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 June 30, 2024


☐	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: 001-39811

Virios Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

Delaware

85-4314201

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

44 Milton Avenue

Alpharetta, GA 30009

(Address of Principal Executive Offices)

(866) 620-8655

(Registrant’s telephone number)

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

Title of Each Class	Trading symbol	Name of Exchange on which registered
Common Stock, par value $0.0001 per share	VIRI	Nasdaq Capital Market

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 (§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 ◻

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 ⌧

As of August 7, 2024, there were 27,757,937 shares of the registrant’s common stock outstanding.

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TABLE OF CONTENTS

		Page

Part I	Financial Information

Item 1.	Financial Statements	3

	Condensed Balance Sheets as of June 30, 2024 (Unaudited) and December 31, 2023	3

	Condensed Statements of Operations for the three and six months ended June 30, 2024 and 2023 (Unaudited)	4

	Condensed Statements of Stockholders’ Equity for the three and six months ended June 30, 2024 and 2023 (Unaudited)	5

	Condensed Statements of Cash Flows for the six months ended June 30, 2024 and 2023 (Unaudited)	6

	Notes to Condensed Financial Statements (Unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	20

Item 4.	Controls and Procedures	21

Part II	Other Information

Item 1.	Legal Proceedings	21

Item 1A.	Risk Factors	21

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21

Item 3.	Defaults Upon Senior Securities	21

Item 4.	Mine Safety Disclosures	21

Item 5.	Other Information	22

Item 6.	Exhibits	22

Exhibit Index

Signatures

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PART I —FINANCIAL INFORMATION

Item 1. Financial Statements

VIRIOS THERAPEUTICS, INC.

Condensed Balance Sheets

(Unaudited)


	June 30,		December 31,
	2024		2023
		(Unaudited)
Assets
Current assets:
Cash	$	3,020,183	$	3,316,946
Prepaid expenses and other current assets		615,706		848,496
Total current assets		3,635,889		4,165,442
Total assets	$	3,635,889	$	4,165,442
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	217,762	$	111,913
Accrued expenses		282,314		246,635
Total current liabilities		500,076		358,548
Total liabilities		500,076		358,548
Commitments and contingencies (Note 8)
Stockholders' equity:
Common stock, $0.0001 par value; 43,000,000 shares authorized; 27,950,888 and 27,757,937 shares issued and outstanding at June 30, 2024, respectively; and 19,450,888 and 19,257,937 shares issued and outstanding at December 31, 2023, respectively		2,776		1,926
Preferred stock, $0.0001 par value; 2,000,000 shares authorized, no shares issued and outstanding at June 30, 2024 and December 31, 2023		—		—
Additional paid-in capital		67,242,537		65,573,300
Accumulated deficit		(63,810,390)		(61,469,222)
		3,434,923		4,106,004
Less: Treasury stock, 192,951 shares of common stock at cost		(299,110)		(299,110)
Total stockholders' equity		3,135,813		3,806,894
Total liabilities and stockholders' equity	$	3,635,889	$	4,165,442

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

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VIRIOS THERAPEUTICS, INC.

Condensed Statements of Operations

(Unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Revenue	$	—	$	—	$	—	$	—

Operating expenses:
Research and development		336,084		557,843		679,801		1,055,557
General and administrative expenses		733,740		919,374		1,704,124		1,978,947
Total operating expenses		1,069,824		1,477,217		2,383,925		3,034,504

Loss from operations		(1,069,824)		(1,477,217)		(2,383,925)		(3,034,504)

Other income:
Interest income		19,991		36,313		42,757		76,736
Total other income		19,991		36,313		42,757		76,736

Loss before income taxes		(1,049,833)		(1,440,904)		(2,341,168)		(2,957,768)
Income tax provision		—		—		—		—

Net loss	$	(1,049,833)	$	(1,440,904)	$	(2,341,168)	$	(2,957,768)
Basic and diluted net loss per share	$	(0.05)	$	(0.08)	$	(0.11)	$	(0.16)
Weighted average number of shares outstanding – basic and diluted		22,900,794		18,411,399		21,079,366		18,371,118

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

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VIRIOS THERAPEUTICS, INC.

Condensed Statements of Changes of Stockholders’ Equity

(Unaudited)


										Total
	Common Stock			Additional		Accumulated		Treasury		Stockholders’
	Shares	Par		Paid-In Capital		Deficit		Stock		Equity
Balance, December 31, 2023	19,257,937	$	1,926	$	65,573,300	$	(61,469,222)	$	(299,110)	$	3,806,894
Share-based compensation expense	—		—		138,969		—		—		138,969
Net loss	—		—		—		(1,291,335)		—		(1,291,335)
Balance, March 31, 2024	19,257,937	$	1,926	$	65,712,269	$	(62,760,557)	$	(299,110)	$	2,654,528
Proceeds from public offering of common stock, net of offering costs	8,500,000		850		1,381,320		—		—		1,382,170
Share-based compensation expense	—		—		148,948		—		—		148,948
Net loss	—		—		—		(1,049,833)		—		(1,049,833)
Balance, June 30, 2024	27,757,937	$	2,776	$	67,242,537	$	(63,810,390)	$	(299,110)	$	3,135,813


										Total
	Common Stock			Additional		Accumulated		Treasury		Stockholders’
	Shares	Par		Paid-In Capital		Deficit		Stock		Equity
Balance, December 31, 2022	18,330,390	$	1,833	$	63,497,868	$	(56,173,207)	$	—	$	7,326,494
Share-based compensation expense	—		—		161,697		—		—		161,697
Net loss	—		—		—		(1,516,864)		—		(1,516,864)
Balance, March 31, 2023	18,330,390	$	1,833	$	63,659,565	$	(57,690,071)	$	—	$	5,971,327
Exercise of warrants	467,625		47		292,208		—		—		292,255
Shares surrendered in cashless warrant exercises	(189,560)		(19)		—		—		(292,236)		(292,255)
Share-based compensation expense	—		—		161,664		—		—		161,664
Net loss	—		—		—		(1,440,904)		—		(1,440,904)
Balance, June 30, 2023	18,608,455	$	1,861	$	64,113,437	$	(59,130,975)	$	(292,236)	$	4,692,087

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

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VIRIOS THERAPEUTICS, INC.

Condensed Statements of Cash Flows

(Unaudited)


	Six Months Ended
	June 30,
	2024		2023
Cash flows from operating activities
Net loss	$	(2,341,168)	$	(2,957,768)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expense		287,917		323,361
Changes in operating assets and liabilities:
Decrease in prepaid expenses and other current assets		232,790		716,773
Increase (decrease) in accounts payable		35,622		(358,859)
Increase (decrease) in accrued expenses		35,679		(164,371)
Net cash used in operating activities		(1,749,160)		(2,440,864)
Cash flows from financing activities
Proceeds from public offering of common stock, net of offering costs		1,452,397		—
Net cash provided by financing activities		1,452,397		—
Net decrease in cash		(296,763)		(2,440,864)
Cash, beginning of period		3,316,946		7,030,992
Cash, end of period	$	3,020,183	$	4,590,128

Non-cash financing transactions:
Public offering costs included in accounts payable and accrued expenses	$	70,227	$	—
Reduction in equity for shares surrendered in cashless warrant exercises	$	—	$	292,255

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

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VIRIOS THERAPEUTICS, INC.

Notes to Condensed Financial Statements

(Unaudited)

1Organization and Nature of Business

Virios Therapeutics, Inc. (the “Company”) was incorporated under the laws of the State of Delaware on December 16, 2020 through a corporate conversion (the “Corporate Conversion”) just prior to the Company’s initial public offering (“IPO”). The Company was originally formed on February 28, 2012 as a limited liability company (“LLC”) under the laws of the State of Alabama as Innovative Med Concepts, LLC. On July 23, 2020, the Company changed its name from Innovative Med Concepts, LLC to Virios Therapeutics, LLC.

The Company operates in one segment as a pre-revenue, development-stage biotechnology company focused on advancing novel antiviral therapies to treat diseases associated with activation of previously dormant herpesviruses that trigger an abnormal immune response, such as fibromyalgia (“FM”) and Long-COVID (“LC”). Overactive immune response related to activation of tissue resident herpesvirus has been postulated to be a potential root cause of chronic illnesses such as FM, irritable bowel diseases, LC, chronic fatigue syndrome and other functional somatic syndromes, all of which are characterized by a waxing and waning manifestation of disease, often triggered by events which compromise the immune system. While not completely understood, there is general agreement in the medical community that activation of the herpesvirus is triggered by some form of environmental and/or health stressor. Our lead product candidates, IMC-1 and IMC-2, are novel, proprietary, fixed dose combinations of nucleoside analog, anti-herpes antivirals and the anti-inflammatory agent, celecoxib. IMC-1 is a novel combination of famciclovir and celecoxib intended to synergistically suppress herpesvirus activation and replication, with the end goal of reducing viral mediated disease burden. IMC-2 is a combination of valacyclovir and celecoxib that, like IMC-1, is intended to synergistically suppress herpesvirus activation and replication with a more specific activity against the Epstein-Barr virus (herpesvirus HHV-4). Both of these drug components are approved as independent treatments by the U.S. Food and Drug Administration (“FDA”) for other indications. IMC-1 and IMC-2 combine two specific mechanisms of action purposely designed to inhibit herpesvirus activation and replication, thereby keeping the herpesvirus in a latent (dormant) state or “down-regulating” the herpesvirus from a lytic (active) state back to latency. The famciclovir component of IMC-1 and the valacyclovir component of IMC-2 inhibit viral DNA replication. The celecoxib component of IMC-1 and IMC-2 inhibits cyclooxegenase-2 (COX-2) and to a lesser degree cyclooxegenase-1 (COX-1) enzymes, two proteins which are used by the herpesvirus to amplify or accelerate its own replication. These synergistic antiviral treatments represent first-in-class medicines intended specifically to inhibit both herpesvirus activation and subsequent replication, with the goal of keeping tissue resident herpesvirus in a latent state.

Going Concern

Since its founding, the Company has been engaged in research and development activities, as well as organizational activities, including raising capital. The Company has not generated any revenues to date. As such, the Company is subject to all of the risks associated with any development-stage biotechnology company that has substantial expenditures for research and development. Since inception, the Company has incurred losses and negative cash flows from operating activities. The Company has funded its losses primarily through issuance of members’ interests, convertible debt instruments and issuance of equity securities. For the three and six months ended June 30, 2024 and 2023, the Company incurred net losses of $1,049,833 and $2,341,168, respectively, and $1,440,904 and $2,957,768, respectively, and had net cash outflows used in operating activities for the six months ended June 30, 2024 and 2023 of $1,749,160 and $2,440,864, respectively. As of June 30, 2024, the Company had an accumulated deficit of $63,810,390 and is expected to incur losses in the future as it continues its development activities.

In September 2022, the Company announced the top line results from its FORTRESS study in FM. Overall, the FORTRESS study did not achieve statistical significance on the prespecified primary efficacy endpoint of

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change from baseline to Week 14 in the weekly average of daily self-reported average pain severity scores comparing IMC-1 to placebo (p=0.302). However, based on post-hoc analysis of the FORTRESS data, “new” FM research patients who have not participated in prior FM clinical trials demonstrated statistically significant improvement on the primary endpoint of reduction in FM related pain versus placebo, irrespective of when they enrolled in the study. The Company believes focusing the forward development of IMC-1 on these “new” patients represents a viable and manageable path forward. The Company met with the Anesthesiology, Addiction Medicine and Pain Medicine division of the FDA in March 2023. In April 2023, the Company received initial feedback that the FDA is amenable to its proposed Phase 3 program, pending review of its final chronic toxicology program. In August 2023, the FDA informed the Company that its chronic toxicology program studies appear adequate to support the safety of IMC-1 at the dose proposed by the Company for chronic use.

In July 2023, the Company received positive data from an exploratory, open-label, proof of concept study in LC funded by an unrestricted grant provided to the Bateman Horne Center (“BHC”). BHC enrolled female patients diagnosed with LC illness, otherwise known as Post-Acute Sequelae of COVID-19 infection (“PASC”). Patients treated with a combination of valacyclovir and celecoxib (“Val/Cel”), as well as routine care, exhibited clinically and statistically significant improvements in fatigue, pain, and symptoms of autonomic dysfunction as well as ratings of general well-being related to LC when treated open-label for 14 weeks, as compared to a control cohort of female LC patients matched by age and length of illness and treated with routine care only. The statistically significant improvements in PASC symptoms and general health status were particularly encouraging given that the majority of patients in the study had been vaccinated for the COVID-19 virus and the mean duration of LC illness was two years for both the treated and control cohort prior to enrollment in this study. These encouraging results led to BHC requesting a second investigator initiated grant from the Company to assess Val/Cel under double-blind, placebo controlled conditions, with results from this ongoing trial expected in October 2024.

As of the issuance date of these financial statements, cash is not sufficient to fund operating expenses and capital requirements for at least the next 12 months. The Company will need to raise additional capital within the next six months to further advance clinical development and to commercially develop its product candidates. Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern within one year after the issuance date.

Currently, the research and development activities for the remainder of this fiscal year include the continued funding of the grant to BHC for the completion of their double-blinded, placebo controlled investigator-sponsored study of LC with the combination of valacyclovir and celecoxib; continued prototype development of IMC-2 to be used for a proposed Phase 2 LC study; and continued salaries and benefits. The BHC study has completed enrollment and results are expected in October 2024.

The Company plans to raise additional capital to continue clinical development of and to commercially develop its product candidates. The Company will need to finance its cash needs through public or private equity offerings, debt financings, collaboration and licensing arrangements or other financing alternatives. There is no assurance that such financings will be available when needed or on acceptable terms. As a result, the financial statements have been prepared on a going concern basis and do not include any adjustments to the amounts recognized or classifications of assets and liabilities should the Company be unable to continue as a going concern.

Continued Nasdaq Listing

As previously reported, on November 2, 2023, the Company received a letter from the Listing Qualifications Department of The Nasdaq Stock Market, LLC (“Nasdaq”) notifying the Company that, for the previous 30 consecutive business days, the bid price for the Company’s common stock had closed below the minimum $1.00 per share requirement for continued listing on the Nasdaq (the “Minimum Bid Price Requirement”). The letter stated that the Company had 180 calendar days, or until April 30, 2024 to regain compliance such that the closing bid price for the Company’s common stock is at least $1.00 for a minimum of 10 consecutive business days.

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On May 1, 2024, the Company received another letter from Nasdaq informing it that the Company’s common stock had failed to comply with the $1.00 minimum bid price required for continued listing and, as a result, the Company’s common stock continues to be subject to delisting. Following receipt of the letter, the Company requested a hearing with Nasdaq. On June 11, 2024, the Company received notice from Nasdaq that the Nasdaq Hearing Panel had granted the Company an exception until October 28, 2024 to regain compliance with the Minimum Bid Price Requirement. The Company prioritizes regaining compliance with the Minimum Bid Price Requirement through other measures before resorting to a reverse stock split. However, in the event the Company fails to achieve compliance with the Minimum Bid Price Requirement by October 11, 2024, it will be required to undertake a reverse stock split to regain compliance by the October 28, 2024 deadline. In the event the Company fails to regain compliance with the Minimum Bid Price Requirement by October 28, 2024, its securities will be delisted.

2Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed interim financial statements are unaudited. These unaudited financial statements have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all the information and notes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements. These unaudited condensed interim financial statements should be read in conjunction with the audited financial statements and accompanying notes as found in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2023 filed with the SEC. In the opinion of management, the unaudited condensed interim financial statements reflect all the adjustments (consisting of normal recurring adjustments) necessary to state fairly the Company’s financial position, results of operations and cash flows for the interim periods presented. The interim results of operations are not necessarily indicative of the results that may occur for the full fiscal year. The December 31, 2023 balance sheet included herein was derived from the audited financial statements, but does not include all disclosures, including notes, required by U.S. GAAP for complete financial statements. Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).

Use of Estimates

The preparation of these financial statements and accompanying notes in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. The Company's significant estimates and assumptions include estimated work performed but not yet billed by contract manufacturers, engineers and research organizations, the valuation of equity and stock-based related instruments, and the valuation allowance related to deferred taxes. Some of these judgments can be subjective and complex, and, consequently, actual results could differ from those estimates. Although the Company believes that its estimates and assumptions are reasonable, they are based upon information available at the time the estimates and assumptions were made. Actual results could differ from those estimates.

Basic and Diluted Net Loss per Share

Basic net loss per common share (“EPS”) is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted EPS reflects potential dilution and is computed by dividing net loss by the weighted average number of common shares outstanding during the period increased by the number of additional common shares that would have been outstanding if all potential common shares had been issued and were dilutive. However, potentially dilutive securities are excluded from the computation of diluted EPS to the extent that their effect is anti-dilutive. For the three and six months ended June 30, 2024 and 2023, the Company had options to purchase 2,319,422 and 1,943,647 shares of common stock,

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respectively, and warrants to purchase 193,875 and 204,875 shares of common stock, respectively, outstanding that were anti-dilutive.

Emerging Growth Company Status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it is (i) no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided by the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

New Accounting Pronouncements Not Yet Adopted

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Improvements to Income Tax Disclosures (Topic 740), which establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements. The new guidance requires consistent categorization and greater disaggregation of information in the rate reconciliation, as well as further disaggregation of income taxes paid. This change is effective for annual periods beginning after December 15, 2024. This change will apply on a prospective basis to annual financial statements for periods beginning after the effective date. However, retrospective application in all prior periods presented is permitted. The Company is currently evaluating the impact of this ASU on its financial statements.

3	Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:


	June 30,		December 31,
	2024		2023
Prepaid insurance	$	352,204	$	702,352
Prepaid clinical research costs		160,636		133,819
Prepaid drug purchases		30,504		—
Prepaid accounting fees		30,450		—
Prepaid services		6,838		8,766
Other miscellaneous current assets		35,074		3,559
	$	615,706	$	848,496

4License Agreement

The Company entered into a Know-How License Agreement (the “Agreement”) with the University of Alabama (“UA”) in 2012. In consideration for the Agreement, UA received a 10% non-voting membership interest in the Company. Upon the adoption of the Second Amended and Restated Operating Agreement (the “Amended Operating Agreement”) on May 1, 2020, the non-voting membership interest converted to a voting membership interest. In conjunction with the Corporate Conversion, all of the Company’s outstanding membership interest converted into shares of common stock. The Agreement is in effect for 25 years and will terminate on June 1, 2037.

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5Accrued Expenses

Accrued expenses consist of the following:


	June 30,		December 31,
	2024		2023
Accrued interest on preferred members’ interests	$	188,085	$	188,085
Accrued vacation		55,922		—
Accrued clinical research costs		27,012		—
Accrued professional fees		11,070		27,550
Accrued director fees		—		31,000
Other miscellaneous accrued expenses		225		—
	$	282,314	$	246,635

6Stockholders’ Equity

The Company’s certificate of incorporation, adopted on December 16, 2020, authorizes the issuance of two classes of stock: 43,000,000 shares of common stock and 2,000,000 shares of preferred stock, each with a par value of $0.0001 per share.

At-the-market Offering

On July 14, 2023, the Company entered into a Capital on Demand^TM Sales Agreement (the “Sales Agreement”) with JonesTrading Institutional Services LLC (“JonesTrading”) relating to shares of common stock, par value $0.0001 per share. In accordance with the terms of the Sales Agreement, the Company could offer and sell shares of common stock having an aggregate offering price of up to $6,700,000 from time to time through JonesTrading, acting as sales agent or principal, in which is commonly referred to as an “at-the-market” (“ATM”) program. On August 14, 2023, the Company announced a halt to sales under the Sales Agreement and on September 18, 2023, the Company announced the termination of the Sales Agreement with JonesTrading effective September 28, 2023. Before the termination of the Sales Agreement, the Company sold 641,873 shares of common stock under the ATM program at a weighted-average gross sales price of approximately $2.11 per share and raised $1,355,090 of gross proceeds. The total commissions and related legal and accounting fees were approximately $198,650, and the Company received net proceeds of approximately $1,156,440.

Public Offering

On May 19, 2024, the Company entered into an agreement with Maxim Group LLC as placement agent in connection with the issuance and sale by the Company in a public offering of 8,500,000 shares of its common stock at a public offering price of $0.20 per share (the “Offering”), pursuant to an effective shelf registration statement on Form S-3 (File No. 333-263700). The Offering closed on May 22, 2024, and the gross proceeds from the Offering were $1,700,000. The net proceeds of the Offering were $1,382,170 after deducting placement agent fees and offering expenses payable by the Company.

7Related Parties

The Company uses Gendreau Consulting, LLC, a consulting firm (“Gendreau”), for drug development, clinical trial design and planning, implementation and execution of contracted activities with clinical research organizations. Gendreau’s managing member is the Company’s Chief Medical Officer (“CMO”). The Company may continue to contract the services of the CMO’s spouse through Gendreau to serve as the Company’s Medical Director and to perform certain activities in connection with the Company’s ongoing clinical development of its product candidates. During the three and six months ended June 30, 2024 and 2023, the Company paid Gendreau $0 and $1,383, respectively, and $34,807 and $74,780, respectively, and had no accounts payable to Gendreau as of June 30, 2024 and December 31, 2023.

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8Commitments and Contingencies

Litigation and Other

The Company is subject, from time to time, to claims by third parties under various legal disputes. The defense of such claims, or any adverse outcome relating to any such claims, could have a material adverse effect on the Company’s liquidity, financial condition and cash flows. Although the results of litigation and claims cannot be predicted with certainty, we do not currently have any pending or ongoing litigation to which we are a party or to which our property is subject that we believe to be material.

9Share-based compensation

Equity Incentive Plan

On June 16, 2022, the stockholders of the Company approved the Amended and Restated 2020 Equity Incentive Plan (the “Plan”) to increase the total number of shares of common stock reserved for issuance under the Plan by 1,250,000 shares to 2,062,500 total shares issuable under the Plan. As of June 30, 2024, 35,578 shares of common stock were available for future grants under the Plan. The table below sets forth the outstanding options to purchase common shares under the Plan:


				Weighted
				Average
		Weighted		Remaining
		Average		Contractual
	Number of	Exercise		Term
	Shares	Price		(Years)
Outstanding at December 31, 2023	1,651,147	$	4.78	8.08
Granted	375,775		0.36	—
Exercised	—		—	—
Outstanding at June 30, 2024	2,026,922	$	3.96	7.96
Exercisable at June 30, 2024	1,256,148	$	5.97	7.33

During the six months ended June 30, 2024, the Company granted certain individuals options to purchase 375,775 shares of the Company’s common stock with an average exercise price of $0.357 per share, contractual terms of 10 years and a vesting period of one year. The options had an aggregate grant date fair value of $105,931 that was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model included: (1) discount rate of 4.2975% based on the daily par yield curve rates for U.S. Treasury obligations, (2) expected life of 5.5 years based on the simplified method (vesting plus contractual term divided by two), (3) expected volatility of 100.76% based on the average historical volatility of comparable companies’ stock, (4) no expected dividends and (5) fair market value of the Company’s stock of $0.357 per share.

During the six months ended June 30, 2023, the Company granted certain individuals options to purchase 31,500 shares of the Company’s common stock with an average exercise price of $1.85 per share, contractual terms of 10 years and a vesting period of one year. The options had an aggregate grant date fair value of $45,360 that was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model included: (1) discount rate of 3.89% based on the daily par yield curve rates for U.S. Treasury obligations, (2) expected life of 5.5 years based on the simplified method (vesting plus contractual term divided by two), (3) expected volatility of 98.66% based on the average historical volatility of comparable companies’ stock, (4) no expected dividends and (5) fair market value of the Company’s stock of $1.85 per share.

As of June 30, 2024 the aggregate intrinsic value of options outstanding was $0.

Table of Contents

The Company recognized share-based compensation expense related to stock options during the three and six months ended June 30, 2024 and 2023, of $148,948 and $287,917, respectively, and $161,664 and $323,361, respectively. The unrecognized compensation expense for stock options at June 30, 2024 was $357,476.

Stock Options for Unregistered Securities

In addition to the stock options issued under the Plan, and in conjunction with the IPO, the Company granted non-qualified stock options to purchase 292,500 shares of common stock as provided for in the President’s employment agreement (the “President Options”). The President Options are exercisable within 10 years of the date of grant at $10.00 per share, were 100% vested at the grant date and have a remaining contractual term of 6.47 years. As of June 30, 2024, there was no unrecognized compensation expense related to these options as they were 100% vested upon issuance. The shares of common stock issuable upon exercise of the President Options will be unregistered, and the option agreement does not include any obligation on the part of the Company to register such shares of common stock. Consequently, the Company has not recognized a contingent liability associated with registering the securities for the arrangement. As of June 30, 2024, the aggregate intrinsic value of the President Options was $0.

Underwriters Warrants

In conjunction with the IPO, the Company granted the underwriters warrants to purchase 172,500 shares of common stock at an exercise price of $12.50 per share. The warrants became 100% exercisable on December 21, 2021.

In conjunction with the Offering in September 2022, the Company granted the Underwriter warrants to purchase 500,000 shares of common stock at an exercise price of $0.625 per share (the “Representative Warrants”). The Representative Warrants became 100% exercisable on March 18, 2023.

For the six months ended June 30, 2023, there were 467,625 Representative Warrants cashless exercised. As a result, 189,560 shares of common stock were surrendered at fair value to satisfy the exercise price of these warrants and 278,065 shares of common stock were issued. The surrendered shares are shown as treasury stock at a cost of $292,236 in stockholders’ equity for the three and six months ended June 30, 2023.

There were no warrant exercises for the six months ended June 30, 2024.

For the year ended December 31, 2023, there were 478,625 Representative Warrants cashless exercised. As a result, 192,951 shares of common stock were surrendered at fair value to satisfy the exercise price of these warrants and 285,674 shares of common stock were issued. The surrendered shares are shown as treasury stock at a cost of $299,110 in stockholders’ equity.

There is no unrecognized compensation expense for these awards as of June 30, 2024. The table below sets forth the outstanding warrants to purchase common shares:


			Weighted
			Average
		Weighted	Remaining
		Average	Contractual
	Number of	Exercise	Term
	Shares	Price	(Years)
Outstanding at December 31, 2023	193,875	$

SEC Form 10-Q filed by Virios Therapeutics Inc.