RenovoRx Inc

**1. Business and Principal Activities **

Description of Business

RenovoRx, Inc. (the “Company,” “we.” “us.” “our” and similar terminology) was incorporated in the state of Delaware in December 2012 and operates from its headquarters in Los Altos, California. The Company is a clinical-stage biopharmaceutical company focused on developing novel precision oncology therapies based on a local drug delivery platform for high unmet medical need with a goal to improve therapeutic outcomes for cancer patients undergoing treatment. The Company is presently conducting a pivotal Phase III pancreatic cancer clinical trial for its lead product candidate RenovoGem™. The Company’s proprietary therapy platform, Trans-Arterial Micro-Perfusion, or TAMP™, is designed to ensure precise therapeutic delivery to directly target the tumor while potentially minimizing a therapy’s toxicities versus systemic (intravenous (known as IV) therapy. The Company’s novel approach to targeted treatment offers the potential for increased safety, tolerance, and improved efficacy.

Liquidity and Capital Resources

From the Company’s inception through March 31, 2024, it has raised an aggregate of $48.0 million, primarily from private placements of convertible preferred stock, convertible debt securities, the issuance of securities in the Company’s August 2021 initial public offering (the “IPO”), the sale of common stock and common stock warrants and the exercise of common stock warrants and common stock options. As of March 31, 2024, the Company had cash and cash equivalents of $4.4 million. As used herein, the term “common stock” refers to the Company’s common stock, par value $0.0001 per share.

The Company is in the pre-revenue stage and therefore has incurred significant losses and negative cash flows from operations since its inception. For the three months ended March 31, 2024, the Company reported a net loss of $1.1 million and an accumulated deficit of $42.5 million and does not expect to generate positive cash flows from operations in the foreseeable future. The Company expects to incur significant and increasing losses until regulatory approval is granted for its first product candidate, RenovoGem™. Regulatory approval is not guaranteed and may never be obtained. The Company may also pursue other revenue-generating strategies such as licensing or collaboration agreements or marketing its proprietary catheter device on a standalone basis. No assurances can be made that the Company will pursue these strategies, and even if it does, there is a risk that the Company will be unable to generate revenue from such activities.

The Company believes it will be able to raise additional required capital through debt financings, private or public equity financings, license agreements, collaborative agreements or other arrangements with other companies, or other sources of financing. There can be no assurance that such financing will be available or will be at terms acceptable to the Company. The inability to raise capital as and when needed would have a negative impact on the Company’s liquidity financial condition and its ability to pursue its business strategy. The Company will need to generate significant revenue to achieve profitability, and it may never do so.

The Company has filed an omnibus shelf registration statement on Form S-3 that provides for the aggregate offerings of up to $50.0 million of the Company’s securities subject to various limitations, including limited sales in any twelve-month period while the Company is subject to the “baby-shelf” rules. The Company has also filed a registration statement on Form S-1 to register the cash exercise of the Company’s outstanding IPO, underwriter and private warrants. Cash exercise of these outstanding warrants is only expected to occur (if at all) when the trading price of the common stock is in excess of the $10.80 per share exercise price of such outstanding warrants.

On April 3, 2023, the Company completed a registered direct offering (“RDO”) utilizing its shelf registration statement for the purchase and sale of 1,557,632 shares of common stock (or pre-funded common stock warrants) to a certain institutional investor. In a concurrent private placement, the Company issued to the investor unregistered a warrant to purchase up to 1,947,040 shares of common stock (the “April 2023 Warrant”). The aggregate gross proceeds from this offer were $5.0 million, and the net offering proceeds were $4.4 million after deducting placement agent fees and placement agent’s expenses of $0.4 million and other professional expenses of $0.2 million.

On January 26, 2024, the Company completed a private placement to 92 accredited investors with gross proceeds of $6.1 million before deducting placement agent fees and other offering expenses of approximately $0.7 million. In this private placement, the Company issued 6,133,414 shares of its common stock and warrants to purchase up to an aggregate of 6,133,414 shares of common stock, which warrants expire five years from the issuance date, January 26, 2024. In connection with such private placement, the Company entered into a placement agent agreement and, as additional compensation to the placement agent, issued warrants to purchase up to an aggregate of 511,940 shares of common stock (the “January 2024 PA Warrants”), which warrants expire five years from the issuance date. The exercise price for the significant majority of the warrants issued in this private placement have an exercise price of $0.99 per share; warrants purchased by directors, officers, employees and consultants of the Company in this private placement have an exercise price of $1.22 per share.

See “Note 10. Subsequent Events” in Notes to the Unaudited Condensed Interim Financial Statements for information regarding an additional private placement closed by the Company subsequent to March 31, 2024.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern and has reviewed the relevant conditions and events surrounding its ability to continue as a going concern including among others: historical losses, projected future results, negative cash flows from operations, including cash requirements for the upcoming year, funding capacity, net working capital, total stockholders’ equity and future access to capital. Based upon the Company’s current operating plan, management believes that its existing cash and cash equivalents as of the issuance of the accompanying unaudited condensed interim financial statements will be sufficient to allow the Company to fund operating, investing and financing cash flow needs for at least twelve months from such date. The accompanying unaudited condensed interim financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The accompanying unaudited condensed interim financial statements do not reflect any adjustments relating to the recoverability and reclassifications of assets and liabilities that might be necessary if the Company is unable to continue as a going concern.

2. Summary of Significant Accounting Policies

Basis of Presentation and Unaudited Condensed Interim Financial Information

The accompanying unaudited condensed interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules and regulations, certain footnotes or other financial information normally included in unaudited condensed interim financial statements prepared in accordance with GAAP have been condensed or omitted. The unaudited condensed interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal, recurring adjustments that are necessary to present fairly the Company’s results for the interim periods presented. The condensed balance sheet as of December 31, 2023, is derived from the Company’s audited financial statements. The results of operations for the three ended March 31, 2024, are not necessarily indicative of the results to be expected for the year ending December 31, 2023, or for any other future annual or interim period. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification and as amended by Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).

Summary of Significant Accounting Policies

There have been no material changes to the significant accounting policies during the three months ended March 31, 2024 from those previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on April 1, 2024 (the “2023 Annual Report”).

Risks and Uncertainties

The Company is subject to a number of risks associated with companies at a similar stage, including the risks associated with the development of products that must receive regulatory approval before market launch, dependence on key individuals, competition from larger andmore established companies, volatility of the industry, ability to obtain adequate financing to supportthe Company’s business plan, the ability to attract and retain additional qualified personnel to manage the anticipated growth of the Company and general economic conditions. The Company is subject to a number of risks similar to other clinical-stage biopharmaceutical companies, including, but not limited to, the need to obtain adequate additional funding, possible failure of current or future preclinical studies or clinical trials, its reliance on third parties to conduct its clinical trials, the need to obtain regulatory and marketing approvalsand insurance coding for its product candidates, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of the Company’s product candidates, protection of its proprietary technology, and the need to secure and maintain adequate manufacturing arrangements with third parties.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses as well as the disclosure of contingent assets and liabilities, at the date of the financial statements during the reporting periods. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements. Significant estimates and assumptions made in the accompanying financial statements include, but are not limited to, accruals of certain liabilities, including clinical trial accruals and other contingences, the valuation of financial instruments, the fair value of the Company’s common stock and the fair value of options granted under the Company’s equity incentive plan. On an ongoing basis, the Company evaluates its estimates, including those related to the fair values of assets, stock-based compensation, clinical trial accruals and other contingencies. Management bases its estimates on historical experience or on various other assumptions that it believes to be reasonable under the circumstances. Actual results could differ materially from these estimates.

Emerging Growth Company and Smaller Reporting Company Status

The Company is an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) and may take advantage of reduced reporting requirements that are otherwise applicable to public companies. Section 107 of the JOBS Act exempts emerging growth companies from complying with new or revised financial accounting standards until private companies are required to comply with those standards. The Company has elected to use the extended transition period for complying with new or revised accounting standards.

The Company is also a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act. If the Company is a smaller reporting company at the time the Company cease to be an emerging growth company, the Company may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company, the Company may choose to present only the two most recent fiscal years of audited financial statements in its Annual Report on Form 10-K and, like emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

From time to time, new accounting pronouncements are issued by the FASB or other standard-setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption.

Recent Accounting Pronouncement

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Updates 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). The guidance requires lessees to recognize assets and liabilities related to long-term leases on the balance sheet and expands disclosure requirements regarding leasing arrangements. In July 2018, the FASB issued additional guidance, which offers a transition option to entities adopting the new lease standards, and a package of practical expedients an entity can elect to utilize to reduce the level of effort required for adoption. Under the transition option, entities can elect to apply the new guidance using a modified retrospective approach at the beginning of the year in which the new lease standard is adopted, rather than to the earliest comparative period presented in their financial statements. In November 2019, the FASB issued ASU 2019-10, “Leases (Topic 842),” deferring the effective date for the Company for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. In June 2020, the FASB issued ASU 2020-05, “Leases (Topic 842)” which further defers the effective date for the Company for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2021. Early adoption is permitted. The Company adopted ASU 2016-02 on January 1, 2022 and the adoption had no material impact to the Company’s financial statements.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which simplifies the accounting for income taxes, and is effective on a prospective basis for annual reporting periods beginning after December 15, 2021, and for interim periods within fiscal years beginning after December 15, 2022, with early adoption permitted. The Company adopted ASU 2019-12 on January 1, 2022, and the adoption had no significant impact to the Company’s financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326)” “ASU 2016-13”)*.*The guidance represents a significant change in the accounting for credit losses model by requiring immediate recognition of management’s estimates of current expected credit losses. Under the prior model, losses were recognized only as they were incurred. The Company has determined that it has met the criteria of a smaller reporting company as of November 15, 2019. As such, ASU 2019-10, “Financial Instruments —Credit Losses (Topic 326)”, “Derivatives and Hedging (Topic 815)”, and “Leases (Topic 842)—Effective Dates” amended the effective date for the Company to be for reporting periods beginning after December 15, 2022. The Company adopted ASU 2016-13 on January 1, 2023 and the adoption had no significant impact to the Company’s financial statements.

In August 2020, the FASB issued ASU 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 2020-06): Accounting for Convertible Instruments and Contracts in an Entity,” which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The updated guidance is effective on a prospective basis for annual reporting periods beginning after December 15, 2023 and for interim periods within those periods. The Company early adopted this guidance as of January 1, 2022 and the pronouncement did not have any material impact on the Company’s financial position or results of operations.

3. Fair Value Measurements

As of March 31, 2024, and December 31, 2023, the Company held $0.1 million and $4.3 million, respectively, in a money market account.

The following tables summarize the Company’s financial assets and liabilities, measured at fair value on a recurring basis by level within the fair value hierarchy, as of March 31, 2024, and December 31, 2023 (in thousands):

There were no transfers between Level 1, Level 2 or Level 3 during the periods presented. The Company had no other financial assets or liabilities that were required to be measured at fair value on a recurring basis.

Assumptions Used in Determining Fair Value of Warrant

The terms of the April 2023 Warrant provide that in the event of certain fundamental transactions involving the Company, the warrant holder may require the Company to make a payment based on a Black-Scholes valuation of the April 2023 Warrant, using specified inputs. Therefore, the April 2023 Warrant are accounted for as liabilities.

The Company recorded the fair value of the April 2023 Warrant upon issuance using the Black-Scholes valuation model. It is also required to revalue the April 2023 Warrant at each reporting date, with any changes in fair value recorded on the Company’s statement of operations. The valuation of the April 2023 Warrant is considered under Level 3 of the fair value hierarchy and influenced by the fair value of the underlying common stock.

A summary of the Black Scholes pricing model assumptions used to record the fair value of the April 2023 Warrant is as follows:

Changes om Level 3 Liabilities Measured at Fair Value on a Recurring Basis

The following table reflects the change in the Company’s Level 3 liability associated with the April 2023 Warrant for the three months ended March 31, 2024 (in thousands):

4. Accrued Expenses

The components of accrued expenses as of March 31, 2024, and December 31, 2023 are as follows (in thousands):

5. Commitments and Contingencies

Legal Proceedings

From time to time, the Company may become involved in legal proceedings arising in the ordinary course of business. The Company was not subject to any material legal proceedings during the three months ended March 31, 2024, and no material legal proceedings are subsequently outstanding or pending.

Guarantees and Indemnification

In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. As permitted under Delaware law and in accordance with its bylaws, the Company indemnifies its officers and directors for certain events or occurrences while the officer or director is or was serving in such capacity. The Company is also party to indemnification agreements with its officers and directors. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments that the Company could be required to make under these provisions is not determinable. The Company has never incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. The Company is not currently aware of any indemnification claims. Accordingly, the Company has not recorded any liabilities for these indemnification rights and agreements as of March 31, 2024.

Operating Leases

The Company leases its headquarters in Los Altos, California under a month-to-month operating lease agreement. Rent expenses were $20,300 and $18,000 for the three months ended March 31, 2024, and 2023, respectively.

6. Equity Incentive Plan – Stock-Based Compensation Expense and Warrants

2021 Omnibus Equity Incentive Plan

On July 19, 2021, the Company’s Board of Directors adopted the RenovoRx, Inc. 2021 Omnibus Equity Incentive Plan (the “2021 Plan”). The 2021 Plan, which became effective immediately prior to the closing of the IPO, initially reserved 2,185,832 shares of common stock, which included 10,832 shares of common shares reserved but unissued under the Amended and Restated 2013 Equity Incentive Plan (the “2013 Plan”). The Company’s 2013 Plan was terminated immediately prior to the closing of the IPO; however, shares subject to awards granted under the 2013 Plan will continue to be governed by the 2013 Plan. In accordance with the terms of the 2021 Plan, on January 1, 2024, the number of shares reserved and available for issuance increased by 320,807 shares.

A summary of the stock option activity for the three months ended March 31, 2024 is as follows:

As of March 31, 2024, there was $2.0 million of unrecognized stock-based compensation expense related to options granted but not yet amortized, which will be recognized over a weighted-average period of approximately 2.98 years.

For the three months ended March 31, 2024, and 2023, the Company utilized the Black-Scholes option-pricing model for estimating the fair value of the stock option granted. The Company estimated the fair value of each option grant on the grant date using the Black-Scholes option pricing model with the following weighted-average assumptions:

During the three months ended March 31, 2024, and 2023, the Company recognized $423,000 and $244,000, respectively, in stock-based compensation expense from stock option grants. The compensation expense is allocated on a departmental basis, based on the classification of the option holder. No income tax benefits have been recognized in the condensed statements of operations for stock-based compensation arrangements.

The following table summarizes the components of stock-based compensation expense recognized in the Company’s Condensed Statements of Operations during the three months ended March 31, 2024, and 2023 (in thousands):

Restricted Stock Awards Issued for Services

In March 2024, the Company issued 120,000 shares of restricted stock awards outside the 2021 Plan for business advisory and investor relations services and recognized $4,000 of stock-based compensation expense.

January 2024 Common Warrants

In connection with the Company’s January 2024 private placement offering, the Company issued warrants to purchase up to 6,133,414 shares of common stock and January 2024 PA Warrants to purchase to up 511,940 shares of common stock. All such warrants expire on January 26, 2029.

The following is a summary of the common stock warrant activity during the three months ended March 31, 2024.

7. Income Taxes

The Company had no income tax expense for the three months ended March 31, 2024, and 2023. During the three months ended March 31, 2024, and 2023, the Company had a net operating loss (“NOL”) for each period that generated deferred tax assets for NOL carryforwards. Deferred income tax assets and liabilities are recognized for temporary differences between the financial statements and income tax carrying values using tax rates in effect for the years such differences are expected to reverse. Due to uncertainties surrounding our ability to generate future taxable income and consequently realize such deferred income tax assets, the Company has determined that it is more likely than not that these deferred tax assets will not be realized. Accordingly, the Company has established a full valuation allowance against its deferred tax assets as of March 31, 2024.

The Company’s policy is to recognize any interest and penalties related to unrecognized tax benefits as a component of income tax expense. For the three months ended March 31, 2024, and 2023, the Company hadno accrued interest or penalties related to uncertain tax positions.

8. Net Loss Per Share

Basic and diluted net loss per common share was calculated as follows (in thousands except per share amounts):

For the three months ended March 31, 2024, and 2023, the Company had a net loss and as such, all outstanding shares of potentially dilutive securities were excluded from the calculation of diluted net loss per share as the inclusion would be anti-dilutive.

Potentially dilutive securities not included in the computation of diluted net loss per share because to do so would be antidilutive are as follows (in common stock equivalent shares):

9. Related Party Transactions

The Company has a consulting agreement with one of the Company’s co-founders, Dr. Ramtin Agah, pursuant to which Dr. Agah provides consulting services as the Company’s Chief Medical Officer by overseeing Company-sponsored clinical trials. For the three months ending March 31, 2024, and 2023, consulting fees paid to Dr. Agah were $63,200 and $75,900, respectively.

10. Subsequent Events

On April 4, 2024, the Company entered into a series of subscription agreements, in connection with a private placement offering to approximately 170 accredited investors, which closed on April 11, 2024, and pursuant to which the Company raised aggregate gross proceeds of $11.1 million before deducting placement agent fees and other offering expenses of approximately $1.5 million. In connection with this offering, the Company issued 6,960,864 shares of common stock, a pre-funded warrant to purchase 951,500 shares of common stock, five-year Series A warrants to purchase up to 7,921,364 shares of common stock, two-year Series B warrants to purchase up to an aggregate of 3,956,182 shares of common stock and placement agent warrants to purchase up to an aggregate of 701,243 shares of common stock. All such warrants have an exercise price of $1.22 per share, except the placement agent warrants have an exercise price of $1.69 per share.

As previously disclosed in a Current Report on Form 8-K filed with the SEC on February 23, 2024, on February 21, 2024, the Company received a written notice from Nasdaq (the “Notice”) that the Company had, as of the date of the Notice, failed to meet the minimum stockholders’ equity requirement for continued listing on The Nasdaq Capital Market under Listing Rule 5550(b)(1) (the “Minimum Stockholders’ Equity Requirement”) and that Nasdaq would commence delisting proceedings against the Company unless the Company timely requests a hearing before the Nasdaq Hearings Panel (the “Hearings Panel”). On February 28, 2024, the Company provided written notice to request a hearing, which request will stay any delisting or suspension action by the Nasdaq staff at least pending the issuance of the Hearings Panel decision and the expiration of any extension that may be granted to the Company following the hearing. As a result of completion of two private placement offerings in early 2024, on April 17, 2024, the Company received a written notice from Nasdaq that the deficiency under Listing Rule 5550(b) has been cured, and that the Company is in compliance with all applicable continued listing standards. The Company’s stock will continue to be listed and traded on Nasdaq.