - | 19,200 | |||||||||
| Total | $ | 1,588,533 | $ | (673,291 | ) | $ | 915,242 | |||||
Patents are amortized over useful lives ranging from 8.5 to 18 years. The intellectual property consists of acquired in-process research and development with an alternative future use, which have an indefinite useful life until the in-development product is completed.
Amortization expense related to the patents for the years ended December 31, 2023, 2022, and 2021 amounted to $113,796 for each year, and is included in research and development expenses on the accompanying statements of operations.
Future amortization expense on the patents as of December 31, is estimated to be as follows:
| For the Years Ending December 31, | Amount | |||
| 2024 | $ | 111,531 | ||
| 2025 | 90,344 | |||
| 2026 | 87,464 | |||
| 2027 | 87,464 | |||
| 2028 | 72,953 | |||
| Thereafter | 218,695 | |||
| Total | $ | 668,451 | ||
| 6. | LEASE AND RELATED PARTY LEASE |
Adoption of ASC 842 The Company elected to apply the modified retrospective transition method, including the package of practical expedients and transition provisions available for expired or existing contracts, which allowed the Company to not reassess existing leases to determine 1) whether contracts are or contain leases, 2) lease classification and 3) if initial direct costs already capitalized meet the new definition of initial direct costs under ASC 842, to adopt ASC 842 as of January 1, 2021. As a result, the Company recognized an operating ROU lease asset in the amount of $105,946 and operating lease liability in the amount of $101,070, net of previously recognized prepaid rent of $4,877. There was no impact to opening equity.
ASC 842 Operating Lease The Company leases an office building under a non-cancelable operating lease, which expires in April 2024. A renewal option was not included in the lease; therefore, potential extensions were excluded from the Company’s ROU asset and lease liability as any extensions would be at the discretion of the lessor. The remaining lease term for the Company’s operating lease is 4 months. The discount rate is 0.78%.
For the years ended December 31, 2023, 2022, and 2021, rent expense related to the operating lease amounted to $32,155 each year. Variable lease payments related to the operating lease amounted to $10,810 for each year for the years ended December 31, 2023 and 2022, and there were no variable lease payments for the year ended December 31, 2021. Rent expense and variable lease payments are included in general and administrative expenses on the accompanying statements of operations.
Page 15
ImmunogenX, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 2023, 2022 AND 2021
Future minimum lease payments under the non-cancellable operating lease are as follows:
| Years Ending December 31, | Amount | |||
| 2024 | $ | 9,144 | ||
| 2025 | - | |||
| 2026 | - | |||
| 2027 | - | |||
| 2028 | - | |||
| Thereafter | - | |||
| Total | 9,144 | |||
| Less: amount representing interest | (15 | ) | ||
| Present value of minimum lease payments | 9,129 | |||
| Less: current portion of operating lease liability | (9,129 | ) | ||
| Operating lease liability, net of current portion | $ | - | ||
ASC 842 Short-Term Lease The Company leases a facility from a related-party under a short-term evergreen lease, in which the fixed monthly payments are expensed as incurred. For the years ended December 31, 2023, 2022, and 2021, short-term rent expense amounted to $12,000 each year, and is included in general and administrative expenses on the accompanying statements of operations.
| 7. | REVOLVING LINE OF CREDIT |
Revolver In October 2022, the Company entered into a credit agreement, which allows for a revolving line of credit (the “Revolver”), with a related party that allows for maximum borrowings up to $6,000,000, matures on October 1, 2024, and is collateralized by substantially all of the Company’s assets. The credit agreement was amended (the “Revolver Amendment”) in September 2023 to increase the maximum borrowings of the Revolver to $7,500,000. As of December 31, 2023 and 2022, the Revolver had outstanding borrowings in the amounts of $6,360,000 and $2,810,000, respectively, and available borrowings of $1,140,000 and $3,190,000, respectively. The Revolver bears interest per annum at Prime Rate plus 4.5%.
Revolver Deferred Debt Issuance Costs Upon execution of the Revolver, the Company incurred $60,000 of deferred debt issuance costs. As of December 31, 2023 and 2022, these deferred debt issuance costs, net of accumulated amortization, amounted to $22,500 and $52,500, respectively, and are included in other assets on the accompanying balance sheets. Amortization of deferred debt issuance costs for the years ended December 31, 2023 and 2022 amounted to $30,000 and $7,500, respectively, and are included in interest expense on the accompanying statements of operations.
Stock Warrants On October 1, 2022 and September 6, 2023, the Company issued Warrants to Purchase Common Stock (the “Warrants”) in conjunction with and pursuant to the terms of the Revolver to the lender. The Warrants issued on October 1, 2022 certifies that the holder is entitled to purchase from the Company 24,100 shares of common stock, and the Warrants issued on September 6, 2023 entitled the holder to purchase an additional 24,100 shares. In accordance with ASC 815, as the Warrants are not considered to be derivatives and are considered to be indexed to the Company’s own stock, the Warrants are accordingly classified as equity. As the Warrants were issued in connection with obtaining a line of credit, the Warrants were recorded at fair value as of the grant date. Issuing warrants to obtain a line of credit is equivalent to paying loan commitment fees; therefore, an asset is recognized in the amount of the fair value of the Warrants and amortized on a straight-line basis over the stated term of the Revolver.
Page 16
ImmunogenX, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 2023, 2022 AND 2021
The Warrants were recognized at a fair value of $32,294 and $49,871 on September 6, 2023 and October 1, 2022, respectively. The corresponding loan commitment fees, net of accumulated amortization, amounted to $41,058 and $43,637 as of December 31, 2023 and 2022, respectively, and is included in other assets on the accompanying balance sheets. Amortization expense related to the loan commitment fees amounted to $34,873 and $6,234 for the years ended December 31, 2023 and 2022, and is included in interest expense on the accompanying statements of operations.
The Company utilized the Black-Scholes option pricing model to value the Warrants. Significant assumptions used in estimating the fair value of the Warrants fall within Level 3 of the fair value hierarchy described by ASC 820 and are summarized below:
| Stock Warrants Assumptions | 2023 | 2022 | ||||||
| Price of stock at grant date | $ | 3.79 | $ | 2.42 | ||||
| Dividend yield | 0.00 | % | 0.00 | % | ||||
| Contractual term of warrants | 10 | 10 | ||||||
| Exercise price of option | $ | 8.00 | $ | 10.38 | ||||
| Risk-free interest rate | 4.62 | % | 3.83 | % | ||||
| Volatility | 36.3 | % | 108.00 | % | ||||
| 8. | NOTE PAYABLE AND RELATED PARTY PROMISSORY NOTES |
Note payable and related party promissory notes consists of the following:
| As of December 31, | 2023 | 2022 | 2021 | |||||||||
| EIDL loan bearing interest at 3.75% per annum, with interest payable monthly in arrears. All unpaid principal and interest are due at maturity on June 30, 2050. The loan is collateralized by substantially all of the Company’s assets. | $ | 500,000 | $ | 500,000 | $ | 500,000 | ||||||
| Total | 500,000 | 500,000 | 500,000 | |||||||||
| Less: current portion | - | - | - | |||||||||
| Note payable | $ | 500,000 | $ | 500,000 | $ | 500,000 | ||||||
| As of December 31, | 2023 | 2022 | 2021 | |||||||||
| Promissory notes due to related party bearing PIK interest at rates ranging from 5% to 8% per annum with principal and interest payable at maturity. The notes mature on various dates through July 2024. The promissory notes are collateralized by substantially all of the Company’s assets. | $ | 393,282 | $ | 269,481 | $ | 592,222 | ||||||
| Total | 393,282 | 269,481 | 592,222 | |||||||||
| Less: current portion | (393,282 | ) | (269,481 | ) | (592,222 | ) | ||||||
| Related party promissory note, net of current portion | $ | - | $ | - | $ | - | ||||||
Page 17
ImmunogenX, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 2023, 2022 AND 2021
Aggregate future minimum principal maturities of note payable and related party promissory notes are as follows:
| Years Ending December 31, | Amount | |||
| 2024 | $ | 393,282 | ||
| 2025 | - | |||
| 2026 | - | |||
| 2027 | - | |||
| 2028 | - | |||
| Thereafter | 500,000 | |||
| Total | $ | 893,282 | ||
| 9. | CONVERTIBLE NOTES |
On various dates throughout the years ended December 31, 2023, 2022, and 2021, the Company issued secured, convertible promissory notes (the “Convertible Notes”) with principal amounts totaling $1,380,000, $530,000, and $2,900,440, respectively, pursuant to the Convertible Promissory Note Purchase Agreements. The Convertible Notes provide for interest at a rate of 8% or 10% per annum, payable upon maturity. All principal and accrued interest are due 30 months from the date of issuance of the Convertible Notes unless the Convertible Notes are converted or repaid prior to the maturity date. The Convertible Notes mature on various dates through May 16, 2026, and upon maturity, the Convertible Notes are intended by the Company to be extended or converted to equity; accordingly, all Convertible Notes are classified as long-term. The Convertible Notes are collateralized by substantially all the assets of the Company.
At any time prior to the maturity date, the holders can elect to convert the Convertible Notes into the Company’s preferred stock at a conversion price equal to $10.38 or $20.00. Additionally, in the event that the Company issues and sells shares of its equity securities to investors (the “Investors”) on or before the date of the repayment in full of the Convertible Notes in an equity financing (a “Qualified Financing”) resulting in gross proceeds to the Company of at least $3,000,000, excluding the conversion of the Convertible Notes and other debt, then 100% of the outstanding principal balances, and any accrued but unpaid interest, shall automatically convert in whole into such equity securities at a per share conversion price equal to the lesser of (i) 80% of the per share price paid by the Investors, and otherwise on the same terms and conditions as given to the Investors or (ii) $10.38 or $20.00 per share. Furthermore, if a Qualified Financing has not occurred and the Company elects to consummate a sale of the Company prior to the maturity date of the Convertible Notes, at the option of the holder, the Company will (i) pay the holder of the Convertible Notes at closing an aggregate amount equal to 1.5 times principal and accrued interest, or (ii) allow conversion of the principal amount and accrued interest into shares of the Company’s preferred stock at the conversion price of $10.38 or $20.00 per share.
The conversion features in the event of a Qualified Financing or sale of the Company are embedded derivatives that would require separation from the host contract. However, the Company has elected the fair value option, and accordingly, the Convertible Notes were measured at fair value at issuance and subsequently remeasured on December 31, 2023, 2022, and 2021.
Page 18
ImmunogenX, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 2023, 2022 AND 2021
The fair values of the Convertible Notes were determined by a third-party valuation specialist using the Monte Carlo simulation method. Significant assumptions used in estimating the fair value of the Convertible Notes fall within Level 3 of the fair value hierarchy described by ASC 820, which includes the probability of scenarios occurring during the term of the note that would impact conversion of the Convertible Notes. Other key assumptions used to determine the fair value of the Convertible Notes are summarized below:
| Convertible Notes Assumptions | 2023 | 2022 | 2021 | |||||||||
| Risk-free interest rate | 3.7% - 5.2% | 4.3% - 4.6% | 0.3% - 0.8% | |||||||||
| Equity volatility | 68.0% - 89.0% | 85.0% - 117.0% | 97.0% - 113.0% | |||||||||
| Discount rate/IRR | 16.5% - 17.0% | 13.8% | 11.3% - 15.7% | |||||||||
| Return on invested capital multiple in dissolution | 0.35x | 0.35x | 0.11x - 0.25x | |||||||||
The fair value of the Convertible Notes are as follows:
| As of December 31, | 2023 | 2022 | 2021 | |||||||||
| Convertible notes principal balance | $ | 4,810,440 | $ | 3,430,440 | $ | 2,900,440 | ||||||
| Fair value adjustment | 3,853,364 | 238,134 | 48,017 | |||||||||
| Convertible notes | $ | 8,663,804 | $ | 3,668,574 | $ | 2,948,457 | ||||||
Loss related to the change in fair value of the Convertible Notes for the years ended December 31, 2023, 2022, and 2021 amounted to $3,615,230, $190,117, and $48,017, respectively, and is included in change in fair value of convertible notes on the accompanying statements of operations.
Interest expense related to the Revolver (see Note 7), note payable (see Note 8), related party promissory notes (see Note 8), and the Convertible Notes amounted to $1,048,183, $368,354, and $126,159 for the years ended December 31, 2023, 2022 and 2021, respectively, and is included in interest expense on the accompanying statements of operations.
| 10. | COMMITMENTS AND CONTINGENCIES |
Litigation The Company operates in a highly regulated industry and is subject to various regulatory and governmental laws and regulations. As a result, legal claims and regulatory proceedings may be instituted or asserted against the Company. The Company records accruals for contingencies to the extent that it concludes that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Additionally, the Company is subject to certain claims and legal matters that arise in the normal course of business. Management does not expect any such claims and legal actions to have a material adverse on the Company’s financial position, results of operations, or liquidity.
| 11. | STOCKHOLDERS’ DEFICIT |
The Company is authorized to issue common stock and preferred stock. Pursuant to the Company’s Certificate of Amendment of Certificate of Incorporation dated March 4, 2022, the Company is authorized to issue 2,000,000 shares of common stock (the “Common”), of which 1,009,925, 1,003,710, and 995,120 shares are issued and outstanding as of December 31, 2023, 2022, and 2021, respectively. In addition, the Company is authorized to issue 2,260,054 shares of preferred stock (the “Preferred”), in which all 2,260,054 shares are issued and outstanding as of December 31, 2023, 2022, and 2021. Both classes of shares have a par value of $0.0001 per share.
Page 19
ImmunogenX, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 2023, 2022 AND 2021
The following is a summary of the preferences, limitations, and rights of the holders of the Common and Preferred:
Preferred Dividends Dividends are noncumulative and payable to preferred shareholders only when and if declared by the Company’s Board of Directors in its sole discretion. To date, no dividends have been declared.
Liquidation In the event of any liquidation, dissolution or winding up of the Company, the holders of the Preferred shall be entitled to receive, prior and in preference to any distribution of the assets or surplus funds of the Company to the holders of the Common, an amount equal to the Original Issue Price per share plus any declared but unpaid dividends (the “Liquidation Preference”). After the payment of the Liquidation Preference to the holders of the Preferred, the holders of the Preferred and Common shall share pro rata in all remaining assets and funds on an as-converted basis.
A sale of substantially all of the assets of the Company, or a merger, consolidation, or reorganization or other transaction, in which holders of the Company’s voting power prior to such transaction will hold, post-transaction, less than 50% of the surviving entity’s voting power, shall be deemed to be a liquidation.
Optional Conversion Each share of Preferred, at the option of its holder, at any time after the date of issuance of such share, is convertible into such number of fully paid and nonassessable shares of common stock as is determined by dividing the Original Issue Price for each share of Preferred by the conversion price.
Automatic Conversion Each share of Preferred will automatically convert into common stock, at the then applicable conversion price upon the effective date of an underwritten public offering, pursuant to an effective registration statement under the Securities Act of 1933, of shares of the Common, provided that the aggregate gross proceeds of such offering are at least $20,000,000.
Voting Rights Each holder of shares of Common is entitled to one vote. Each holder of shares of Preferred is entitled to cast the number of votes equal to the number of whole shares of common stock into which such share of Preferred is convertible. The Preferred will vote together with the Common as a single class.
| 12. | COMMON STOCK AWARD ACTIVITY |
On August 1, 2013, the Company adopted the 2013 Profits Interest Award Plan (the “2013 Plan”), which provided for the grant of equity awards to employees and consultants of the Company. Subsequent to the Company’s conversion to a C-corporation in 2021, the Company adopted a stock option plan (the “2021 Plan”) pursuant to which the Company’s board of directors may grant stock options to executives, members of the board, consultants, and key employees.
Restricted Units Pursuant to the 2013 Plan, the Company granted restricted profit interest units (the “Profit Interest Units”) which vest over a range of less than a year to 5 years. In addition, upon consummation of the conversion of the Company from an LLC to a C-corporation, all awards granted under the 2013 Plan shall be converted into shares of the resulting corporation’s common stock or other awards or securities on terms and conditions which are substantially equivalent to the terms and conditions of the Profit Interest Units. In accordance with the 2013 Plan, upon conversion to a C-corporation, the Company issued one unit of common stock per unit of Profit Interest Units vested.
Page 20
ImmunogenX, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 2023, 2022 AND 2021
Under the 2013 Plan, the Company granted a total of 118,050 Profit Interest Units. As of December 31, 2023, 2022, and 2021, the number of vested units amounted to 109,925, 103,710, and 95,120, respectively, and were issued common stocks. For the years ended December 31, 2023, 2022, and 2021, the Company recognized $12,907, $17,597, and $22,929 of expense, respectively, based on the fair value of the common stock on the conversion date January 1, 2021, which is included in general and administrative expenses on the accompanying statements of operations. As of December 31, 2023, 2022, and 2021, there remains $13,025, $25,950, and $43,574, respectively, of unrecognized expenses.
The fair value of the Company’s common stock at the date of conversion was determined by a third-party valuation specialist using the Black-Scholes option pricing model. Significant assumptions used in estimating the fair value of the common stock fall within Level 3 of the fair value hierarchy described by ASC 820. The assumptions used and the conversion date fair value of the common stock are as follows:
| Common Stock Assumptions | 2021 | |||
| Dividend yield | 0.00 | % | ||
| Time to liquidity (years) | 3 | |||
| Risk-free interest rate | 0.2 | % | ||
| Volatility | 95.0 | % | ||
| Fair value at January 1, 2021 | $ | 2.14 | ||
Stock Options The 2021 Plan authorizes grants consisting of the Company’s authorized but unissued common stock. The 2021 Plan allows for the issuance of a maximum of 350,000 non-transferrable options, which are subject to time-based vesting. Granted stock options vest over a range of less than a year to 5 years. As of December 31, 2023, 2022, and 2021, there were 274,250, 291,050, and 299,800 shares, respectively, available for grant under the 2021 Plan. The 2021 Plan provide for incentive stock options for the issuance of options for common stock to employees of the Company and non-statutory stock options for the issuance of options for common stock to executives, members of the board, consultants, and employes. The options expire no more than 10 years after the date of grant or earlier if employment or relationship with the Company is terminated. The Company accounts for any forfeitures of options when they occur. In addition, previously recognized stock-based compensation expense for a non-vested award is reversed in the period that the award is forfeited.
Page 21
ImmunogenX, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 2023, 2022 AND 2021
A summary of stock option activity for the years ended December 31, 2023, 2022, and 2021 is presented below:
| Number of Options |
Exercise Price |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life (Years) |
|||||||||||||
| Balance, December 31, 2020 | - | $ | - | $ | - | |||||||||||
| Granted | 50,200 | 2.14 | 2.14 | |||||||||||||
| Exercised | - | - | - | |||||||||||||
| Forfeited | - | - | - | |||||||||||||
| Balance, December 31, 2021 | 50,200 | 2.14 | 2.14 | 9.2 | ||||||||||||
| Granted | 8,750 | 2.14 | 2.14 | |||||||||||||
| Exercised | - | - | - | |||||||||||||
| Forfeited | - | - | - | |||||||||||||
| Balance, December 31, 2022 | 58,950 | 2.14 | 2.14 | 8.4 | ||||||||||||
| Granted | 16,800 | 2.14 | 2.14 | |||||||||||||
| Exercised | - | - | - | |||||||||||||
| Forfeited | - | - | - | |||||||||||||
| Balance, December 31, 2023 | 75,750 | $ | 2.14 | $ | 2.14 | 7.8 | ||||||||||
Options exercisable for the years ended December 31, 2023, 2022, and 2021 are as follows:
| For the years ended December 31, | Number of Options |
Exercise Price |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life (Years) |
||||||||||||
| 2023 | 47,805 | $ | 2.14 | $ | 2.14 | 7.3 | ||||||||||
| 2022 | 28,690 | $ | 2.14 | $ | 2.14 | 8.2 | ||||||||||
| 2021 | 600 | $ | 2.14 | $ | 2.14 | 9.6 | ||||||||||
The Company utilized the Black-Scholes option pricing model to value the stock options. Significant assumptions used in estimating the fair value of the stock options fall within Level 3 of the fair value hierarchy described by ASC 820. The assumptions used and the weighted average grant date fair value of the stock options are as follows:
| Stock Options Assumptions | 2023 | 2022 | 2021 | |||||||||
| Price of stock at grant date | $3.53 - $3.79 | $3.34 - $3.90 | $ | 3.34 | ||||||||
| Dividend yield | 0.00 | % | 0.00 | % | 0.00 | % | ||||||
| Years to maturity/liquidity event | 3 | 3 | 3 | |||||||||
| Risk-free interest rate | 4.10% - 4.60% | 1.00% - 4.20% | 1.0 | % | ||||||||
| Volatility | 79.0% - 98.0% | 105.0% - 108.0% | 105.0 | % | ||||||||
| Weighted average fair value | $ | 2.95 | $ | 2.80 | $ | 2.77 | ||||||
The Company recognized stock-based compensation expense under the 2021 Plan totaling $66,235, $48,583, and $35,475 for the years ended December 31, 2023, 2022, and 2021, which is included in general and administrative expenses on the accompanying statements of operations. As of December 31, 2023, 2022, and 2021, there remains $63,304, $79,512, and $103,579, respectively, of unrecognized stock-based compensation expense, and the weighted-average period over which the stock-based compensation is expected to be recognized is over 1.2 years, 1.8 year, and 2.4 years, respectively.
Page 22
ImmunogenX, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 2023, 2022 AND 2021
| 13. | FEDERAL GRANTS AWARDED |
The Company was awarded a 5-year federal grant (the “5-year Grant”) from the National Institute of Allergy and Infectious Diseases for Phase 1 and Phase 2 testing. The 5-year Grant was intended for the project period from 2019 – 2023, and in total, the Company was awarded approximately $3,200,000 to cover salaries and wages, materials and supplies, and other indirect costs, such as employee benefits, consultant services, and travel, for clinical testing trials. Additionally, the Company was awarded a 3-year federal grant (the “3-year Grant”) from the National Institute of Diabetes and Digestive and Kidney Diseases for Phase 1 and Phase 2 testing. The 3-year Grant was intended for the project period from 2019 – 2021, and in total, the Company was awarded $2,200,000 to cover salaries and wages, and other indirect costs, such as employee benefits, consultant services, and travel, for clinical testing trials. The Company receives payouts from the grants as reimbursements, which are recognized as other income when received, when previously agreed upon milestones and conditions of the grants are substantially met. For the years ended December 31, 2023, 2022, and 2021, the Company recognized grant income in the amounts of $910,577, $1,090,595, and $1,630,858, respectively, which are included in grant income on the accompanying statements of operations.
| 14. | INCOME TAXES |
The income tax provision consists of the following:
| For the Year Ended December 31, | 2023 | 2022 | 2021 | |||||||||
| Current: | ||||||||||||
| Federal | $ | - | $ | - | $ | - | ||||||
| State | 791 | 800 | 1,722 | |||||||||
| Total current | 791 | 800 | 1,722 | |||||||||
| Deferred: | ||||||||||||
| Federal | - | - | - | |||||||||
| State | - | - | - | |||||||||
| Total deferred | - | - | - | |||||||||
| Income tax expense | $ | 791 | $ | 800 | $ | 1,722 | ||||||
Page 23
ImmunogenX, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 2023, 2022 AND 2021
The cumulative temporary differences comprising the deferred tax assets (liabilities) are as follows:
| As of December 31, | 2023 | 2022 | 2021 | |||||||||
| Deferred tax assets: | ||||||||||||
| Accrued vacation | $ | 20,986 | $ | 19,964 | $ | 15,570 | ||||||
| Intangible assets | 40,247 | 28,218 | 16,188 | |||||||||
| Convertible note fair value adjustment | 1,149,844 | 71,059 | 14,328 | |||||||||
| Stock-based compensation | 48,568 | 30,334 | 17,428 | |||||||||
| Net operating loss | 2,917,127 | 835,577 | 440,007 | |||||||||
| Total deferred tax assets | 4,176,772 | 985,131 | 503,521 | |||||||||
| Deferred tax liabilities: | ||||||||||||
| Operating lease ROU asset | (470 | ) | (2,649 | ) | (2,978 | ) | ||||||
| Fixed assets | (1,177 | ) | (1,753 | ) | (3,440 | ) | ||||||
| Federal effect of state deferred tax asset | (251,993 | ) | (60,820 | ) | (31,222 | ) | ||||||
| Prepaid expenses | - | (2,053 | ) | - | ||||||||
| Total deferred tax liabilities | (253,640 | ) | (67,275 | ) | (37,640 | ) | ||||||
| Net deferred tax asset | 3,923,132 | 917,877 | 465,881 | |||||||||
| Less: valuation allowance | (3,923,132 | ) | (917,877 | ) | (465,881 | ) | ||||||
| Total | $ | - | $ | - | $ | - | ||||||
As of December 31, 2023, 2022, and 2021, based on the projections for future reversal of existing taxable temporary differences and future taxable income over the periods in which the deferred tax assets are deductible, management believes there is not sufficient evidence to conclude that it is more likely than not that the results of future income will generate sufficient taxable income to realize all of the deferred tax assets. Therefore, a full valuation allowance has been applied to the net deferred tax assets as of December 31, 2023, 2022, and 2021.
As of December 31, 2023, 2022, and 2021, $9,945,405, $2,799,337, and $1,469,316, respectively, of federal net operating losses and $9,373,211, $2,802,220, and $1,486,993, respectively, of state net operating losses were available to the Company to offset future taxable income, which will expire in various years through 2044 for state tax purposes. Federal net operating losses originating after 2017 will carryforward indefinitely subject to 80% of taxable income for taxable years beginning on or after January 1, 2021.
| 15. | SUBSEQUENT EVENTS |
The Company has evaluated subsequent events that have occurred from January 1, 2024 through the independent auditor’s report date, which is the date that the financial statements were available to be issued, and determined that there were no subsequent events or transactions that required recognition or disclosure in the financial statements, except as disclosed below:
Sale of the Company In December 2023, the Company signed a non-binding term sheet for a business combination with First Wave BioPharma, Inc. (“FWBI”), a publicly traded company. Pursuant to the term sheet, FWBI will acquire the Company in an all-stock transaction. As of the date of the independent auditor’s report, the transaction had not yet closed.
Page 24
ImmunogenX, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 2023, 2022 AND 2021
Convertible Notes Amendment In February 2024, the Company amended the terms of two of the Convertible Notes to align with the terms of all other Convertible Notes. Terms amended includes the conversion price, which was changed from $20.00 per share to $10.38 per share, and the interest rate, which was changed from 10% to 8%. All other terms remained the same.
Additionally, Convertible Notes with a maturity date of December 31, 2023 and January 1, 2024 have been extended due to the pending sale of the Company mentioned above, with the exception of one note with a principal balance of $300,000. Repayment of principal and accrued interest in the aggregate amount of $362,000 were made on January 29, 2024, which was funded by the issuance of additional convertible notes (the “2024 Convertible Notes”) totaling $360,000 to existing investors on January 24, 2024. The 2024 Convertible Notes bears interest at a rate of 8%, has a conversion price of $10.38, and matures on July 24, 2026.
Page 25
Exhibit 99.2
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information has been prepared in accordance with Article 11 of Regulation S-X under the Securities Act of 1933, as amended (the “Securities Act”) and presents the combined historical financial position and results of operations of First Wave BioPharma, Inc. (“First Wave” or the “Company”) and the historical financial position and results of operations of ImmunogenX, Inc. (“ImmunogenX”), adjusted to give effect to (i) the March 13, 2024 (“Closing Date”) acquisition of ImmunogenX as further described below (the “Transaction”) and (ii) the pro forma effects of certain assumptions and adjustments described in “Notes to the Pro Forma Combined Financial Information” below.
The following unaudited pro forma combined financial information is presented to illustrate the estimated effects of the Transaction, based on the historical financial statements and accounting records of First Wave and ImmunogenX after giving effect to these transactions and the related pro forma adjustments as described in the notes included below.
The unaudited pro forma combined balance sheet as of December 31, 2023 gives effect to the Transaction as if it took place on December 31, 2023 and combines the historical balance sheets of First Wave and ImmunogenX as of such date. The unaudited pro forma combined statement of operations for the year ended December 31, 2023, combines the historical statements of operations of First Wave and ImmunogenX, giving effect to the Transaction as if it had occurred on January 1, 2023.
First Wave was preliminarily determined to be the accounting acquirer based upon the terms of the Transaction and other factors including First Wave’s security holders retaining voting control. The historical financial statements of First Wave and ImmunogenX have been adjusted to give pro forma effect to events that are (1) directly attributable to the Transaction, (2) factually supportable, and (3) with respect to the unaudited pro forma combined statements of operations, expected to have a continuing impact on the combined results of operations of the combined company. The unaudited pro forma combined financial statements should be read in conjunction with the accompanying notes to the unaudited pro forma combined financial statements.
The unaudited pro forma combined financial information, including the notes thereto, should be read in conjunction with the separate First Wave and ImmunogenX historical financial statements referenced or included as exhibits to this Form 8-K/A.
These unaudited pro forma combined financial statements are for informational purposes only. They do not purport to indicate the results that would have been obtained had the Business Combination and related transactions actually been completed on the assumed date or for the period presented, or which may be realized in the future. The pro forma adjustments are based on the information currently available and the assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes. Actual results may differ materially from the assumptions within the accompanying unaudited pro forma condensed consolidated combined financial information.
Description of the Business Combination
On March 13, 2024, First Wave acquired ImmunogenX in accordance with the terms of an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, IMMUNO Merger Sub I, Inc., a Delaware corporation (“First Merger Sub”), IMMUNO Merger Sub II, LLC, a Delaware limited liability company (“Second Merger Sub”), and ImmunogenX. Pursuant to the Merger Agreement, First Merger Sub merged with and into ImmunogenX, pursuant to which ImmunogenX was the surviving corporation (the “First Merger”). Immediately following the First Merger, ImmunogenX merged with and into Second Merger Sub, pursuant to which Second Merger Sub was the surviving entity and a wholly owned subsidiary of the Company (the “Second Merger” and together with the First Merger, the “Merger”). The Merger is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes.
Under the terms of the Merger Agreement, upon the consummation of the Merger on March 13, 2024 (the “Closing”), in exchange for the outstanding shares of capital stock of ImmunogenX immediately prior to the effective time of the First Merger, the Company issued to the stockholders of ImmunogenX an aggregate of (A) 36,830 shares of common stock of the Company, par value $0.0001 per share (the “Common Stock”), and (B) 11,777.418 shares of Series G Preferred Stock (as defined and described below), each share of which is convertible into 1,000 shares of Common Stock, subject to certain conditions described below. In addition, the Company assumed (i) all ImmunogenX stock options immediately outstanding prior to the First Merger, each becoming an option to purchase Common Stock subject to adjustment pursuant to the terms of the Merger Agreement (the “Assumed Options”) and (ii) all ImmunogenX warrants immediately outstanding prior to the First Merger, each becoming a warrant to purchase Common Stock subject to adjustment pursuant to the terms of the Merger Agreement (the “Assumed Warrants”). The Assumed Options are exercisable for an aggregate of 200,652 shares of Common Stock, have an exercise price of $0.81 and expire between February 1, 2031 and June 6, 2033. The Assumed Warrants are exercisable for and aggregate of 127,680 shares of Common Stock, have exercise prices ranging from $3.02 to $3.92 and expire between September 30, 2032 and September 6, 2033.
Pursuant to the Merger Agreement, the Company has agreed to hold a stockholders’ meeting to submit the following matters to its stockholders for their consideration: (i) the approval of the conversion of shares of Series G Preferred Stock into shares of Common Stock in accordance with the rules of the Nasdaq Stock Market LLC (the “Conversion Proposal”) and (ii) if deemed necessary or appropriate by the Company or as otherwise required by applicable law or contract, the approval of an amendment to the Company’s certificate of incorporation, as amended (the “Charter”), to authorize sufficient shares of Common Stock for the conversion of Series G Preferred Stock issued pursuant to the Merger Agreement (the “Share Increase Proposal” and together with the Conversion Proposal, the “Meeting Proposals”).
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF DECEMBER 31, 2023
| First Wave (Historical) | ImmunogenX (Historical) | Transaction Accounting Adjustments | Notes | Pro Forma Combined | ||||||||||||||
| ASSETS | ||||||||||||||||||
| Current assets: | ||||||||||||||||||
| Cash and cash equivalents | $ | 3,711,770 | $ | 251,266 | $ | — | $ | 3,963,036 | ||||||||||
| Accounts receivable | — | — | — | — | ||||||||||||||
| Prepaid expenses and other current assets | 1,244,466 | 3,068,344 | — | 4,312,810 | ||||||||||||||
| Total current assets: | 4,956,236 | 3,319,610 | — | 8,275,846 | ||||||||||||||
| Property, equipment, and leasehold improvements, net | 14,565 | 20,853 | — | 35,418 | ||||||||||||||
| Restricted cash | 21,522 | — | — | 21,522 | ||||||||||||||
| Operating lease right-of-use asset, net | 195,440 | 10,704 | — | 206,144 | ||||||||||||||
| Patents, net | — | 668,451 | (528,451 | ) | I | 140,000 | ||||||||||||
| In process R&D assets | — | — | 63,000,000 | I | 63,000,000 | |||||||||||||
| Other intangible assets | — | 19,200 | 210,800 | I | 230,000 | |||||||||||||
| Goodwill | 1,684,182 | — | 17,962,939 | C | 19,647,121 | |||||||||||||
| Deposits | 11,250 | — | — | 11,250 | ||||||||||||||
| Other assets | — | 63,558 | (17,000 | ) | I | 46,558 | ||||||||||||
| Total assets | $ | 6,883,195 | $ | 4,102,376 | $ | 80,628,288 | $ | 91,613,859 | ||||||||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||||||||||||
| Current liabilities: | ||||||||||||||||||
| Accounts payable | $ | 554,277 | $ | 399,283 | $ | — | $ | 953,560 | ||||||||||
| Accrued expenses and other current liabilities | 825,290 | 2,008,888 | 1,444,763 | A | 4,278,941 | |||||||||||||
| Accrued dividend payable | 1,069,616 | — | — | 1,069,616 | ||||||||||||||
| Current portion of operating lease liability | 67,111 | 9,129 | — | 76,240 | ||||||||||||||
| Short-term note payable | 612,784 | — | — | 612,784 | ||||||||||||||
| Related party promissory note | — | 393,282 | — | 393,282 | ||||||||||||||
| Revolving line of credit | — | 6,360,000 | — | 6,360,000 | ||||||||||||||
| Other current liabilities | 4,239 | — | — | 4,239 | ||||||||||||||
| Total current liabilities | 3,133,317 | 9,170,582 | 1,444,763 | 13,748,662 | ||||||||||||||
| Non-current operating lease liabilities | 146,949 | — | — | 146,949 | ||||||||||||||
| Deferred tax liability | — | — | 15,431,108 | I | 571,221 | |||||||||||||
| (14,859,887 | ) | L | ||||||||||||||||
| Convertible notes | — | 8,663,804 | (8,663,804 | ) | D | — | ||||||||||||
| Note payable | — | 500,000 | (462,000 | ) | I | 38,000 | ||||||||||||
| Total liabilities | 3,280,266 | 18,334,386 | (7,109,820 | ) | 14,504,832 | |||||||||||||
| Temporary equity: | ||||||||||||||||||
| Series G convertible preferred stock | — | — | 57,790,474 | E | 57,790,474 | |||||||||||||
| — | — | 3,890,626 | B | 3,890,626 | ||||||||||||||
| Total temporary equity | — | — | 61,681,100 | 61,681,100 | ||||||||||||||
| Stockholders' deficit: | ||||||||||||||||||
| Preferred stock | — | 226 | (226 | ) | F | — | ||||||||||||
| Common stock | 156 | 101 | (101 | ) | F | 162 | ||||||||||||
| 4 | G | |||||||||||||||||
| 2 | B | |||||||||||||||||
| Additional paid-in capital | 187,931,445 | 4,608,364 | (4,608,364 | ) | F | 190,352,587 | ||||||||||||
| 240,496 | G | |||||||||||||||||
| 2,060,000 | H | |||||||||||||||||
| 120,646 | B | |||||||||||||||||
| Accumulated deficit | (184,328,672 | ) | (18,840,701 | ) | 18,840,701 | F | (174,924,823 | ) | ||||||||||
| (1,444,763 | ) | A | ||||||||||||||||
| (4,011,275 | ) | B | ||||||||||||||||
| 14,859,887 | L | |||||||||||||||||
| Total stockholders' deficit | 3,602,929 | (14,232,010 | ) | 26,057,008 | 15,427,927 | |||||||||||||
| Total liabilities, temporary equity and stockholders' deficit | $ | 6,883,195 | $ | 4,102,376 | $ | 80,628,288 | $ | 91,613,859 | ||||||||||
See accompanying notes to the unaudited pro forma combined financial statements.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2023
| First Wave (Historical) | ImmunogenX (Historical) | Transaction Accounting Adjustments | Notes | Pro Forma Combined | ||||||||||||||
| Operating expenses: | ||||||||||||||||||
| General and administrative | $ | 10,737,609 | $ | 2,308,851 | $ | 1,444,763 | A | $ | 14,491,223 | |||||||||
| 4,011,275 | B | 4,011,275 | ||||||||||||||||
| Research and development | 5,033,218 | 2,828,531 | — | 7,861,749 | ||||||||||||||
| Total operating expenses (recovery) | 15,770,827 | 5,137,382 | 5,456,038 | 26,364,247 | ||||||||||||||
| Other income (expense): | ||||||||||||||||||
| Grant income | — | 910,577 | — | 910,577 | ||||||||||||||
| Change in fair value of convertible notes | — | (3,615,230 | ) | — | (3,615,230 | ) | ||||||||||||
| Interest expense | (22,463 | ) | (1,083,056 | ) | — | (1,105,519 | ) | |||||||||||
| Interest income | 2,531 | — | — | 2,531 | ||||||||||||||
| Other income, net | — | 67,886 | — | 67,886 | ||||||||||||||
| Other expense | (4,224 | ) | — | (108,333 | ) | J | (112,557 | ) | ||||||||||
| Total other income (expense), net | (24,156 | ) | (3,719,823 | ) | (108,333 | ) | (3,852,312 | ) | ||||||||||
| Loss before provision (benefit) for income taxes | (15,794,983 | ) | (8,857,205 | ) | (5,564,371 | ) | (30,216,559 | ) | ||||||||||
| Provision (benefit) for state income taxes | — | 791 | (14,859,887 | ) | L | (14,859,096 | ) | |||||||||||
| Net loss | (15,794,983 | ) | (8,857,996 | ) | 9,295,516 | (15,357,463 | ) | |||||||||||
| Preferred stock dividends | (308,128 | ) | — | — | (308,128 | ) | ||||||||||||
| Net loss applicable to common shareholders | $ | (16,103,111 | ) | $ | (8,857,996 | ) | $ | 9,295,516 | $ | (15,665,591 | ) | |||||||
| Basic weighted average shares outstanding | 336,342 | 1,007,696 | 391,648 | |||||||||||||||
| Diluted weighted average shares outstanding | 336,342 | 1,007,696 | K | 391,648 | ||||||||||||||
| Net (loss) income per share - basic | $ | (47.88 | ) | $ | (8.79 | ) | $ | (40.00 | ) | |||||||||
| Net (loss) income per share - diluted | $ | (47.88 | ) | $ | (8.79 | ) | $ | (40.00 | ) | |||||||||
See accompanying notes to the unaudited pro forma combined financial statements.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Note 1. Basis of Presentation
The unaudited pro forma combined financial information was prepared using the acquisition method of accounting and is based on the historical financial statements of First Wave and ImmunogenX. The acquisition method of accounting is based on Accounting Standards Codification (“ASC”) 805, Business Combinations, with the Company as the accounting acquirer, and uses the fair value concepts defined in ASC 820, Fair Value Measurement.
ASC 805 requires, among other things, that most assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. In addition, ASC 805 requires that the consideration transferred be measured at the date the acquisition is completed at the then-current market price.
ASC 820 defines the term “fair value,” sets forth the valuation requirements for any asset or liability measured at fair value, expands related disclosure requirements and specifies a hierarchy of valuation techniques based on the nature of the inputs used to develop the fair value measures. Fair value is defined in ASC 820 as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” This is an exit price concept for the valuation of the asset or liability. In addition, market participants are assumed to be buyers and sellers in the principal (or the most advantageous) market for the asset or liability. Fair value measurements for an asset assume the highest and best use by these market participants. As a result of these standards, First Wave may be required to record the fair value of assets which are not intended to be used or sold and/or to value assets at fair value measures that do not reflect First Wave’s intended use of those assets. Many of these fair value measurements can be highly subjective, and it is possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts.
Under the acquisition method of accounting, the assets acquired and liabilities assumed are recorded, as of the completion of the acquisition, primarily at their respective fair values, with the excess of the purchase consideration over the fair value of ImmunogenX’s net assets, allocated to goodwill, if any, and added to those of First Wave. Financial statements and reported results of operations of First Wave issued after completion of the acquisition will reflect these values and will not be retroactively restated to reflect the historical financial position or results of operations of ImmunogenX. The pro forma allocation of the purchase price reflected in the unaudited pro forma combined financial information is preliminary and thus subject to adjustment and may vary materially from the final purchase price allocation that will be completed within the measurement period, but in no event later than one year following the Closing Date.
Under ASC 805, acquisition-related transaction costs (e.g., advisory, legal and other professional fees) are not included as a component of consideration transferred but are accounted for as expenses in the periods in which such costs are incurred. Total acquisition-related transaction costs expected to be incurred by First Wave are estimated to be $5,456,038 (including amounts paid in cash and amounts paid through the issuance of Series G preferred stock and common stock) and incurred after December 31, 2023. These acquisition related transaction costs are reflected as a pro forma adjustment to the unaudited pro forma combined statements of operations.
The unaudited pro forma combined financial statements do not include any adjustments to the realization of any costs (or cost savings) from operating efficiencies, synergies, or other restructuring activities that might result from the Transaction. The pro forma adjustments represent management’s best estimates and are based upon currently available information and certain assumptions that the Company believes are reasonable under the circumstances.
The unaudited pro forma combined financial information is presented for informational purposes only and does not necessarily indicate the financial results of the combined company had the companies been combined at the beginning of the period presented, nor does it necessarily indicate the results of operations in future periods or the future financial position of the combined company.
Note 2. Accounting Policies and Reclassifications
Upon consummation of the Transaction, the Company performed a comprehensive review of the two entities’ accounting policies. Based on its analysis, the Company did not identify any differences that would have a material impact on the unaudited pro forma combined financial information. As a result, the unaudited pro forma combined financial information does not assume any differences in accounting policies.
As part of the preparation of these unaudited pro forma combined financial statements, certain reclassifications were made to align ImmunogenX’s financial statement presentation with that of First Wave.
Accounting for Stock Option and Warrants Conversion
The Company accounts for stock-based compensation arrangements with employees and non-employee consultants using a fair value method which requires the recognition of compensation expense for costs related to all stock-based payments, including stock options. As of the Closing Date, each ImmunogenX option prior to the business combination that is then outstanding will be converted into an option to purchase shares of First Wave common stock upon substantially the same terms and conditions as are in effect with respect to such option immediately prior to the Closing Date, subject to specific terms and conditions. Depending on the fair value measurement of the replacement awards and vesting conditions, either all or a portion of the fair value-based measure of the replacement awards will be included in measuring the consideration transferred in the asset acquisition. As the fair value measurement of the replacement awards is the same as compared to the historical awards, the fair value of the awards will be included in the consideration.
Note 3. Consideration Transferred
The preliminary fair value of the consideration totaled $60,090,974, summarized as follows:
| Shares | Amount | |||||||
| Common Stock of First Wave issued to ImmunogenX shareholders | 36,830 | $ | 240,500 | |||||
| Series G Preferred Stock of First Wave issued to ImmunogenX shareholders | 11,777 | 57,790,474 | ||||||
| ImmunogenX stock options and warrants allocated to total consideration paid | 2,060,000 | |||||||
| Total consideration | $ | 60,090,974 | ||||||
Note 4. Preliminary Estimates of Assets Acquired and Liabilities Assumed
The Company recorded the assets acquired and liabilities assumed as of the date of the acquisition based on the information available at that date. The following table presents the preliminary allocation of the total consideration paid to the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date, and includes a reconciliation to the total consideration transferred:
| Amount | ||||
| Assets acquired | ||||
| Cash and cash equivalents | 88,000 | |||
| Prepaid expenses and other current assets | 3,132,000 | |||
| Property, plant and equipment, net | 19,000 | |||
| Other long term assets | 4,000 | |||
| Patents | 140,000 | |||
| Trade names and trademarks | 230,000 | |||
| In process research and development assets | 63,000,000 | |||
| Goodwill | 18,351,108 | |||
| Total assets acquired | 84,964,108 | |||
| Liabilities assumed | ||||
| Accounts payable | 916,000 | |||
| Accrued expenses and other current liabilities | 855,000 | |||
| Deferred tax liability | 15,431,108 | |||
| Short term debt | 7,633,000 | |||
| Long term debt | 38,000 | |||
| Total liabilities assumed | 24,873,108 | |||
| Net assets acquired | $ | 60,091,000 | ||
The above allocation of the purchase price is based upon certain valuations and other analyses that have not been completed as of the date of this filing. Any changes in the estimated fair values of the net assets recorded for this business combination upon the finalization of more detailed analyses of the facts and circumstances that existed at the date of the Transaction will change the allocation of the purchase price. As such, the purchase price allocations for the acquisition are preliminary estimates, which are subject to change within the measurement period.
As of the completion of the acquisition, identifiable intangible assets are required to be measured at fair value, and these acquired assets could include assets that are not intended to be used or sold or that are intended to be used in a manner other than their highest and best use. For purposes of these unaudited pro forma combined financial statements and consistent with the ASC 820 requirements for fair value measurements, it is assumed that all acquired assets will be used, and that all acquired assets will be used in a manner that represents the highest and best use of those acquired assets.
The goodwill recorded related to the acquisition is the excess of the fair value of the consideration transferred by the acquirer over the fair value of the net identifiable assets acquired and liabilities assumed at the date of acquisition. The goodwill recorded is not deductible for tax purposes.
Note 5. Pro Forma Adjustments
The unaudited pro forma combined financial information includes pro forma adjustments that are (1) directly attributable to the Transaction (2) factually supportable, and (3) with respect to the unaudited pro forma combined statements of operations, expected to have a continuing impact on the results of operations of the combined company.
The pro forma adjustments reflecting the completion of the transaction are based upon the accounting analysis conclusion that the Transaction should be accounted for under the acquisition method of accounting and upon the assumptions set forth below.
The pro forma adjustments, based on preliminary estimates that may change significantly as additional information is obtained, are as follows:
| A. | Reflects the accrual of First Wave transaction costs of $1,444,763 to be paid in cash upon consummation of the Transaction. |
| B. | Reflects First Wave Acquisition Transaction advisory fee of $4,011,275 that was paid in the form of common and preferred stock. |
| C. | Reflects the excess consideration paid to acquire ImmunogenX over the net assets acquired. |
| D. | Reflects the conversion of the ImmunogenX convertible note into common shares of ImmunogenX immediately prior to the Transaction. |
| E. | Issuance of 11,777 shares of Series G convertible preferred stock upon consummation of the Transaction. |
| F. | Elimination of ImmunogenX historical equity carrying values. |
| G. | Issuance of 36,830 shares of common stock upon consummation of the Transaction. |
| H. | Issuance of 127,680 replacement warrants with a fair value of $789,000 and 200,652 options with a fair value of $1,271,000 included in the consideration transferred. |
| I. | Reflects application of purchase accounting under the acquisition method. |
| J. | Reflects amortization expense for patents and trade names/trademarks with useful lives of two and fifteen years, respectively. |
| K. | Anti-dilutive common share equivalents excluded from the computation of diluted net loss per share at December 31, 2023 consisted of 127,680 warrants, 200,652 stock options, and 11,777 Series G Convertible Preferred shares convertible into 11,777,418 common shares. |
| L. | Reflects reversal of the valuation allowance and recognition of an income tax benefit as a result of the transaction. |