cbli20220930

cbli20220930_10q.htm

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 001-32954

STATERA BIOPHARMA, INC.

(Exact name of registrant as specified in its charter)

Delaware	20-0077155
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

4333 Corbett Drive, Suite 1082, Fort Collins, Colorado	80525
(Address of principal executive offices)	(Zip Code)

(888) 613-8802

(Registrant’s telephone number, including area code)

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

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 ☒

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No ☒

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.

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 ☒

Securities 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

As of November 3, 2022, there were 54,661,890 shares outstanding of the registrant’s common stock, par value $0.005 per share.

Table of Contents

TABLE OF CONTENTS

		PAGE
PART I – FINANCIAL INFORMATION
ITEM 1.	Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive Loss	5
	Condensed Consolidated Statement of Stockholders’ Deficit	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	28
ITEM 4.	Controls and Procedures	28

PART II – OTHER INFORMATION
ITEM 1.	Legal Proceedings	29
ITEM 1A.	Risk Factors	30
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
ITEM 3.	Defaults Upon Senior Securities	30
ITEM 4.	Mine Safety Disclosures	30
ITEM 5.	Other Information	30
ITEM 6.	Exhibits	31
Signatures		32

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STATERA BIOPHARMA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	*September 30, 2022*			*December 31, 2021*
		*UNAUDITED*
ASSETS
Current assets:
Cash and cash equivalents	$	506,098		$	1,844,732
Short-term investments		—			134,603
Accounts receivable		183,383			216,183
Prepaid expenses		97,515			981,895
Contract asset		178,048			132,572
Other current assets		248,457			837,358
Total current assets		1,213,501			4,147,343
Non-current assets:
Operating lease right-of-use assets		914,226			964,331
Restricted cash		—			5,000,000
Goodwill		9,267,007			9,267,007
Intangible assets, net		1,239,853			1,580,980
Property and equipment, net		106,415			201,901
Total non-current assets		11,527,501			17,014,219
Assets of discontinued operation		8,123			8,123
Total assets	$	12,749,125		$	21,169,685
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued expenses	$	14,442,069		$	5,715,956
Current portion of operating lease liabilities		323,631			254,998
Deferred revenue		386,929			373,468
Stock issuances due		682,078			325,828
Notes payable		6,396,486			4,575,000
Total current liabilities		22,231,193			11,245,250
Operating lease liabilities, net of current portion		686,140			806,140
Long-term debt		-			10,625,000
Total long-term liabilities		686,140			11,431,140
Liabilities of discontinued operation		63			63
Total liabilities		22,917,396			22,676,453
Stockholders’ equity (deficit):
Preferred stock, $.005 par value; 1,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 0 shares issued and outstanding as of September 30, 2022 and December 31, 2021		—			—
Common stock, $.005 par value; 150,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 50,744,653 shares issued and outstanding as of September 30, 2022 and 35,484,106 shares issued and outstanding as of December 31, 2021		253,724			177,421
Additional paid-in capital		133,526,843			127,743,333
Accumulated other comprehensive income (loss)		53,695			(6,651	)
Accumulated deficit		(144,075,557	)		(129,482,141	)
Total Statera Biopharma, Inc. stockholders’ deficit		(10,241,295	)		(1,568,038	)
Noncontrolling interest in stockholders’ equity		73,024			61,270
Total stockholders’ deficit		(10,168,271	)		(1,506,768	)
Total liabilities and stockholders’ deficit	$	12,749,125		$	21,169,685

See Notes to Condensed Consolidated Financial Statements

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STATERA BIOPHARMA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	*For the Three Months Ended*						*For the Nine Months Ended*
	*September 30,*						*September 30,*
	*2022*			*2021*			*2022*			*2021*
Revenues:
Grants and contracts	$	670,473		$	236,519		$	2,437,139		$	236,519
Cost of goods sold		169,354			115,927			723,961			115,927
Gross profit		501,119			120,592			1,713,178			120,592
Operating expenses:
Research and development		230,604			3,434,977			4,446,535			6,274,936
Sales and marketing expense		13,350			23,242			69,750			26,037
General and administrative		1,803,607			6,306,323			8,210,391			14,981,086
Total operating expenses		2,047,561			9,764,542			12,726,676			21,282,059
Loss from operations		(1,546,442	)		(9,643,950	)		(11,013,498	)		(21,161,467	)
Other expense:
Interest and other expense		(1,810,473	)		(3,089,301	)		(3,593,897	)		(3,463,572	)
Total other expense		(1,810,473	)		(3,089,301	)		(3,593,897	)		(3,463,572	)
Income from discontinued operations, net of income taxes		-			(1	)		-			(1	)
Net loss		(3,356,915	)		(12,733,250	)		(14,607,395	)		(24,625,038	)
Net loss attributable to noncontrolling interests		8,103			13,419			13,979			13,419
Net loss attributable to Statera Biopharma, Inc.	$	(3,348,812	)	$	(12,719,831	)	$	(14,593,416	)	$	(24,611,619	)
Net loss attributable to common stockholders per share of common stock, basic and diluted	$	(0.07	)	$	(0.47	)	$	(0.32	)	$	(0.86	)
Weighted average number of shares used in calculating net loss per share, basic and diluted		50,234,111			27,036,583			45,906,659			28,671,422

See Notes to Condensed Consolidated Financial Statements

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STATERA BIOPHARMA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

	*For the Three Months Ended*						*For the Nine Months Ended*
	*September 30,*						*September 30,*
	*2022*			*2021*			*2022*			*2021*
Net loss including noncontrolling interests	$	(3,356,915	)	$	(12,733,250	)	$	(14,607,395	)	$	(24,625,038	)
Other comprehensive income:
Foreign currency translation adjustment		42,217			—			86,079			—
Comprehensive loss including noncontrolling interests		(3,314,698	)		(12,733,250	)		(14,521,316	)		(24,625,038	)
Comprehensive income (loss) attributable to noncontrolling interests		(5,588	)		13,419			(11,754	)		13,419
Comprehensive loss attributable to Statera Biopharma, Inc.	$	(3,320,286	)	$	(12,719,831	)	$	(14,533,070	)	$	(24,611,619	)

See Notes to Condensed Consolidated Financial Statements

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STATERA BIOPHARMA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

(UNAUDITED)

							*Additional*
	*Common Stock*						*Paid-In*
	*Shares*			*Amount*			*Capital*
Balance at December 31, 2020		13,376,062		$	66,880		$	166,762,778
Exercise of warrants		92,883			466			(466	)
Issuance of common stock, net of offering costs		2,000,000			10,000			12,713,074
Net loss		—			—			—
Balance at March 31, 2021		15,468,945		$	77,346		$	179,475,386
Issuance of common stock, net of offering costs		—			—			214
Net loss		—			—			—
Balance at June 30, 2021		15,468,945		$	77,346		$	179,475,600
Statera merger and recapitalization		16,626,575			83,132			(58,925,110	)
Shares to be issued for services		—			—			464,703
Shares to be issued for stock based compensation		—			—			234,000
Issuance of restricted stock		—			—			4,957,707
Net loss		—			—			—
Balance at September 30, 2021		32,095,520		$	160,478		$	126,206,900

Balance at December 31, 2021		35,484,106		$	177,421		$	127,743,333
Issuance of common stock, net of offering costs		14,555,555			72,778			6,383,727
Common stock repurchase		(160,130	)		(801	)		(50,507	)
Shares issued for stock based compensation		100,000			500			(500	)
Stock based compensation		—			—			452,537
Foreign currency translation		—			—			—
Net loss		—			—			—
Balance at March 31, 2022		49,979,531		$	249,898		$	134,528,590
Common stock repurchase		(338,169	)		(1,690	)		1,690
Stock based compensation		—			—			(1,065,684	)
Foreign currency translation		—			—			—
Net loss		—			—			—
Balance at June 30, 2022		49,641,362		$	248,208		$	133,464,596
Common stock repurchase		(396,709	)		(1,984	)		1,984
Stock based compensation		—			—			(287,637	)
Common stock issuance for services		1,500,000			7,500			347,900
Foreign currency translation		—			—			—
Net loss		—			—			—
Balance at September 30, 2022		50,744,653		$	253,724		$	133,526,843

	*Accumulated Other Comprehensive Income (Loss)*			*Accumulated Deficit*			*Noncontrolling Interests*			*Total*
Balance at December 31, 2020	$	(685,680	)	$	(27,631,321	)	$	4,973,465		$	143,486,122
Exercise of warrants		—			—			—			—
Issuance of common stock, net of offering costs		—			—			—			12,723,074
Net loss		—			(5,286,646	)		—			(5,286,646	)
Balance at March 31, 2021	$	(685,680	)	$	(32,917,967	)	$	4,973,465		$	150,922,550
Issuance of common stock, net of offering costs		—						—			214
Net loss		—			(6,591,723	)		—			(6,591,723	)
Balance at June 30, 2021	$	(685,680	)	$	(39,509,690	)	$	4,973,465		$	144,331,041
Statera merger and recapitalization		683,666			(2	)		(4,887,848	)		(63,046,162	)
Shares to be issued for services		—			—			—			464,703
Shares to be issued for stock based compensation		—			—			—			234,000
Restricted stock		—			—			—			4,957,707
Net loss		—			(12,719,831	)		(13,419	)		(12,733,250	)
Balance at September 30, 2021	$	(2,014	)	$	(52,229,523	)	$	72,198		$	74,208,039

Balance at December 31, 2021	$	(6,651	)	$	(129,482,141	)	$	61,270		$	(1,506,768	)
Issuance of common stock, net of offering costs		—			—			—			6,456,505
Common stock repurchase		—			—			—			(51,308	)
Shares issued for stock based compensation		—			—			—			—
Stock based compensation		—			—			—			452,537
Foreign currency translation		(17,601	)		—			(8,486	)		(26,087	)
Net loss		—			(7,757,210	)		(2,723	)		(7,759,933	)
Balance at March 31, 2022	$	(24,252	)	$	(137,239,351	)	$	50,061		$	(2,435,054	)
Common stock repurchase		—			—			—			—
Stock based compensation		—			—			—			(1,065,684	)
Foreign currency translation		49,421			—			20,528			69,949
Net loss		—			(3,487,394	)		(3,153	)		(3,490,547	)
Balance at June 30, 2022	$	25,169		$	(140,726,745	)	$	67,436		$	(6,921,336	)
Common stock repurchase		—			—			—			—
Stock based compensation		—			—			—			(287,637	)
Common stock issuance for services		—			—			—			355,400
Foreign currency translation		28,526			—			13,691			42,217
Net loss		—			(3,348,812	)		(8,103	)		(3,356,915	)
Balance at September 30, 2022	$	53,695		$	(144,075,557	)	$	73,024		$	(10,168,271	)

See Notes to Condensed Consolidated Financial Statements

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STATERA BIOPHARMA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	*For the Nine Months Ended September 30,*
	*2022*			*2021*
Cash flows from operating activities:
Net loss	$	(14,607,395	)	$	(24,625,038	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		101,940			8,309
Amortization expense		341,127			134,022
Noncash equity expense		—			235,538
Noncash interest expense		—			799,858
Stock based compensation		(900,784	)		4,957,707
Noncash lease expense		(1,263	)		21,472
Changes in operating assets and liabilities:
Other current assets		588,903			(380,615	)
Accounts receivable		32,800			63,279
Short term investments		134,603			(233,642	)
Prepaid expenses		884,380			(2,688,472	)
Contract asset		(45,476	)		374,626
Contract liability		13,462			(130,829	)
Accounts payable and accrued expenses		8,726,113			629,994
Net cash used in operating activities		(4,731,590	)		(20,833,791	)
Cash flows from investing activities:
Purchase of property and equipment		(6,454	)		(86,057	)
Cash acquired, ImQuest acquisition		—			529,499
Cash acquired, CBLI merger		—			13,116,459
Net cash provided by (used in) investing activities		(6,454	)		13,559,901
Cash flows from financing activities:
Proceeds from issuance of common		6,405,195			5,685,112
Proceeds from issuance of long-term debt		500,000			14,670,740
Proceeds from issuance of short-term debt		—			200,000
Payment of debt issuance costs		—			(329,260	)
Stock issuances due		711,650			769,529
Repayments on notes payable		(9,303,514	)		(97,737	)
Net cash provided by (used in) financing activities		(1,686,669	)		20,898,384
Effect of exchange rate change on cash and equivalents		86,079			(2,014	)
Increase (decrease) in cash and cash equivalents		(6,338,634	)		13,622,480
Cash, cash equivalents, and restricted cash, beginning of year		6,844,732			593,869
Cash, cash equivalents, and restricted cash, end of period	$	506,098		$	14,216,349

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest	$	539,842		$	279,329

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Right of use asset exchanged for lease liability	$	—		$	210,872
Debt principal converted to equity		—			1,804,500

See Notes to Condensed Consolidated Financial Statements

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STATERA BIOPHARMA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Description of Business

On July 27, 2021, Statera Biopharma, Inc., formerly known as Cleveland BioLabs, Inc. (the "Company" or "Statera"), High Street Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of the Company ("Merger Sub"), and Cytocom Inc., a Delaware corporation ("Old Cytocom"), completed their previously announced merger transaction. The merger transaction was completed 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 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 was renamed “Cytocom, Inc.” Effective September 1, 2021, the Company changed its corporate name to "Statera Biopharma, Inc.", and the Company’s common stock began trading on The Nasdaq Capital Market with the symbol “STAB.”

The Company was incorporated in Delaware in June 2003 and is headquartered in Fort Collins, Colorado. Prior to the Merger, the Company conducted business in the United States ("U.S.") directly and in the Russian Federation ("Russia") through two subsidiaries: one wholly owned subsidiary, BioLab 612, LLC ("BioLab 612"), which began operations in 2012 and was dissolved in November 2020; and Panacela Labs, Inc. ("Panacela"), which was formed by us and Joint Stock Company "RUSNANO" ("RUSNANO"), our financial partner in the venture, in 2011. Unless otherwise noted, or the context otherwise requires, the terms "Statera Biopharma," the "Company," "we," "us," and "our" refer to Statera Biopharma, Inc., known as Cleveland BioLabs, Inc. prior to the Merger, BioLab 612, and Panacela.

On June 24, 2021, Old 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 Old Cytocom and ImQuest dated as of July 17, 2020, and gained control of ImQuest. The purchase consideration due under this merger to the ex-shareholders of ImQuest consisted of 12,000,000 shares of preferred stock of Old Cytocom which were subsequently converted into 3,282,089 shares of common stock of Statera Biopharma. ImQuest is now a wholly-owned subsidiary of the Company.

In addition, the Company has an investment in Genome Protection, Inc. ("GPI") that is recorded under the equity method of accounting. The Company has not recorded its 50% share of the losses of GPI through September 30, 2022 as the impact would have reduced the Company's equity method investment in GPI below zero, and there are no requirements to fund the Company's share of these losses or contribute additional capital as of the date of these statements.

Statera Biopharma 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. Statera has one of the largest platforms of toll-like receptor ("TLR") agonists in the biopharmaceutical industry with TLR4 and TLR9 antagonists, and the TLR5 agonists, Entolimod and GP532. TLRs are a class of protein that play a key role in the innate immune system.

Statera Biopharma is developing therapies designed to directly elicit within patients a robust and durable response of antigen-specific killer T-cells and antibodies, thereby activating essential immune defenses against autoimmune, inflammatory, and infectious diseases and cancers. In the next 12 months, the Company expects to initiate clinical trials covering Crohn’s disease (STAT-201), hematology (Entolimod), pancreatic cancer (STAT-401) and COVID-19 (STAT-205).

Going Concern

At September 30, 2022, the Company had cash and cash equivalents of $0.5 million in the aggregate. The Company has incurred recurring losses from operations since inception, accumulating a deficit of approximately $144.1 million as of September 30, 2022. For the nine months ended September 30, 2022 and 2021, the Company incurred net losses of approximately $14.6 million and $24.6 million, respectively. The Company 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 the Company’s ability to continue as a going concern for a period of one year from the issuance of these condensed financial statements.

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 the Company’s operating plan, existing working capital as of September 30, 2022 was not sufficient to meet the cash requirements to fund planned operations for a period of one year after issuance of condensed financial statements without additional sources of cash. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared assuming that the Company 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 the Company’s assets and the satisfaction of liabilities in the normal course of business.

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2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

These unaudited interim condensed consolidated financial statements reflect the historical results of Old Cytocom prior to the completion of the Merger, and do not include the historical results of the Company prior to the completion of the Merger. All share and per share disclosures have been adjusted to reflect the exchange of shares in the Merger. Under U.S. generally accepted accounting principles ("GAAP"), the Merger is treated as a “reverse merger” under the purchase method of accounting. For accounting purposes, Old Cytocom is considered to have acquired Cleveland BioLabs, Inc. See Note 3, Merger with Old Cytocom, for further details on the Merger and the U.S. GAAP accounting treatment.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America pursuant to the requirements of the Securities and Exchange Commission ("SEC") for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for the fair presentation of results for the periods presented, have been included. The results of operations of any interim period are not necessarily indicative of the results of operations for the full year or any other interim period. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard-setting bodies that are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Other Comprehensive Income (Loss)

The Company applies the Accounting Standards Codification ("ASC") on comprehensive income (loss) that requires disclosure of all components of comprehensive income (loss) on an annual and interim basis. Other comprehensive income (loss) is defined as the change in equity of a business enterprise during a period arising from transactions and other events and circumstances from non-owner sources. The following table presents the changes in accumulated other comprehensive loss for the nine months ended September 30, 2022.

	*Gains and losses on foreign exchange translations*
Beginning balance	$	(6,651	)
Other comprehensive income (loss) before reclassifications		60,346
Amounts reclassified from accumulated other comprehensive loss		—
Ending balance	$	53,695

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Accounting for Stock-Based Compensation

The Statera BioPharma Equity Incentive Plan, previously known as the Cleveland Biolabs, Inc. Equity Incentive Plan, adopted in 2018 (the "Plan"), authorizes the Company to grant (i) options to purchase common stock, (ii) stock appreciation rights, (iii) awards of restricted or unrestricted stock, (iv) restricted stock units, and (v) performance awards, so long as the exercise or grant price of each are at least equal to the fair market value of the stock on the date of grant. As of September 30, 2022, an aggregate of 3,597,557 shares of common stock were authorized for issuance under the Plan, of which a total of 116,000 shares of common stock have been issued, 1,234,527 shares of common stock are reserved for outstanding stock options, 60,066 shares of common stock are reserved for restricted stock units, and 2,186,964 shares of common stock remained available for future awards. This includes the Company’s approved amendments to the Plan that increased the number of shares of common stock authorized to be issued by 3,000,000 shares, removed the limit on the maximum number of shares covered by an award that may be issued in any calendar year to any single recipient. Awards granted under the Plan have a contractual life of no more than 10 years. The terms and conditions of equity awards (such as price, vesting schedule, term, and number of shares) under the Plan are specified in an award document, and approved by the Company’s Board of Directors or its management delegates.

The 2013 Employee Stock Purchase Plan (the "ESPP") provides a means by which eligible employees of the Company and certain designated related corporations may be given an opportunity to purchase shares of common stock. As of September 30, 2022, there are 1,025,000 shares of common stock reserved for purchase under the ESPP. The number of shares reserved for purchase under the ESPP increases on January 1 of each calendar year by the lesser of: (i) 10% of the total number of shares of common stock outstanding on December 31st of the preceding year, or (ii) 100,000 shares of common stock. The ESPP allows employees to use up to 15% of their compensation to purchase shares of common stock at an amount equal to 85% of the fair market value of the Company’s common stock on the offering date or the purchase date, whichever is less.

The Company utilizes the Black-Scholes valuation model for estimating the fair value of all stock options granted where the vesting period is based on length of service or performance, while a Monte Carlo simulation model is used for estimating the fair value of stock options with market-based vesting conditions. A total of 1,216,149 options were granted during the nine months ended September 30, 2022 and no options were granted for the nine months ended September 30, 2021. In addition, 60,066 restricted stock units were granted for the nine months ended September 30, 2022.

Income Taxes

No income tax expense was recorded for the three and nine months ended September 30, 2022 and 2021 as the Company does not expect to have taxable income for 2022 and did not have taxable income in 2021. A full valuation allowance has been recorded against the Company’s net deferred tax asset.

At September 30, 2022, the Company had U.S. federal net operating loss carryforwards of approximately $197.8 million, of which $140.6 million begins to expire if not utilized by 2023, and $57.2 million has no expiration, and approximately $4.3 million of tax credit carryforwards, which begin to expire if not utilized by 2024. The Company also has state net operating loss carryforwards of approximately $112.2 million, which begin to expire if not utilized by 2027, and state tax credit carryforwards of approximately $0.3 million, which begin to expire if not utilized by 2022.

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Earnings (Loss) per Share

Basic net loss per share of common stock excludes dilution for potential common stock issuances and is computed by dividing net loss by the weighted average number of shares outstanding for the period. Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Diluted net loss per share is identical to basic net loss per share as potentially dilutive securities have been excluded from the calculation of diluted net loss per common share because the inclusion of such securities would be antidilutive.

The Company has excluded the following securities from the calculation of diluted net loss per share because all such securities were antidilutive for the periods presented. Additionally, there were no dilutive securities outstanding as of September 30, 2022.

	*As of*
Common Equivalent Securities	*September 30, 2022*		*December 31, 2021*
Warrants		33,208,944

SEC Form 10-Q filed by Statera Biopharma Inc.