siox-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-37418

Sio Gene Therapies Inc.

(Exact name of registrant as specified in its charter)


Delaware						85-3863315
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

1501 Broadway, 12th Floor, New York, NY						10036
(Address of principal executive offices)						(Zip Code)

Registrant’s telephone number, including area code: (646) 677-6770

130 West 42nd St., 26th Floor New York NY 10036

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each Class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.00001 per share

SIOX

The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer			☐			Accelerated filer			☐


Non-accelerated filer			☒			Smaller reporting company			☒


						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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the Registrant’s common stock, $0.00001 par value per share, on November 8, 2022, was 73,975,196.

SIO GENE THERAPIES INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2022

TABLE OF CONTENTS


			Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of September 30, 2022 and March 31, 2022			4
Condensed Consolidated Statements of Operations for the Three and Six-Months Ended September 30, 2022 and 2021			5
Condensed Consolidated Statements of Comprehensive Loss for the Three and Six-Months Ended September 30, 2022 and 2021			6
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six- Months Ended September 30, 2022 and 2021			7
Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2022 and 2021			8
Notes to Condensed Consolidated Financial Statements			9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 3. Quantitative and Qualitative Disclosures About Market Risk			24
Item 4. Controls and Procedures			24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			25
Item 1A. Risk Factors			26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			44
Item 3. Defaults Upon Senior Securities			44
Item 4. Mine Safety Disclosures			44
Item 5. Other Information			44
Item 6. Exhibits			45

SIGNATURES			46

Summary of the Material Risks Associated with Our Business

Our business is subject to numerous risks and uncertainties that you should be aware of in evaluating our business. These risks include, but are not limited to, the following:

•We may not be successful in identifying and implementing any strategic business combination or other transaction and any strategic transactions that we may consummate in the future could have negative consequences.

•If we are successful in completing a strategic transaction, we may be exposed to other operational and financial risks.

•If a strategic transaction is not consummated, our Board may decide to pursue a dissolution and liquidation. In such an event, the amount of cash available for distribution to our stockholders will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved for commitments and contingent liabilities.

•We have a limited operating history and have never generated any product revenues.

•Our business, operations and future prospects could continue to be adversely impacted by the effects of health epidemics, including the recent COVID-19 pandemic.

•We expect to incur significant losses for the foreseeable future and may never achieve or maintain profitability.

•The market price of our common stock has been and is likely to continue to be highly volatile, and you may lose some or all of your investment.

•The intended tax effects of our corporate structure prior to and following the Domestication (as defined below) and our corporate reorganization to align our corporate structure with current and future business activity (the "Reorganization"), and intercompany arrangements prior to the Domestication and Reorganization, depend on the application of the tax laws of various jurisdictions and on how we operate our business.

The summary risk factors described above should be read together with the text of the full risk factors below, in the section titled “Risk Factors” in Part II, Item 1A. and the other information set forth in this Quarterly Report on Form 10-Q, including our unaudited condensed consolidated financial statements and the related notes, as well as in other documents that we file with the Securities and Exchange Commission. The risks summarized above or described in full below are not the only risks that we face. Additional risks and uncertainties not precisely known to us, or that we currently deem to be immaterial, may also harm our business, financial condition, results of operations and future growth prospects.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

SIO GENE THERAPIES INC.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands, except share and per share amounts)


	September 30, 2022		March 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	49,865	$	63,729
Restricted cash	1,184		1,184

Prepaid expenses and other current assets	2,335		5,214
Income tax receivable	355		1,609
Total current assets	53,739		71,736

Operating lease right-of-use assets	7		2,444
Property and equipment, net	—		900
Total assets	$	53,746	$	75,080
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,963	$	3,984
Accrued expenses	2,867		8,232
Current portion of operating lease liabilities	4		786
Total current liabilities	4,834		13,002
Operating lease liabilities, net of current portion	—		1,730
Total liabilities	4,834		14,732
Commitments and contingencies (Note 8)
Stockholders’ equity:
Common stock, par value $0.00001 per share, 1,000,000,000 shares authorized, 73,975,196 and 73,739,378 issued and outstanding at September 30, 2022 and March 31, 2022, respectively	1		1
Additional paid-in capital	923,022		922,966
Accumulated deficit	(874,442)		(862,956)
Accumulated other comprehensive income	331		337
Total stockholders’ equity	48,912		60,348
Total liabilities and stockholders’ equity	$	53,746	$	75,080

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

SIO GENE THERAPIES INC.

Condensed Consolidated Statements of Operations

(Unaudited, in thousands, except share and per share amounts)


	Three Months Ended September 30,				Six Months Ended September 30,
	2022		2021		2022		2021
Operating expenses:
Research and development expenses
(includes stock-based compensation (benefit) expense of $(8) and $489 for the three months ended September 30, 2022 and 2021 and $(409) and $921 for the six months ended September 30, 2022 and 2021, respectively)	$	336	$	11,448	$	5,878	$	19,506
General and administrative expenses
(includes stock-based compensation expense of $223 and $6,809 for the three months ended September 30, 2022 and 2021 and $465 and $7,698 for the six months ended September 30, 2022 and 2021, respectively)	2,941		9,748		5,933		13,607
Total operating expenses	3,277		21,196		11,811		33,113
Other (income) expenses:


Other (income) expense, net	(197)		41		(321)		22
Loss before income tax benefit	(3,080)		(21,237)		(11,490)		(33,135)
Income tax benefit	—		—		(4)		(28)
Net loss	$	(3,080)	$	(21,237)	$	(11,486)	$	(33,107)
Net loss per share of common stock — basic and diluted	$	(0.04)	$	(0.29)	$	(0.16)	$	(0.45)
Weighted-average shares of common stock outstanding — basic and diluted	73,975,196		72,941,507		73,870,818		72,901,906

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

SIO GENE THERAPIES INC.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited, in thousands)


	Three Months Ended September 30,				Six Months Ended September 30,
	2022		2021		2022		2021
Net loss	$	(3,080)	$	(21,237)	$	(11,486)	$	(33,107)
Other comprehensive (loss) income:
Foreign currency translation adjustment	(2)		—		(6)		2
Total other comprehensive (loss) income	(2)		—		(6)		2
Comprehensive loss	$	(3,082)	$	(21,237)	$	(11,492)	$	(33,105)

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

SIO GENE THERAPIES INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited, in thousands, except share amounts)


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders’ Equity

	Shares	Amount
Balance at March 31, 2021	69,377,567	$	1	$	914,100	$	(791,069)	$	335	$	123,367
Shares issued upon settlement of restricted stock units	82,542	—		—		—		—		—
Shares sold in connection with at-the-market offering, net of brokerage fees and offering expenses of $0.0 million	179,400	—		479		—		—		479
Stock-based compensation expense	—	—		1,321		—		—		1,321

Foreign currency translation adjustment	—	—		—		—		2		2
Net loss	—	—		—		(11,870)		—		(11,870)
Balance at June 30, 2021	69,639,509	$	1	$	915,900	$	(802,939)	$	337	$	113,299
Shares issued for restricted stock units	—	—				—		—		—
Shares sold in connection with at-the-market offering, net of brokerage fees and offering expenses of $0.7 million	—	—		—		—		—		—
Shares issued upon exercise of pre-funded warrants	3,301,998									—
Stock-based compensation expense	—	—		7,298		—		—		7,298
Capital contribution received from Roivant Sciences, Inc.	—	—		—		—		—		—
Foreign currency translation adjustment	—	—		—		—		—		—
Net loss	—	—		—		(21,237)		—		(21,237)
Balance at September 30, 2021	72,941,507	$	1	$	923,198	$	(824,176)	$	337	$	99,360


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders’ Equity

	Shares	Amount
Balance at March 31, 2022	73,739,378	$	1	$	922,966	$	(862,956)	$	337	$	60,348
Shares issued upon settlement of restricted stock units	235,818	—		—		—		—		—

Stock-based compensation benefit	—	—		(159)		—		—		(159)
Foreign currency translation adjustment	—	—		—		—		(4)		(4)
Net loss	—	—		—		(8,406)		—		(8,406)
Balance at June 30, 2022	73,975,196	$	1	$	922,807	$	(871,362)	$	333	$	51,779
Shares issued upon settlement of restricted stock units	—	—		—		—		—		—
Stock-based compensation expense	—	—		215		—		—		215
Foreign currency translation adjustment	—	—		—		—		(2)		(2)
Net loss	—	—		—		(3,080)		—		(3,080)
Balance at September 30, 2022	73,975,196	$	1	$	923,022	$	(874,442)	$	331	$	48,912

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

SIO GENE THERAPIES INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)


	Six Months Ended September 30,
	2022		2021
Cash flows from operating activities:
Net loss	$	(11,486)	$	(33,107)
Adjustments to reconcile net loss to net cash used in operating activities:

Non-cash lease expenses	2,437		100
Stock-based compensation expense	56		8,619
Depreciation and non-cash amortization	137		122

Change in operating lease liabilities	(2,512)		(109)
Other	857		4
Changes in operating assets and liabilities:
Prepaid expenses and other current assets	2,879		3,027
Income tax receivable	1,254		(77)
Accounts payable	(2,021)		1,332
Accrued expenses	(5,365)		(1,830)
Net cash used in operating activities	(13,764)		(21,919)
Cash flows from investing activities:
Cash proceeds from sale of long-term investment	—		4,343
Cash proceeds from sale of property and equipment	190		—
Purchases of property and equipment	(290)		(194)
Net cash (used in) provided by investing activities	(100)		4,149
Cash flows from financing activities:


Cash proceeds from issuance of shares of common stock, net of issuance costs	—		479
Net cash provided by financing activities	—		479
Net change in cash and cash equivalents, restricted cash and long-term restricted cash	(13,864)		(17,291)
Total cash and cash equivalents, restricted cash and long-term restricted cash—beginning of period	64,913		120,170
Total cash and cash equivalents, restricted cash and long-term restricted cash—end of period	$	51,049	$	102,879
Cash and cash equivalents —beginning of period	63,729		118,986
Restricted cash included in current assets—beginning of period	1,184		—
Restricted cash included in long-term assets—beginning of period	—		1,184
Total cash and cash equivalents, restricted cash and long-term restricted cash—beginning of period	$	64,913	$	120,170
Cash and cash equivalents—end of period	49,865		101,695
Restricted cash included in current assets—end of period	1,184		1,184

Total cash and cash equivalents and restricted cash—end of period	$	51,049	$	102,879

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

SIO GENE THERAPIES INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1—Description of Business

Historically, Sio Gene Therapies Inc. ("Sio"), together with its wholly owned subsidiaries (the "Company"), was a clinical-stage company focused on developing gene therapies to radically transform the lives of patients with neurodegenerative diseases.

Sio is a Delaware corporation, which was originally an exempted limited company incorporated under the laws of Bermuda in October 2014 and was named Axovant Gene Therapies Ltd. ("AGT") from March 2019 until November 2020. During November 2020, the Company completed a corporate transformation, changing its jurisdiction of incorporation from Bermuda to the State of Delaware, changing its name to Sio Gene Therapies Inc., and changing its ticker symbol on The Nasdaq Global Select Market (“Nasdaq”) to “SIOX” (collectively, these events comprise the “Domestication”). The Company continues to be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and applicable rules of Nasdaq.

Since its initial public offering in 2015, the Company has devoted substantially all of its efforts to raising capital, acquiring product candidates and advancing its product candidates into clinical development. The Company has determined that it has one operating and reporting segment as it allocates resources and assesses financial performance on a consolidated basis.

Note 2—Summary of Significant Accounting Policies

(A) Basis of Presentation:

The Company’s fiscal year ends on March 31, and its fiscal quarters end on June 30, September 30 and December 31.

These unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2022 (the "Annual Report"), filed with the SEC on June 14, 2022. The unaudited condensed consolidated balance sheet at March 31, 2022 has been derived from the audited consolidated financial statements at that date. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary to present fairly the financial position of the Company and its results of operations and cash flows for the periods presented have been included. Operating results for the three and six-months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending March 31, 2023, for any other interim period, or for any other future year.

Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification ("ASC"), and as amended by Accounting Standards Updates ("ASU"), issued by the Financial Accounting Standards Board ("FASB"). These unaudited condensed consolidated financial statements and accompanying notes include the accounts of the Company and its wholly owned subsidiaries. The Company has no unconsolidated subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Certain prior period balances have been reclassified to conform to the current period presentation.

During November 2020, the historical financial statements and subsidiaries of AGT became the historical financial statements and subsidiaries of Sio upon consummation of the Domestication. As a result, these unaudited condensed consolidated financial statements and accompanying notes reflect (i) the historical operating results of AGT and its subsidiaries prior to the Domestication; (ii) the operating results of the Company following the Domestication; and (iii) the Company’s equity structure for all periods presented.

As a result of agreements reached during the six months ended September 30, 2022 for the early termination of lease agreements for an office facility in New York, New York and for a research and development facility and related office space in Durham, North Carolina, the associated balances of operating lease right-of-use assets and operating lease liabilities on the Company's condensed consolidated balance sheet were significantly reduced.

There have been no significant changes, other than those mentioned in the preceding paragraph, in the Company’s accounting policies from those disclosed in its Annual Report.

(B) Going Concern and Management's Plans:

The Company assesses and determines its ability to continue as a going concern in accordance with the provisions of ASC Subtopic 205-40, "Presentation of Financial Statements—Going Concern", which requires the Company to evaluate whether there are conditions or events that raise substantial doubt about its ability to continue as a going concern within one year after the date that its annual and interim consolidated financial statements and accompanying notes are issued. Certain additional financial statement disclosures are required if such conditions or events are identified. If and when an entity’s liquidation becomes imminent, financial statements should be prepared under the liquidation basis of accounting. Determining the extent, if any, to which conditions or events raise substantial doubt about the Company’s ability to continue as a going concern, or the extent to which mitigating plans sufficiently alleviate any such substantial doubt, as well as whether or not liquidation is imminent, requires judgment by management. The Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the consolidated financial statements and accompanying notes are issued.

The Company is currently a development stage company, and thus, has not yet achieved profitability. The Company expects to continue to incur significant operating and net losses, as well as negative cash flows from operations, for the foreseeable future. The Company has not generated any revenue to date.

For the six months ended September 30, 2022 and the fiscal year ended March 31, 2022, the Company incurred net losses of $11.5 million and $71.9 million, respectively. As of September 30, 2022, the Company’s cash and cash equivalents totaled $49.9 million and its accumulated deficit was $874.4 million. The Company estimates that its current cash and cash equivalents balance is sufficient to support operations beyond the twelve month period following the date that these unaudited condensed consolidated financial statements were issued. These estimates are based on assumptions that may prove to be wrong, and the Company could use its available capital resources sooner than it currently expects.

The Company's future funding requirements, both near and long-term, will depend on many factors, including, but not limited to, the timing and outcome of its exploration of, and execution upon any, potential strategic alternatives, the cost of obtaining necessary intellectual property and defending potential intellectual property disputes, realization of the anticipated benefits of the Company's headcount reduction, and the costs of operating as a public company.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company regularly evaluates estimates and assumptions related to certain assets and liabilities, including its research and development accruals, as well as assumptions used to estimate the fair value of its stock option awards, estimate its income tax expense and estimate its ability to continue as a going concern. Specifically, the Company’s assessment of the completeness of the information for research and development accruals is subject to variability and uncertainty. In addition, in certain circumstances, the determination of the nature and amount of research and development services that have been received during the reporting period requires judgment as the timing and pattern of vendor invoicing does not correspond to the level of services provided. The Company estimates the grant date fair value of stock option awards with only time-based vesting requirements using a Black-Scholes valuation model and uses a Monte Carlo Simulation method under the income approach to estimate the grant date fair value of stock option awards with market-based performance conditions. The Company bases its estimates and assumptions on historical experience and on various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

Additionally, the Company assessed the impact that the COVID-19 pandemic has had on its operations and financial results as of September 30, 2022 and through the date of issuance of these unaudited condensed consolidated financial statements. The Company’s analysis was informed by the facts and circumstances as they were known to the Company. This assessment considered the impact COVID-19 may have on financial estimates and assumptions that affect the reported amounts of assets and liabilities and expenses.

(D) Net Loss per Share of Common Stock:

Basic net loss per share of common stock is computed by dividing the net loss applicable to shareholders of common stock by the weighted-average number of shares of common stock and 3,301,998 pre-funded warrants (see Note 6(B)) outstanding during the period, without further consideration for potentially dilutive securities. The pre-funded warrants were fully exercised in July 2021 (See Note 6(B)). In accordance with ASC Topic 260, Earnings Per Share, the pre-funded warrants were included in the computation of basic net loss per share because the exercise price was negligible and they were fully vested and exercisable at any time after the original issuance date. Diluted net loss per share of common stock is computed by dividing the net loss applicable to shareholders of common stock by the diluted weighted-average number of shares of common stock outstanding during the period calculated in accordance with the treasury stock method. In periods in which the Company reports a net loss, all common stock equivalents are deemed anti-dilutive such that basic net loss per share of common stock and diluted net loss per share of common stock are equivalent. Potentially dilutive shares of common stock have been excluded from the diluted net loss per share of common stock computations in all periods presented because such securities have an anti-dilutive effect on net loss per share of common stock due to the Company’s net loss. Restricted Stock Units ("RSUs") and stock options outstanding for a total of 1.9 million and 5.5 million shares of common stock were not included in the calculation of diluted weighted-average shares of common stock outstanding for the three and six-months ended September 30, 2022 and September 30, 2021, respectively, because they were anti-dilutive given the net loss of the Company.

(E) Financial Instruments and Fair Value Measurement:

The Company utilizes fair value measurement guidance prescribed by accounting standards to value its financial instruments.

The guidance establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances.

Fair value is defined as the exchange price, or exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, the guidance establishes a three-tier fair value hierarchy that distinguishes among the following:

•Level 1-Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

•Level 2-Valuations are based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.

•Level 3-Valuations are based on inputs that are unobservable (supported by little or no market activity) and significant to the overall fair value measurement.

To the extent the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The Company’s financial instruments include cash and cash equivalents and restricted cash. Cash consists of non-interest-bearing deposits denominated in the U.S. dollar, Swiss franc and Euro, while cash equivalents consists of interest-bearing money market fund deposits denominated in the U.S. dollar, which are invested in debt securities issued or guaranteed by the U.S. government and repurchase agreements fully collateralized by U.S. Treasury and U.S. government securities, and restricted cash consists of interest-bearing deposits denominated in the U.S. dollar. Cash and restricted cash are stated at their historical carrying amounts, which approximate fair value due to their short-term nature. The carrying values of the Company's money market fund included in cash and cash equivalents of $47.0 million and $61.0 million at September 30, 2022 and March 31, 2022, respectively, approximated their fair values, which are based on quoted prices in active markets for identical securities.

The following table summarizes the fair value of the Company's money market fund included in cash equivalents based on the inputs used at September 30, 2022 and March 31, 2022 in determining such values (in thousands):


	As of September 30, 2022								As of March 31, 2022
	Fair Value		Price Quotations (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value		Price Quotations (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Money market fund	$	47,012	$	47,012	$	—	$	—	$	61,000	$	61,000	$	—	$	—

(F) Recent Accounting Pronouncements:

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASU No. 2016-13"). ASU 2016-13 requires that financial assets measured at amortized cost, such as loans, accounts and trade receivables and investments, be represented net of expected credit losses, which may be estimated based on relevant information such as historical experience, current conditions, and future expectation for each pool of similar financial asset. ASU No. 2016-13 requires enhanced disclosures related to trade receivables and associated credit losses. In May 2019, the FASB issued ASU No. 2019-05, “Financial Instruments — Credit Losses (Topic 326): Targeted Transition Relief", which allows for a transition election on certain instruments and is effective for smaller reporting companies for fiscal years beginning after December 15, 2022 and interim periods in those fiscal years. In November 2019, the FASB issued ASU No. 2019-11, "Codification Improvements to Topic 326, Financial Instruments — Credit Losses", which amends certain aspects of ASU No. 2016-13, including transition relief for troubled debt restructuring ("TDR"), among other topics. In March 2022, the FASB issued ASU No. 2022-02, "Financial Instruments — Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures" ("ASU No. 2022-02"), which eliminates the accounting guidance on TDRs for creditors in ASC Subtopic 310-40 and amends the guidance on “vintage disclosures” to require disclosure of current-period gross write-offs by year of origination. ASU No. 2022-02 also updates the requirements related to accounting for credit losses under ASC Topic 326 and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty. While the Company does not expect the adoption of this guidance to materially impact the Company's consolidated financial statements and related disclosures because it does not currently have any investments or trade receivables, the impact on the Company's consolidated financial statements and disclosures will depend on the facts and circumstances of any specific future transactions.

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)" ("ASU No. 2020-06"). ASU No. 2020-06 simplifies the accounting for convertible debt instruments by removing the beneficial conversion and cash conversion separation models for convertible instruments. Under ASU No. 2020-06, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives or that do not result in substantial premiums accounted for as paid-in capital. ASU No. 2020-06 also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the computation of diluted earnings or loss per share. The provisions of ASU No. 2020-06 are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company's adoption of ASU No. 2020-06 on April 1, 2022 did not impact the Company's consolidated financial statements and related disclosures because it did not maintain any debt instruments accounted for in accordance with ASC Subtopic 470-20, "Debt — Debt with Conversion and Other Options" or instruments accounted for as derivatives in accordance with ASC Subtopic 815-40, "Derivatives and Hedging — Contracts in Entity's Own Equity", and the Company had also included outstanding pre-funded warrants in the computation of basic net loss per share (see Note 2(D)).

In May 2021, the FASB issued ASU No. 2021-04, "Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options" ("ASU No. 2021-04"). ASU No. 2021-04 provides a principles-based framework for issuers to account for a modification or exchange of freestanding equity-classified written call options. To the extent applicable, issuers first reference other U.S. GAAP to account for the effect of the modification. In the absence of other U.S. GAAP, ASU No. 2021-04 clarifies whether to account for the effect as an adjustment to equity, and the related EPS implications, or as an expense, and if so the manner and pattern of recognition. The provisions of ASU No. 2021-04 are effective for annual periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company's adoption of ASU No. 2021-04 on April 1, 2022 did not impact the Company's consolidated financial statements and related disclosures because it did not modify outstanding equity-classified written call options upon adoption.

In March 2022, the FASB issued ASU No. 2022-01, "Derivatives and Hedging (Topic 815) — Fair Value Hedging — Portfolio Layer Method" ("ASU No. 2022-01"). ASU No. 2022-01 clarifies the guidance in ASC Topic 815 on fair value hedge accounting of interest rate risk for portfolios of financial assets, and amends the guidance in ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities", that, among other things, established the “last-of-layer” method for making the fair value hedge accounting for these portfolios more accessible. ASU 2022-01 renames that method the “portfolio layer” method. The provisions of ASU No. 2022-01 are effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. While the Company does not expect the adoption of this guidance to materially impact the Company's consolidated financial statements and related disclosures because it does not currently have any financial instruments designated as fair value hedges, the impact on the Company's consolidated financial statements and disclosures will depend on the facts and circumstances of any specific future transactions or circumstances.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not, or are not believed by management to, have a material impact on the Company’s present or future consolidated financial position, results of operations or cash flows.

Note 3—License and Collaboration Agreements

(A) The University of Massachusetts Medical School Exclusive License Agreement:

In December 2018, the Company entered into an exclusive license agreement (the "UMMS Agreement") with the University of Massachusetts Medical School ("UMMS"), pursuant to which the Company received a worldwide, royalty-bearing, sub-licensable license under certain patent applications and any patents issuing therefrom, biological materials and know-how controlled by UMMS to develop and commercialize gene therapy product candidates, including AXO-AAV-GM1 and AXO-AAV-GM2, for the treatment of GM1 gangliosidosis and GM2 gangliosidosis (including Tay-Sachs disease and Sandhoff disease), respectively. In April 2022, the Company provided notice of termination of the UMMS Agreement to UMMS, which termination became effective August 31, 2022. The Company incurred a total of $(1.2) million and $2.1 million of program-specific costs related to its AXO-AAV-GM1 and AXO-AAV-GM2 programs within research and development expenses in its unaudited condensed consolidated statements of operations during the three and six-months ended September 30, 2022, respectively, and $6.9 million and $10.3 million during the three and six-months ended September 30, 2021, respectively. The Company paid a total of $0 and $0.2 million to UMMS during the three and six-months ended September 30, 2022, respectively, and $0.3 million and $1.9 million during the three and six-months ended September 30, 2021, respectively.

(B) Oxford Biomedica License Agreement:

In June 2018, the Company entered into an exclusive license agreement (the "Oxford Agreement") with Oxford Biomedica (UK) Ltd. ("Oxford"), pursuant to which the Company received a worldwide, exclusive, royalty-bearing, sub-licensable license under certain patents and other intellectual property controlled by Oxford to develop and commercialize AXO-Lenti-PD and related gene therapy products for all diseases and conditions. In February 2022, the Company provided notice of termination of the Oxford Agreement to Oxford, which termination became effective June 30, 2022. The Company incurred $37 thousand and $0.1 million of AXO-Lenti-PD program-specific costs within research and development expenses in its unaudited condensed consolidated statement of operations during the three and six-months ended September 30, 2022 and $0.5 million and $1.0 million during the three and six-months ended September 30, 2021, respectively. The Company paid Oxford a total of $0 and $0.6 million during the three and six-months ended September 30, 2022, respectively, and $0 and $22 thousand during the three and six-months ended September 30, 2021, respectively.

Note 4—Investment in Arvelle Therapeutics B.V.

In February 2021, the Company sold its investment of 8.1 million shares of nonredeemable preferred stock (the "Arvelle Shares") of Arvelle Therapeutics B.V. ("Arvelle") to a third party as part of that third party's cash acquisition of all of the outstanding equity of Arvelle. In exchange, the Company received an upfront payment of approximately $11.6 million, in addition to a future payment to be received of approximately $1.2 million that is being held in escrow and that is recorded as restricted cash in the Company's unaudited condensed consolidated balance sheet at September 30, 2022, as well as the right to receive up to an additional total of $7.0 million in potential future regulatory and sales milestone payments (collectively, the "Arvelle Sale"). The Company originally purchased its Arvelle Shares in February 2019 and May 2020 in exchange for €0.00001 per share paid in cash, as well as certain goods and services provided by the Company to Arvelle. The Company recorded a net gain of approximately $4.7 million to other non-operating income in the Company's consolidated statement of operations upon the closing of the Arvelle Sale in February 2021, as well as a gain of approximately $4.3 million recorded to other non-operating income in the Company's consolidated statement of operations and to receivable from sale of long-term investment in its consolidated balance sheet upon the achievement of a regulatory milestone in March 2021 that was collected during the three months ended June 30, 2021.

Note 5—Accrued Expenses

As of September 30, 2022, and March 31, 2022, accrued expenses consisted of the following (in thousands):


	September 30, 2022		March 31, 2022
Research and development expenses	$	1,153	$	4,392
Bonuses and other compensation expenses	475		2,113
Other expenses	740		958
Income and other tax expenses	499		769
Total accrued expenses	$	2,867	$	8,232

Note 6—Stockholders' Equity

(A) Overview:

Sio's Certificate of Incorporation filed with the State of Delaware on November 12, 2020 authorizes the issuance of up to a total of 1,010,000,000 shares, of which 1,000,000,000 shares are common stock with a par value of $0.00001 per share and 10,000,000 shares are preferred stock with a par value of $0.00001 per share.

(B) Transactions:

In February 2020, as part of a follow-on public offering, the Company issued and sold pre-funded warrants to purchase up to 3,301,998 shares of common stock at an offering price of $3.74999 and an exercise price of $0.00001 per pre-funded warrant, which were fully exercised in July 2021. The pre-funded warrants were classified as equity and the fair value of the pre-funded warrants was recorded as a credit to additional paid-in capital and was not subject to remeasurement.

The Company has engaged SVB Securities LLC as its agent to sell shares of the Company's common stock from time to time through an at-the-market equity offering program. SVB Securities LLC receives compensation for its services in an amount equal to 3% of the gross proceeds of any of the Company's common stock sold. During the six months ended September 30, 2022, the Company did not sell any shares of its common stock under this program. During the six months ended September 30, 2021, the Company sold approximately 0.2 million shares of its common stock for total proceeds of approximately $0.5 million, net of brokerage fees, under this program. As of September 30, 2022, the Company had sold a total of approximately $30.4 million shares of its common stock for aggregate proceeds of approximately $92.0 million, net of brokerage fees, under and since the inception of this program.

Note 7—Stock-Based Compensation

(A) Amended and Restated 2015 Equity Incentive Plan:

In March 2015, the Company adopted its 2015 Equity Incentive Plan, which was (i) amended and restated in June 2017 by its Board of Directors and became effective upon shareholder approval in August 2017, (ii) further amended and restated in October 2020 by its Board of Directors, and (iii) further amended and restated in August 2021 by its Board of Directors and became effective upon stockholder approval in September 2021 (the "2015 Plan"). In April 2022 and April 2021, the number of shares of common stock authorized for issuance under the 2015 Plan increased automatically by 2.9 million and 2.8 million, respectively, in accordance with the terms of the 2015 Plan. Upon amendment and restatement by the Company's Board of Directors and stockholder approval of the 2015 Plan in August 2021 and September 2021, respectively, the number of shares of common stock authorized for issuance under the 2015 Plan increased by 5.0 million. At September 30, 2022, totals of 16.3 million shares of common stock were authorized for issuance and 13.4 million shares of common stock were available for future issuance under the 2015 Plan.

(B) Stock Options:

Time-based stock options granted to the Company's employees vest over a period of either (i) four years with 25% of the shares of common stock underlying the option vesting on the first anniversary of the vesting commencement date and the remainder vesting in 12 equal quarterly installments thereafter for such stock options granted prior to April 2021, or (ii) three years with one-third of the shares of common stock underlying the stock option vesting on the first anniversary of the vesting commencement date and the remainder vesting in 8 equal quarterly installments thereafter for such stock options granted since April 2021, each subject to continuing service. Initial stock options granted to the Company's non-employee directors vest in equal installments on the first, second and third anniversaries of the vesting commencement date, and stock options subsequently granted annually to the Company's non-employee directors vest fully on the first anniversary of the vesting commencement date, each subject to continuous service. Options with market-based performance conditions vest based on the trading price for the Company's shares of common stock exceeding certain closing price thresholds.

Stock options granted under the 2015 Plan provide option holders, if provided for by the terms of the option agreement or if approved by the Board of Directors, the right to exercise their options prior to vesting. In the event that an option holder exercises the unvested portion of any option, such unvested portion will be subject to a repurchase option held by the Company at the lower of (i) the fair market value of its common stock on the date of repurchase and (ii) the exercise price of the options. Any shares of common stock underlying such unvested portion will continue to vest in accordance with the original vesting schedule of the option.

The Company did not grant any stock options during the six months ended September 30, 2022. During the six months ended September 30, 2021, the Company granted options to purchase a total of 1.6 million shares of its common stock, with a weighted-average exercise price of $2.47 and estimated grant date fair value of $3.3 million under the 2015 Plan. There were no options with market-based performance conditions granted during the six months ended September 30, 2022 and September 30, 2021 under the 2015 Plan. At September 30, 2022, options to purchase a total of 1.1 million shares of common stock were outstanding under the 2015 Plan with a weighted-average exercise price of $8.69 per share, including options with market-based performance conditions to purchase 0.1 million shares of common stock at a weighted average exercise price of $6.42 per share. At September 30, 2022, vested options to purchase a total of 0.8 million shares of common stock were outstanding under the 2015 Plan, with no options with market-based performance conditions vested and outstanding. During the six months ended September 30, 2022 and September 30, 2021, the total grant date fair values of stock options that vested under the 2015 Plan were $0.8 million and $1.5 million, respectively.

RSUs granted during the six months ended September 30, 2022 and September 30, 2021 vest in three equal annual installments commencing on the first anniversary of the vesting commencement date, subject to continuing service. Of the total number of RSUs granted in September 2019 representing approximately 0.3 million shares of the Company's common stock, one-half vested on January 31, 2020 and the remaining one-half vested on July 31, 2020, subject to continuing service. The Company did not grant any RSUs during the six months ended September 30, 2022. During the six months ended September 30, 2021, the Company granted RSUs for a total of 1.2 million shares of common stock, with an aggregate grant date fair value of $3.1 million to its employees under the 2015 Plan. At September 30, 2022, RSUs for approximately 0.8 million shares of common stock were outstanding, of which approximately 39 thousand were vested. During the six months ended September 30, 2022 and September 30, 2021, the total grant date fair values of RSUs that vested under the 2015 Plan were $0.7 million and $0.9 million, respectively.

(D) Stock-based Compensation Expense:

The Company recorded total stock-based compensation expense of $0.2 million and $56 thousand for the three and six- months ended September 30, 2022 and $1.4 million and $2.7 million for the three and six-months ended September 30, 2021, respectively, related to options and RSUs granted to its employees and directors, excluding stock-based compensation expense allocated to the Company from RSL (see Note 7(E)). The stock-based compensation expense was included in research and development and general and administrative expenses in the Company's unaudited condensed consolidated statements of operations. At September 30, 2022, total unrecognized compensation expense for unvested outstanding option and RSU equity awards of the Company's common stock granted to its employees and directors under the 2015 Plan was $1.1 million, which is expected to be recognized over the remaining weighted-average service period of 1.69 years.

(E) RSL Common Share Awards and Options:

Certain employees of the Company have been granted RSL common share awards and options for which stock-based compensation expense is allocated to the Company from RSL. The Company recorded no such total allocated stock-based compensation expense in the three and six-months ended September 30, 2022, and $5.9 million and $5.9 million during the three and six-months ended September 30, 2021, respectively.

Note 8—Commitments and Contingencies

Certain of the Company's agreements could require final payments to the counterparty as a result of the recent termination of its licenses and clinical trials.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition, results of operations and cash flows should be read in conjunction with (i) the interim unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and (ii) the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended March 31, 2021, included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (the "SEC") on June 9, 2021.

This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements are often identified by the use of words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "project," "will," "would" or the negative or plural of these words or similar expressions or variations, although not all forward-looking statements contain these identifying words. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. The forward-looking statements appearing in a number of places throughout this Quarterly Report on Form 10-Q include, but are not limited to, statements regarding our intentions, beliefs, projections, outlook, analyses or current expectations concerning, among other things:

•the timing and outcome of our exploration of potential strategic alternatives;

•our anticipated uses of cash, cash runway and future cash position;

•the timing, cost and anticipated savings benefits of internal restructurings that we have conducted or may conduct in the future, including headcount reductions;

•our public securities' potential liquidity and trading;

•continued service of, or changes required in, our officers or other key personnel;

•our estimates regarding our results of operations, financial condition, liquidity, capital requirements, prospects, growth and strategies;

•our lack of profitability and the need for additional capital;

•the impact of laws and government regulations;

•the effects of the COVID-19 pandemic on our business and operations; and

•our ability to operate our business and effectively explore and pursue potential strategic alternatives under evolving and uncertain macroeconomic conditions, such as high inflation and a recessionary environment;

We have based these forward-looking statements largely on our current expectations and projections about future events, including the responses we expect from the FDA and other regulatory authorities and financial trends that we believe may affect our financial condition, results of operations, business strategy, nonclinical studies and clinical trials and financial needs. Such forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors known and unknown that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified herein, and those discussed in the section titled "Risk Factors" set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our other filings with the SEC. These risks are not exhaustive. You should not rely upon forward-looking statements as predictions of future events. Furthermore, such forward-looking statements speak only as of the date of this report. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

In addition, statements that "we believe" and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements as predictions of future events.

Overview

Until recently, we were a clinical-stage company focused on developing gene therapies to treat neurodegenerative diseases: AXO-AAV-GM1 for the treatment of GM1 gangliosidosis, AXO-AAV-GM2 for the treatment of GM2 gangliosidosis (including Tay-Sachs and Sandhoff diseases) and AXO-Lenti-PD for the treatment of Parkinson’s disease. During this year, we wound down these programs and are continuing research and development efforts on one pre-clinical program.

In June 2018, we entered into the Oxford Agreement with Oxford pursuant to which we received a worldwide, royalty-bearing, sub-licensable license under certain patents and other intellectual property controlled by Oxford to develop and commercialize AXO-Lenti-PD and related gene therapy products. In February 2022, we provided notice to Oxford to terminate the Oxford Agreement to develop and commercialize AXO-Lenti-PD and related gene therapy product candidates. We determined to terminate the Oxford Agreement and redirect resources to our AXO-AAV-GM1 and -GM2 programs, as well as other strategic initiatives, due to several factors, including the resource requirements and development timelines to reach meaningful value inflection for the program and an increasingly challenging market and regulatory environment for Parkinson’s disease. We continued to incur immaterial expenses in connection with the Oxford Agreement until its termination became effective on June 30, 2022.

In December 2018, we entered into the UMMS Agreement with UMMS pursuant to which we received a worldwide, royalty-bearing, sub-licensable license under certain patent applications and any patents issuing therefrom, biological materials and know-how controlled by UMMS to develop and commercialize gene therapy product candidates, including AXO-AAV-GM1 and AXO-AAV-GM2, for the treatment of GM1 gangliosidosis and GM2 gangliosidosis (including Tay-Sachs disease and Sandhoff disease). In April 2022, we provided notice to UMMS to terminate the UMMS Agreement, which termination became effective August 31, 2022. These two programs have been wound down; we are negotiating final payments to certain program vendors.

In parallel with our decision to terminate the AXO-AAV-GM1 and -GM2 programs, in April 2022, our board of directors approved and we announced the strategic decision to explore and review a range of strategic alternatives focused on maximizing stockholder value from our existing cash and cash equivalents, including a potential sale, merger, business combination or similar transaction. In connection with these actions, and as approved by our board of directors, we began implementing a significant headcount reduction, which concluded in August 2022.

While we continue to conduct one pre-clinical research and development program, we are devoting substantial time and resources to exploring strategic alternatives. Despite devoting significant efforts to identify and evaluate potential strategic alternatives, there can be no assurance that this strategic review process will result in us pursuing any transaction or that any transaction, if pursued, will be completed on attractive terms or at all. We have not set a timetable for completion of this strategic review process, and our board of directors has not approved a definitive course of action. Additionally, there can be no assurances that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, successfully consummated or lead to increased stockholder value or that we will make any additional cash distribution to our stockholders. If a strategic transaction is not completed, including if our board of directors determines that no potential transactions or counterparties would be in the best interests of our stockholders, our board of directors may decide to pursue a dissolution and liquidation. In addition, certain of our agreements could require final payments to the counterparty as a result of the recent termination of our licenses and clinical trials.

COVID-19 Business Update

We are continuing to closely monitor the impact of the global COVID-19 pandemic on our business and operations as well as measures and guidance from governmental authorities.

In the conduct of our business activities during the pandemic, we took actions designed to protect the safety and well-being of patients, healthcare workers and employees. For patients previously enrolled in our clinical trials, we worked closely with clinical trial investigators and site staff to continue treatment in compliance with trial protocols and to uphold trial integrity, while working to observe government and institutional guidelines designed to safeguard the health and safety of patients, clinical trial investigators and site staff. While the COVID-19 pandemic has not resulted in a significant delay to our prior clinical development timelines to-date and has not had a significant impact to our historical operations, the COVID-19 pandemic continues to evolve, including as a result of variants. The effects of the COVID-19 pandemic, together with recent macroeconomic uncertainty, could materially impact our strategic goals to explore and review a range of strategic alternatives focused on maximizing stockholder value from our existing cash and cash equivalents, including a potential sale, merger, business combination or similar transaction. The COVID-19 pandemic and related impacts (including inflationary pressures and macroeconomic uncertainty) could result in significant and prolonged disruption of global financial markets, which has negatively impacted and may continue to reduce our ability to access capital, limiting the financial resources available to us as well as to any potential strategic counterparty.

We do not yet know the full extent of potential impacts on our business, operations, strategic goals, or the global economy as a whole. However, these effects could harm our operations, and we will continue to monitor the COVID-19 situation closely. For additional information about risks and uncertainties related to the COVID-19 pandemic that may impact our business, financial condition and results of operations, see the section titled “Risk Factors” under Part II, Item 1A in this Quarterly Report on Form 10-Q.

Financial Operations Overview

Revenue

We have not generated any revenue from the sale of any products, and we do not expect to generate any revenue unless and until we obtain regulatory approval of and begin to commercialize any product candidates.

Research and Development Expense

Since our inception, our operations have historically been focused primarily on organizing and staffing our company, raising capital, and acquiring, preparing for and advancing our product candidates into clinical development. Until recently, our research and development expenses included program-specific costs, as well as unallocated internal costs, such as the following:

Program-specific costs include:

•direct third-party costs, which include expenses incurred under agreements with CROs and contract manufacturing organizations, the cost of consultants who assist with the development of our product candidates on a program-specific basis, investigator grants, sponsored research, manufacturing costs in connection with producing materials for use in conducting nonclinical and clinical studies, and any other third-party expenses directly attributable to the development of our prior product candidates; and

•payments for research and development milestones, which include costs incurred under our agreements with UMMS and Oxford.

Unallocated internal costs include:

•stock-based compensation expense for research and development personnel;

•personnel-related expenses, which include employee-related expenses, such as salaries, benefits and recruiting expenses, for research and development personnel; and

•other expenses, which include research and development software costs, travel expenses, laboratory facility rental costs and research and development equipment depreciation expenses, as well as the cost of consultants who assist with our research and development but are not allocated to a specific program.

Our research and development expenses are expected to decrease substantially in the near term as they are concentrated on one preclinical program.

General and Administrative Expense

General and administrative expenses consist primarily of employee-related expenses such as salaries, benefits and travel expenses for our general and administrative personnel; stock-based compensation, including stock-based compensation allocated to us from our affiliate, Roivant Sciences Ltd. ("RSL"), for certain RSL equity instruments granted to certain of our employees (primarily our former CEO (the "RSL Equity Instruments"), who resigned as our CEO in January 2022); non-employee benefit insurance premiums; third-party legal and accounting fees; information technology costs; office rent, fixed asset depreciation and other overhead costs; and consulting services.

During the fiscal year ending March 31, 2023, we anticipate that our general and administrative expenses will decrease compared to the fiscal year ended March 31, 2022, primarily as a result of stock-based compensation expense associated with the RSL Equity Instruments, for which expensing commenced upon the liquidity event vesting condition being met upon the closing of RSL's business combination with Montes Archimedes Acquisition Corp. ("MAAC") on September 30, 2021 and ended by March 31, 2022.

Results of Operations for the Three and Six-Months Ended September 30, 2022 and 2021

The following table summarizes our results of operations for the three and six-months ended September 30, 2022 and 2021 (in thousands):


	Three Months Ended September 30,						Six Months Ended September 30,
	2022		2021		Change		2022		2021		Change
Operating expenses:
Research and development expenses
(includes stock-based compensation (benefit) expense of $(8) and $489 for the three months ended September 30, 2022 and 2021 and $(409) and $921 for the six months ended September 30, 2022 and 2021, respectively)	$	336	$	11,448	$	(11,112)	$	5,878	$	19,506	$	(13,628)
General and administrative expenses
(includes stock-based compensation expense of $223 and $6,809 for the three months ended September 30, 2022 and 2021 and $465 and $7,698 for the six months ended September 30, 2022 and 2021, respectively)	2,941		9,748		(6,807)		5,933		13,607		(7,674)
Total operating expenses	3,277		21,196		(17,919)		11,811		33,113		(21,302)


Other expense, net	(197)		41		(238)		(321)		22		(343)
Loss before income tax benefit	(3,080)		(21,237)		18,157		(11,490)		(33,135)		21,645
Income tax benefit	—		—		—		(4)		(28)		24
Net loss	$	(3,080)	$	(21,237)	$	18,157	$	(11,486)	$	(33,107)	$	21,621

Research and Development Expenses

Our research and development expenses during the three and six-months ended September 30, 2022 and 2021 consisted of the following (in thousands):


	Three Months Ended September 30,						Six Months Ended September 30,
	2022		2021		Change		2022		2021		Change





Program-specific costs	$	(1,198)	$	7,381	$	(8,579)	$	2,286	$	11,357	$	(9,071)

Unallocated internal costs:
Personnel-related	134		2,163		(2,029)		1,676		4,663		(2,987)
Stock-based compensation expense	(8)		489		(497)		(409)		921		(1,330)
Other	1,408		1,415		(7)		2,325		2,565		(240)
Total research and development expenses	$	336	$	11,448	$	(11,112)	$	5,878	$	19,506	$	(13,628)

Research and development expenses were $0.3 million for the three months ended September 30, 2022 and $11.4 million for the three months ended September 30, 2021. The $11.1 million decrease was primarily related to decreases in:

(i) program-specific costs relating to our prior AXO-Lenti-PD and AXO-AAV-GM1 and AXO-AAV-GM2 programs, which decreased $8.6 million as we wound down our clinical-stage programs subsequent to our termination of the Oxford Agreement and the UMMS Agreement; and

(ii) unallocated internal costs, which decreased $2.5 million primarily due to reductions in personnel-related costs after announcing the discontinuation of our clinical-stage programs and initiating a significant reduction in workforce in April 2022. Other costs incurred during the three months ended September 30, 2022 included $0.7 million related to the early termination of the laboratory space lease in Durham, North Carolina and $0.6 million of losses on sales of equipment and furniture related to the termination of that lease.

Program-specific costs were $(1.2) million during the three months ended September 30, 2022 primarily due to adjustments required to reverse accruals made prior to the winding down of our clinical-stage programs.

Research and development expenses were $5.9 million for the six months ended September 30, 2022 and $19.5 million for the six months ended September 30, 2021. The $13.6 million decrease was primarily related to decreases in:

(i) program-specific costs relating to our prior AXO-Lenti-PD and AXO-AAV-GM1 and AXO-AAV-GM2 programs, which decreased $9.1 million as we wound down our clinical-stage programs subsequent to our termination of the Oxford Agreement and the UMMS Agreement; and

(ii) unallocated internal costs, which decreased $4.6 million primarily due to reductions in personnel-related costs after announcing the discontinuation of our clinical-stage programs and initiating a significant reduction in workforce in April 2022. Personnel-related costs incurred during the six months ended September 30, 2022 included $0.7 million of severance expense. Other costs incurred during the six months ended September 30, 2022 included $0.7 million related to the early termination of the laboratory space lease in Durham, North Carolina and $0.6 million of losses on sales of equipment and furniture related to the termination of that lease. Further, stock-based compensation expense incurred during the six months ended September 30, 2022 benifited from the reversal of $0.4 million from prior periods resulting from the workforce reduction.

General and Administrative Expenses

General and administrative expenses were $2.9 million for the three months ended September 30, 2022 and $9.7 million for the three months ended September 30, 2021. The decrease of $6.8 million was primarily due to decreases of $6.6 million in stock-based compensation expense, $5.9 million of which results from prior year expense associated with RSL equity instruments held by our former Chief Executive Officer, and $0.6 million in personnel-related expenses related to the workforce reduction that commenced in April 2022.

General and administrative expenses were $5.9 million for the six months ended September 30, 2022 and $13.6 million for the six months ended September 30, 2021. The decrease of $7.7 million was primarily due to a decrease of $7.2 million in stock-based compensation expense, $5.9 million of which results from prior year expense associated with RSL equity instruments held by our former Chief Executive Officer, and a decrease of $1.1 million in personnel-related expenses.

Other (Income) Expense, net

Other (income) expense, net was $(0.2) million and $41 thousand for the three months ended September 30, 2022 and 2021, respectively. Other income, net for the three months ended September 30, 2022 consisted primarily of $0.2 million of interest income. Other expense, net for the three months ended September 30, 2021 consisted primarily of foreign exchange losses and interest expense, partially offset by interest income.

Other (income) expense, net was $(0.3) million and $22 thousand for the six months ended September 30, 2022 and 2021, respectively. Other income, net for the six months ended September 30, 2022 consisted primarily of $0.3 million of interest income. Other expense, net for the six months ended September 30, 2021 consisted primarily of foreign exchange losses and interest expense, partially offset by interest income.

Liquidity and Capital Resources

Sources of Liquidity

Since our initial public offering in June 2015, our operations have been financed primarily through sales of common stock and pre-funded warrants, as well as borrowings under our credit facilities. As of September 30, 2022, we had $49.9 million of cash and cash equivalents available to us.

Capital Requirements

We have not yet achieved profitability and expect to continue to incur operating and net losses, as well as negative cash flows from operations, for the foreseeable future. We have not generated any revenue to date. Until such time, if ever, as we can generate substantial product revenue, and subject to our pursuit of strategic alternatives, we expect to primarily finance our cash needs using our existing cash.

For the six months ended September 30, 2022 and the fiscal year ended March 31, 2022, we incurred net losses of $11.5 million and $71.9 million, respectively. As of September 30, 2022, our cash and cash equivalents totaled $49.9 million and our accumulated deficit was $874.4 million. We expect that our existing cash and cash equivalents of $49.9 million at September 30, 2022 will enable us to fund our current operating plan beyond the twelve-month period following the date that the accompanying unaudited condensed consolidated financial statements and footnotes were issued. In order to meet longer operating requirements, including as we continue to explore and pursue strategic alternatives, we will need additional capital resources. We have based these estimates on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Our principal operating focus is currently on pursuing a range of strategic alternatives. We believe we have sufficient cash resources, net of costs which we estimate to incur in relation to such a transaction, to complete a strategic transaction. If we do not complete a strategic transaction, we may consider dissolving the Company and liquidating the assets. In that case, we believe that our cash resources are sufficient to satisfy estimated liabilities and costs of such a process. However, the achievement of a strategic transaction and the associated costs and timing thereof is uncertain and the time, cost and reserves which may be required to be held back for future claims is uncertain so our estimates may prove incorrect.

Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to, the timing and outcome of our exploration of, and execution upon any, potential strategic alternatives, the cost of obtaining necessary intellectual property and defending potential intellectual property disputes, realization of the anticipated benefits of our headcount reduction, and the costs of operating as a public company.

We expect to primarily finance our cash needs using our existing cash. We do not currently have any committed external source of funds. We continually assess multiple options to obtain additional funding to support our operations, including proceeds from offerings of our equity securities or debt financings. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders’ ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Sources of a sufficient amount of financing may not be available to us on favorable terms, if at all, and our ability to raise additional capital has been, and may continue to be, adversely impacted by, among other things, potentially worsening global economic conditions and the recent disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic. In addition, extreme price and volume fluctuations in the stock market in general, and the Nasdaq Global Select Market, in particular, have resulted in volatile and sometimes decreased stock prices for many companies, including us. Broad market and industry factors, including worsening economic conditions and other adverse effects or developments relating to the evolving effects of the COVID-19 pandemic, may negatively affect the market price of our common stock, regardless of our actual operating performance, and impact our ability to raise sufficient additional capital on acceptable terms, if at all.

At-the-Market Equity Offering Program

We have engaged SVB Securities LLC as our agent to sell shares of our common stock from time to time through an at-the-market equity offering program. SVB Securities LLC is entitled to compensation for its services in an amount equal to 3% of the gross proceeds of any of our shares of common stock sold. During the six months ended September 30, 2022, we did not sell any shares of common stock under this program. During the six months ended September 30, 2021, we sold approximately 0.2 million shares of our common stock for total proceeds of approximately $0.5 million, net of brokerage fees, under this program. As of September 30, 2022, we sold a total of approximately $30.4 million shares of our common stock for aggregate proceeds of approximately $92.0 million, net of brokerage fees, under and since the inception of this program.

Cash Flows

The following table sets forth a summary of our cash flows for each of the periods shown (in thousands):


	Six Months Ended September 30,
	2022		2021
Net cash used in operating activities	$	(13,764)	$	(21,919)
Net cash (used in) provided by investing activities	(100)		4,149
Net cash provided by financing activities	—		479

Operating Activities

Cash flows from operating activities consist of net loss adjusted for non-cash items, including depreciation and stock-based compensation expenses, as well as the effect of changes in working capital and other activities.

For the six months ended September 30, 2022, net cash used in operating activities was $13.8 million and was primarily attributable to a net loss of $11.5 million, which includes costs incurred for research and development activities, including CRO fees, manufacturing, regulatory and other clinical trial costs, as well as our general and administrative expenses, in addition to net decreases in accrued expenses and accounts payable of $7.4 million, which were partially offset by a net decrease in prepaid expenses and other current assets of $2.9 million, a decrease in income tax receivable of $1.3 million and the disposal of $0.9 million of fixed assets.

For the six months ended September 30, 2021, net cash used in operating activities was $21.9 million and was primarily attributable to a net loss of $33.1 million, which includes costs incurred for researc

SEC Form 10-Q filed by Sio Gene Therapies Inc.