ITEM 7. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and
analysis of our financial condition and plan of operations together with and our accompanying financial statements and the related notes
appearing elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion and analysis contains
forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed
below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those
discussed in the section titled “Risk Factors” included elsewhere in this Annual Report on Form 10-K. All amounts in this
report are in U.S. dollars, unless otherwise noted.
Overview
We are a biotechnology company dedicated to developing
treatments for kidney disease that have the potential to offer medical benefit. Our development programs are focused on the development
of two novel therapies: Renazorb, for treatment of hyperphosphatemia in patients with chronic kidney disease, and UNI 494, for treatment
of acute kidney injury (AKI).
Chronic kidney disease (CKD) is the gradual loss
of kidney function that can get worse over time leading to lasting damage. Our initial focus is developing drugs and getting them approved
in the US, and then look to partner with the other global biopharmaceutical companies in the rest of the world. According to estimates
by The Centers for Disease Control and Prevention (CDC) in 2019, 37 million (approximately 15%) adults in the United States have CKD
and, of these, approximately 2 million patients with CKD stage 3-5, and around 400 thousand patients with end-stage renal disease (ESRD)
have hyperphosphatemia. In the European Union (EU), around 20 million (approximately 8%) adults have CKD, more than 1 million CKD stage
3-5 patients, and approximately 180 thousand patients with ESRD have hyperphosphatemia. The number of patients with ESRD is increasing
steadily and is projected to reach between 971,000 and 1,259,000 in 2030.
AKI is a sudden episode of kidney failure or
kidney damage (within the first 90 days of injury). After 90 days, the patient is considered to have progressed into CKD. AKI affects
over 2 million US patients and costs the healthcare system over $9 billion per year. AKI kills more than 300,000 patients per year in
the US and is caused by multiple etiologies.
Our business model is to license technologies
and drugs and pursue development, regulatory approval, and commercialization of those products in global markets. Many biotechnology
companies utilize similar strategies of in-licensing and then developing and commercializing drugs. We believe, however, that our management
team’s broad network, expertise in the biopharmaceutical industry, and successful track record gives us an advantage in identifying
and bringing these assets into the Company at an attractive price with limited upfront cost.
Since our formation we have devoted substantially
all of our resources to developing our product candidates. We have incurred significant operating losses to date. Our net losses were
$10.0 million and $18.1 million for the years ended December 31, 2021 and 2022. As of December 31, 2022, we had an accumulated
deficit of $34.0 million. We expect that our operating expenses will increase significantly as we advance our product candidates
through pre-clinical and clinical development, seek regulatory approval, and prepare for and, if approved, proceed to commercialization;
acquire, discover, validate and develop additional product candidates; obtain, maintain, protect and enforce our intellectual property
portfolio; and hire additional personnel.
We have funded our operations primarily from
the sale and issuance of common stock, convertible promissory notes and from a loan, including cash and deferred salary from our Chief
Executive Officer and principal stockholder.
Our ability to generate
product revenue will depend on the successful development, regulatory approval and eventual commercialization of our current product
candidates and future product candidates. Until such time as we can generate significant revenue from product sales, if ever, we expect
to finance our operations through private or public equity or debt financings, collaborative or other arrangements with corporate sources,
or through other sources of financing. Adequate funding may not be available to us on acceptable terms, or at all. If we fail to raise
capital or enter into agreements to raise capital as and when needed, we may have to significantly delay, scale back or discontinue the
development and commercialization of our current product candidates and future product candidates.
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We plan to continue
to use third-party service providers, including contract manufacturing organizations, to carry out our pre-clinical and clinical development
and to manufacture and supply the materials to be used during the development and commercialization of our product candidates.
Recent Developments
On March 3, 2023, we entered into a securities
purchase agreement (the “Purchase Agreement”) with certain accredited investors (the “Investors”), pursuant to
which we agreed to issue and sell, in a private placement (the “Offering”), 30,190 shares of Series A-1 Convertible Preferred
Stock, par value $0.001 per share (the “Series A-1 Preferred Stock”), which offering will result in up to $130 million in
gross proceeds and initial upfront funding of $30 million.
Pursuant to the Certificate of Designation of
Preferences, Rights and Limitations of the Series A Convertible Voting Preferred Stock (the “Certificate of Designation”),
each share of Series A-1 Preferred Stock is, subject to the Stockholder Approval (as defined below), convertible into a unit (“Unit”)
consisting of (i) shares of common stock, par value $0.001 per share (the “Common Stock”) and, if applicable, shares of Series
A-2 Convertible Preferred Stock, par value $0.001 per share (the “Series A-2 Preferred Stock”), in lieu of Common Stock,
(ii) a tranche A warrant to acquire shares of Series A-3 Convertible Preferred Stock (the “Tranche A Warrant”), (iii) a tranche
B warrant to acquire shares of Series A-4 Convertible Preferred Stock (the “Tranche B Warrant”), and (iv) a tranche C warrant
to acquire shares of Series A-5 Convertible Preferred Stock (the “Tranche C Warrant”, together with the Tranche A Warrant
and the Tranche B Warrant, the “Warrants”). The shares of Series A-3 Convertible Preferred Stock, Series A-4 Convertible
Preferred Stock and Series A-5 Convertible Preferred Stock issuable upon exercise of the Warrants collectively are referred to herein
as the “Preferred Warrant Shares”. The Tranche A warrants for an aggregate exercise price of approximately $25 million are
exercisable until 21 days following our announcement of receipt of FDA approval for Renazorb, the Tranche B warrants for an aggregate
exercise price of approximately $25 million are exercisable until 21 days following our announcement of receipt of Transitional Drug
Add-On Payment Adjustment (“TDAPA”) approval for Renazorb, and the Tranche C Warrant for an aggregate exercise price of approximately
$50 million are exercisable until 21 days following four quarters of commercial sales of Renazorb following receipt of TDAPA approval.
Subject to the terms and limitations contained
in the Certificate of Designation, the Series A-1 Preferred Stock issued in the Offering will not become convertible until our stockholders
approve the issuance of the Units upon conversion of the Series A-1 Preferred Stock and the issuance of all Common Stock upon conversion
of the Series A Preferred Stock (as defined below), among other items (the “Stockholder Approval”). On the tenth (10th) Trading
Day (as defined in the Certificate of Designation) following the announcement of the Stockholder Approval, each share of Series A-1 Preferred
Stock shall automatically convert into a Unit. Subject to the limitations set forth in the Certificate of Designation, at the option
of the holder, each share of Series A-2 Preferred Stock, Series A-3 Convertible Preferred Stock, Series A-4 Convertible Preferred Stock
or Series A-5 Convertible Preferred Stock shall be convertible into one share of Common Stock.
In addition, in connection with the Offering,
we agreed to modify our dividend policy to state that we intend to pay dividends to all stockholders, including holders of Series A Preferred
Stock on an as-if-converted-to-Common-Stock basis, on a quarterly basis in an amount of which the aggregate of all quarterly dividends
shall equal at least seventy-five percent (75%) of our annual net cash flow from operations following approval of Renazorb by the FDA,
if obtained, and the commencement of commercial sales.
The COVID-19 Pandemic and its Impacts on Our
Business
In March 2020, the World Health Organization
declared the outbreak of COVID-19 a global pandemic. This pandemic could result in difficulty securing clinical trial site locations,
CROs, and/or trial monitors and other critical vendors and consultants supporting our trial. These situations, or others associated with
COVID-19, could cause delays in our clinical trial plans and could increase expected costs, all of which could have a material adverse
effect on our business and financial condition. At the current time, we are unable to quantify the potential effects of this pandemic
on our future financial statements.
Components of Results of Operations
Revenues
We recognize revenue from product sales or services
rendered when control of the promised goods are transferred to a counterparty in an amount that reflects the consideration to which we
expect to be entitled in exchange for those goods and services. To achieve this core principle, we apply the following five steps: identify
the contract with the client, identify the performance obligations in the contract, determine the transaction price, allocate the transaction
price to performance obligations in the contract and recognize revenues when or as we satisfy a performance obligation. We may earn licensing
revenue in the future if we negotiate business development arrangements with third parties.
Research and Development Expenses
Substantially all of our research and development
expenses consist of expenses incurred in connection with the development of our product candidates. These expenses include fees paid
to third parties to conduct certain research and development activities on our behalf, consulting costs, costs for laboratory supplies,
product acquisition and license costs, certain payroll and personnel-related expenses, including salaries and bonuses, employee benefit
costs and stock-based compensation expenses for our research and product development employees and allocated overheads, including information
technology costs and utilities and expenses for the issuance of shares pursuant to the anti-dilution clause in the purchase of in process
research and development technology (“IPR&D”). We expense both internal and external research and development expenses
as they are incurred.
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We do not allocate our costs by product candidate,
as a significant amount of research and development expenses include internal costs, such as payroll and other personnel expenses, laboratory
supplies and allocated overhead, and external costs, such as fees paid to third parties to conduct research and development activities
on our behalf, are not tracked by product candidate.
We expect our research and development expenses
to increase substantially for at least the next few years, as we seek to initiate additional clinical trials for our product candidates,
complete our clinical programs, pursue regulatory approval of our product candidates and prepare for the possible commercialization of
such product candidates. Predicting the timing or cost to complete our clinical programs or validation of our commercial manufacturing
and supply processes is difficult and delays may occur because of many factors, including factors outside of our control. For example,
if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate, we
could be required to expend significant additional financial resources and time on the completion of clinical development. Furthermore,
we are unable to predict when or if our product candidates will receive regulatory approval with any certainty.
General and Administrative Expenses
General and administrative expenses consist principally
of payroll and personnel expenses, including salaries and bonuses, benefits and stock-based compensation expenses, professional fees
for legal, consulting, accounting and tax services, including information technology costs and utilities, and other general operating
expenses not otherwise classified as research and development expenses, as well as services incurred pursuant to a services agreement
with Globavir Biosciences Inc., a related party.
We anticipate that our general and administrative
expenses will increase as a result of increased personnel costs, expanded infrastructure and higher consulting, legal and accounting
services costs associated with complying with the applicable stock exchange and the SEC requirements, investor relations costs and director
and officer insurance premiums associated with being a public company.
Other Expenses
Other expenses consist primarily of interest
expense related to convertible notes and a loss on conversion of convertible notes.
Results of Operations
Comparison of the Years Ended December 31,
2021 and 2022 (in thousands)
Years Ended December 31,
Operating expenses:
Other income (expenses):
Gain on extinguishment of debt 19 - (19 ) (100 )%
Total other income (expenses) (1,040 ) (6 ) 1,034 (99 )%
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Licensing Revenues
Licensing revenues increased approximately $1.0
million, or 100%, from the prior year due to a licensing agreement entered into with Lee’s Pharmaceutical (HK) Limited in July
2022. We received an upfront payment of approximately $1.0 million. There was no comparable revenue earned in the prior period. We may
earn additional licensing revenue in the future if we negotiate business development arrangements with third parties.
Research and Development Expenses
Research and development expenses increased by
approximately $6.4 million, or 105%, from $6.1 million for the year ended December 31, 2021 to $12.4 million for the year ended
December 31, 2022. The increase in research and development expenses was primarily due to an increase in development costs of $6.5 million
due to product formulation, clinical study, and preclinical study services in the current period. New employee hires increased labor
costs $1.6 million, and consulting and other costs increased $756,000 from the prior period. The increase was partially offset by a $2.2
million decrease in non-cash expense from the issuance of common stock in 2021 pursuant to the anti-dilution clause in the purchase of
in process research and development technology from Spectrum Pharmaceuticals, Inc. In addition, non-cash stock compensation costs decreased
$338,000 from the prior period.
General and Administrative Expenses
General and administrative expenses increased by approximately $3.7
million, or 127%, from $2.9 million for the year ended December 31, 2021 to $6.6 million for the year ended December 31, 2022 primarily
due to an increase of $1.4 million in consulting and professional services costs. Labor costs increased $747,000 due to hiring of new
employees. Non-cash stock compensation costs increased $419,000. Insurance expense for directors and officers increased $525,000, and
rent, travel, supplies and other costs increased $567,000.
Other Income (Expenses)
Other income (expenses) decreased by approximately
$1.0 million, or 99% from $1.0 million for the year ended December 31, 2021 to approximately $6,000 for the year ended December 31, 2022.
The decrease was due primarily to decreased interest expense incurred on our convertible notes of $0.6 million as well as conversion
to equity of our outstanding convertible notes as a result of our IPO in 2021 which resulted in a non-cash loss on debt conversion of
$0.4 million.
Liquidity and Capital Resources
Sources of Liquidity
Since our formation through December 31,
2020, we have funded our operations with the sale of common stock, convertible notes and from a loan from our Chief Executive Officer
and principal stockholder. During 2021 we raised $1.1 million through the issuance of convertible notes to investors.
As a result of our initial public offering (“IPO”),
on July 13, 2021 we began trading on the Nasdaq Capital Market under the symbol “UNCY”, and on July 15, 2021 we received
approximately $22.3 million in net proceeds after deducting the underwriting discounts, commissions and offering expenses. We have used
the net proceeds from the IPO to complete pre-clinical and clinical studies, submit regulatory filings to the FDA, and for general and
corporate purposes, including hiring additional management and conducting market research and other commercial planning.
Future revenue streams may consist of collaboration
or licensing revenue as well as product sales. We have generated approximately $1.6 million in licensing revenue to date.
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Future Funding Requirements
We have incurred net losses since our inception.
For the year ended December 31, 2022, we had a net loss of $18.1 million, and we expect to incur substantial additional losses in
future periods. As of December 31, 2022, we had an accumulated deficit of $34.0 million.
On March 6, 2023, we announced completion of
a securities purchase agreement with certain healthcare-focused institutional investors that will provide up to $130.0 million in gross
proceeds through a private placement and that includes initial upfront funding of $30.0 million. Proceeds from the offering will be used
to support our NDA submission with the FDA for approval of Renazorb for the treatment of hyperphosphatemia in the U.S. and, if approved,
for the commercial launch of Renazorb in the U.S.
We expect to continue incurring losses in the
future and will be required to raise additional capital in the future to complete our clinical trials, pursue product development initiatives
and penetrate markets for the sale of our products. We believe that we will continue to have access to capital resources through possible
equity offerings, debt financings, corporate collaborations or other means. There can be no assurance that we will be able to obtain
additional financing on terms acceptable to us, on a timely basis or at all. If we are unable to secure additional capital, we may be
required to curtail any clinical trials and development of new or existing products and take additional measures to reduce expenses in
order to conserve our cash in amounts sufficient to sustain operations and meet our obligations. Based on our current level of expenditures,
and after receiving the net proceeds of $28.1 million from a private placement financing, we believe that we have sufficient resources
such that there is not substantial doubt about our ability to continue operations for at least one year after the date that these financial
statements are available to be issued.
We anticipate that we will need to raise substantial
additional capital, the requirements for which will depend on many factors, including:
● the number and scope of clinical programs we decide to pursue;
● the scope and costs of development and commercial manufacturing activities;
● the impact, if any, of the coronavirus pandemic on our business operations;
● our ability to access capital;
● our implementation of operational, financial and management systems; and
● the costs associated with being a public company.
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A change in the outcome of any of these or other
variables with respect to the development of any of our current product candidates or future product candidates could significantly change
the costs and timing associated with the development of that product candidate. Furthermore, our operating plans may change in the future,
and we will continue to require additional capital to meet operational needs and capital requirements associated with such operating
plans. If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Any future debt financing
into which we enter may impose upon us additional covenants that restrict our operations, including limitations on our ability to incur
liens or additional debt, pay dividends, repurchase our common stock, make certain investments or engage in certain merger, consolidation
or asset sale transactions. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our
stockholders.
Adequate funding may not be available to us on
acceptable terms or at all. Our failure to raise capital as and when needed could have a negative impact on our financial condition and
our ability to pursue our business strategies. If we are unable to raise additional funds when needed, we may be required to delay, reduce,
or terminate some or all of our development programs and clinical trials or we may also be required to sell or license to others rights
to our product candidates in certain territories or indications that we would prefer to develop and commercialize ourselves. If we are
required to enter into collaborations and other arrangements to supplement our funds, we may have to give up certain rights that limit
our ability to develop and commercialize our product candidates or may have other terms that are not favorable to us or our stockholders,
which could materially affect our business and financial condition.
Related Party Payable
We entered into a Service Agreement with Globavir
Biosciences, Inc. (“Globavir”), a related party (the “Service Agreement”). Globavir provides administrative and
consulting services and shared office space and other costs in connection with the Company’s drug development programs. The initial
amended term of the Service Agreement expired on December 31, 2020, and the agreement automatically renews for successive one month periods
after the initial termination date. Pursuant to the Service Agreement, the Company paid Globavir $50,000 per month through December 31,
2019 and $10,000 per month commencing on January 1, 2020. During the fourth quarter of 2021, after initially determining that future
services under the Service Agreement were no longer required, the Company wrote off the $28,000 remaining prepaid balance due from Globavir
as of December 31, 2021. During the year ended December 31, 2022, after determining that although a shared office space is no longer
utilized, consulting services continued to be provided, the Company amended the Service Agreement to reflect the consulting services
at a reduced service fee of $6,000 per month and a termination date of June 30, 2022.
Convertible Notes
In January through May 2021, we issued convertible
notes (the “2021 Notes”) in the aggregate principal amount of $1,098,000. The 2021 Notes bear interest at a rate of 12% per
annum, payable at maturity, and mature between January and May, 2022. The 2021 Notes shall automatically convert into shares of common
stock upon the closing of a financing pursuant to which we receive gross proceeds of at least $500,000 (a “Qualified Financing”)
or upon a change of control. The 2021 Notes shall convert into such numbers of shares of common stock equal to the conversion amount
divided by the Conversion Price. “Conversion Price” means (i) in the event of a Qualified Financing, 70% of the price per
share (or conversion price, as applicable) of common stock (or securities convertible into common stock, as applicable) sold in such
financing or (ii) in the event of a change of control, the price per share reflected in such transaction.
We accounted for the 2021 Notes as stock-settled
debt and we were accreting the carrying amount of the 2021 Notes to the settlement amount through maturity.
In July and through November 2020, we issued
convertible notes (the “2020 Notes”) in the aggregate principal amount of $1,290,000. The 2020 Notes bear interest at a rate
of 12% per annum, payable at maturity, and mature between July and November 2021. The 2020 Notes shall automatically convert into shares
of common stock upon the closing of a financing pursuant to which we receive gross proceeds of at least $500,000 (a “Qualified
Financing”) or upon a change of control. The 2020 Notes shall convert into such numbers of shares of common stock equal to the
conversion amount divided by the Conversion Price. “Conversion Price” means (i) in the event of a Qualified Financing, 70%
of the price per share (or conversion price, as applicable) of common stock (or securities convertible into common stock, as applicable)
sold in such financing or (ii) in the event of a change of control, the price per share reflected in such transaction.
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We accounted for the 2020 Notes as stock-settled
debt and we are accreting the carrying amount of the 2020 Notes to the settlement amount through maturity. As of December 31, 2020, unpaid
and accrued interest of $53,000 as well as debt discount accretion expense of approximately $186,000 was included with the convertible
notes on the balance sheet.
Interest expense, including discount accretion
expense for the 2021 and 2020 Notes was $238,000 and $627,000 for the years ended December 31, 2020 and 2021, respectively.
As a result of our initial public offering on
July 13, 2021, approximately $2,387,000 of principal and $191,000 of unpaid accrued interest related to the 2021 and 2020 Notes was converted
into shares of common stock. The conversion resulted in a loss of $431,000 that is included as loss on debt conversion in the accompanying
statements of operations for the year ended December 31, 2021.
Private Placement
On March 3, 2023, we entered into a securities
purchase agreement (the “Purchase Agreement”) with certain accredited investors (the “Investors”), pursuant to
which we issued and sold, in a private placement, 30,190 shares of Series A-1 Convertible Preferred Stock, par value $0.001 per share,
which offering will result in up to $130 million in gross proceeds and initial upfront funding of $30 million. For more information on
the private placement offering, please refer to the section titled “Item 1. Business – Recent Developments”.
Summary of Cash Flows
The following table sets forth the primary sources
and uses of cash for each of the periods presented below (in thousands):
Years Ended December 31,
Net cash (used in) provided by:
Investing activities (29 ) (2 )
Net (decrease) increase in cash $ 16,579 $ (16,124 )
Cash Flows from Operating Activities
Net cash used in operating activities was $15.7
million for the year ended December 31, 2022. Cash used in operating activities was primarily due to the use of funds for director
and officer insurance premiums, development costs associated with our drug candidates, labor costs, consulting and accounting services,
and other corporate expenditures for investor relations, compliance, and legal services. We incurred a net loss of $18.1 million
after including the effect of non-cash adjustments for stock compensation.
Net cash used in operating activities was $5.8
million for the year ended December 31, 2021. Cash used in operating activities was primarily due to the use of funds for director
and officer insurance premiums, development costs associated with our drug candidates, labor costs, consulting and accounting services,
and other corporate expenditures for investor relations, compliance, and legal services. We incurred a net loss of $10.0 million
after including the effect of non-cash adjustments for stock issuance, stock compensation, and a loss on the conversion of our convertible
debt.
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Cash Flows from Investing Activities
Net cash used in investing activities was $2,000
for the year ended December 31, 2022 and was due to the purchase of furniture and fixtures for our corporate office. Net cash used
in investing activities was $29,000 for the year ended December 31, 2021 and was due to the purchase of furniture and fixtures for
our corporate office.
Cash Flows from Financing Activities
Net cash used by financing activities was $471,000
for the year ended December 31, 2022 and was due primarily to payments made pursuant to our financed director and officer insurance policies.
Net cash provided by financing activities was
$22.4 million for the year ended December 31, 2021 and was primarily related to proceeds received from our initial public offering,
net of issuance and deferred offering costs. In addition, we issued convertible notes to investors for $1.1 million as well as the receipt
of $0.1 million in proceeds from the exercise of options. Net repayments on loans from our chief executive officer offset the cash inflows
by $1.1 million.
Critical Accounting Policies, Significant
Judgments and Use of Estimates
Our financial statements have been prepared in
accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires
us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported expenses incurred during the reporting periods. Our estimates
are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different assumptions or conditions. We consider our critical accounting
policies and estimates to be related to revenue, research and development and stock-based compensation. There have been no material changes
to our critical accounting policies and estimates during the year ended December 31, 2022 from those used for the year ended December
31, 2021. The below policies represent our critical accounting policies.
Revenue Recognition
We implemented ASC 606, Revenue from Contracts
with Customers. This included the development of new policies based on the five-step model provided in the new revenue standard, ongoing
contract review requirements, and gathering of information provided for disclosures. We recognize revenue from product sales or services
rendered when control of the promised goods are transferred to a counterparty in an amount that reflects the consideration to which we
expect to be entitled in exchange for those goods and services. To achieve this core principle, we apply the following five steps: identify
the contract with the client, identify the performance obligations in the contract, determine the transaction price, allocate the transaction
price to performance obligations in the contract and recognize revenues when or as we satisfy a performance obligation.
Research and Development
We expense costs when incurred related to the
research and development associated with the design, development and testing of product candidates, as well as acquisition of product
candidates or compounds. Research and development expenses include fees paid to third parties to conduct certain research and development
activities on our behalf, consulting costs, costs for laboratory supplies, product acquisition and license costs, certain payroll and
personnel-related expenses, including salaries and bonuses, employee benefit costs and stock-based compensation expenses for our research
and product development employees and allocated overheads, including information technology costs and utilities and expenses for issuance
of shares pursuant to anti-dilution clause in the purchase of IPR&D technology. We expense both internal and external research and
development expenses as they are incurred.
Stock-Based Compensation
We account for stock-based compensation for all
share-based payments made to employees and non-employees by estimating the fair value on the date of grant and recognizing compensation
expense over the requisite service period on a straight-line basis. We recognize forfeitures related to stock-based compensation as they
occur. We estimate the fair value of stock options using the Black-Scholes option-pricing model. The Black-Scholes model requires the
input of subjective assumptions, including expected common stock volatility, expected dividend yield, expected term, and the risk-free
interest rate.
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JOBS Act
On April 5, 2012, the JOBS Act was enacted. Section
107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided
in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging
growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
We have chosen to take advantage of the extended
transition periods available to emerging growth companies under the JOBS Act for complying with new or revised accounting standards until
those standards would otherwise apply to private companies provided under the JOBS Act. As a result, our financial statements may not
be comparable to those of companies that comply with public company effective dates for complying with new or revised accounting standards.
Subject to certain conditions set forth in the
JOBS Act, as an “emerging growth company,” we intend to rely on certain of these exemptions, including, without limitation,
(i) providing an auditor’s attestation report on our internal controls over financial reporting pursuant to Section 404(b) of the
Sarbanes-Oxley Act and (ii) complying with the requirement adopted by the Public Company Accounting Oversight Board (“PCAOB”)
regarding the communication of critical audit matters in the auditor’s report on financial statements. We will remain an “emerging
growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.2
billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of our initial public
offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv)
the date on which we are deemed to be a large accelerated filer under the rules of the SEC.
Recent Accounting Pronouncements
See Note 2 to our audited financial statements
found elsewhere in this Annual Report on Form 10-K for a description of recent accounting pronouncements applicable to our financial
statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
As a smaller reporting company, we are not required
to provide the information required by this item.
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ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
UNICYCIVE THERAPEUTICS, INC.
INDEX TO
FINANCIAL STATEMENTS
Page
Audited Financial Statements for the years ended December 31, 2021 and 2022:
Report of Independent Registered Public Accounting Firm (PCAOB ID #199) F-2
Statements of Operations for the years ended December 31, 2021 and 2022 F-4
Statements of Cash Flows for the years ended December 31, 2021 and 2022 F-6
Notes to the Financial Statements F-7
F-1
Report
of Independent Registered Public Accounting Firm
To the Board of Directors
and Stockholders of Unicycive Therapeutics,
Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets
of Unicycive Therapeutics, Inc. (the “Company”) as of December 31, 2022 and 2021, and the related statements of operations,
stockholders’ (deficit) equity, and cash flows for each of the two years in the period ended December 31, 2022, and the related
notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in
all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its
cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted
in the United States of America.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company's auditor since
2019.
/s/ Mayer Hoffman McCann P.C.
San Diego, California
March 30, 2023
F-2
Unicycive Therapeutics, Inc.
Balance Sheets
(in thousands, except for share and per share
amounts)
As of As of
December 31, December 31,
Assets
Current assets:
Prepaid expenses and other current assets 1,832 2,189
Right of use asset, net 305 152
Property, plant and equipment, net 28 22
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Operating lease liability - current 151 155
Operating lease liability – long term 155 -
Commitments and contingencies (Note 9)
Stockholders’ (deficit) equity:
Total stockholders’ equity (deficit) 16,484 (466 )
Total liabilities and stockholders’ equity (deficit) $ 18,744 $ 2,818
See accompanying notes to the financial statements
F-3
Unicycive Therapeutics, Inc.
Statements of Operations
(in thousands, except for share and per share
amounts)
Year Ended December 31, Year Ended December 31,
Licensing revenues $ - $ 951
Operating expenses:
Other expenses:
Interest expense (628 ) (6 )
Loss on debt conversion (431 ) -
Gain on extinguishment of debt 19 -
Total other expenses (1,040 ) (6 )
Net loss per share, basic and diluted $ (0.86 ) $ (1.20 )
See accompanying notes to the financial statements
F-4
Unicycive Therapeutics, Inc.
Statements of Stockholders’
(Deficit) Equity
(in thousands, except share amounts)
Total
Additional Stockholders’
Preferred Stock Common Stock Paid-In Accumulated (Deficit)
Shares Amount Shares Amount Capital Deficit Equity
Conversion of convertible notes into common stock - - 736,773 1 3,684 - 3,685
Issuance of common stock for exercise of options - - 307,317 - 59 - 59
Issuance of common stock for anti-dilution clause - - 438,374 - 2,191 - 2,191
Stock-based compensation expense - - - - 966 - 966
Issuance of common stock for cash, net of issuance costs - - 108,032 - 11 - 11
Issuance of common stock for vested restricted stock units - - 26,738 - - - -
Issuance of common stock for exercise of options - - 66,851 - 29 - 29
Stock-based compensation expense - - - - 1,047 - 1,047
See accompanying notes to the financial statements
F-5
Unicycive Therapeutics, Inc.
Statements of Cash Flows
(in thousands)
Year Ended Year Ended
December 31, December 31,
Cash flows from operating activities
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense 1 7
R&D expense for issuance of common stock for anti-dilution clause 2,191 -
G&A expense for issuance of common stock - 21
Stock-based compensation expense 966 1,047
Convertible debt discount amortization 488 -
Amortization of operating lease right of use asset 12 154
Convertible debt non-cash interest 139 -
Gain on extinguishment of debt (19 ) -
Deferred compensation to CEO 146 -
Loss on debt conversion 431 -
Changes in assets and liabilities:
Prepaid expense and other current assets (1,325 ) 62
Accounts payable and accrued liabilities 1,241 1,267
Operating lease liability (12 ) (151 )
Related party service fee payable (9 ) -
Net cash used in operating activities (5,767 ) (15,651 )
Cash flows from investing activities
Purchases of property, plant and equipment (29 ) (2 )
Net cash used in investing activities (29 ) (2 )
Cash flows from financing activities
Net proceeds from initial public offering 22,271 -
Issuance of common stock for cash, net of issuance costs - 11
Proceeds from loan from stockholder 248 -
Proceeds from convertible notes 1,098 -
Repayment of loan from stockholder (1,361 ) -
Payments on financed insurance policies - (482 )
Proceeds from exercise of options 119 -
Net cash provided by (used in) financing activities 22,375 (471 )
Cash at the beginning of the period - 16,579
Cash at the end of the period $ 16,579 $ 455
Supplemental cash flow information
Cash paid for income taxes $ - $ -
See accompanying notes to the financial statements
F-6
Notes to the Financial
Statements
1. Organization and Description of Business
Overview
Unicycive Therapeutics, Inc. (“the Company”)
was incorporated in the State of Delaware on August 18, 2016. The Company was dormant until July 2017 when it began evaluating a number
of drug candidates for in-licensing.
The Company in-licensed the drug candidate UNI
494 from Sphaera Pharma Pte. Ltd, a Singapore-based corporation, (“Sphaera”) (Note 3). UNI 494 is a pro-drug of Nicorandill
that is being developed as a treatment for acute kidney injury.
In September 2018, the Company purchased a second
drug candidate, Renazorb RZB 012 (“Renazorb”) and its trademark, RENALAN, and various patents from Spectrum Pharmaceuticals,
Inc. (“Spectrum”) (Note 3). Renazorb is being developed for the treatment of hyperphosphatemia in patients with Chronic Kidney
Disease (“CKD”).
The Company continues to evaluate the licensing
of additional technologies and drugs, targeting orphan diseases and other renal, liver and other metabolic diseases affecting fibrosis
and inflammation.
Liquidity
The Company is subject to risks and uncertainties
common to early-stage companies in the biotechnology industry including, but not limited to, development by competitors of new technological
innovations, protection of proprietary technology, dependence on key personnel, compliance with governmental regulations and the need
to obtain additional financing to fund operations. The Company’s product candidates currently under development will require significant
additional research and development efforts prior to commercialization. Future revenue streams may consist of collaboration or licensing
revenue as well as product sales. The Company has generated approximately $1.0 million in licensing revenue through December 31, 2022.
The Company has incurred operating losses and
negative cash flows from operations since inception and expects to continue to incur negative cash flows from operations in the future.
As the Company increases its research and development activities, the operating losses are expected to increase. The Company has historically
relied on private equity offerings, debt financings and loans from a stockholder to fund its operations. As of December 31, 2021 and 2022,
the Company had an accumulated deficit of $15.9 million and $34.0 million, respectively.
As a result of its initial public offering (“IPO”),
on July 13, 2021 the Company began trading on the Nasdaq Capital Market under the symbol “UNCY”, and on July 15, 2021 received
approximately $22.3 million in net proceeds after deducting the underwriting discounts, commissions and other offering expenses. The
Company has used the net proceeds from the IPO to complete pre-clinical and clinical studies, prepare regulatory filings for the FDA,
and for general and corporate purposes, including hiring additional management and conducting market research and other commercial planning.
On March 6, 2023, the Company announced it has
signed a securities purchase agreement with certain healthcare-focused institutional investors that will provide up to $130.0 million
in gross proceeds through a private placement and that includes initial upfront funding of $30.0 million.
The Company expects to continue incurring losses
in the future and will be required to raise additional capital in the future to complete its planned clinical trials, pursue product
development initiatives and penetrate markets for the sale of its products. Management believes that the Company will continue to have
access to capital resources through possible equity offerings, debt financings, corporate collaborations or other means. From January
2021 through May 2021, the Company received an aggregate of $1.1 million upon the issuance of convertible notes. These funds were used
primarily to settle outstanding accounts payable as well as to make payments on the loan outstanding from the chief executive officer
and principal stockholder. In 2021, the Company received approximately $22.3 million in net proceeds from its IPO, and in March 2023
the Company received approximately $28.1 million in net proceeds from a private placement financing. There can be no assurance that the
Company will be able to obtain additional financing on terms acceptable to the Company, on a timely basis or at all. If the Company is
unable to secure additional capital, it may be required to curtail any clinical trials and development of new or existing products and
take additional measures to reduce expenses in order to conserve its cash in amounts sufficient to sustain operations and meet its obligations.
Based on the Company’s current level of expenditures, and after receiving the proceeds from the private placement in March 2023,
the Company believes that it has sufficient resources such that there is not substantial doubt about the ability to continue operations
for at least one year after the date that these financial statements are available to be issued.
F-7
2. Summary of Significant Accounting Policies
Basis of Presentation
The financial statements and accompanying notes
have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
All common share amounts and per share amounts
have been adjusted to reflect a 1-for-4.3 reverse stock split of the Company’s common stock that was effected on June 21, 2021.
Use of Estimates
The preparation of financial statements in conformity
with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during
the periods presented. Management believes that these estimates and assumptions are reasonable; however, actual results may differ and
could have a material effect on future results of operations and financial position. Significant items subject to such estimates and assumptions
include stock-based compensation. Actual results may materially differ from those estimates.
Segment Information
The Company operates and manages its business
as one reportable operating segment. The Company’s Chief Executive Officer, who is the chief operating decision maker, reviews
financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance.
Risks and Uncertainties
The Company operates in a dynamic and highly
competitive industry and believes that changes in any of the following areas could have a material adverse effect on the Company’s
future financial position, results of operations, or cash flows: ability to obtain future financing; advances and trends in new technologies
and industry standards; results of clinical trials; regulatory approval and market acceptance of the Company’s products; development
of sales channels; certain strategic relationships; litigation or claims against the Company related to intellectual property, product,
regulatory, or other matters; and the Company’s ability to attract and retain employees necessary to support its growth.
The Company’s general business strategy
may be adversely affected by any such economic downturns (including the current downturn related to the COVID-19 pandemic), volatile
business environments and continued unstable or unpredictable economic and market conditions.
Any product candidates developed by the Company
will require approvals from the FDA or other international regulatory agencies prior to commercial sales. There can be no assurance that
the Company’s current product candidates or any future product candidates will receive the necessary approvals. If the Company
is denied approval, approval is delayed or the Company is unable to maintain approval, it could have a materially adverse impact on the