Table of Contents

​

​

​

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

​

For the quarterly period ended June 30, 2021

​

or

​

​

For the transition period from                      to                     

​

Commission File Number: 001-39811

Virios Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

​

​

44 Milton Avenue

Alpharetta, GA 30009

(Address of Principal Executive Offices)

(866) 620-8655

(Registrant’s telephone number)

​

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.

​

​

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:

​

​

As of August 12, 2021, there were 8,330,390 of the registrant’s common stock outstanding.

​

​

​

​

Table of Contents

TABLE OF CONTENTS

​

​

​

​

2

Table of Contents

PART I —FINANCIAL INFORMATION

Item 1. Financial Statements

VIRIOS THERAPEUTICS, INC.

​

Condensed Balance Sheets

(Unaudited)

​

​

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

​

​

3

Table of Contents

VIRIOS THERAPEUTICS, INC.

​

Condensed Statements of Operations

(Unaudited)

​

​

​

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

​

​

4

Table of Contents

VIRIOS THERAPEUTICS, INC.

​

Condensed Statements of Changes of Members’ Deficit/Shareholders’ Equity

(Unaudited)

​

​

​

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

​

​

5

Table of Contents

VIRIOS THERAPEUTICS, INC.

​

Condensed Statements of Cash Flows

(Unaudited)

​

​

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

​

​

6

Table of Contents

VIRIOS THERAPEUTICS, INC.

​

Notes to Condensed Financial Statements

(Unaudited)

7

Table of Contents

8

Table of Contents

9

Table of Contents

​

​

​

​

10

Table of Contents

​

​

11

Table of Contents

12

Table of Contents

​

​

​

​

​

13

Table of Contents

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

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. See our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Security and Exchange Commission (“SEC”) on March 23, 2021 (the “2020 Annual Report on Form 10-K”), under “Risk Factors”, available on the SEC EDGAR website at www.sec.gov, for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, that involve substantial risks and uncertainties. In some cases, you can identify forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “predict,” “project,” “potential,” “should,” “will,” or “would,” and or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements, including the risks set forth in our Annual Report on Form 10-K filed with the SEC on March 23, 2021. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report on Form 10-Q, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain.

The forward-looking statements in this Quarterly Report on Form 10-Q include, among other things, statements about:

14

Table of Contents

Overview

We are a development-stage biotechnology company focused on advancing novel antiviral therapies to treat diseases associated with a viral triggered abnormal immune response such as fibromyalgia (“FM”). Overactive immune response related to activation of tissue resident Herpes Simplex Virus-1 (“HSV-1”) has been postulated to be a potential root cause of chronic illnesses such as FM, irritable bowel disease (“IBS”), chronic fatigue syndrome and functional somatic syndrome, all of which are characterized by a waxing and waning manifestation of disease. While not completely understood, there is general agreement in the medical community that activation of HSV-1 is triggered by some form of environmental and/or health stressor. Our lead product, which we have named IMC-1, is a novel, proprietary, fixed dose combination of famciclovir and celecoxib. IMC-1 represents a novel combination antiviral therapy designed to synergistically suppress HSV-1 activation and replication, with the end goal of reducing viral mediated disease burden.

IMC-1 combines two specific mechanisms of action purposely designed to inhibit HSV-1 activation and replication, thereby keeping HSV-1 in a latent (dormant) state or “down-regulating” HSV-1 from a lytic (active) state back to latency. The famciclovir component of IMC-1 inhibits viral DNA replication and thus inhibits upregulation of the HSV-1 virus. The celecoxib component of IMC-1 inhibits cyclooxegenase-2 (“COX-2”) and to a lesser degree COX-1, enzymes used by HSV-1 to amplify or accelerate its own replication. We are unaware of any other antivirals in development for the treatment of FM specifically used to inhibit both HSV-1 activation and subsequent HSV-1 replication, with the goal of keeping tissue resident HSV-1 tissue in a latent state. We believe this novel approach was a germane consideration in FDA designating IMC-1 for fast-track review status for the treatment of FM. IMC-1 has also been granted a synergy patent based on the fact that neither of the individual components has proven effective in the management of fibromyalgia, yet the combination therapy generated a result that is greater than the sum of its parts.

In June 2021, we announced the dosing of our first patient in our Phase 2b clinical trial in FM, known as the FORTRESS study (an abbreviation of and stands for Fibromyalgia Outcome Research Trial Evaluating Synergistic Suppression of HSV-1). We are presently enrolling 460 female FM patients aged 18 to 65, who will be randomized 1-to-1 either to IMC-1 or placebo, all of whom have been diagnosed using the 2016 American College of Rheumatology diagnostic criteria for fibromyalgia. The primary endpoint for this trial will focus on reduction in pain over time. Pain reduction will be measured daily by the NRS 24-hour recall scale via an electronic diary that the patient will use at home. In addition to assessing the fibromyalgia patients pain reduction; we will also assess IMC-1’s ability to improve symptoms of fatigue, sleep disturbance, improvements in overall global health status and improved patient function. We project top line results in mid 2022. We have also commenced our chronic toxicology studies to support chronic administration of IMC-1 in forward clinical development.

We recognize the emergence of widespread health emergencies or pandemics, such as COVID-19, could have a significant impact on our business or delay the enrollment or completion of our proposed clinical trials, including the FORTRESS study. Currently, the trial sites we have selected to participate in the FORTRESS study are open, but future emergence of widespread health emergencies or pandamics could lead to new quarantines, business shutdowns, disruptions to the healthcare system and overall economic instability. If suppliers, clinical research organizations, clinical trial sites, regulators, consultants and other third parties with whom we conduct business were to experience shutdowns or other business disruptions, our ability to enroll patients and conduct our clinical trial in the manner and on the timelines presently planned could be materially and negatively impacted. Although we currently believe the proposed FORTRESS study will enroll and be completed on time, we cannot guarantee that the COVID-19 pandemic or other widespread health emergencies will not have a material impact on our business or the timely completion of our clinical trials.

15

Table of Contents

Results of Operations

Below is a summary of the results of operations:

​

​

Three and Six Months Ended June 30, 2021 and 2020

Research and Development Expenses

Research and development expenses increased by $3.2 million and $4.9 million for the three and six months ended June 30, 2021, respectively, compared to the prior year periods. The increase of $3.2 million for the three months ended June 30, 2021 was due to increases in expenses for our clinical trial of $1.8 million, toxicology studies of $0.8 million, salaries and related costs of $0.3 million, drug development and manufacturing costs of $0.2 million and consulting of $0.1 million. The increase of $4.9 million for the six months ended June 30, 2021 was due to increases in expenses for our clinical trial of $2.6 million, toxicology studies of $1.2 million, salaries and related costs of $0.5 million, drug development and manufacturing costs of $0.5 million and consulting of $0.1 million.

General and Administrative Expenses

General and administrative expenses increased by $0.6 million and $1.6 million for the three and six months ended June 30, 2021, respectively, compared to the prior year periods. The increase of $0.6 million for the three months ended June 30, 2021 was due to increases in costs associated with being a public company. The increase of $1.6 million for the six months ended June 30, 2021 was due to an increase in expenses for salaries, benefits and compensation costs of $0.1 million, legal and accounting fees of $0.3 million and other costs associated with being a public company of $1.2 million.

Liquidity and Capital Resources

Since our inception, we have financed our operations through a public offering of common stock and proceeds from private placements of membership interests and convertible promissory notes. To date, we have not generated any revenues from the sale of products and we do not anticipate generating any revenues from the sales of products for the foreseeable future. We have incurred losses and generated negative cash flows from operations since inception. As of June 30, 2021, our principal source of liquidity was our cash, which totaled $21.8 million.

The COVID-19 global pandemic has resulted in travel restrictions and temporary shut-downs of both essential and non-essential businesses in the U.S. and abroad. To date, the pandemic has not had a material impact on our operations as our employees are effectively working from home. Fibromyalgia research and development activities have largely progressed as planned during the pandemic. However, due to many uncertainties, we are unable to estimate the pandemic’s forward, if any, at this time.

Equity Financings

We closed our IPO on December 21, 2020, raising gross proceeds of $34.5 million and net proceeds of approximately $31.1 million, after deducting underwriting discounts, commissions and offering expenses.

16

Table of Contents

Debt Financings

In 2020, we issued an aggregate of $2.0 million principal amount of convertible promissory notes. At the Corporate Conversion, these notes converted to common interests at the price of $400,000 per 1% of common interests. There was no debt outstanding for the year ended December 31, 2020.

Future Capital Requirements

We estimate our current cash of $21.8 million at June 30, 2021 is sufficient to fund our operations and capital requirements through the end of 2022. We believe that these available funds will be sufficient to complete our Phase 2b clinical trial for IMC-1 and commence the planning of our Phase 3 study in FM for this product candidate. However, it is difficult to predict our spending for our product candidate prior to obtaining FDA approval. Moreover, changing circumstances may cause us to expend cash significantly faster than we currently anticipate, and we may need to spend more cash than currently expected because of circumstances beyond our control.

To the extent that our capital resources are insufficient to meet our future operating and capital requirements, we will need to finance our cash needs through public or private equity offerings, debt financings, collaboration and licensing arrangements or other financing alternatives. We have no committed external sources of funds. Additional equity or debt financing or collaboration and licensing arrangements may not be available on acceptable terms, if at all.

Summary of Cash Flows

The following table summarizes our cash flows for the three months ended March 31, 2021 and 2020, respectively:

​

​

Cash Flows for the Six Months Ended June 30, 2021 and 2020

Operating Activities

For the six months ended June 30, 2021, the net loss was $7.3 million while cash used in operations was $7.9 million. The additional increase in cash used in operations of $0.6 million was attributable to the net change in operating assets and liabilities. The net change in operating assets and liabilities included an increase in prepaid expenses of $0.3 million and a decrease in operating liabilities of $0.3 million.

For the six months ended June 30, 2020, the net loss was $1.1 million while cash used in operations was $1.0 million. The offsetting decrease in cash used in operations of $0.1 million was attributable to the net change in operating assets and liabilities. The net change in operating assets and liabilities included an increase in operating liabilities of $0.2 million offset by an increase in prepaid expenses of $0.1 million.

17

Table of Contents

Financing Activities

Net cash used by financing activities during the six months ended June 30, 2021 was $0.1 million and was attributable to proceeds from the exercise of warrants to purchase our common stock of $0.2 million offset by payment of IPO offering costs of $0.3 million.

Net cash provided by financing activities during the six months ended June 30, 2020 was $1.8 million and was attributable to proceeds from the issuance of convertible promissory notes of $1.9 offset by payment of deferred costs of $0.1 million.

Off-Balance Sheet Arrangements

As of June 30, 2021, we did not have any off-balance sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities.

JOBS Act

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012, or JOBS Act, was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an “emerging growth company.” As an “emerging growth company,” we are electing to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards.

Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation. These exemptions will apply until the fifth anniversary of the completion of our initial public offering or until we no longer meet the requirements for being an “emerging growth company,” whichever occurs first.

​

Item 3. Quantitative and Qualitative Disclosures About Market Risk

This item is not required for smaller reporting companies.

​

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and SVP of Finance, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures.

Based upon that evaluation and the material weakness in our internal control over financial reporting discussed below, our Chief Executive Officer and SVP of Finance concluded that, as of the end of the period

18

Table of Contents

covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were not effective at a reasonable assurance level in ensuring that material information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules, regulations and forms of the SEC, including ensuring that such material information is accumulated by and communicated to our management, including our Chief Executive Officer and SVP of Finance, as appropriate to allow timely decisions regarding required disclosure.

As previously identified and described more fully under Item 9A in our 2020 Annual Report on Form 10-K, we determined that a material weakness in our internal control over financial reporting, due to the size of the organization, arose because we did not maintain effective segregation of duties, financial statement reporting and general technology controls. The material weakness continued to exist as of the end of the period covered by the Quarterly Report on Form 10-Q.

In April 2021, we contracted with a third party to provide experienced controller assistance for post- closing procedures as well as providing segregation of duties for initiating and approving wire transactions and other payments. In addition, management added additional mitigating controls with regards to cash disbursements. In March, the Board approved and the Company adopted a Delegation of Authority Policy to improve segregation of duties in our authorization processes. However, we cannot assure that the steps and measures we will implement to remediate our material weakness will be sufficient to prevent future material weaknesses or significant deficiencies in our internal control over financial reporting from occurring.

Changes in Internal Control Over Financial Reporting 

Other than as described above, there has been no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(f) of the Exchange Act that occurred during the quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

​

​

19

Table of Contents

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

From time to time we may be involved in claims that arise during the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, we do not currently have any pending litigation to which we are a party or to which our property is subject that we believe to be material. Regardless of the outcome, litigation can be costly and time consuming, and it can divert management’s attention from important business matters and initiatives, negatively impacting our overall operations.

​

Item 1A. Risk Factors

This item is not required for smaller reporting companies.

​

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

None.

​

Item 3. Defaults Upon Senior Securities

None.

​

Item 4. Mine Safety Disclosures

Not applicable.

​

Item 5. Other Information

None.

​

Item 6. Exhibits

See Exhibit Index.

​

​

20

Table of Contents

EXHIBIT INDEX

​

​

​

21

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, duly authorized.

Date: August 13, 2021

​

​

​

​

​

22