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 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.
-65-
Overview
We are a biotechnology company dedicated to developing treatments for certain medical conditions. Currently, two of our programs are focused
on kidney disease, an area we believe we have the potential to offer medical benefit. As we grow the company and build our team, we intend
to focus on identifying medical conditions within and outside of kidney disease. Our current development programs are focused on two novel
therapies: Oxylanthanum Carbonate, for treatment of hyperphosphatemia in patients with chronic kidney disease on dialysis, and UNI 494,
for treatment of acute kidney injury (AKI). Oxylanthanum Carbonate and UNI 494 were initially developed by and licensed to us from Spectrum
Pharmaceuticals (“Spectrum”) and Sphaera Pharma, respectively. Spectrum conducted a Phase 1 clinical trial with Oxylanthanum
Carbonate in 2012, prior to the grant of our license in 2018. Sphaera conceived and performed initial characterization of various potential
pro-drug linkers, including the initial patent application, and performed some initial physiochemical characterization and preliminary
animal pharmacokinetic studies. As discussed herein, after completing IND enabling preclinical studies, we have conducted a Phase I clinical
study in healthy volunteers with UNI 494 in 2023.
Chronic kidney disease (CKD) is the gradual loss of kidney (renal) function that can get worse over time leading to lasting damage and
possibly Stage 5 or end-stage renal disease (ESRD). Our initial focus is on developing drugs and getting them approved in the U.S., and
then to partner with global biopharmaceutical companies in the rest of the world. According to the United States Renal Data System (USRDS)
2022 Annual Data Report, 30 million (14%) of adults in the United States are estimated to have CKD and, of these, approximately 13 million
patients have advanced CKD (stage 3-5). Approximately 550,000 patients (ESRD) are on dialysis and of those, approximately 450,000 patients
(~80%) take phosphate binders to control hyperphosphatemia hyperphosphatemia (too much phosphorus in their blood). The number of patients
with ESRD in the U.S. is increasing steadily and is projected to reach between 971,000 and 1,259,000 patients 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 more than 2 million U.S. patients and costs the healthcare system in excess of $9 billion per
year. More than 300,000 patients per year in the U.S. die due to AKI that has many causes.
Our business model is to license technologies and drugs in order to 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 our company.
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
$18.1 million and $30.5 million for the years ended December 31, 2022 and 2023. As of December 31, 2023, we had an accumulated deficit
of $64.5 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.
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.
-66-
Recent Developments
On March 13, 2024, the Company signed a securities purchase agreement
with certain healthcare-focused institutional investors that will provide $50 million in gross proceeds to us through a private placement.
Pursuant to the securities purchase agreement,
the Company issued to institutional purchasers $50 million in shares of the Company’s Series B Convertible Preferred Stock.
50,000 Shares of Series B Convertible Preferred
Stock were issued at a price of $1,000.00 per share and are convertible into common stock at $1.00 per share.
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”), with initial upfront funding of $30 million and an
additional $100 million possible if warrants issued in the Offering are exercised.
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 Oxylanthanum Carbonate, 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 Oxylanthanum Carbonate, 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 Oxylanthanum
Carbonate following receipt of TDAPA approval.
On June 26, 2023, we held our annual shareholder
meeting, and as a result, shareholder approval for the issuance of common shares upon the conversion of the Series A-1 Preferred Stock
was obtained. 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 automatically converted into a Unit. Subject to the limitations set forth in the Certificate
of Designation, at the option of the holder, shares 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 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 Oxylanthanum Carbonate
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.
-67-
Components of Results of Operations
Revenues
We recognize revenue from product sales or services
rendered when control of the promised goods is 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. We expense both internal and external research and development expenses as they are incurred.
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.
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.
-68-
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,
2022 and 2023 (in thousands)
Years Ended December 31,
Operating expenses:
Other income (expenses):
Change in fair value of warrant liability - (10,303 ) (10,303 ) 100 %
Licensing Revenues
Licensing revenues decreased approximately $0.3
million or 29% from 2022 due to a smaller upfront payment of approximately $0.7 million associated with a licensing agreement entered
into with Lotus International PTE Ltd in February 2023. We received an upfront payment of approximately $1.0 million associated with
a licensing agreement entered into with Lee’s Pharmaceutical (HK) Limited in July 2022. 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 $0.4 million, or 4% from $12.4 million for the year ended December 31, 2022 to $12.9 million for the year ended December
31, 2023. The increase in research and development expenses was primarily due to a $662,000 increase in labor costs. Non-cash stock compensation
increased $465,000. The increases were partially offset by a decrease in drug development costs of $671,000.
General and Administrative Expenses
General and administrative expenses increased
by approximately $1.9 million, or 30%, from $6.6 million for the year ended December 31, 2022 to $8.5 million for the year ended December 31,
2023 primarily due to an increase of $1.4 million in consulting and professional services costs. Labor costs increased $473,000 due to
hiring of new employees, and rent, travel, supplies and other costs increased $353,000. Non-cash stock compensation costs increased $256,000.
The increases were partially offset by a decrease in insurance expense for directors and officers of $528,000.
Other Income (Expenses)
Other income (expenses) increased by approximately
$9.8 million, or 162,733% from $6,000 for the year ended December 31, 2022 to approximately $9.8 million for the year ended December
31, 2023. The increase was due primarily to the change in fair value of our warrant liability. We earned interest income of $615,000
on our cash balance during the year that was partially offset by a $76,000 increase in interest expense.
-69-
Liquidity and Capital Resources
Sources of Liquidity
Since our formation through June 2021, 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.
In connection with 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 employees 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.
On March 3, 2023, we entered into a securities
purchase agreement with certain healthcare-focused institutional investors that may 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 Oxylanthanum Carbonate for the treatment of hyperphosphatemia in the U.S. and, if approved,
for the commercial launch of Oxylanthanum Carbonate in the U.S.
On March 13, 2024, the Company entered into a securities purchase agreement
with certain accredited investors pursuant to which we agreed to issue and sell, in a private placement 50,000 shares of our Series B
Convertible Preferred Stock, par value $0.001 per share at a purchase price of $1,000 per share with an initial conversion price of $1.00
per share, subject to adjustment for an aggregate purchase price of $50 million.
Future Funding Requirements
We have incurred net losses since our inception.
For the year ended December 31, 2023, we had a net loss of $30.5 million, and we expect to incur substantial additional losses in future
periods. As of December 31, 2023, we had an accumulated deficit of $64.5 million.
We expect to continue incurring losses in the
future and will be required to raise additional capital in the future to complete planned clinical trials, pursue product development
initiatives and penetrate markets for the sale of our products. Management believes that we will continue to have access to capital resources
through possible equity offerings, debt financing, 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,
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 cash in amounts sufficient to sustain operations and meet our obligations. Based on our currently anticipated
level of expenditures, and after receiving the proceeds from the private placement in March 2024, we believe that we have 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.
-70-
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.
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.
-71-
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. We have not entered into any additional agreements
with Globavir during the year ended December 31, 2023.
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 (2 ) (12 )
Net (decrease) increase in cash $ (16,124 ) 9,246
Cash Flows from Operating Activities
Net cash used in operating activities was $18.3
million for the year ended December 31, 2023. Cash used in operating activities was primarily due to the use of funds for development
costs associated with our drug candidates, labor costs, consulting services, and other corporate expenditures for investor relations,
compliance, and legal services. We incurred a net loss of $30.5 million after including the effect of non-cash adjustments for stock
compensation and change in fair value of our warrant liability.
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.
Cash Flows from Investing Activities
Net cash used in investing activities was $12,000
for the year ended December 31, 2023 and was due to the purchase of furniture and fixtures for our corporate office.
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.
Cash Flows from Financing Activities
Net cash provided by financing activities was
$27.5 million for the year ended December 31, 2023 and was due primarily to the private placement financing agreement we closed on March
8, 2023.
Net cash used by financing activities was $471,000
for the year ended December 31, 2022 and was primarily due to payments made pursuant to our financed director and officer insurance
policies.
-72-
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, stock-based compensation, and warrant liabilities. The fair
value of warrants contingently issued as part of our March 2023 private placement financing represents a material addition to our critical
accounting policies and estimates. There have been no other material changes to our critical accounting policies and estimates during
the year ended December 31, 2023 from those used for the year ended December 31, 2022. The below policies represent our critical accounting
policies.
Revenue Recognition
We apply ASC 606, Revenue from Contracts with
Customers, for our revenue recognition guidance. This includes the development of new policies based on the five-step model provided
in the 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 is 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.
Warrant Liabilities
In conjunction with the issuance of Series A-1
Preferred Stock (see Note 10), we established a warrant liability as of March 3, 2023, representing the fair value of warrants that may
be issued, subject to shareholder approval, upon conversion of the Series A-1 Preferred Stock. We account for these warrants as liabilities
(in accordance with ASC 480) on the balance sheets as a result of certain redemption clauses that are not within the control of the Company.
The warrant liabilities are initially measured at fair value and are remeasured at fair value each reporting period. Changes in the fair
value of the warrant liabilities are recognized in earnings during each period. The warrant liabilities are measured using Level 3 fair
value inputs. See Note 11 for a description of warrant liabilities and the related valuations.
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. 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.
-73-
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.
-74-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
UNICYCIVE THERAPEUTICS, INC.
INDEX TO
FINANCIAL STATEMENTS
Page
Audited Financial Statements for the years ended December 31, 2022 and 2023:
Report of Independent Registered Public Accounting Firm (PCAOB ID #606) F-2
Report of Independent Registered Public Accounting Firm (PCAOB ID #199) F-3
Statements of Operations for the years ended December 31, 2022 and 2023 F-5
Statements of Cash Flows for the years ended December 31, 2022 and 2023 F-7
Notes to the Financial Statements F-8
F-1
Report
of Independent Registered Public Accounting Firm
To the Audit Committee and Stockholders
of
Unicycive Therapeutics, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance
sheet of Unicycive Therapeutics, Inc. (the “Company”) as of December 31, 2023, and the related statements of operations, stockholders’
deficit, and cash flows for the year ended, 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, 2023, and the results of its operations and its cash flows for the year then ended, 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
audit. 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 audit in accordance
with the standards of the PCAOB. Those standards require that we plan and perform the audit 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 audit, 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 audit 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 audit 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 audit provide a reasonable basis for our opinion.
/s/ Grassi & Co., CPAs, P.C.
We have served as the Company’s
auditors since 2023.
Jericho, New York
March 28, 2024
F-2
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 sheet of Unicycive Therapeutics,
Inc. (the “Company”) as of December 31, 2022, and the related statement of operations, stockholders’ (deficit) equity,
and cash flows for the year 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 the results of its operations and its cash flows for the year 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
audit. 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 audit in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit 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 audit, 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 audit 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 audit 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 audit provides a reasonable basis for our opinion.
We served as the Company's auditor from 2019 to
2023.
/s/ Mayer Hoffman McCann P.C.
San Diego, California
March 30, 2023
F-3
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 2,189 3,698
Right of use asset, net 152 766
Property, plant and equipment, net 22 26
Liabilities and stockholders’ deficit
Current liabilities:
Warrant liability - 13,134
Operating lease liability – current 155 327
Operating lease liability – long term - 466
Commitments and contingencies (Note 8)
Stockholders’ deficit:
Total stockholders’ deficit (466 ) (3,809 )
Total liabilities and stockholders’ deficit $ 2,818 $ 14,191
See accompanying notes to the financial statements
F-4
Unicycive Therapeutics, Inc.
Statements of Operations
(in thousands, except for share and per share
amounts)
Year Ended December 31, Year Ended December 31,
Operating expenses:
Other income (expenses):
Interest income - 615
Interest expense (6 ) (82 )
Change in fair value of warrants - (10,303 )
Total other income (expenses) (6 ) (9,770 )
Deemed dividend to Series A-1 preferred stockholders - (867 )
Net loss attributable to common stockholders $ (18,058 ) $ (31,411 )
See accompanying notes to the financial statements
F-5
Unicycive Therapeutics, Inc.
Statements of Stockholders’ (Deficit)
Equity
(in thousands, except share amounts)
Shares Amount Shares Amount Shares Amount Capital Deficit Equity
Issuance of common stock - - 33,500 - - - 21 - 21
Issuance of common stock for exercise of options - - 66,851 - - - 29 - 29
Stock-based compensation expense - - - - - - 1,047 - 1,047
Deemed dividends on Series A-1 preferred stock - 867 - - - - (867 ) - (867 )
Issuance of common stock for exercise of options - - 8,189 - - - 27 - 27
Stock-based compensation expense - - - - - - 1,767 - 1,767
See accompanying notes to the financial statements
F-6
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 7 9
G&A expense for issuance of common stock 21 -
Stock-based compensation expense 1,047 1,767
Amortization of operating lease right of use asset 154 275
Change in fair value of warrant liability - 10,303
Changes in assets and liabilities:
Prepaid expense and other current assets 62 (1,117 )
Accounts payable and accrued liabilities 1,267 1,276
Operating lease liability (151 ) (252 )
Net cash used in operating activities (15,651 ) (18,283 )
Cash flows from investing activities
Purchases of property, plant and equipment (2 ) (12 )
Net cash used in investing activities (2 ) (12 )
Cash flows from financing activities
Payments on financed insurance policies (482 ) (496 )
Issuance of common stock for cash, net of issuance costs 11 -
Proceeds from issuance of Series A-1 preferred stock and warrants - 30,190
Issuance costs related to Series A-1 preferred stock and warrants - (2,153 )
Net cash (used in) provided by financing activities (471 ) 27,541
Net (decrease) increase in cash (16,124 ) 9,246
Cash at the beginning of the period 16,579 455
Cash at the end of the period $ 455 $ 9,701
Supplemental cash flow information
Accrued dividends on preferred stock $ - $ 867
Cash paid for interest $ 6 $ 24
Cash paid for income taxes $ - $ -
See accompanying notes to the financial statements
F-7
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 several
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 Nicorandil
that is being developed as a treatment for acute kidney injury.
In September 2018, the Company purchased a second
drug candidate, Renazorb RZB 012 and its trademark, RENALAN, and various patents from Spectrum Pharmaceuticals, Inc. (“Spectrum”)
(Note 3). Renazorb (“Oxylanthanum Carbonate”) 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 $0.7 million in licensing revenue during the year ended December
31, 2023.
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 financing and loans from a stockholder to fund its operations. As of December 31, 2022, and December
31, 2023, the Company had an accumulated deficit of $34.0 million and $64.5 million, respectively.
In connection with 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 3, 2023, the Company entered into a securities
purchase agreement with certain healthcare-focused institutional investors that may provide up to $130.0 million in gross proceeds through
a private placement and that included initial upfront funding of $28.0 million in net proceeds.
On March 13, 2024, the Company entered into a securities purchase agreement
with certain healthcare-focused institutional investors to provide $50 million in gross proceeds through a private placement. Pursuant
to the securities purchase agreement, the Company issued institutional purchasers $50 million in shares of Series B Convertible Preferred
Stock.
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 financing, corporate collaborations, or other means. 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 currently anticipated level of expenditures, and after receiving the proceeds
from the private placement in March 2024, 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-8
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”).
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 and valuation of warrant liabilities. Actual results may materially differ from those estimates.
Revenue Recognition
The Company recognizes revenue in accordance
with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”).
The Company applies the five-step model in ASC 606 and recognizes revenue from product sales or services rendered when control of the
promised goods or services are transferred to a counterparty in an amount that reflects the consideration to which the Company expects
to be entitled in exchange for those goods and services. To achieve this core principle, the Company applies 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 the Company satisfies a performance
obligation.
Warrant Liability
In conjunction with the issuance of Series A-1
Preferred Stock (see Note 10), the Company established a warrant liability as of March 3, 2023, representing the fair value of warrants
that may be issued (and have since been issued – see Note 11), subject to shareholder approval, upon conversion of the Series A-1
Preferred Stock. The Company accounts for these warrants as liabilities (in accordance with ASC 480, Distinguishing Liabilities from