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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 

 
FORM 8-K
 

 
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
Date of Report (Date of Earliest Event Reported): September 28, 2021
 

 
Statera BioPharma, Inc.
(Exact Name of Registrant as Specified in Charter)
 

 
Delaware
001-32954
20-0077155
(State or Other Jurisdiction of Incorporation)
(Commission File Number)
(I.R.S. Employer Identification Number)
     
 
2537 Research Boulevard, Suite 201
Fort Collins, CO 80526
 
(Address of Principal Executive Offices and zip code)
     
 
(888) 613-8802
 
(Registrant's Telephone Number, Including Area Code)
 
Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, par value $0.005
STAB
NASDAQ Capital Market
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
         Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
         Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
         Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
         Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).                                                                
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 


 
 

 
Item 8.01
Other Events.
 
Legacy financial statements and pro forma financial statements
 
As previously disclosed, on July 27, 2021, Statera BioPharma, Inc. (the “Company”), High Street Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of the Company (“Merger Sub”), and Cytocom Subsidiary Inc., previously known as “Cytocom Inc.” (“Old Cytocom”), completed their previously announced merger transaction. The merger transaction was completed pursuant to an Agreement and Plan of Merger, dated as of October 16, 2020, pursuant to which Merger Sub merged with and into Old Cytocom, with Old Cytocom continuing as a wholly owned subsidiary of the Company and the surviving corporation of the merger (the “Merger”). In connection with the closing of the Merger, Old Cytocom was renamed “Cytocom Subsidiary Inc.” and the Company has since been renamed “Statera BioPharma, Inc.”
 
On September 28, 2021, the Company released (i) unaudited interim financial statements as of and for the fiscal period ended June 30, 2021 for Old Cytocom and (ii) unaudited pro forma condensed combined financial statements of the Company as of and for the six-month period ended June 30, 2021, as if the completion of the Merger and Old Cytocom’s acquisition of ImQuest Life Sciences, Inc. had occurred as of January 1, 2021. The Old Cytocom financial statements and pro forma financial statements referred to above are filed as Exhibit 99.1 and Exhibit 99.2, respectively, to this Current Report on Form 8-K, and are incorporated by referenced herein.
 
Setting of Date for 2021 Annual Meeting of Stockholders
 
On September 28, 2021, the Company announced that it will hold its 2021 annual meeting of stockholders (the “Annual Meeting”) on November 9, 2021 at 10:00 a.m. Eastern Time in virtual format via live audio webcast. The Company has also established September 30, 2021 as the record date for the determination of stockholders entitled to receive notice of an to vote at the Annual Meeting. The time and virtual attendance instructions of the Annual Meeting will be set forth in the Company’s proxy statement for the Annual Meeting, to be electronically filed prior to the Annual Meeting with the U.S. Securities and Exchange Commission.
 
Because the Annual Meeting will be held more than 30 days from the anniversary date of the Company’s last annual meeting of stockholders in 2020, pursuant to Rule 14a-8 (“Rule 14a-8”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company may set a deadline for receipt of Rule 14a-8 stockholder proposals that is a reasonable time before the Company plans to print and send its proxy materials. Stockholders who wish to have a proposal considered for inclusion in the Company’s proxy statement for the Annual Meeting must ensure that their proposal is received by the Corporate Secretary of the Company at 2537 Research Boulevard, Suite 201, Fort Collins, CO 80526 no later than October 8, 2021, which the Company has determined is a reasonable time before the Company begins to print and mail its proxy materials. Such stockholder proposals must also comply with the other requirements of Rule 14a-8 of the Exchange Act in order to be eligible for inclusion in the Company’s proxy statement for the Annual Meeting. The October 8, 2021 deadline will also apply in determining whether notice of a stockholder proposal is timely for purposes of exercising discretionary voting authority with respect to proxies under Rule 14a-4(c) under the Exchange Act. In addition, in accordance with the Company’s bylaws (the “Bylaws”), stockholders who wish to bring business before the Annual Meeting outside of Rule 14a-8 or to nominate a person for election to the Board at the Annual Meeting must ensure that written notice (including the representations and all other information required by the Bylaws) of such proposal or nomination is received by the Corporate Secretary of the Company at the address specified above no later than the close of business on October 8, 2021. Any such notice must also comply with the requirements of Delaware law, the rules and regulations promulgated by the Securities and Exchange Commission and the Bylaws, as applicable.
 
Item 9.01
Financial Statements and Exhibits
 
(d)         Exhibits
 
Exhibit
Number
Description
   
99.1
99.2
104
Cover Page Interactive Data File (embedded within the Inline XBRL document).
 
 

 
 
SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
Statera BioPharma, Inc.
Date: September 28, 2021
By:
/s/ Peter Aronstam
Name: 
Peter Aronstam
Title:  
Chief Financial Officer
 
 

Exhibit 99.1

 

 

CYTOCOM, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

   

June 30, 2021

   

December 31, 2020

 

ASSETS

               
                 

CURRENT ASSETS:

               

Cash and cash equivalents

  $ 1,330,216     $ 593,869  

Accounts receivable, net

    184,279       -  

Other current assets

    854,451       331,878  

Total current assets

    2,368,946       925,747  

NON-CURRENT ASSETS:

               

Restricted cash

    14,391,410       -  

Operating lease right-of-use asset

    884,255       101,048  

Goodwill

    14,343,158       -  

Property and equipment, net of accumulated depreciation of $34,049 and $947, respectively

    56,431       8,690  

Contract asset

    60,816       -  

Total non-current assets

    29,736,070       109,738  

TOTAL ASSETS

  $ 32,105,016     $ 1,035,485  
                 

LIABILITIES AND STOCKHOLDERS DEFICIT

               
                 

CURRENT LIABILITES:

               

Accounts payable and accrued expenses

    6,536,958     $ 2,687,847  

Current portion operating lease liability

    174,692       30,758  

Preferred stock payable

    12,000,000       -  

Contract liability

    130,829       -  

Notes payable

    897,737       535,737  

Notes payable – related party

    -       1,366,500  

Advances from related party

    200,000       -  

Total current liabilities

    19,940,216       4,620,842  

LONG TERM LIABILITES

               

Operating lease liability, net of current portion

    783,917       70,380  

Long-term debt

    15,000,000       -  

Total Long-Term liabilities

    15,783,917       70,380  

TOTAL LIABILITIES

  $ 35,724,133     $ 4,691,222  
                 

STOCKHOLDERS DEFICIT

               

Preferred stock Series A, $0.001 par value, 5,000,000 shares authorized: 4,364,865 and 2,375,000 issued and outstanding, respectively

    4,365       2,375  

Preferred stock Series A-1, $0.001 par value, 4,400,000 shares authorized; 4,395,600 and 2,125,000 shares issued and outstanding, respectively

    4,396       2,125  

Preferred stock Series A-3, $0.001 par value, 7,000,000 shares authorized; 552,000 and 0 shares issued and outstanding, respectively

    552       -  

Preferred stock Series A-4, $0.001 par value, 1,000,000 shares authorized; 400,000 and 0 shares issued and outstanding, respectively

    400       -  

Common stock, $0.001 par value, 200,000,000 authorized, 24,836,352 and 24,337,352 shares issued and outstanding, respectively

    24,836       24,337  

Additional paid in capital

    35,869,446       23,946,747  

Accumulated deficit

    (39,523,112 )     (27,631,321 )

TOTAL STOCKHOLDERS DEFICIT

    (3,619,117 )     (3,655,737 )

TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT

  $ 32,105,016     $ 1,035,485  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

CYTOCOM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

   

Six months ended June 30,

 
   

2021

   

2020

 

OPERATING COSTS AND EXPENSES:

               

Research and development

  $ 2,839,960     $ 126,565  

Sales and marketing expense

    2,795       -  

General and administrative

    8,674,763       497,245  

TOTAL OPERATING EXPENSES

    11,517,518       623,810  

LOSS FROM OPERATIONS

    (11,517,518 )     (623,810 )
                 

OTHER (EXPENSE) INCOME:

               

Interest income (expense), net

    (374,273 )     (1,061,220 )

Gain or Loss on Debt Extinguishment

    -       (500,000 )

TOTAL OTHER (EXPENSE) INCOME

    (374,273 )     1,561,220  

NET LOSS BEFORE INCOME TAX

    (11,891,791 )     (2,185,030 )

Income tax expense (benefit)

    -       -  

NET LOSS

  $ (11,891,791 )   $ (2,185,030 )

Loss per common share – basic and diluted

    (0.48 )     (0.11 )

Weighted average common shares outstanding – basic and diluted

    24,527,333       20,429,334  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

CYTOCOM, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS DEFICIENCY

(UNAUDITED)

 

FOR THE SIX MONTHS ENDED JUNE 30, 2021, AND 2020

 

   

Common Stock

   

Preferred Stock – Series A

   

Preferred Stock – Series A-1

   

Preferred Stock – Series A-3

   

Preferred Stock – Series A-4

   

Additional

Paid-In

   

Accumulated Deficit

   

Total

Stockholders’

 
   

Shares

   

Amount

   

Shares

   

Amount

   

Shares

   

Amount

   

Shares

   

Amount

   

Shares

   

Amount

      Capital             Deficiency    

Balance December 31, 2019

    20,346,999     $ 20,347       -     $ -       -     $ -       -     $ -       -     $ -     $ 11,307,253     $ (15,537,460 )   $ (4,209,860 )

Preferred stock series A issued

    -       -       1,575,000       1,575       -       -       -       -       -       -       1,473,425       -       1,475,000  

Preferred stock series A due

    -       -       -       -       -       -       -       -       -       -       60,000       -       60,000  

Common stock issued for loss on extinguishment of debt

    125,000       125       -       -       -       -       -       -       -       -       499,500       -       499,625  

Common stock issued for loan origination

    250,000       250       -       -       -       -       -       -       -       -       999,000       -       999,250  

Net loss

    -       -       -       -       -       -       -       -       -       -       -       (2,185,030 )     (2,185,030 )

Balance June 30, 2020

    20,721,999     $ 20,722       1,575,000     $ 1,575       -     $ -       -     $ -       -     $ -     $ 14,339,178     $ (17,722,490 )   $ (3,361,015 )
                                                                                                         

Balance December 31, 2020

    24,337,352     $ 24,337       2,375,000     $ 2,375       2,125,000     $ 2,125       -     $ -       -     $ -     $ 23,946,747     $ (27,631,321 )   $ (3,655,737 )

Preferred stock series A issued for conversion of debt

    -       -       1,989,865       1,990       -       -       -       -       -       -       1,987,875       -       1,989,865  

Preferred stock series A due

    -       -       -       -       -       -       -       -       -       -       305,217       -       305,217  

Preferred stock series A warrant expense

    -       -       -       -       -       -       -       -       -       -       4,140       -       4,140  

Equity fee for raised capital A

    -       -       -       -       -       -       -       -       -       -       (6,500 )     -       (6,500 )

Preferred stock series A-1 issued

    -       -       -       -       2,270,600       2,271       -       -       -       -       2,268,329       -       2,270,600  

Preferred stock series A-1 warrant expense

    -       -       -       -       -       -       -       -       -       -       117,127       -       117,127  

Equity fee for raised capital A-1

    -       -       -       -       -       -       -       -       -       -       (179,508 )     -       (179,508 )

Preferred stock series A-1 cash received prior period

    -       -       -       -       -       -       -       -       -       -       (1,345,600 )     -       (1,345,600 )

Preferred stock series A-3 issued

    -       -       -       -       -       -       552,000       552       -       -       2,759,448       -       2,760,000  

Preferred stock series A-3 warrant expense

    -       -       -       -       -       -       -       -       -       -       114,270       -       114,270  

Equity fee for raised capital A-3

    -       -       -       -       -       -       -       -       -       -       (179,400 )     -       (179,400 )

Preferred stock series A-4 issued

    -       -       -       -       -       -       -       -       400,000       400       1,999,600       -       2,000,000  

Common stock issued

    499,000       499       -       -       -       -       -       -       -       -       298,501       -       299,000  

Restricted stock

    -       -       -       -       -       -       -       -       -       -       3,779,199       -       3,779,199  

Net loss

    -       -       -       -       -       -       -       -       -       -       -       (11,891,791 )     (11,891,791 )

Balance June 30, 2021

    24,836,352     $ 24,836       4,364,865     $ 4,365       4,395,600     $ 4,396       552,000     $ 552       400,000     $ 400     $ 35,869,446     $ (39,523,112 )   $ (3,619,117 )

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

CYTOCOM, INC.

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020

(UNAUDITED)

 

   

For the Six Months Ended June 30,

 
   

2021

   

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES

               

Net loss

  $ (11,891,791 )   $ (2,185,030 )

Reconciliation of net loss to net cash used in operating activities:

               

Depreciation expense

    2,791       -  

Noncash lease expense

    711       -  

Stock based compensation

    3,779,199       -  

Services obtained for common shares

    299,000       -  

Noncash equity expenses

    235,538       -  

Loan origination fees exchanged for common shares

    -       1,000,000  

Extinguishment of debt exchanged for common shares

    -       500,000  

Changes in operating assets and liabilities, net of effects of acquisition of business:

               

Other current assets

    (196,542 )     2,453  

Accounts payable and accrued expenses

    2,157,297       218,091  

NET CASH USED IN OPERATING ACTIVITIES

    (5,613,797 )     (464,486 )
                 

CASH FLOWS FROM INVESTING ACTIVITIES

               

Purchase of property and equipment

    (22,790 )     -  

Acquisition of ImQuest

    537,751       -  

NET CASH PROVIDED BY INVESTING ACTIVITIES

    514,961       -  
                 

CASH FLOWS FROM FINANCING ACTIVITIES

               

Proceeds from issuance of Preferred Series A

    -       1,535,001  

Proceeds from issuance of Preferred Series A-1

    925,113       -  

Proceeds from issuance of Preferred Series A-4

    2,000,000       -  

Proceeds from issuance of Preferred Series A-3

    2,760,000       -  

Proceeds from issuance of long-term debt

    14,670,740       -  

Proceeds from advance from related party

    200,000       -  

Payment of debt issuance costs

    (329,260 )     -  

NET CASH PROVIDED BY FINANCING ACTIVITIES

    20,226,592       1,535,001  
                 

Net (decrease) increase in cash

    15,127,757       1,070,515  

Cash, cash equivalents, and restricted cash beginning of period

    593,869       1,650  

Cash, cash equivalents, and restricted cash end of period

  $ 15,721,626     $ 1,072,165  
                 

SUPPLEMENTAL CASH FLOW INFORMATION:

               

Cash paid for interest

  $ 279,329       -  
                 

NON-CASH INVESTING AND FINANCING ACTIVITIES:

               

Warrants exercised for common stock

  $ 200       -  

Right of use asset exchanged for lease liability

    229,868       -  

Debt principal converted to equity

    1,804,500       -  

Debt interest converted to equity

    490,470       -  

Non-cash consideration of acquisition of ImQuest through the issuance of preferred stock

    15,731,046       -  

Non-cash equity fees

    365,408       -  

Common stock issued as a modification of debt terms

    -       500,000  

Common stock issued for loan origination

    -       1,000,000  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

CYTOCOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

JUNE 30, 2021

 

Note 1 Organization and Description of Business

 

In December 2013, Cytocom, Inc. (“Cytocom” or the “Company”) was formed as a wholly owned subsidiary of Immune Therapeutics, Inc. (“Immune”). Immune was initially incorporated on December 2, 1993 in the state of Florida as Resort Clubs International, Inc (“Resort Clubs”). With subsequent name and capital changes since formation, Immune ultimately revised its legal name to Immune Therapeutics, Inc. on October 27, 2014.

 

Today, Cytocom is a clinical-stage biopharmaceutical company developing novel immunotherapies targeting autoimmune, neutropenia/anemia, emerging viruses and cancers based on a proprietary platform designed to rebalance the body's immune system and restore homeostasis. The Company also has one of the largest platforms of toll-like immune receptors (TLR4, TLR5 and TLR9) in the biopharmaceutical industry, addressing conditions such as radiation sickness and cancer treatment side effects. Cytocom is developing therapies designed to elicit directly within patients a robust and durable response of antigen-specific killer T-cells and antibodies, thereby activating essential immune defenses against autoimmune, inflammatory, infectious diseases, and cancers. Specifically, Cytocom has several clinical-stage development programs for Crohn's disease, pancreatic cancer, COVID-19 in addition to expansion to fibromyalgia and multiple sclerosis.

 

As of June 30, 2021, Immune’s equity interest in Cytocom stood at approximately 13% of Cytocom’s issued and outstanding common stock.

 

Acquisition of ImQuest

 

On June 24, 2021, Cytocom completed the acquisition of ImQuest Life Sciences, Inc. and its subsidiaries (“ImQuest”) in accordance with the Agreement and Plan of Merger by and among Cytocom and ImQuest dated as of July 17, 2020, and gained control of ImQuest. As of June 30, 2021, the purchase consideration due under the merger had not yet been paid to ImQuest’s shareholders, and as such is reflected as a preferred stock payable liability line on the condensed consolidated balance sheet.

 

ImQuest is a holding company, incorporated in Nevada on January 5, 2008 and incorporated in Wyoming on March 21, 2017. ImQuest’s mission is to manage its subsidiaries which include ImQuest BioSciences, Inc. (a Contract Research Organization or “CRO”), ImQuest Pharmaceuticals, Inc. (a pharmaceutical company that developed therapeutic and prevention products) and Lubrinovation, Inc. (a consumer product company).

 

ImQuest Biosciences, Inc. (“Biosciences”) was incorporated on March 8, 2004 in Nevada, and is wholly owned subsidiary of ImQuest. Biosciences is a Contract Research organization that assists pharmaceutical and biotechnology companies successfully bring new pharmaceuticals and biologics to market.

 

Lubrinovation, Inc. (“Lubrinovation”) was incorporated on March 3, 2017 in Nevada, and it is a majority owned subsidiary of ImQuest. Lubrinovation was formed to manufacture and distribute a medical device in the consumer products healthcare area and sell a personal lubricant through its own website (FLIPLube.com) and third-party channels.

 

ImQuest Pharmaceutical, Inc. (“Pharmaceutical”) was incorporated on February 22, 2008 in Nevada. Pharmaceuticals was formed to develop intellectual assets in the pharmaceutical space including drugs which would target HIV and act as therapeutic products for the treatment of HIV disease as well as prevention products to inhibit the sexual transmission of HIV. It has had no business since 2019.

 

 

 

Going Concern

 

Cytocom has incurred recurring losses from operations since inception, accumulating a deficit of approximately $40 million as of June 30, 2021. For the six months ended June 30, 2021 and 2020, Cytocom incurred net losses of approximately $12 and $2 million, respectively. Cytocom may incur additional losses and negative operating cash flows in the future. Failure to generate sufficient revenues, reduce spending or raise additional capital could adversely affect its ability to achieve its intended business objectives. These matters, among others, raise substantial doubt about Cytocom’s ability to continue as a going concern for a period of one year from the issuance of condensed financial.

 

Management intends to fund future operations through additional private or public debt or equity offerings and may seek additional capital through arrangements with strategic partners or from other sources. Based on Cytocom’s operating plan, existing working capital as of June 30, 2021 was not sufficient to meet the cash requirements to fund planned operations for a period of one year after issuance of condensed financial without additional sources of cash. These conditions raise substantial doubt about Cytocom’s ability to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared assuming that Cytocom will continue as a going concern and do not include adjustments that might result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of Cytocom’s assets and the satisfaction of liabilities in the normal course of business.

 

The accompanying condensed consolidated financial statements for the six months ended June 30, 2021 and 2020 have been prepared assuming Cytocom will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. During the 2021 fiscal year, management intends to raise additional debt and/or equity financing to fund future operations and to provide additional working capital. However, there is no assurance that such financing will be consummated or obtained in sufficient amounts necessary to meet Cytocom’s needs.

 

Note 2 Summary of Significant Accounting Policies

 

Basis of Presentation

 

The unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, certain information and footnote disclosures required by generally accepted accounting principles in the United States of America (“U.S. GAAP”) for complete financial statements have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the unaudited condensed consolidated financial statements have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2020 included in Cleveland BioLabs, Inc’s registration statement on Form S-4 filed with the SEC on May 7, 2021 (the “Registration Statement”).

 

The condensed consolidated balance sheet and related disclosures as of June 30, 2021 have been derived from the Company’s audited financial statements included in the Registration Statement. The Company’s financial condition as of June 30, 2021, and operating results for the six months ended June 30, 2021 are not necessarily indicative of the financial conditions and results of operations that may be expected for the year ended December 31, 2021.

 

The significant accounting policies followed by the Company are set forth in Note 2 to the Company’s condensed consolidated financial statements for the year ended December 31, 2020, included in the Registration Statement. For the six months ended June 30, 2021, there were no significant changes in the Company’s estimates and significant accounting policies, with the exception of ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic: 815-40) and Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), as presented below.

 

Cytocom qualifies as an “emerging growth company” as defined in Section 101 of the Jumpstart our Business Startups Act (“JOBS Act”) as Cytocom did not have more than $1,070,000,000 in annual gross revenue for the year ended December 31, 2020 and 2019. Cytocom is electing to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act.

 

 

 

Use of Estimates

 

The preparation of condensed consolidated financial in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and disclosure in the accompanying notes. Actual results may differ from those estimates and such differences may be material to the financial statements. The more significant estimates and assumptions by management include among others: accounts receivable realization, the valuation allowance on deferred tax assets, the valuation of Cytocom’s common stock, operating expense accruals, and revenue recognition.

 

On January 30, 2020, the World Health Organization declared the coronavirus outbreak a “Public Health Emergency of International Concern” and on March 11, 2020, declared the coronavirus outbreak a pandemic. In mid-March 2020, U.S. State Governors, local officials and leaders outside of the U.S. began ordering various “shelter-in-place” orders which have had various impacts on the U.S. and global economies. This has required greater use of estimates and assumptions in the preparation of the unaudited condensed consolidated financial statements.

 

As the coronavirus pandemic continues to evolve, the Company believes the extent of the impact to its businesses, operating results, cash flows, liquidity and financial condition will be primarily driven by the severity and duration of the coronavirus pandemic, the pandemic’s impact on the U.S. and global economies and the timing, scope and effectiveness of federal, state and local governmental responses to the pandemic. Those primary drivers are beyond the Company’s knowledge and control, and as a result, at this time the Company is unable to predict the cumulative impact, both in terms of severity and duration, that the coronavirus pandemic will have on its business, operating results, cash flows and financial condition, but it could be material if the current circumstances continue to exist for a prolonged period of time. Although the Company has made its best estimates based upon current information, actual results could materially differ from the estimates and assumptions developed by management. If so, the Company may be subject to impairment charges as well as changes to recorded reserves and valuations.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with original maturities at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents include bank demand deposits, marketable securities with maturities of three months or less at purchase, and money market funds that invest primarily in certificates of deposits, commercial paper and U.S. government and U.S. government agency obligations. Cash equivalents are reported at fair value. As of June 30, 2021 and December 31, 2020 there were no cash equivalents.

 

Restricted Cash

 

The Company considers all cash held for specific reasons and not available for immediate, normal business use as restricted cash. As of June 30, 2021 and December 31, 2020 the Company had $14,391,410 and $0, respectively, classified as restricted cash. The Company took on $15,000,000 of long-term debt via the Avenue Capital loan. The loan extends through May 1, 2024 and carries a 10.99% interest rate. The Company has no principal payments due for the first 12 periods, with the first payment due in June, 2022. As the restricted cash is held for the purpose of repayment of this long-term debt with no repayments due in the next 12 months, the cash is classified as a non-current asset.

 

Accounts Receivable

 

Accounts receivable are recorded net of an allowance for credit losses, which is recorded as an offset to accounts receivable and changes in such are classified as general and administrative expense in the consolidated statements of operations. The Company assesses collectability by reviewing accounts receivable on an individual basis when the Company identifies specific customers with known disputes or collectability issues. The company assesses past due amounts, by reviewing the payment terms of the contracts with the Company’s customers. In determining the amount of the allowance for credit losses, the Company makes judgments about the creditworthiness of customers based on ongoing credit evaluations. The Company writes off uncollectable accounts receivable against the allowance based on facts and circumstances for specific customers when management determines that collectability is remote. There is no allowance for doubtful account as of June 30, 2021 and December 31, 2020. During the six months ended June 30, 2021 and 2020, the company did not write off any accounts receivable.

 

 

 

Revenue Recognition

 

Upon the integration of the newly acquired ImQuest, the Company intends to follow the five steps to recognize revenue from contracts with customers under ASC 606, Revenue from Contracts with Customers (“ASC 606”), which are:

 

 

Step 1: Identify the contract(s) with a customer

 

 

Step 2: Identify the performance obligations in the contract

 

 

Step 3: Determine the transaction price

 

 

Step 4: Allocate the transaction price to the performance obligations in the contract

 

 

Step 5: Recognize revenue when (or as) a performance obligation is satisfied

 

 

The Company generates revenue from its Clinical Research Organization services (“CRO services”). At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

 

CRO Services

 

The Company provides preclinical CRO services to evaluate the potential of new and novel pharmaceutical products for the treatment and prevention of viruses, bacteria, cancer and inflammatory diseases. These preclinical research services include compound screening, efficacy analysis, drug target validations, mechanism of action research, and toxicity studies in multiple pharmaceutical areas.

 

The Company has concluded that its CRO services is a distinct and single performance obligation as the customer benefits from the services once they have the opportunity to question the findings and receive the final report which summarizes the research results. Management determined each promised good and service in the contract related to its CRO services should be bundled into a single performance obligation because even though the contract explicitly states individual promises such as consultation services combined with a range of tests that are carried out in order to conduct the preclinical research, the culmination of the individual promises is the CRO services which is a single performance obligation.

 

The amount the Company earns for its CRO services is typically a fixed fee per project. Revenue from the project is recognized at the point in time when the final report is delivered to the customer and thus the performance obligation is satisfied. At the time the final report is delivered: (a) the Company has the right to payment for the report, (b) the customer has legal title to the report, (c) physical transfer of the report has occurred and the customer has taken possession of the report, (d) the customer now has benefit and the risk of ownership of the report, and (e) the customer has accepted the report. Revenue collected in advance of delivery of the final report is classified as a contract liability on the consolidated balance sheet.

 

Basic and Diluted Earnings per Share of Common Stock

 

Basic earnings (loss) per share is computed by dividing net income (loss) attributable to all classes of common stockholders of Cytocom by the weighted average number of shares of all classes of common stock outstanding during the applicable period. Diluted earnings (loss) per share is determined in the same manner as basic earnings (loss) per share, except that the number of shares is increased to include restricted stock still subject to risk of forfeiture and to assume exercise of potentially dilutive stock options using the treasury stock method, unless the effect of such increase would be anti-dilutive. Since Cytocom is in a net loss position for the periods ended June 30, 2021 and 2020 the diluted EPS is excluded as the diluted EPS would be greater than the basic EPS.

 

 

 

Goodwill

 

We test goodwill for impairment in our fourth quarter each year, or more frequently if indicators of an impairment exist, to determine whether it is more likely than not that the fair value of the reporting unit with goodwill is less than its carrying value. For reporting units for which this assessment concludes that it is more likely than not that the fair value is more than its carrying value, goodwill is considered not impaired and we are not required to perform the goodwill impairment test. Qualitative factors considered in this assessment include industry and market considerations, overall financial performance, and other relevant events and factors affecting the fair value of the reporting unit. For reporting units for which this assessment concludes that it is more likely than not that the fair value is below the carrying value, goodwill is tested for impairment by determining the fair value of each reporting unit and comparing it to the carrying value of the net assets assigned to the reporting unit. If the fair value of the reporting unit exceeds its carrying value, goodwill is considered not impaired. If the carrying value of the reporting unit exceeds its fair value, we would record an impairment loss up to the difference between the carrying value and implied fair value.

 

Recent Accounting Standards

 

See the recent accounting pronouncements issued not yet adopted as set forth in Note 2 to Cytocom’s financial statements for the year ended December 31, 2020, included in the Registration Statement. There were no new recent accounting pronouncements issued during the six months ended June 30, 2021 that were applicable to Cytocom.

 

In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic: 815-40) and Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. The Company adopted ASU 2020-06 on January 1, 2021. Adoption of the ASU did not impact the Company’s financial position, results of operations or cash flows.

 

Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed consolidated financial statements.

 

Note 3 Notes Payable, Related Party Notes Payable, and Advances from Related Party

 

Notes payable consist of the following:

 

   

June 30,

2021

   

December 31,

2020

 

Short-term note payable

  $ 97,737       535,737  

Decathlon note

    800,000       -  
    $ 897,737     $ 535,737  

 

As of June 30, 2021 and December 31, 2020, Cytocom had accrued $1,712,989 and $147,040, respectively, in unpaid interest and default penalties on notes payable.

 

 

 

On November 4, 2016 the Company entered into a Revenue loan agreement, in the amount of $800,000. This is referred to as the “Decathlon note” in the table above. The loan does not state an interest rate from which to accrue interest, rather there are monthly payments due based on a percentage of revenue so that the total series of payments will achieve the lender a target IRR of 32% over the repayment period. The loan is to be repaid the earlier of (i) the last day of a 46th month following the effective date if the Company does not elect to reduce the applicable revenue percentage, or the 59th month following the effective date if the Company elect to reduce the applicable revenue percentage, (ii) immediately prior to a change of control, or (iii) acceleration of the obligations. The Company accrues interest on this note by forecasting the future payments until maturity and applies the necessary effective interest rate to achieve the target IRR. There is no financial and non-financial covenants for this loan. The effective interest as of June 30, 2021 is 28%. As of June 30, 2021 and December 31, 2020, the balance of accrued interest on this note was $1,606,399 and $1,303,529, respectively.

 

Notes payable – related party consist of the following:

 

   

June 30,

2021

   

December 31,

2020

 

Short-term notes payable – related party, various

  $ -     $ 1,366,500  
    $ -     $ 1,366,500  

 

As of June 30, 2021 and December 31, 2020, Cytocom had accrued $0 and $ 350,322, respectively, in unpaid interest and default penalties on related party notes payable.

 

Advances from related party consist of the following:

 

   

June 30,

2021

   

December 31,

2020

 

Advance from Noreen Griffin

  $ 200,000     $ -  
    $ 200,000     $ -  

 

Refer to Note 9 for further information regarding the advance received from Noreen Griffin.

 

Note 4 Leases

 

The Company’s leases do not provide an implicit rate that can be readily determined. Therefore, the Company uses discount rates based on the incremental borrowing rate of its current external debt of 3%, 10%, and 17%, depending on the entity and timing of the lease implementation.

 

The Company’s weighted-average remaining lease term relating to its operating leases is 5.22 years, with a weighted-average discount rate of the 13.14%.

 

The Company incurred lease expense for its operating leases of $110,444 and $86,565, which was included in general and administrative expenses in the consolidated statements of operation for the periods ended June 2021 and 2020, respectively. During the six months ended June 31, 2021 and 2020, the Company made cash lease payments in the amount of $99,781 and $68,522, respectively.

 

 

 

The following table presents information about the future maturity of the lease liability under the Company’s operating leases as of June 30, 2021.

 

Maturity of Lease Liability

 

Total

 

2021

  $ 145,923  

2022

    299,888  

2023

    260,600  

2024

    165,375  

2025

    173,644  

Thereafter

    405,930  

Total undiscounted lease payments

    1,451,360  

Less: Imputed interest

    492,751  

Present value of lease liabilities

  $ 958,609  

Remaining lease term (years)

    5.22  

 

Note 5 Equipment

 

Equipment, net as of June 30, 2021 and December 31, 2020 consists of the following:

 

   

June 30, 2021

   

December 31, 2020

 

Computer equipment

  $ 47,916     $ 9,637  

Furniture and Fixtures

    8,172       -  

Laboratory Equipment

    34,392       -  

Accumulated depreciation

    (34,049 )     (947 )

Net carrying value

  $ 56,431     $ 8,690  

 

During the six months ended June 30, 2021 and 2020, the Company recorded total depreciation expense of $2,791 and $0, respectively.

 

Note 6 Stockholders Equity

 

Preferred Stock

 

The Board of Directors may designate the authorized but unissued shares of the Preferred Stock with such rights and privileges as the Board of Directors may determine. As such, its Board of Directors may issue up to 25,000,000 preferred shares and designate the conversion, voting and other rights and preferences without notice to its shareholders and without shareholder approval.

 

On July 10, 2020, Cytocom’s Board of Directors designated a new series of Series A preferred stock par value $0.001, and authorized Cytocom to issue up to 5,000,000 shares of that series. As of June 30, 2021, Cytocom had 4,364,865 shares of Series A preferred shares issued and outstanding.

 

On August 1, 2020, Cytocom’s Board of Directors designated a new series of Series A-1 preferred stock par value $0.001, and between that date and February 2, 2021 authorized Cytocom to issue up to 4,400,000 shares of that series. As of June 30, 2021, Cytocom has 4,395,600 shares of Series A-1 issued and outstanding.

 

On January 9, 2021, Cytocom’s Board of Directors designated a new series of Series A-3 preferred stock par value $0.001 and authorized the issuance of up to 7,000,000 shares of Series A-3 at a price of $1.00 per share. The designation was amended on March 3, 2021, increasing the price to $5.00 per share. As of June 30, 2021, Cytocom has 552,000 shares of Series A-3 issued and outstanding.

 

On March 3, 2021, Cytocom’s Board of Directors designated a new series of Series A-4 preferred stock par value $0.001 and authorized the issuance of up to 1,000,000 shares of Series A-4 at a price of $5.00 per share. As of June 30, 2021, Cytocom has 400,000 shares of Series A-4 issued and outstanding.

 

 

 

Common Stock

 

Each holder of common stock is entitled to vote on all matters and is entitled to one vote for each share held. No holder of shares of stock of any class shall be entitled as a matter of right to subscribe for or purchase or receive any part of any new or additional issue of shares of stock of any class, or of securities convertible into shares of stock or any class, whether now hereafter authorized or whether issued for money, for consideration other than money, or by way of dividend.

 

On August 3, 2020 Cytocom’s Board of Directors approved a 1 for 4 reverse stock split of the Company’s outstanding common stock, subject to receipt of the requisite shareholder vote to approve the action. On August 5, 2020, by written consent without a meeting, the shareholders provided the requisite approval to the reverse split. On August 14, 2020 the Company filed a Certificate of Amendment to effect the reverse split. In the Certificate of Amendment, the Company also reduced the authorized number of shares of common stock to be issued from 400 million to 200 million. As of December 31, 2020 and 2019, Cytocom was authorized to issue 200,000,000 common shares at a par value of $0.001 per share.

 

As of June 30, 2021 and 2020, Cytocom had 24,836,352 and 20,721,999 shares of common stock outstanding, respectively, calculated to reflect the 1 for 4 reverse split effective August 2020.

 

During the six months ended June 30, 2021, Cytocom issued 200,000 shares as part of a cashless exercise of 200,000 warrants and 299,000 shares for compensation services. During the six months ended June 30, 2020, the Company issued 125,000 shares for debt settlement and 250,000 shares for loan origination.

 

Stock Warrants

 

For the six months ended June 30, 2021, and June 30, 2020, the warrant valuation expense was $235,538 and $0 respectively.

 

The following is a summary of outstanding stock warrants at June 30, 2021 (presented on the basis of the 1 for 4 reverse split of common stock in August 2020):

 

   

Number of

Shares

   

Exercise

Price

($)

   

Weighted

Average

Price

($)

 

Warrants as of December 31, 2020

    250,000       $1.00     $ 1.00  

Issued in 2021- exercisable after and contingent on CBLI merger close

    952,000    

$5.00 or $7.00

    $ 5.21  

Issued in 2021

    174,050    

$1.00 or $5.00

    $ 1.63  

Canceled in 2021

    -       -       -  

Exercised in 2021

    200,000       -       -  

Warrants as of June 30, 2021

    1,176,050             $ 4.51  

 

The Company issued 952,000 warrants with a weighted average exercise price of $5.21 in 2021. 552,000 warrants are convertible into preferred series A-3 shares and 400,000 warrants are convertible into preferred series A-4 shares. All 952,000 warrants are exercisable upon the close of the merger with Cleveland BioLabs, which closed on July 27, 2021.

 

 

 

Note 7 Stock Compensation

 

During the six months ended June 30, 2021 and 2020, the Company issued 299,000 and 0 common stock shares for services in the form of stock based compensation.

 

During the six months ended June 30, 2021 and 2020, the Company issued 468,085 restricted stock units, all of which will vest on August 16, 2023, provided that the employee remains in continuous service through the applicable vesting date.

 

Any accounting activity in the three months ended June 30, 2021 regarding stock based compensation or restricted stock units related to true up entries to accurately reflect cost of previously issued shares.

 

Note 8 Income Taxes - Results of Operations

 

No income tax expense was recorded for the six months ended June 30, 2021 and 2020 as Cytocom does not expect to have taxable income for 2021 and did not have taxable income in 2020. A full valuation allowance has been recorded against Cytocom’s net deferred tax asset.

 

At June 30, 2021, Cytocom had U.S. federal and state net operating loss carryforwards of approximately $27.4 million, of which $1.1 million will expire if not utilized by 2037, and $26.3 million which has no expiration.

 

Note 9 Related Parties

 

Immune Therapeutics, Inc.

 

At June 30, 2021, Immune owned 3,296,585 shares of Cytocom common stock, representing approximately 13% of common stock issued and outstanding.

 

Noreen Griffin

 

Noreen Griffin served as Chief Executive Officer of Cytocom from the date of its incorporation until June 30, 2020, and as President of Cytocom from April 1, 2020 until September 30, 2020. As of June 30, 2021 Ms. Griffin also owned directly 1.0% of Cytocom’s common stock (1.2% as of June 30, 2020).

 

In April, 2021 the Company received an advance from Ms. Griffin in the amount of $200,000, which is outstanding as of June 30, 2021 and is classified as “advances from related party” on the Company’s consolidated balance sheet.

 

Forte BioTechnology Intl Corp

 

Forte BioTechnology Int’l Corp (“Forte”) was incorporated on April 22, 2020. In April 2020, Immune and Forte announced their entry into a licensing agreement whereby Immune sub-licensed to Forte exclusive worldwide rights to research, develop and commercialize Lodonal™ (IRT-103 and IRT-101) for the treatment of immune dysfunction, inflammatory diseases and cancer in companion animals.

 

Global Reverb Corporation

 

Noreen Griffin is the Chief Executive Officer of Global Reverb Corporation (“Global Reverb”). In 2019, Cytocom issued notes payable aggregating $231,000 to Global Reverb (no notes were issued in 2021 or 2020). As of June 30, 2021 and December 31, 2020 the notes payable outstanding balance was $0 and $231,000.

 

As of June 30, 2021, Global Reverb owned 250 shares of Cytocom common stock, or 0.001% of outstanding common shares (1.2% at June 30, 2020).

 

 

 

Note 10 Commitments and Contingencies

 

Cytocom has entered into various agreements with third parties and certain related parties in connection with the research and development activities of its existing product candidates as well as discovery efforts on potential new product candidates. These agreements include fixed obligations to sponsor research and development activities, make minimum royalty payments for licensed patents and pay additional amounts that may be required upon the achievement of scientific, regulatory and commercial milestones, including milestones such as the submission of an IND to the FDA and the first commercial sale of Cytocom’s products in various countries. As of June 30, 2021, Cytocom is uncertain as to whether any of these contingent events will become realized. Certain unpaid minimum royalty payments were recorded as Accounts Payable as of June 30, 2021 and 2020.

 

From time-to-time, Cytocom may have certain contingent liabilities that arise in the ordinary course of business. Cytocom accrues for liabilities when it is probable that future expenditures will be made, and such expenditures can be reasonably estimated. For all periods presented, other than as set forth below, Cytocom was not a party to any pending material litigation or other material legal proceedings.

 

ImQuest Life Sciences Acquisition

 

On July 20, 2020, Cytocom announced the acquisition of ImQuest Life Sciences, Inc., a research and development company focused specifically on cancer, inflammation and infectious disease treatments, including its subsidiaries in an all-stock transaction (“ImQuest”). The close of the acquisition occurred on June 24, 2021 when Cytocom officially gained control of ImQuest and its subsidiaries. As the initial consideration for the merger, on July 9, 2021 Cytocom issued 2,999,999.95 shares of Series A-2 preferred stock. As of June 30, 2021 the Company recorded a liability to reflect the $12,000,000 value of the Series A-2 preferred stock owing on that date . Final settlement of the consideration will be determined 30 business days following the close of the Company’s merger with Cleveland BioLabs, when the number of common shares of Cytocom post merger as a public company can be calculated using the weighted average of the public company stock price for that period. Cytocom expects to merge ImQuest Pharmaceuticals, the drug development arm of ImQuest Life Sciences, into Cytocom’s existing drug development operations. ImQuest BioSciences, a contract research organization (CRO), is expected to continue to operate as a separate, wholly-owned, revenue-generating subsidiary of Cytocom.

 

Merger with Cleveland BioLabs, Inc.

 

On October 16, 2020, Cytocom and Cleveland BioLabs, Inc. (“Cleveland BioLabs”), a biopharmaceutical company developing novel approaches to activate the immune system, entered into a definitive merger agreement to combine their businesses in an all-stock transaction. Cytocom shareholders will have a majority position in the newly combined entity, which the parties anticipate will continue to be listed on the NASDAQ, and the initial Board of Directors for the combined company will consist of four members selected by Cytocom and three members selected by Cleveland BioLabs. The Boards of Directors of both companies have approved the combination. The proposed transaction is subject to customary closing conditions, including approval by the stockholders of Cleveland BioLabs, the shares of the combined company being approved for listing on NASDAQ, and a registration statement under the Securities Act becoming effective. After close, merged companies will operate as “Cytocom Inc.” The merger closed on July 27, 2021.

 

Distribution Agreements

 

At June 30, 2021 and 2020, Cytocom was not a party to any distribution agreements for the products it owns or licenses.

 

Contract Manufacturing Agreements

 

At June 30, 2021 and 2020, Cytocom was not a party to any contract manufacturing agreements for the products it owns or licenses.

 

 

 

Legal Proceedings

 

The Ira Gaines Revocable Trust dated November 24, 2004 (“Gaines Trust”) made a loan to Cytocom, Inc. and Immune Therapeutics Inc. in the amount of $100,000 on May 15, 2015 (“May 2015 Loan”). Ira Gaines made additional loans to Immune in the amounts of $100,000 (“July 2014 Loan”) and $50,000 (“January 2017 Loan”). Noreen Griffin, the then President of Cytocom and then CEO of Immune and Cytocom, personally guaranteed the January 2017 loan. As of October 1, 2019, all of the loans were in default. Ira Gaines and the Gaines Trust filed suit against Immune, Cytocom, and Noreen Griffin in the Maricopa County Superior Court in 2019 (CV2019-055740) to recover amounts due under the loans.

 

According to a settlement agreement dated October 1, 2019, the parties to the lawsuit agreed:

 

 

1.

The July 2014 and the January 2017 Loans were cancelled and replaced by a new loan to Immune in the principal amount of $150,000. Immune was required to pay past-due interest on those loans in the amount of $67,000 before January 15, 2020.

 

 

2.

The May 2015 Note was cancelled and replaced by a new loan to Cytocom in the amount of $300,000. Cytocom was required to pay Ira Gaines and the Gaines Trust a restructuring fee of $25,000 by January 15, 2020.

 

 

3.

Griffin’s guarantee of the January 2017 Note was cancelled and replaced by a new Immune $150,000 loan.

 

 

4.

Cytocom also agreed to issue 125,000 shares of its common stock (calculated on the basis of the 1 for 4 reverse split in August 2020) to Ira Gaines as part of a settlement between Ira Gaines and Ron Brouillette in a separate lawsuit.

 

Upon execution of new promissory notes and the guarantee for the loans in 3. above, Ira Gaines and the Gaines Trust (collectively, “Gaines”) agreed on October 1, 2019 to dismiss lawsuits against the defendants for non-payment of the loans. Gaines also agreed that upon issuance by Cytocom of the 500,000 shares of its common stock, Gaines would fully release Immune, Cytocom and Griffin from any claims asserted in a separate litigation between Gaines and shareholder Brouillette. It was also agreed that each party to the lawsuits would bear its own costs and fees.

 

Cytocom issued the 125,000 shares of its common stock on March 4, 2020. Due to the fact that Cytocom did not have sufficient funds by January 25, 2020, it was unable to meet its payment obligations to Ira Gaines and the Gaines Trust due on that date.

 

Subsequently, on June 7, 2020 Gaines, the Gaines Trust, Cytocom and Griffin entered into a new settlement agreement (“June 2020 Settlement”). The parties agreed that in consideration for the dismissal with prejudice of the lawsuit against Cytocom and Griffin and the release of all claims against Cytocom and Griffin asserted in the lawsuit and/or arising from the $300,000 Note, Cytocom would make payments to the Gaines Trust in the amount of $300,000 as follows: (a) a payment of $50,000 immediately upon the execution of June 2020 Settlement, (b) a payment of $100,000 upon the signing of a definitive merger agreement between Cytocom and Cleveland Bio Labs, which was then expected to occur by the end of June 2020, and (c) a payment of $150,000 upon the closing of the merger between Cytocom and Cleveland, which was then expected to occur in July or August 2020. As additional consideration, Cytocom agreed to issue, or cause to be issued, to Gaines 100,000 shares in the combined company to be valued at $1.00 per share upon the signing of the definitive merger agreement, which shares Mr. Gaines could sell at his sole discretion in accordance with any applicable securities laws.

 

The $50,000 payment was made on June 9, 2020. Cytocom made a payment of $110,000 to Gaines on December 4, 2020 in accordance with (b) above, the payment having been increased by $10,000 due to the fact that the signing of the definitive merger agreement occurred on October 16, 2020 and Cytocom had been late in making the payment.

 

The final conditions for release of the lawsuit (a payment of $150,000 upon the closing of the merger between Cytocom and Cleveland; and issuance to Gaines 100,000 shares in the combined company) had not been fulfilled as of June 30, 2021 because the Merger between Cytocom and Cleveland BioLabs had not then occurred. Following the merger closure on July 27, 2021, on August 6, 2021 a payment of $150,000 was made to Gaines. The stock issuance to Gaines in the combined company is expected to take place before the end of the third quarter of 2021.

 

 

 

Note 11 Business Combination

 

On June 24, 2021, Cytocom closed its acquisition and gained control of ImQuest Life Sciences and its subsidiaries (“ImQuest”). Cytocom acquired a 100% interest in ImQuest, which will therefore be a wholly owned subsidiary. As of June 30, 2021, consideration had not yet been paid to ImQuest for the purchase, and as such is reflected as a liability under the preferred stock payable line item on the condensed consolidated balance sheet.

 

At close, as consideration for the acquisition Cytocom was required to issue up to a maximum of 3 million shares of Series A preferred stock, in accordance with the Agreement and Plan of Merger dated July 17, 2020. The value of the stock to be issued was not to exceed $12,000,000. As such the Company recorded its best estimate of a liability as of June 30, 2021 to reflect the maximum payable of $12,000,000.

 

The purchase price allocation accounting for the acquisition is preliminary, as the Company is still undergoing fair value studies and the final valuation of the consideration to be paid will not be determined until 30 business days following close of the Cleveland BioLabs merger. Any purchase price accounting may be adjusted in future accounting periods once consideration is paid and actual amounts are known. Having recorded a $12,000,000 payable for preferred stock due, the Company recorded Goodwill in the amount of roughly $14.3 million resulting from the excess of the purchase price plus the net liabilities assumed. As of June 30, 2021 management does not note any indicators of potential impairment as of June 30, 2021 as there were no material changes in the acquired business in the one-day through the end of the second quarter and there was no deterioration in the business and no key employees left or plan to leave. The Company plans to quantitatively test the Goodwill for impairment prior to its fiscal year end at December 31, 2021.

 

Note 12 Subsequent Events

 

Cytocom evaluated all events or transactions that occurred after June 30, 2021 through the date the financial statements were available to be issued, September 28th, 2021.

 

Closing of the Merger with Cytocom Inc.

 

On July 27, 2021, the Cleveland BioLabs, Inc.(“CBLI”), High Street Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of CBLI (“Merger Sub”) and the Company completed a merger transaction pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), dated as of October 16, 2020, pursuant to which Merger Sub merged with and into the Company, with the Company continuing as a wholly owned subsidiary of CBLI and the surviving corporation of the merger (the "Merger"). In connection with the closing of the Merger, the Company was renamed “Cytocom Subsidiary Inc.” and CBLI was renamed to “Cytocom, Inc.” (“NewCo”).

 

Merger Consideration. Upon completion of the Merger, each outstanding share of Company common stock, each outstanding share of Company preferred stock that was not, by its terms, converted into shares of Company common stock immediately prior to the effective time of the Merger (the "Effective Time"), and each vested restricted stock unit of Company (excluding, in each case, dissenting shares and shares held in treasury) automatically converted into the right to receive a number of shares of NewCo common stock determined by the application of an exchange ratio formula set forth in the Merger Agreement.

 

Exchange Ratio. The exchange ratio was calculated based on the total number of outstanding shares of CBLI common stock and Company common stock, each on a fully diluted basis, and the respective valuations of CBLI and the Company, as of immediately prior to the Effective Time. As of the effective date of the Merger Agreement, the valuation of CBLI was assumed to be $39 million and the valuation of the Company was assumed to be $61 million. For purposes of calculating the exchange ratio, the respective valuations of the Company and CBLI at the Effective Time were increased or decreased, as applicable, based on the amount of each company’s net cash at closing, inclusive of certain short- and long-term liabilities. From these imputed valuation amounts, the number of shares to be issued as merger consideration to Company security holders will be equal to a percentage of the fully diluted common stock of the combined company determined by dividing the adjusted Company valuation by the adjusted combined company valuation.

 

 

 

Accordingly, based on the foregoing exchange ratio, the parties determined that 18,492,452 shares of NewCo common stock will be issued in the Merger, resulting in the former Company securityholders owning, or holding rights to acquire, approximately 54% of the common stock of the combined company, on a fully diluted basis, and legacy, pre-Merger CBLI securityholders owning, or holding rights to acquire, approximately 46% of the common stock of the combined company, on a fully diluted basis, in each case as of immediately following the Effective Time. In addition, at the Effective Time, each unvested Company restricted stock unit was converted into a number of restricted stock units of NewCo, as determined in accordance with the exchange ratio formula described above. The terms (including, without limitation, the vesting terms) of each such substitute restricted stock unit are substantially equivalent to those of the Company restricted stock unit being replaced.

 

On September 1, 2021, the newly merged company changed its name to Statera BioPharma, Inc.

 

Financing Arrangements

 

As a result of the Merger, the following changes were made to material definitive agreements that had been entered into by the Company as of June 30, 2021:

 

Loan and Security Agreement, dated as of April 26, 2021, between Avenue Venture Opportunities Fund, L.P. ("Avenue") and the Company, as supplemented by the Supplement to the Loan and Security Agreement, dated as of April 26, 2021, between Avenue and the Company, under which NewCo will (i) issue the warrant described in the next paragraph to Avenue and (ii) be obligated to issue shares of common stock upon conversion of up to $3 million of principal outstanding under the Avenue facility;

Warrant to Purchase Shares of Common Stock of NewCo, issued at the Effective Time, by NewCo to Avenue, exercisable for up to 154,004 shares of NewCo common stock;

Share Purchase Agreement, dated as of May 21, 2021, by and among GEM Global Yield LLC SCS, GEM Yield Bahamas Limited (such entities Cleveland BioLabs and NewCo, as successor to the Company, under which NewCo may sell, from time to time, up to $75 million shares of its common stock at a price per share equal to 90% of the recent trading price of NewCo’s common stock;

Warrant to Purchase Shares of Cytocom Inc., dated as of May 21, 2021, issued by Company and assumed by NewCo, exercisable for up to 1,720,083 shares, or 4.99% of the outstanding shares of common stock as of immediately after the Effective Time;

The Registration Rights Agreement, dated as of May 21, 2021, between the Company, GEM Global Yield LLC SCS and GEM Yield Bahamas Limited; 

Warrants, issued immediately after the Effective Time, by NewCo to the purchasers of the Company’s Series A-3 Preferred Stock and Series A-4 Preferred; and

Stock, each of which were converted immediately prior to the Effective Time, exercisable for up to an aggregate 952,000 shares of NewCo common stock.

 

 

Stock Issuances

 

Between July 1, 2021 and September 28th, 2021, Cytocom issued shares of its stock as follows:

 

Date of issuance or

receipt of cash

Number of

Shares

Issued

Class of Shares

Reason for Issuance

July 9, 2021

3,000,000

Series A-2 preferred stock

Issued to shareholders of ImQuest Life Sciences in accordance with the Agreement and Plan of Merger by and among Cytocom, Inc., and ImQuest Life Sciences, Inc. dated as of July 17, 2020.

July 29, 2021

4,649,973

Common stock

Issued to employees in exchange for restricted stock units that had vested on July 1, 2021.

July 9, 2021

305,217

Series A preferred stock

Issued to shareholders in accordance with share purchase agreements.

 

 

 

Exhibit 99.2

 

 

STATERA BIOPHARMA, INC.

 

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION AND DATA

 

Introduction

 

On September 1, 2021, Cytocom, Inc. (CYTO) changed is corporate name to Statera Biopharma, Inc. (“Statera” or “the Company”). The following unaudited pro forma condensed combined financial statements and related notes present the historical consolidated financial statements of Cleveland BioLabs, Inc. (“CBLI”), CYTO and ImQuest Life Sciences, Inc. and Affiliates (“ImQuest”), as of June 30, 2021, and for the six-month period ended June 30, 2021, as if the completion of the merger between CBLI and CYTO and the CYTO acquisition of ImQuest had occurred as of January 1, 2021.

 

On July 17, 2020, CYTO entered into an Agreement and Plan of Merger (the “ImQuest Merger Agreement”) by and between CYTO and ImQuest (the “ImQuest Merger”). On June 29, 2021, pursuant to the ImQuest Merger Agreement, ImQuest merged with and into CYTO, with CYTO being the surviving corporation in the merger and ImQuest’s affiliates, ImQuest BioSciences, Inc., ImQuest Pharmaceuticals, Inc. and Lubrinovation, Inc. becoming wholly owned subsidiaries of CYTO.

 

As consideration for the ImQuest Merger, upon closing each share of ImQuest common stock shall be cancelled and converted into the right to receive 0.0263 shares of Series A-2 Preferred Stock of CYTO, up to a maximum of 3,000,000 shares of CYTO Series A-2 Preferred Stock. The transaction is valued at $12,000,000. The initial purchase price accounting of the ImQuest business combination is reflected in the consolidated financial statements of CYTO as of June 30, 2021.

 

CBLI and CYTO entered into an Agreement and Plan of Merger, or the Merger Agreement, on October 16, 2020, pursuant to which High Street Acquisition Corp., a direct, wholly owned subsidiary of Cleveland BioLabs, or Merger Sub, will merge with and into CYTO, with CYTO surviving as a wholly owned subsidiary of CBLI, and the surviving corporation of the merger (the “CYTO Merger”). We refer to CBLI immediately following the merger as the combined company.

 

At the effective time of the CYTO Merger, each outstanding share of CYTO common stock, each outstanding share of CYTO preferred stock that was not, by its terms, converted into shares of CYTO common stock immediately prior to the effective time of the merger, and each vested restricted stock unit of CYTO (excluding, in each case, dissenting shares and shares held in treasury) was automatically converted into the right to receive a number of shares of CBLI common stock determined by the application of an exchange ratio formula set forth in the Merger Agreement.

 

The following unaudited pro forma condensed combined statement of financial position of CYTO as of June 30, 2021 is based on the historical consolidated financial statements of CBLI and CYTO, using the acquisition method of accounting. The CYTO Merger is accounted for as a reverse merger with CYTO as the accounting acquiror and the unaudited pro forma condensed combined statements of operations of CYTO for the six months ended June 30, 2021 are based on the historical consolidated financial statements of CBLI, CYTO and ImQuest using the acquisition method of accounting. The CYTO Merger is accounted for as a reverse merger and assumes the ImQuest merger with CYTO has closed as of January 1, 2021 for the unaudited pro forma condensed statements of operations.

 

The unaudited pro forma condensed combined financial information does not give effect to any cost savings, operating synergies or revenue synergies that may result from ImQuest Merger and the CYTO Merger or the costs to achieve any synergies.

 

The unaudited pro forma condensed combined financial statements are presented for informational purposes only, in accordance with Article 11 of Regulation S-X and are not intended to represent or to be indicative of the income or financial position that the Company would have reported had the ImQuest Merger and/or the CYTO Merger been completed as of the dates set forth in the unaudited pro forma condensed combined financial statements due to various factors. The unaudited pro forma condensed combined statement of financial position does not purport to represent the future financial position of the Company and the unaudited pro forma condensed combined statements of operations do not purport to represent the future results of operations of the Company.

 

 

 

The unaudited pro forma condensed combined financial statements reflect management’s preliminary estimates of the fair value of purchase consideration and the fair values of tangible and intangible assets acquired and liabilities assumed in the ImQuest Merger and the CYTO Merger, with the remaining estimated purchase consideration recorded as goodwill. The Company plans to engage independent valuation specialists to conduct analyses to assist management of the Company in determining the fair values of the assets acquired and liabilities assumed. The Company’s management is responsible for these third-party valuations and appraisals. Since these unaudited pro forma condensed combined financial statements have been prepared based on preliminary estimates of the fair value of purchase consideration and fair values of assets acquired and liabilities assumed, the actual amounts to be reported in future filings may differ materially from the amounts used in the pro forma condensed combined financial statements.

 

On May 20, 2020, the Securities and Exchange Commission (the “SEC”) adopted Release No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, that updated certain presentation requirements for pro forma financial information. The amended guidance is effective January 1, 2021, but voluntary early compliance is permitted. The Company adopted the new guidance when preparing the unaudited pro forma condensed combined financial statements. The historical financial information has been adjusted to give effect to the application of acquisition accounting. The unaudited pro forma condensed combined financial information is based upon currently available information and estimates and assumptions that CBLI’s management believes are reasonable as of the date hereof. Any of the factors underlying these estimates and assumptions may change or prove to be materially different.

 

The unaudited pro forma condensed combined financial information is presented to illustrate the estimated effects of the CYTO Merger and ImQuest Merger, and should be read in conjunction with the following:

 

 

1.

The audited consolidated financial statements of CBLI as of and for the years ended December 31, 2020, and 2019.

 

 

2.

The audited financial statements of CYTO as of and for the years ended December 31, 2020, and 2019.

 

 

3.

The audited financial statements of ImQuest as of and for the years ended December 31, 2020, and 2019.

 

 

4.

The unaudited consolidated financial statements of CBLI as of and for the six months ended June 30, 2021, and 2020.

 

 

5.

The unaudited financial statements of CYTO as of and for the six months ended June 30, 2021, and 2020.

 

 

 

 

Statera Biopharma, Inc.

Pro Forma Condensed Combined Balance Sheets

At June 30, 2021

(Unaudited)

 

   

CYTO

   

CBLI

   

Adjustments

 

NR.

 

Consolidated Statera

 

Assets

                                 

Current assets:

                                 

Cash and cash equivalents

  $ 1,330,216     $ 13,776,955     $         $ 15,107,171  

Accounts receivable

    184,279                         184,279  

Other current assets

    854,451       46,825                 901,276  

Total current assets

    2,368,946       13,823,780          

 

    16,192,726  
                                   

Restricted Cash

    14,391,410                         14,391,410  

Equipment, net

    56,431       4,954                 61,385  

Operating lease right-of-use asset

    884,255                         884,255  

Goodwill and identified intangible assets

    14,343,158               44,578,149  

1

    58,921,307  

Contract Asset

    60,816                         60,816  

Total Assets

  $ 32,105,016     $ 13,828,734     $ 44,578,149       $ 90,511,899  
                                   

Liabilities and Stockholders' equity (deficit)

                                 

Current Liabilities

                                 

Accounts payable

  $ 6,536,958     $ 60,503               $ 6,597,461  

Accrued expenses

            240,120                 240,120  

Current portion of operating lease liabilities

    174,692                         174,692  

Contract liability

    130,829                         130,829  

Preferred stock payable

    12,000,000                         12,000,000  

Notes payable

    897,737                         897,737  

Warrant liability

                    1,638,368  

2

    1,638,368  

Advances from related party

    200,000                         200,000  

Total current liabilities

    19,940,216       300.623       1,638,368         21,879,207  

Long Term liabilities

                                 

Operating lease liability, net of current portion

    783,917                         783,917  

Long term debt

    15,000,000                         15,000,000  

Total liabilities

    35,724,133       300,623       1,638,368         37,663,124  
                                   

Stockholders' Equity (deficit)

                                 

CBLI:

                                 

Common stock $0.005 par value, issued and outstanding 15,468,945 actual and 34,316,602 pro forma

            77,340       94,243  

1

    171,583  

CYTO:

                                 

Common stock

    24,836               (24,836 )

1

     

Series A Preferred stock

    4,365               (4,365 )

1

     

Series A-1 Preferred stock

    4,396               (4,396 )

1

     

Series A-3 Preferred stock

    552               (552 )

1

 

__

 

Series A-4 Preferred stock

    ​400               (400 )

1

     

Additional paid in capital

    35,869,446       179,475,602       (127,421,546 )

1,2

    87,923,502  

Accumulated other comprehensive loss

            (681,820 )        

1

    (681,820 )

Accumulated deficit

    (39,523,112 )     (170,301,633 )     170,301,633  

1

    (39,523,112 )

Stockholders equity

            8,569,489       42,939,781  

1

    47,890,153  

Noncontrolling interest

            4,958,622                 4,958,622  

Total Stockholders equity

            13,528,111       42,939,781         52,848,775  

Total liabilities and stockholders equity

    32,105,016       13,828,734       44,578,149         90,511,899  

 

 

 

 

Statera BioPharma, Inc

Pro Forma Condensed Combined Statements of Operations

Six Months ended June 30, 2021

(Unaudited)

 

   

CYTO

   

ImQuest

   

CBLI

   

Adjustments

 

NR.

 

Consolidated

Statera

 

Revenues:

                                         

Service Revenue

  $ -     $ 1,429,473     $ -     $ -  

-

  $ 1,429,473  

Cost of Sales

    -       717,432       -     $ -  

-

    717,432  

Gross Profit

            712,041       -       -  

-

    712,041  

Operating Expenses

                                         

Sales and marketing

    2,795       269,570       -       -  

-

    272,365  

Research and development

    2,839,960       -       169,773       -  

-

    3,009,733  

General and administrative

    8,674,763       277,321       1,050,726       -  

-

    10,002,810  

Total operating expenses

    11,517,518       546,891       1,220,499       -  

-

    13,284,908  

(Loss) Income from operations

    (11,517,518 )     165,150       (1,220,499 )     -  

-

    (12,572,867 )

Interest income (expense)

    (374,273 )     (471,350 )     6,200       -  

-

    (839,423 )

Income from discontinued operations, net of income taxes

    -       (260,399 )     -       -  

-

    (260,399 )

Net loss

    (11,891,791 )     (566,599 )     (1,214,299 )     -   -     (13,672,689 )

Net loss attributable to noncontrolling interest

    -       36,195       16,695       -   -     52,890  

Net loss attributable to Statera Biopharma, Inc.

  $ (11,891,791 )   $ (530,404 )   $ (1,197,604 )   $ -       $ (13,619,799 )
Loss per share, primary and diluted                                     $ (0.40 )
Pro forma shares used to calculate loss per share                                       34,316,602  

 

 

 

 

Statera Biopharma, Inc

 

Notes to Unaudited Pro Forma Condensed Combined Financial Information

 

Note 1 Description of transactions

 

On July 17, 2020, Cytocom, Inc. entered into an Agreement and Plan of Merger by and between CYTO and ImQuest Life Sciences, Inc. and Affiliates (“ImQuest”) (the “ImQuest Merger”) pursuant to which ImQuest and its affiliates ImQuest BioSciences, Inc., ImQuest Pharmaceuticals, Inc. and Lubrinovation, Inc. will become wholly owned subsidiaries of CYTO. On June 29, 2021, CYTO and ImQuest closed the ImQuest Merger. The financial information included in the condensed combined statement of operations includes the financial information of ImQuest as if the transaction occurred on January 1, 2021.

 

Cleveland BioLabs, Inc, (“CBLI”) and CYTO entered into an Agreement and Plan of Merger on October 16, 2020, pursuant to which High Street Acquisition Corp., a direct, wholly owned subsidiary of Cleveland BioLabs, or Merger Sub, will merge with and into CYTO, with CYTO surviving as a wholly owned subsidiary of CBLI, and the surviving corporation of the merger, (the “CYTO Merger”). The CYTO Merger closed on July 27, 2021. The financial information included in the condensed combined statement of operations includes the financial information of CBLI as if the transaction occurred on January 1, 2021.

 

Note 2 Basis of presentation

 

The unaudited pro forma condensed combined financial information is based on the historical consolidated financial information of CBLI, CYTO and ImQuest and affiliates and has been prepared to give the effect of the ImQuest Merger and the CYTO Merger.

 

The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting, with CYTO considered the accounting acquirer in both the ImQuest Merger and the CYTO Merger. The CYTO Merger is a reverse merger where the accounting acquirer is not the same as the legal acquirer; therefore, the assets acquired, liabilities and non-controlling interests assumed will be adjusted to their fair values. Under the acquisition method of accounting, the preliminary purchase price is allocated to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair values, with the excess purchase price, if any, allocated to goodwill. The non-controlling interest in the pro forma combined balance sheet results from a subsidiary of CBLI, which is not wholly owned. This non-controlling interest will be recorded at fair value. To prepare the unaudited pro forma condensed combined financial information, CYTO adjusted the assets and liabilities included within the ImQuest Merger and the CYTO Merger to their estimated fair values based CYTO ’s preliminary estimates. CYTO has not completed the detailed valuation work necessary to finalize the required estimated fair values and estimated useful lives of the assets acquired and liabilities assumed and the related allocations of the purchase prices. The final allocations of the purchase prices will be determined during the respective measurement periods and determination of the estimated fair value of assets and liabilities, and associated tax adjustments. Accordingly, the final acquisition accounting adjustments may be materially different from the unaudited transaction accounting adjustments contained herein.

 

Note 3 Pro Forma Adjustments

 

 

1.

This entry reflects the issuance of 18,492,454 shares of CBLI stock issued for 100% of the equity interest of CYTO. After the CYTO merger, CYTO holders will hold approximately 54% shares of the combined companies, four of the seven board members will be designated by CYTO and the executive management team will be comprised of mainly of CYTO executives. Therefore, CYTO will gain control of CBLI. Since CYTO obtains control of CBLI as a result of the CYTO merger, it will be considered the accounting acquirer even though legal entity of CBLI will be the surviving entity. This transaction will be accounted for as a reverse merger in accordance with the authoritative accounting guidance. In a reverse merger the purchase consideration is allocated to the fair value of the legal acquiror (accounting acquiree). At the consummation of the CYTO merger, CYTO’s issued Series A, A-1, A-3 and Series A-4 preferred shares are automatically converted into 9,712,465 shares of CYTO common stock.

 

 

2.

The CYTO Merger triggers cash settlement terms in equity warrants issued by CBLI in June 2020 and February 2021. The fair value of these warrants of $1,638,368 at June 30, 2021 was recognized as a liability and an addition to goodwill. This fair value of this warrant liability will be adjusted every accounting period with the change in fair value recognized in the calculation of net income or loss.

 

 

 

When accounting for a reverse merger the consideration transferred is measured using the most reliably measured fair value. As a publicly traded Company CBLI shares are more reliably measurable than CYTO’s privately held shares; accordingly, a stock price of approximately $3.00 per share was used in accounting for the CYTO Merger. The amount recognized for issued equity (common shares outstanding) is the sum of the value recognized for issued equity interests of CYTO immediately before the acquisition, plus the fair value CBLI (legal parent). Retained deficit is the based on the retained deficit of CYTO. The following table shows the calculation of the issued equity of the combined company immediately after CYTO merger:

 

Carrying value of CYTO equity(1)

  $ 35,869,446  

Fair value of CBLI(2)

  $ 52,225,639  
Total value of issued equity of combined company   $ ​88,095,085  
Amount allocated to common stock(3)   $ ​(171,583 )

Amount allocated to additional paid-in capital

  $ 87,923,502  

 

(1)

Represents value of issued equity on June 30, 2021 of $34,005,670.

(2)

Estimated fair value of CBLI.

(3)

Common stock post transaction (34,316,602 * $.005).