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, 2023

☐ 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: 001-41294

Blue Water Biotech, Inc.

(Exact name of registrant as specified in its charter)

Delaware		83-2262816
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

201 E. Fifth Street, Suite 1900

Cincinnati, OH

45202

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (513) 620-4101

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

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

Title of each class		Trading Symbol(s)		Name of exchange on which registered
Common stock, $0.00001 par value		BWV		The Nasdaq Stock Market LLC

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

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 726(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

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

As of November 17, 2023, the registrant had 18,655,412 shares of common stock, $0.00001 par value per share, outstanding.

TABLE OF CONTENTS

		Page
	Cautionary Note Regarding Forward-Looking Statements	ii

PART I.	FINANCIAL INFORMATION	1
Item 1.	Condensed Financial Statements (unaudited).	1
	Condensed Balance Sheets	1
	Condensed Statements of Operations	2
	Condensed Statements of Stockholders’ Equity	3
	Condensed Statements of Cash Flows	4
	Notes to Unaudited Condensed Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	44
Item 4.	Controls and Procedures.	44
PART II.	OTHER INFORMATION	46
Item 1.	Legal Proceedings.	46
Item 1A.	Risk Factors.	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	52
Item 3.	Defaults Upon Senior Securities.	52
Item 4.	Mine Safety Disclosures.	52
Item 5.	Other Information.	52
Item 6.	Exhibits.	53
	Signatures	54

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements that reflect our current expectations and views of future events. The forward-looking statements are contained principally in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Readers are cautioned that known and unknown risks, uncertainties and other factors, including those over which we may have no control and others listed in the “Risk Factors” section of this Report, may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by the words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue” and “ongoing,” or the negative of these terms, or other comparable terminology intended to identify statements about the future, although not all forward-looking statements contain these words. These statements relate to future events or our future financial performance or condition and involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievement to differ materially from those expressed or implied by these forward-looking statements. These forward-looking statements include, but are not limited to, statements about:

●

our projected financial position and estimated cash burn rate;

●

our estimates regarding expenses, future revenues and capital requirements;

●

our ability to continue as a going concern;

●

our need to raise substantial additional capital to fund our operations;

●

the success, cost and timing of our clinical trials;

●

our ability to obtain the necessary regulatory approvals to market and commercialize our products and product candidates;

●

the potential that results of pre-clinical and clinical trials indicate our current product candidates or any future product candidates we may seek to develop are unsafe or ineffective;

●

the results of market research conducted by us or others;

●

our ability to obtain and maintain intellectual property protection for our current product candidates;

●

our ability to protect our intellectual property rights and the potential for us to incur substantial costs from lawsuits to enforce or protect our intellectual property rights;

●

the possibility that a third party may claim we or our third-party licensors have infringed, misappropriated or otherwise violated their intellectual property rights and that we may incur substantial costs and be required to devote substantial time defending against claims against us;

●

our reliance on third parties, including manufacturers and logistics companies;

●

the success of competing therapies and products that are or become available;

●

our ability to commercialize ENTADFI^®;

●

our ability to successfully compete against current and future competitors;

●

our ability to expand our organization to accommodate growth and our ability to retain and attract key personnel;

●

the potential for us to incur substantial costs resulting from product liability lawsuits against us and the potential for these product liability lawsuits to cause us to limit our commercialization of our product candidates;

●

market acceptance of our products and product candidates, the size and growth of the potential markets for our current product candidates and any future product candidates we may seek to develop, and our ability to serve those markets; and

●

the successful development of our commercialization capabilities, including sales and marketing capabilities.

These forward-looking statements involve numerous risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results of operations or the results of other matters that we anticipate herein could be materially different from our expectations. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and other sections in this Report. You should thoroughly read this Report and the documents that we refer to with the understanding that our actual future results may be materially different from and worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements.

The forward-looking statements made in this Report relate only to events or information as of the date on which the statements are made in this Report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this Report and the documents that we refer to in this Report and have filed as exhibits to this Report, completely and with the understanding that our actual future results may be materially different from what we expect.

iii

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

BLUE WATER BIOTECH, INC.
Condensed Balance Sheets

	September 30, 2023			December 31, 2022
	(Unaudited)
ASSETS
Current assets
Cash	$	7,653,975		$	25,752,659
Inventories		1,419,272			—
Prepaid expenses and other current assets		467,738			469,232
Receivable from related parties, net		—			35,850
Total current assets		9,540,985			26,257,741

Prepaid expenses, long-term		55,499			38,617
Property and equipment, net		12,503			14,089
Deferred offering costs		366,113			—
Intangible asset		17,906,771			—
Total assets	$	27,881,871		$	26,310,447

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	3,176,332		$	1,499,296
Accrued expenses		1,538,544			2,409,128
Notes payable, net of debt discount of $569,907		12,920,093			—
Contingent warrant liability		10,461			14,021
Total current liabilities		17,645,430			3,922,445

Commitments and Contingencies (see Note 9)

Stockholders’ equity
Preferred stock, $0.00001 par value, 10,000,000 shares authorized at September 30, 2023 and December 31, 2022; 10,000 and 0 shares designated as Series A convertible preferred stock at September 30, 2023 and December 31, 2022, respectively; 0 shares issued and outstanding at September 30, 2023 and December 31, 2022		—			—
Common stock, $0.00001 par value, 250,000,000 shares authorized at September 30, 2023 and December 31, 2022; 18,336,597 and 15,724,957 shares issued at September 30, 2023 and December 31, 2022, respectively; 17,819,198 and 15,265,228 shares outstanding at September 30, 2023 and December 31, 2022, respectively		183			157
Additional paid-in-capital		45,297,371			42,331,155
Treasury stock, at cost; 517,399 and 459,729 shares of common stock at September 30, 2023 and December 31, 2022, respectively		(625,791	)		(566,810	)
Accumulated deficit		(34,435,322	)		(19,376,500	)
Total stockholders’ equity		10,236,441			22,388,002
Total liabilities and stockholders’ equity	$	27,881,871		$	26,310,447

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

BLUE WATER BIOTECH, INC.
Condensed Statements of Operations

(Unaudited)

	Three Months Ended September 30, 2023			Three Months Ended September 30, 2022			Nine Months Ended September 30, 2023			Nine Months Ended September 30, 2022
Operating expenses
Selling, general and administrative	$	4,268,845		$	2,694,254		$	8,337,615		$	7,311,243
Research and development		219,238			1,175,480			2,148,327			2,924,037
Impairment of deposit on asset purchase agreement		—			—			3,500,000			—
Total operating expenses		4,488,083			3,869,734			13,985,942			10,235,280
Loss from operations		(4,488,083	)		(3,869,734	)		(13,985,942	)		(10,235,280	)
Other income (expense)
Loss on extinguishment of note payable		(490,000	)		—			(490,000	)		—
Interest expense		(269,097	)		—			(483,093	)		—
Change in fair value of contingent warrant liability		(99,728	)		3,072			(99,787	)		33,375
Total other income (expense)		(858,825	)		3,072			(1,072,880	)		33,375
Net loss	$	(5,346,908	)	$	(3,866,662	)	$	(15,058,822	)	$	(10,201,905	)
Cumulative preferred stock dividends		—			—			—			96,359
Net loss applicable to common stockholders	$	(5,346,908	)	$	(3,866,662	)	$	(15,058,822	)	$	(10,298,264	)

Net loss per share attributable to common stockholders, basic and diluted	$	(0.31	)	$	(0.27	)	$	(0.92	)	$	(0.94	)
Weighted average number of common shares outstanding, basic and diluted		17,521,562			14,338,379			16,452,136			10,949,265

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

BLUE WATER BIOTECH, INC.
Condensed Statements of Stockholders’ Equity

(Unaudited)

	Preferred Stock				Common Stock						Additional Paid-in			Treasury Stock						Accumulated			Total Stockholders’
	Shares		Amount		Shares			Amount			Capital			Shares			Amount			Deficit			Equity
Balance at December 31, 2022		—	$	—		15,724,957		$	157		$	42,331,155			(459,729	)	$	(566,810	)	$	(19,376,500	)	$	22,388,002
Exercise of pre-funded warrants		—		—		646,640			7			(7	)		—			—			—			—
Stock-based compensation		—		—		—			—			185,578			—			—			—			185,578
Purchase of treasury shares		—		—		—			—			—			(32,638	)		(33,454	)		—			(33,454	)
Net loss		—		—		—			—			—			—			—			(2,846,644	)		(2,846,644	)
Balance at March 31, 2023		—	$	—		16,371,597		$	164		$	42,516,726			(492,367	)	$	(600,264	)	$	(22,223,144	)	$	19,693,482
Exercise of stock options		—		—		45,920			—			459			—			—			—			459
Issuance of restricted stock		—		—		512,940			5			(5	)		—			—			—			—
Stock-based compensation		—		—		—			—			272,781			—			—			—			272,781
Purchase of treasury shares		—		—		—			—			—			(25,032	)		(25,527	)		—			(25,527	)
Net loss		—		—		—			—			—			—			—			(6,865,270	)		(6,865,270	)
Balance at June 30, 2023		—	$	—		16,930,457		$	169		$	42,789,961			(517,399	)	$	(625,791	)	$	(29,088,414	)	$	13,075,925
Issuance of common stock from exercise of preferred investment options		—		—		1,575,000			16			2,272,822			—			—			—			2,272,838
Issuance of warrants for settlement of contingent warrants		—		—		—			—			129,184			—			—			—			129,184
Stock-based compensation		—		—		—			—			105,402			—			—			—			105,402
Restricted stock forfeitures		—		—		(168,860	)		(2	)		2			—			—			—			—
Net loss		—		—		—			—			—			—			—			(5,346,908	)		(5,346,908	)
Balance at September 30, 2023		—	$	—		18,336,597		$	183		$	45,297,371			(517,399	)	$	(625,791	)	$	(34,435,322	)	$	10,236,441

											Additional						Total
	Preferred Stock						Common Stock				Paid-in			Accumulated			Stockholders’
	Shares			Amount			Shares		Amount		Capital			Deficit			Equity
Balance at December 31, 2021		1,146,138		$	11			3,200,000	$	32	$	7,403,204		$	(5,956,670	)	$	1,446,577
Issuance of common stock in initial public offering, net of $2.9 million of offering costs		—			—			2,222,222		22		17,138,818			—			17,138,840
Conversion of convertible preferred stock to common stock upon initial public offering		(1,146,138	)		(11	)		5,626,365		56		(45	)		—			—
Stock-based compensation		—			—			—		—		19,332			—			19,332
Net loss		—			—			—		—		—			(2,070,661	)		(2,070,661	)
Balance at March 31, 2022		—		$	—			11,048,587	$	110	$	24,561,309		$	(8,027,331	)	$	16,534,088
Issuance of common stock and warrants in private placement, net of $1.1 million of offering costs		—			—			590,406		6		6,858,322			—			6,858,328
Exercise of pre-funded warrants		—			—			590,406		6		(6	)		—			—
Stock-based compensation		—			—			—		—		1,447,127			—			1,447,127
Net loss		—			—			—		—		—			(4,264,582	)		(4,264,582	)
Balance at June 30, 2022		—		$	—			12,229,399	$	122	$	32,866,752		$	(12,291,913	)	$	20,574,961

Issuance of common stock and warrants in private placement, net of $2.2 million of offering costs		—			—			1,350,000		14		8,689,302			—			8,689,316
Exercise of stock options		—			—			165,452		2		1,653			—			1,655
Exercise of pre-funded warrants		—			—			945,000		9		936			—			945
Stock-based compensation		—			—			—		—		329,809			—			329,809
Net loss		—			—			—		—		—			(3,866,662	)		(3,866,662	)
Balance at September 30, 2022		—		$	—			14,689,851	$	147	$	41,888,452		$	(16,158,575	)	$	25,730,024

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

BLUE WATER BIOTECH, INC.

Condensed Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30, 2023			Nine Months Ended September 30, 2022
Cash flows from operating activities
Net loss	$	(15,058,822	)	$	(10,201,905	)
Adjustments to reconcile net loss to net cash used in operating activities:
Impairment of deposit on asset purchase agreement		3,500,000			—
Stock-based compensation		563,761			1,796,268
Amortization of debt discount		483,093			—
Loss on extinguishment of note payable		490,000			—
Loss on impairment of other long-lived assets		267,019			—
Loss on related party receivable		265,648			—
Depreciation expense		4,886			4,906
Change in fair value of contingent warrant liability		99,787			(33,375	)
Changes in assets and liabilities:
Inventories		(299,272	)		—
Prepaid expenses and other current assets		(9,526	)		(469,278	)
Prepaid expenses, long-term		(16,882	)		(66,357	)
Deposit		—			(27,588	)
Accounts payable		1,418,048			361,103
Accrued expenses		(976,871	)		2,760,734
Net cash used in operating activities		(9,269,131	)		(5,875,492	)

Cash flows from investing activities
Acquisition of assets, including transaction costs of $79,771		(6,079,771	)		—
Deposit made in connection with asset purchase agreement		(3,500,000	)		—
Purchases of other long-lived assets		(51,744	)		—
Net advances to related parties		(229,798	)		(22,149	)
Purchases of property and equipment		(3,300	)		(9,339	)
Net cash used in investing activities		(9,864,613	)		(31,488	)

Cash flows from financing activities
Purchase of treasury shares		(58,981	)		—
Payment of deferred offering costs		(205,093	)		(51,304	)
Principal payment of note payable		(1,000,000	)		—
Proceeds from exercise of preferred investment options, net		2,298,675			—
Proceeds from exercise of stock options		459			1,655
Proceeds from issuance of common stock in initial public offering, net of underwriting discount		—			18,400,000
Payments of initial public offering costs		—			(926,972	)
Proceeds from issuance of common stock and warrants in private placements, net of placement agent discount		—			16,468,123
Payment of private placement issuance costs					(777,225	)
Proceeds from exercise of pre-funded warrants		—			945
Net cash provided by financing activities		1,035,060			33,115,222
Net increase (decrease) in cash		(18,098,684	)		27,208,242
Cash, beginning of period		25,752,659			1,928,474
Cash, end of period	$	7,653,975		$	29,136,716

Noncash investing and financing activities:
Inventory and intangible assets acquired through issuance of notes payable	$	12,947,000		$	—
Incremental fair value of exchanged preferred investment options	$	2,613,011		$	860,204
Deferred offering costs included in accounts payable and accrued expenses	$	150,000		$	125,000
Recognition of contingent warrant liability	$	25,837		$	75,431
Warrants issued for settlement of contingent warrants	$	129,184		$	—
Deferred offering costs previously included in prepaid expenses	$	(11,020	)	$	—
Exercise of pre-funded warrants	$	7		$	6
Issuance of restricted stock	$	5		$	—
Restricted stock forfeitures	$	(2	)	$	—
Payment of accrued bonus through related party receivable	$	—		$	140,000
Private placement offering costs included in accounts payable	$	—		$	67,823
Conversion of convertible preferred stock to common stock upon initial public offering	$	—		$	45

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

BLUE WATER BIOTECH, INC.
Notes to Condensed Financial Statements

September 30, 2023

(Unaudited)

Note 1 — Organization and Basis of Presentation

Organization and Nature of Operations

Blue Water Biotech, Inc. (formerly known as Blue Water Vaccines Inc.) (the “Company”) was formed on October 26, 2018. Historically, the Company’s focus was on the research and development of transformational vaccines to prevent infectious diseases worldwide. In April 2023, the Company acquired ENTADFI®, with plans to commercialize it. ENTADFI® is a Food and Drug Administration (“FDA”)-approved, once daily pill that combines finasteride and tadalafil for the treatment of benign prostatic hyperplasia. This combination allows men to receive treatment for their symptoms of benign prostatic hyperplasia without the negative sexual side effects typically seen in patients on finasteride alone. During the third quarter of 2023, the Company deprioritized its efforts on vaccine development activities to pursue and focus on commercialization activities for ENTADFI®. On October 30, 2023, the Company announced a new business strategy of focusing its efforts on building a foundation of therapeutic, diagnostic, and service products in the field of oncology that will bolster and enrich the practice of medicine for clinicians. ENTADFI® will become the inaugural therapeutic drug in the Company’s expanding portfolio of oncology therapeutics once launched.

On April 21, 2023, the Company filed an amendment to its Articles of Incorporation with the Secretary of State of Delaware to change its corporate name from “Blue Water Vaccines Inc.” to “Blue Water Biotech, Inc.”. The name change was effective as of April 21, 2023. In connection with the name change, the Company amended the Company’s bylaws to reflect the corporate name Blue Water Biotech, Inc., also effective on April 21, 2023. No other changes were made to the bylaws.

On May 31, 2023, the board of directors of the Company (the “Board”) amended the Company’s bylaws to reduce the quorum requirement at meetings of the Company’s stockholders from a majority of the voting power of the outstanding shares of stock of the Company entitled to vote, to one-third of the voting power of the outstanding shares of stock of the Company entitled to vote, effective immediately. No other changes were made to the bylaws.

Initial Public Offering

On February 23, 2022, the Company completed its initial public offering (“IPO”) in which the Company issued and sold 2,222,222 shares of its common stock, par value $0.00001 per share (“common stock”), at a price to the public of $9.00 per share. Proceeds from the IPO, net of underwriting discounts, commissions, and offering costs of $2.9 million, were $17.1 million. In connection with the completion of the IPO, all outstanding shares of the Company’s convertible preferred stock were converted into 5,626,365 shares of common stock.

Basis of Presentation

The Company’s unaudited condensed financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Unaudited Interim Financial Statements

The accompanying condensed balance sheet as of September 30, 2023, and the condensed statements of operations and the condensed statements of changes in stockholders’ equity for the three and nine months ended September 30, 2023 and 2022, and the condensed statements of cash flows for the nine months ended September 30, 2023 and 2022 are unaudited. These unaudited interim financial statements have been prepared on the same basis as the audited financial statements, and in management’s opinion, include all adjustments, consisting of only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2023 and its results of operations for the three and nine months ended September 30, 2023 and 2022, and its cash flows for the nine months ended September 30, 2023 and 2022. The financial data and the other financial information disclosed in the notes to these condensed financial statements related to the three and nine-month periods are also unaudited. Operating results for the three and nine months ended September 30, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023, any other interim periods, or any future year or period. The unaudited condensed financial statements included in this Report should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, which includes a broader discussion of the Company’s business and the risks inherent therein.

BLUE WATER BIOTECH, INC.
Notes to Condensed Financial Statements

September 30, 2023

(Unaudited)

Note 2 — Going Concern and Management’s Plans

The Company’s operating activities to date have been devoted to seeking licenses, engaging in research and development activities, and potential asset and business acquisitions. The Company’s product candidates currently under development will require significant additional research and development efforts prior to commercialization. The Company has financed its operations since inception primarily using proceeds received from seed investors, and proceeds received from its IPO and private placement issuances in April and August 2022 (the “Private Placements”, see Note 8). During 2022, the Company completed its IPO and the Private Placements in which the Company received an aggregate of approximately $33.1 million in net cash proceeds, after deducting placement agent fees and other offering expenses. During the three and nine months ended September 30, 2023, the Company received net proceeds of approximately $2.3 million in connection with the exercise of preferred investment options by an investor (see Note 8).

The Company has incurred substantial operating losses since inception and expects to continue to incur significant operating losses for the foreseeable future. As of September 30, 2023, the Company had cash of approximately $7.7 million, a working capital deficit of approximately $8.1 million and an accumulated deficit of approximately $34.4 million.

During June 2023, the Company entered into an asset purchase agreement with WraSer (the “WraSer APA”) for the acquisition of a significant portion of other assets that requires the Company to pay consideration of $8.5 million and one million shares of common stock, of which $3.5 million was paid upon execution of the agreement, $4.5 million of the remainder and common stock was to be paid at closing, and the remaining $500,000 was to be due June 13, 2024. On September 26, 2023, WraSer and its affiliates filed for relief under chapter 11 of the U.S. Bankruptcy Code in the Bankruptcy Court. On October 4, 2023, the parties agreed to amend the WraSer APA. The amendment, which is subject to court approval, seeks, among other things, to eliminate the $500,000 post-closing payment due June 13, 2024 and stagger the $4.5 million cash payment that the Company would otherwise have to pay at closing to: (i) $2.2 million to be paid at closing, (ii) $2.3 million, to be paid in monthly installments of $150,000 commencing January 2024 and (iii) 789 shares of Series A Preferred Stock to be paid at closing. On October 6, 2023, the Company was alerted to certain developments in WraSer’s operations relating to WraSer’s inability to manufacture the active pharmaceutical ingredient for one of the key WraSer Assets, which development the Company believes constitutes a Material Adverse Effect (as such term is defined in the WraSer APA) that will prevent the Company from closing the transaction. On October 20, 2023, the Company filed a motion for relief from the automatic stay in the Bankruptcy Court so that the Company can exercise the termination rights under the WraSer APA, as amended. WraSer has advised the Company that it does not believe that a Material Adverse Event occurred. If the Bankruptcy Court does not grant the Company’s motion and requires it to complete the transaction, the Company will not be able to execute its commercialization strategy for the WraSer Assets because there is no manufacturer for the active pharmaceutical ingredient for Zontivity, the key driver for the WraSer acquisition. Due to the WraSer bankruptcy filing and the Company’s status as an unsecured creditor of WraSer, it is also unlikely that the Company will recover the $3.5 million initial payment made or any costs and resources in connection with services provided by the Company under the WraSer Management Services Agreement. In addition, if the WraSer APA is terminated, the Company will not be able to recover any such costs.

These factors, along with the Company’s forecasted future cash flows, indicate that the Company will be unable to meet its contractual commitments and obligations as they come due in the ordinary course of business within one year following the issuance of these condensed financial statements. The Company will require significant additional capital in the short-term to fund its continuing operations, satisfy existing and future obligations and liabilities, including the remaining payments due for the acquisition of assets described in Note 5 and other contracts entered into in support of the Company’s commercialization plans, in addition to funds needed to support the Company’s working capital needs and business activities. These business activities include the commercialization of ENTADFI®, and the development and commercialization of the Company’s current product candidates and future product candidates. Management’s plans include generating product revenue from sales of ENTADFI®, which has not yet been successfully commercialized, a process that will require significant amounts of additional capital to complete. In addition, certain of the commercialization activities are outside of the Company’s control, including but not limited to, securing contracts with wholesalers and third party payers, securing contracts with third-party logistics providers, and obtaining required licensure in various jurisdictions, as well as attempting to secure additional required funding through equity or debt financings if available; however, there are currently no commitments in place for further financing nor is there any assurance that such financing will be available to the Company on favorable terms, if at all, which creates significant uncertainty that the Company will be able to successfully launch ENTADFI®. If the Company is unable to secure additional capital, it may be required to defer any future clinical trials, should the Company decide to resume these activities, development and/or commercialization of products and product candidates, and it may take additional measures to reduce expenses in order to conserve its cash in amounts sufficient to sustain operations and meet its obligations.

Because of historical and expected operating losses and net operating cash flow deficits, there is substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the condensed financial statements, which is not alleviated by management’s plans. The condensed financial statements have been prepared assuming the Company will continue as a going concern. These condensed financial statements do not include any adjustments that might be necessary from the outcome of this uncertainty.

BLUE WATER BIOTECH, INC.
Notes to Condensed Financial Statements

September 30, 2023

(Unaudited)

Note 3 — Summary of Significant Accounting Policies

During the nine months ended September 30, 2023, there were changes to the Company’s significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as follows:

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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. The most significant estimates in the Company’s financial statements relate to valuation of inventory, useful life of the amortizable intangible assets, estimates of future cash flows used to evaluate impairment, accrued research and development expenses, stock-based compensation, the valuation of preferred stock, and the valuation allowance of deferred tax assets resulting from net operating losses. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

Segment Information

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker (“CODM”), or decision-making group, in deciding how to allocate resources and in assessing performance. Prior to the acquisition of ENTADFI® during the quarter ended June 30, 2023, the Company managed one distinct business segment, which was vaccine discovery and development. During the second quarter of 2023, as a result of the acquisition of ENTADFI® for which the Company is working towards commercial launch, the Company operated in two business segments: research and development and commercial. During the third quarter of 2023, the Company deprioritized its vaccine discovery and development programs, and accordingly, as of September 30, 2023, the Company was operating in one segment: commercial. Management’s determination that the Company operated as two segments during the second quarter of 2023 and one segment during the third quarter of 2023, was consistent with the financial information regularly reviewed by the CODM for purposes of evaluating performance, allocating resources, setting incentive compensation targets, and planning and forecasting for future periods.

BLUE WATER BIOTECH, INC.
Notes to Condensed Financial Statements

September 30, 2023

(Unaudited)

Note 3 — Summary of Significant Accounting Policies (cont.)

Inventories

Inventories consist of raw materials, packaging materials, and work-in-process. Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis, aside from inventory acquired in an asset acquisition, which is recorded at fair value. The Company periodically reviews the composition of inventory in order to identify excess, obsolete, slow-moving or otherwise non-saleable items taking into account anticipated future sales compared with quantities on hand, and the remaining shelf life of goods on hand. If non-saleable items are observed and there are no alternate uses for the inventory, the Company records a write-down to net realizable value in the period that the decline in value is first recognized. The Company had no inventory reserves at September 30, 2023 and December 31, 2022.

Acquisitions

The Company evaluates acquisitions to first determine whether a set of assets acquired constitutes a business and should be accounted for as a business combination. If the assets acquired are not a business, the transaction is accounted as an asset acquisition in accordance with Accounting Standards Codification (“ASC”) 805-50, Asset Acquisitions (“ASC 805-50”), which requires the acquiring entity to recognize assets acquired and liabilities assumed based on the cost to the acquiring entity on a relative fair value basis, except for non-qualifying assets including financial assets such as inventory. Further, the cost of the acquisition includes the fair value of consideration transferred and direct transaction costs attributable to the acquisition. Goodwill is not recognized in an asset acquisition and any excess consideration transferred over the fair value of the net assets acquired is allocated to the identifiable assets based on relative fair values. Contingent consideration payments in asset acquisitions are recognized when the contingency is determined to be probable and reasonably estimable. If the assets acquired are a business, the Company accounts for the transaction as a business combination. Business combinations are accounted for by using the acquisition method of accounting. Under the acquisition method, assets acquired, and liabilities assumed are recorded at their respective fair values. The excess of the fair value of consideration transferred over the fair value of the net assets acquired is recorded as goodwill. Contingent consideration obligations are recorded at their fair values on the acquisition date and remeasured at their fair values each subsequent reporting period until the related contingencies are resolved. The resulting changes in fair values are recorded in earnings.

Intangible Assets

Intangible assets are reported at cost, less accumulated amortization. Intangible assets with finite lives are amortized over their estimated useful lives, starting when sales for the related product begin. Amortization is calculated using the straight-line method.

During the ordinary course of business, the Company has entered into certain license and asset purchase agreements. Potential milestone payments for development, regulatory, and commercial milestones are recorded when the milestone is probable of achievement. Upon a milestone being achieved, the associated milestone payment is capitalized and amortized over the remaining useful life for approved products, or expensed as research and development expense for milestones relating to products whose FDA approval has not yet been obtained.

Impairment of Long-Lived Assets

The Company reviews long-lived assets, including intangible assets with finite useful lives, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable (a “triggering event”). Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the long-lived asset in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based on discounted cash flows. During the three and nine months ended September 30, 2023, the Company recorded an impairment loss of approximately $267,000 related to $267,000 of implementation costs incurred under cloud computing hosting arrangements that were capitalized during the three and nine months ended September 30, 2023. There were no other impairment losses on long-lived assets.

BLUE WATER BIOTECH, INC.
Notes to Condensed Financial Statements

September 30, 2023

(Unaudited)

Note 3 — Summary of Significant Accounting Policies (cont.)

New Accounting Pronouncements

The Company’s management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying condensed financial statements.

Note 4 — Balance Sheet Details

Inventories

Inventories relate to ENTADFI® product and consisted of the following as of September 30, 2023, and December 31, 2022:

	September 30, 2023		December 31, 2022
Raw materials	$	329,780	$	-
Work-in-process		1,089,492		-
Total	$	1,419,272	$	-

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following as of September 30, 2023, and December 31, 2022:

	September 30, 2023		December 31, 2022
Prepaid insurance	$	277,058	$	148,789
Prepaid research and development		89,195		231,981
Prepaid other		101,485		88,462
Total	$	467,738	$	469,232

Accrued Expenses

Accrued expenses consisted of the following as of September 30, 2023, and December 31, 2022:

	September 30, 2023		December 31, 2022
Accrued research and development	$	548,287	$	847,747
Accrued compensation		386,087		1,132,859
Accrued deferred offering costs		125,000		125,000
Accrued professional fees		216,000		—
Accrued implementation fees		106,287		—
Other accrued expenses		156,883		125,922
Accrued franchise taxes		—		177,600
Total	$	1,538,544	$	2,409,128

BLUE WATER BIOTECH, INC.
Notes to Condensed Financial Statements

September 30, 2023

(Unaudited)

Note 5 — Acquisitions

ENTADFI®

On April 19, 2023, the Company entered into an Asset Purchase Agreement (the “ENTADFI® APA”) with Veru Inc. (“Veru”), the seller of the assets. Pursuant to, and subject to the terms and conditions of, the ENTADFI® APA, the Company purchased substantially all of the assets related to Veru’s ENTADFI® product (“ENTADFI®”) and assumed certain liabilities of Veru of a trivial amount, (the “Transaction”) for a total possible consideration of $100 million.

In accordance with the ENTADFI® APA, the Company agreed to provide Veru with initial consideration totaling $20.0 million, consisting of (i) $6.0 million paid upon the closing of the Transaction on April 19, 2023, (ii) an additional $4.0 million in the form of a non-interest bearing note payable due on September 30, 2023, and (iii) an additional $10.0 million in the form of two $5.0 million non-interest bearing notes payable, each due on April 19, 2024 and September 30, 2024.

Additionally, the terms of the ENTADFI® APA require the Company to pay Veru up to an additional $80.0 million based on the Company’s net sales of ENTADFI® after closing (the “Milestone Payments”). The Milestone Payments are payable as follows: (i) $10.0 million is payable upon the first time the Company achieves net sales from ENTADFI® of $100.0 million during a calendar year, (ii) $20.0 million is payable upon the first time the Company achieves net sales from ENTADFI® of $200.0 million during a calendar year, and (3) $50.0 million is payable upon the first time the Company achieves net sales from ENTADFI® of $500.0 million during a calendar year.

In connection with the Transaction, the Company also assumed royalty and milestone obligations under an asset purchase agreement for tadalafil-finasteride combination entered into by Veru and Camargo Pharmaceutical Services, LLC on December 11, 2017 (the “Camargo Obligations”). The Camargo Obligations assumed by the Company include a 6% royalty on all sales of tadalafil-finasteride and sales milestone payments of up to $22.5 million, payable to Camargo as follows: (i) $5.0 million is payable upon the first time the Company achieves net sales from ENTADFI® of $100.0 million during a calendar year, (ii) $7.5 million is payable upon the first time the Company achieves net sales from ENTADFI® of $200.0 million during a calendar year, and (3) $10.0 million is payable upon the first time the Company achieves net sales from ENTADFI® of $300.0 million during a calendar year.

On September 29, 2023, the Company entered into an amendment to the ENTADFI® APA (the “ENTADFI® APA Amendment”), which provides that the $4.0 million note payable originally due on September 30, 2023, was deemed paid and fully satisfied upon (1) the payment to the Seller of $1.0 million in cash on September 29, 2023, and (2) the issuance to the Seller by October 3, 2023 of 3,000 shares of Series A Convertible Preferred Stock (the “Series A Preferred Stock”) of the Company (see Note 8). Pursuant to the ENTADFI®APA Amendment, the Series A Preferred Stock will convert to common stock of the Company one year from the date of issuance, if the required stockholder approval is obtained. The Series A Preferred Stock, which was issued to the Seller subsequent to September 30, 2023, is initially convertible, in the aggregate, into 5,709,935 shares of the Company’s common stock, subject to adjustment and certain shareholder approval limitations specified in the Certificate of Designations. Pursuant to the ENTADFI® APA Amendment, the Company agreed to use commercially reasonable efforts to obtain such shareholder approval by December 31, 2023. The Company also agreed to include the shares of common stock issuable upon conversion of the Series A Preferred Stock in the next resale registration statement filed with the SEC.

Also, in connection with the Transaction, and pursuant to the ENTADFI® APA, the Company entered into non-competition and non-solicitation agreements (the “Non-Competition Agreements”) with two of Veru’s key stockholders and employees (the “Restricted Parties”). The Non-Competition Agreements generally prohibit the Restricted Parties from either directly or indirectly engaging in the Restricted Business (as such term is defined in the ENTADFI® APA) for a period of five years from the closing of the Transaction.

The acquisition of ENTADFI® has been accounted for as an asset acquisition in accordance with ASC 805-50 because substantially all of the fair value of the assets acquired is concentrated in a single asset, the ENTADFI® product rights. The ENTADFI® products rights consist of trademarks, regulatory approvals, and other records, and are considered a single asset as they are inextricably linked.

BLUE WATER BIOTECH, INC.
Notes to Condensed Financial Statements

September 30, 2023

(Unaudited)

Note 5 — Acquisitions (cont.)

The following table summarizes the aggregate consideration transferred for the assets acquired by the Company in connection with the ENTADFI® APA:

	Consideration Transferred
Consideration transferred at closing	$	6,000,000
Fair value of notes payable issued		12,947,000
Transaction costs		79,771
Total consideration transferred	$	19,026,771

The fair value of the non-interest bearing notes payable was estimated using a net present value model using discount rates averaging 8.2%. The resulting fair value is being accreted to the face value of the notes, through the respective maturity dates. Management evaluated the Milestone Payments and determined that at the close of the Transaction, they are not considered probable, and as such, the Company did not recognize any amount related to the Milestone Payments in the consideration transferred.

The following table summarizes the assets acquired with the ENTADFI® APA:

	Assets Recognized
Inventory	$	1,120,000
ENTADFI® Intangible		17,906,771
Total fair value of identifiable assets acquired	$	19,026,771

In accordance with ASC 805-50, the acquired inventory was recorded at fair value. The remaining consideration transferred was allocated to the ENTADFI® intangible asset, which will be amortized over its estimated useful life, starting when ENTADFI® sales begin. The Company originally estimated the useful life to be five years, but during the three months ended September 30, 2023, the useful life was reevaluated and changed to seven years. This change in estimate has no accounting impact as the amortization period has not yet begun. Acquired inventory is comprised of work-in-process and raw materials. The fair value of work-in-process inventory was determined based on an estimated sales price of the finished goods, adjusted for costs to complete the manufacturing process, costs of the selling effort, a reasonable profit allowance for the remaining manufacturing and selling effort, and an estimate of holding costs. The fair value of raw materials was determined to approximate replacement cost. The inventory fair value adjustment was approximately $0.3 million and will be amortized as inventory turns over, which is expected to approximate 1.5 years.

Management evaluated the Camargo Obligations and determined that at the close of the Transaction, the related sales milestone payments are not considered probable, and as such, the Company did not recognize any related liability at the date of the Transaction. In addition, royalties under the Camargo Obligations will be recorded as cost of sales, as the related sales are generated and recognized.

WraSer:

On June 13, 2023 (the “Execution Date”), the Company entered into an asset purchase agreement with WraSer, LLC, and affiliates (the “Seller”) (the “WraSer APA”). Pursuant to, and subject to the terms and conditions of, the WraSer APA, on the Closing Date (as defined below) the Company was to purchase six FDA-approved pharmaceutical assets across several indications, including cardiology, otic infections, and pain management (the “WraSer Assets”).

Under the terms of the WraSer APA, the Company was to purchase the WraSer Assets for (i) $3.5 million in cash at signing of the WraSer APA; (ii) $4.5 million in cash on the later of (x) 90 days after the signing of the WraSer APA or (y) the date that all closing conditions under the WraSer APA are met or otherwise waived (the “Closing Date”); (iii) 1.0 million shares of the Company’s common stock (the “Closing Shares”) issuable on the Closing Date, and (iv) $500,000 in cash one year from the Closing Date. On October 4, 2023, the Company and WraSer agreed to amend the WraSer APA (“WraSer APA Amendment”), to modify the payment terms of the transaction, which amendment is currently pending court approval (see Note 14).

BLUE WATER BIOTECH, INC.
Notes to Condensed Financial Statements

September 30, 2023

(Unaudited)

Note 5 — Acquisitions (cont.)

Within 90 days of the Closing Date, the Company will use its best efforts to file with the SEC, (at its sole cost and expense,) a registration statement to register, on Form S-3 registering under the Securities Act of 1933, as amended (the “Securities Act”), the resale of the Closing Shares and will use its best efforts to have the registration statement declared effective as soon as practicable after filing.

The WraSer APA can be terminated prior to closing as follows (i) upon agreement with all parties; (ii) upon breach of contract of either party, uncured within 20 days of notice. If the WraSer APA is terminated upon agreement with all parties or upon uncured breach of contract by the Company, the initial $3.5 million payment is retained by the Sellers. If it is determined that there is an uncured breach of contract by the Seller, and the WraSer APA is terminated, the Company will have an unsecured claim against WraSer for the $3.5 million payment made by the Company upon execution of the WraSer APA. The closing of the transaction is subject to certain customary closing conditions, including submission of the FDA transfer documentation to transfer ownership of the acquired product regulatory approvals to the Company.

Management evaluated the terms of the WraSer APA and MSA, and determined that, at the Execution Date, control under the provisions of ASC 805, Business Combinations, did not transfer to the Company; if the transaction closes, control will transfer then, and the acquisition date will be the closing date. Management further evaluated the requirements pursuant to ASC 810, Consolidations, and determined based on the terms of the MSA, and the Company’s involvement in the Seller’s business, that the Seller is a variable interest entity (“VIE”) to the Company. Management determined that the Company is not the primary beneficiary of the VIE as the WraSer APA and MSA do not provide the Company with the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. While the Company was involved in the day-to-day business activities of the VIE until WraSer filed for relief under Chapter 11 of the U.S. Bankruptcy Court (see below), the Seller had to approve substantially all business activities and transactions that significantly impact the economic performance of WraSer during the term of the MSA. Additionally, the Company is not required to absorb the losses of WraSer if the WraSer APA does not close. As such, the Company is not required to consolidate WraSer in the Company’s financial statements as of September 30, 2023. The Company recorded the initial $3.5 million payment as a deposit. The Company does not have any liabilities recorded as of September 30, 2023 associated with its variable interest in the Seller, and its exposure to the Seller’s losses is limited to no more than the shortfall, if any, of the Cash Target amount of approximately $1.1 million compared to the Seller’s cash balance on the Closing Date.

On September 26, 2023, WraSer and its affiliates filed for relief under chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Middle District of Florida (the “Bankruptcy Court”), and on October 6, 2023, the Company was alerted to certain issues in WraSer’s operations that the Company believes constitutes a Material Adverse Effect (as such term is defined in the WraSer APA) that will prevent the Company from closing the transaction. On October 20, 2023, the Company filed a motion for relief from the automatic stay in the Bankruptcy Court so that the Company can exercise the termination rights under the WraSer APA, as amended. WraSer has advised the Company that it does not believe that a Material Adverse Event occurred. If the Bankruptcy Court does not grant the Company’s motion and requires it to complete the transaction, the Company will not be able to execute its commercialization strategy for the WraSer Assets because there is no manufacturer for the active pharmaceutical ingredient for Zontivity, the key driver for the WraSer acquisition. Due to the Company’s status as an unsecured creditor of WraSer, it is unlikely that the Company will recover the $3.5 million initial payment made or any costs and resources in connection with services provided by the Company under the WraSer MSA and therefore the deposit recorded is impaired. Management determined that the conditions resulting in impairment existed at September 30, 2023, and accordingly, the Company recorded a loss on impairment for the $3.5 million deposit during the nine months ended September 30, 2023.

BLUE WATER BIOTECH, INC.
Notes to Condensed Financial Statements

September 30, 2023

(Unaudited)

Note 6 — Significant Agreements

Oxford University Innovation Limited

In December 2018, the Company entered into an option agreement with Oxford University Innovation (“OUI”), which was a precursor to a license agreement (the “OUI Agreement”), dated July 16, 2019. Under the terms of the OUI Agreement, the Company holds an exclusive, worldwide license to certain specified patent rights and biological materials relating to the use of epitopes of limited variability and virus-like particle products and practice processes that are covered by the licensed patent rights and biological materials for the purpose of developing and commercializing a vaccine product candidate for influenza. The Company is obligated to use its best efforts to develop and market Licensed Products, as defined in the OUI Agreement, in accordance with its development plan, report to OUI on progress, achieve the following milestones and must pay OUI nonrefundable milestone fees when it achieves them: initiation of first Phase I study; initiation of first Phase II study; initiation of first Phase III/pivotal registration studies; first submission of application for regulatory approval (BLA/NDA); marketing authorization in the United States; marketing authorization in any EU country; marketing authorization in Japan; first marketing authorization in any other country; first commercial sale in Japan; first commercial sale in any ROW country; first year that annual sales equal or exceed certain thresholds. The OUI Agreement also requires the Company to pay certain milestone and royalty payments in the future, as the related contingent events occur. See Note 9. The OUI Agreement will expire upon ten (10) years from the expiration of the last patent contained in the licensed patent rights, unless terminated earlier. During the year ended December 31, 2021, the U.S. Patent related to immunogenic composition was issued to OUI. This patent expires in August 2037. No additional patents have been issued during the three and nine months ended September 30, 2023. Either party may terminate the OUI Agreement for an uncured material breach. The Company was able to terminate the OUI Agreement for any reason at any time upon six months’ written notice until July 16, 2022, which was the third anniversary of the OUI Agreement. OUI may terminate immediately if the Company has a petition presented for its winding-up or passes a resolution for winding up other than for a bona fide amalgamation or reconstruction or compounds with its creditors or has a receiver or administrator appointed. OUI may also terminate if the Company opposes or challenges the validity of any of the patents or applications in the Licensed Technology, as defined in the OUI Agreement; raises the claim that the know-how of the Licensed Technology is not necessary to develop and market Licensed Products; or in OUI’s reasonable opinion, is taking inadequate or insufficient steps to develop or market Licensed Products and does not take any further steps that OUI requests by written notice within a reasonable time. Subsequent to September 30, 2023, the Company terminated the license agreement with Oxford University Innovation (see Note 14). The amounts due upon termination of the license agreement were not significant.

St. Jude Children’s Hospital

The Company entered into a license agreement (the “St. Jude Agreement”), dated January 27, 2020, with St. Jude Children’s Research Hospital (“St. Jude”). Under the terms of the St. Jude Agreement, the Company holds an exclusive, worldwide license to certain specified patent rights and biological materials relating to the use of live attenuated streptococcus pneumoniae and practice processes that are covered by the licensed patent rights and biological materials for the purpose of developing and commercializing a vaccine product candidate for streptococcus pneumoniae. The St. Jude Agreement requires the Company to pay certain milestone and royalty payments in the future, as the related contingent events occur. See Note 9. The St. Jude Agreement will expire upon the expiration of the last valid claim contained in the licensed patent rights, unless terminated earlier. The Company is obligated to use commercially reasonable efforts to develop and commercialize the licensed product(s). The milestones include the following events: (i) complete IND enabling study; (ii) initiate animal toxicology study; (iii) file IND; (iv) complete Phase I Clinical Trial; (v) commence Phase II Clinical Trial; (vi) commence Phase III Clinical Trial; and (vii) regulatory approval, U.S. or foreign equivalent. If the Company fails to achieve the development milestones contained in the St. Jude Agreement, and if the Company and St. Jude fail to agree upon a mutually satisfactory revised timeline, St. Jude will have the right to terminate the St. Jude Agreement. Either party may terminate the St. Jude Agreement in the event the other party (a) files or has filed against it a petition under the Bankruptcy Act (among other things) or (b) fails to perform or otherwise breaches its obligations under the St. Jude Agreement and has not cured such failure or breach within sixty (60) days. The Company may terminate for any reason on thirty (30) days written notice. On May 11, 2022, the Company entered into an amendment to the St. Jude Agreement, whereby the royalty terms, milestone payments and licensing fees were amended, and a revised development milestone timeline was agreed to. On March 22, 2023, the Company entered into another amendment to the St. Jude Agreement, whereby the development milestone timeline was further revised, and which had no financial impact. Subsequent to September 30, 2023, the Company terminated the license agreement with St. Jude (see Note 14). The amounts due upon termination of the license agreement were not significant.

BLUE WATER BIOTECH, INC.
Notes to Condensed Financial Statements

September 30, 2023

(Unaudited)

Note 6 — Significant Agreements (cont.)

Cincinnati Children’s Hospital Medical Center

The Company entered into a license agreement (the “CHMC Agreement”), dated June 1, 2021, with Children’s Hospital Medical Center, d/b/a Cincinnati Children’s Hospital Medical Center (“CHMC”). Under the terms of the CHMC Agreement, the Company holds an exclusive, worldwide license (other than the excluded field of immunization against, and prevention, control, or reduction in the severity of gastroenteritis caused by rotavirus and norovirus in China and Hong Kong) to certain specified patent and biological materials relating to the use of norovirus nanoparticles and practice processes that are covered by the licensed patent rights and biological materials for the purpose of developing and commercializing CHMC patents and related technology directed to a virus-like particle vaccine platform that utilizes nanoparticle delivery technology that may have potential broad application to develop vaccines for multiple infectious diseases. The term of the CHMC Agreement begins on the effective date and extends on a jurisdiction by jurisdiction and product by product basis until the later of: (i) the last to expire licensed patent; (ii) ten (10) years after the first commercial sale; or (iii) entrance onto the market of a biosimilar or interchangeable product. The Company is obligated to use commercially reasonable efforts to bring licensed products to market through diligent research and development, testing, manufacturing and commercialization, to use best efforts to make all necessary regulatory filings and obtain all necessary regulatory approvals, to achieve milestones relating to development and sales, and report to CHMC on progress. See Note 9. The Company will also be obligated to pay agreed upon development milestone payments and royalty payment to CHMC, as the related contingent events occur. The Company may terminate the CHMC Agreement for convenience at any time prior to first commercial sale of a product or process by providing one hundred and eighty (180) days’ written notice to CHMC. It may also terminate for a CHMC uncured material breach. CHMC may terminate the CHMC Agreement for an uncured Company material breach or insolvency or bankruptcy. Pursuant to the terms of the CHMC Agreement, if the Company fails to achieve the milestones, and cannot mutually agree with CHMC on an amendment to the milestones, then CHMC will have the option of converting any and all of such exclusive licenses to nonexclusive licenses, to continue developing indications that have already entered development at any stage or in which the Company has invested in developing. CHMC may also terminate the CHMC Agreement to the fullest extent permitted by law in the countries of the worldwide territory, in the event the Company or its affiliates challenge or induce others set up challenges to the validity or enforceability of any of the Licensed Patents, as defined in the CHMC Agreement, and the Company will be obligated to reimburse CHMC for its costs, including reasonable attorneys’ fees.

Ology Bioservices, Inc. (which was later acquired by National Resilience, Inc.)

The Company entered into a Master Services Agreement (“Ology MSA”), dated July 19, 2019, with Ology, Inc. (“Ology”) to provide services from time to time, including but not limited to technology transfer, process development, analytical method optimization, current good manufacturing practice (“cGMP”) manufacture, regulatory affairs, and stability studies of biologic products. Pursuant to the Ology MSA, the Company and Ology shall enter into a Project Addendum for each project to be governed by the terms and conditions of the Ology MSA.

The Company has entered into two Project Addendums as of December 31, 2022. The initial Project Addendum was executed on October 18, 2019 and the Company was required to pay Ology an aggregate of approximately $4 million. Due to unforeseen delays associated with COVID-19, the Company and Ology entered into a letter agreement dated January 9, 2020 to stop work on the project, at which point the Company had paid Ology $100,000 for services to be provided. The second Project Addendum was executed on May 21, 2021 and the Company is obligated to pay Ology an aggregate amount of approximately $2.8 million, plus reimbursement for materials and outsourced testing, which will be billed at cost plus 15%.

During 2022, the Company entered into three amendments to the Ology MSA to adjust the scope of work defined in the second Project Addendum. The amendments resulted in a net increase to the Company’s obligations under the second Project Addendum of $154,000. On March 27, 2023, the second Project Addendum to the Ology MSA was further amended to increase the scope of the project, resulting in an increase to the Company’s obligations of $180,000 under the Ology MSA.

During the three and nine months ended September 30, 2023, the Company incurred related research and development expense (net gain) of approximately ($56,000) and $231,000, respectively, and at September 30, 2023, the Company had approximately $900,000 recorded as related accounts payable and accrued expenses. During the three and nine months ended September 30, 2022, the Company incurred related research and development expenses of approximately $496,000 and $988,000, respectively.

BLUE WATER BIOTECH, INC.
Notes to Condensed Financial Statements

September 30, 2023

(Unaudited)

Note 6 — Significant Agreements (cont.)

University of Texas Health Science Center at San Antonio

The Company entered into a patent and technology license agreement (the “UT Health Agreement”), dated November 18, 2022, with the University of Texas Health Science Center at San Antonio (“UT Health”). Under the terms of the UT Health Agreement, the Company holds an exclusive, worldwide license (other than the excluded field of vectors, as defined in the UT Health Agreement) to certain specified patent rights relating to the development of a live attenuated, oral Chlamydia vaccine candidate. An initial non-refundable license fee of $100,000 was due upon execution of the agreement and subsequent annual license fees are due as follows: $20,000 per year for each of the four years ending on December 31, 2026; $40,000 per year for each of the two years ending on December 31, 2028, and $60,000 per year for the year ending December 31, 2029 and each year thereafter until expiration or termination of the UT Health agreement. The UT Health Agreement also requires the Company to pay certain milestone and royalty payments in the future, as the related contingent events occur. The UT Health Agreement will expire upon the expiration of the last date of expiration or termination of the patent rights, unless terminated earlier. The Company may terminate the UT Health Agreement for convenience, by providing 90 days’ written notice to UT Health. UT Health may terminate the UT Health Agreement in the event the Company (a) becomes arrears in payment due and does not make payment within 30 days after notification from UT Health or (b) is in breach of any non-payment provision and does not cure such breach within 60 days after notification from UT Health or (c) UT Health delivers notice to the Company of three or more actual material breaches of the UT Health Agreement in any 12-month period or (d) in the event the Company or its affiliates initiates any proceeding or action to challenge the validity, enforceability, or scope of any of the licensed patents.

Co-development Agreement with AbVacc, Inc.

On February 1, 2023, the Company entered into a co-development agreement (the “Co-Development Agreement”) with AbVacc, Inc. (“AbVacc”), for the purpose of conducting research aimed at co-development of specific vaccine candidates, including monkeypox and Marburg virus disease with the potential to expand to others using the Norovirus nanoparticle platform (“Co-Development Project”), and to govern the sharing of materials and information, as defined in the Co-Development Agreement, for the Co-Development Project. Under the Co-Development Agreement, AbVacc and the Company will collaborate, through a joint development committee, to establish and implement a development plan or statement of work for each Co-Development Project targeted product. Under the Co-Development Agreement, either the Company or AbVacc, whichever party is the primary sponsor of any resulting product (as defined in the Co-Development Agreement), will be obligated to compensate the other party for certain milestone payments that would range between $2.1 million and $4.75 million, plus royalties of between 2% to 4%. There is no fixed obligation for either party, and each party will be responsible for their own costs. The term of the Co-Development Agreement is three years from the effective date, unless previously terminated by either party, in accordance with the Co-Development Agreement. During the three and nine months ended September 30, 2023, the Company incurred approximately $2,000 and $21,000, respectively, in costs for research and development related to the Co-Development Agreement. As of September 30, 2023, the Company evaluated the likelihood of the Company achieving the specified milestones and generating product sales and determined that the likelihood is not yet probable and as such no accrual of these payments is required as of September 30, 2023.

Services Agreement

On July 21, 2023, the Company, entered into a Licensing and Services Master Agreement (“Master Services Agreement”) and a related statement of work with a vendor, pursuant to which the vendor will provide to the Company commercialization services for the Company’s products, including recruiting, managing, supervising and evaluating sales personnel and providing sales-related services for such products, for fees totaling up to $29.1 million over the term of the statement of work. The statement of work had a term through September 6, 2026, unless earlier terminated in accordance with the Master Services Agreement and the statement of work. On July 29, 2023, a second statement of work was entered into with the same vendor for certain subscription services providing prescription market data access to the Company. The fees under this statement of work totaled approximately $800,000, and the term was through July 14, 2025. As of September 30, 2023, the Company prepaid approximately $865,000 for commercialization services under the first statement of work. The Company also had approximately $898,000 recorded in related accounts payable as of September 30, 2023. As the prepayment can be applied against amounts invoiced from the vendor, the prepayment of approximately $865,000 has been offset against accounts payable in the accompanying condensed balance sheet. On October 12, 2023, the Company terminated the Master Services Agreement and statements of work (see Note 14).

BLUE WATER BIOTECH, INC.
Notes to Condensed Financial Statements

September 30, 2023

(Unaudited)

Note 7 — Notes Payable

In connection with the ENTADFI® APA (see Note 5), the Company executed three non-interest bearing notes payable (the “Notes”) in the principal amounts of $4.0 million, $5.0 million and $5.0 million with maturity dates of September 30, 2023, April 19, 2024, and September 30, 2024, respectively. No principal payments are due until maturity; however, the Company may voluntarily prepay the Notes with no penalty. Additionally, in an Event of Default, as defined in the Notes, the unpaid principal amount of the Notes will accrue interest at a rate of 10.0% per annum.

On September 29, 2023, the Company and the note holder entered into an amendment to the ENTADFI® APA, which provided that the $4.0 million note payable originally due on September 30, 2023, was deemed paid and fully satisfied upon (1) the payment to the Seller of $1.0 million in cash on September 29, 2023, and (2) the issuance to the Seller by October 3, 2023 of 3,000 shares of Series A Preferred Stock of the Company (see Notes 5 and 14). In connection with the ENTADFI® APA Amendment, the Company recorded an extinguishment loss on the note payable of approximately $490,000, which represents the difference between the fair value of the Series A Preferred Stock that will be issued to settle the debt and the carrying value of the note payable as of September 29, 2023. The balance of the note payable included in the accompanying condensed balance sheet at September 30, 2023, has been adjusted to the fair value of the Series A Preferred Stock that was issued and relieved the obligation on October 3, 2023. The extinguishment loss is recognized in other income (expense) in the accompanying condensed statements of operations for the three and nine months ended September 30, 2023.

To determine the fair value of the Series A Preferred Stock, the Company first derived the business enterprise value (“BEV”) using a discounted cash flow method. The BEV was adjusted to an equity value assuming $3.0 million of debt converted to Series A Preferred Stock, which was then allocated across the Company’s securities. The concluded value for the Series A Preferred Stock utilized the Black-Scholes option pricing model, which was classified as level 3 in the valuation hierarchy due to the presence of significant unobservable inputs. The following key assumptions were used in the model: volatility rate of 100%, risk free interest rate of 4.6%, 5.0 year expected term, and the Company’s aggregate equity value. The volatility was based on the historical and implied volatility of a peer group and the risk-free interest rate was based on the implied yield available on U.S. Treasury securities with a term commensurate with the estimated expected term.

The Company imputed interest on the Notes using an average discount rate of 8.2% and recorded a debt discount of approximately $1.1 million at the issuance date. The debt discount is reflected as a reduction in the carrying amount of the Notes and amortized to interest expense through the respective maturity dates, using the effective interest method. The Company recorded approximately $0.3 million and $0.5 million of associated interest expense during the three and nine months ended September 30, 2023, respectively. The unamortized debt discount as of September 30, 2023 was approximately $0.6 million.

Future minimum principal payments on the Notes as of September 30, 2023 includes $3.0 million in principal that was settled through issuance of Series A Preferred Stock in October 2023 and $10 million in principal payments that are due in 2024.

Note 8 — Stockholders’ Equity

Authorized Capital

On February 23, 2022, in connection with the closing of the IPO, the Company filed with the Secretary of State of the State of Delaware its second amended and restated certificate of incorporation (the “A&R COI”), which became effective immediately. There was no change to the Company’s authorized shares of common stock and preferred stock of 250,000,000 shares and 10,000,000 shares, respectively, or the par value, which is $0.00001 for both common and preferred stock.

Preferred Stock

On September 29, 2023, the Company filed a Certificate of Designations of Rights and Preferences of Series A Convertible Preferred Stock of the Company (the “Certificate of Designations”) with the State of Delaware to designate and authorize the issuance of up to 10,000 shares of Series A Preferred Stock. Pursuant to the Certificate of Designations, each share of Series A Preferred Stock is convertible into that number of shares of the Company’s common stock determined by dividing the Stated Value (as defined in the Certificate of Designations) of $1,000 per share by the Conversion Price (as defined in the Certificate of Designations) of $0.5254 per share, subject to adjustment as provided in the Certificate of Designations, subject to certain shareholder approval limitations. The Series A Preferred Stock is entitled to share ratably in any dividends paid on the Company’s common stock (on an as-if-converted-to-common-stock basis), has no voting rights except as to certain significant matters specified in the Certificate of Designations, and has a liquidation preference equal to the Stated Value of $1,000 per share plus any accrued but unpaid dividends thereon. The Series A Preferred Stock is redeemable in whole or in part at the Company’s option at any time. The Certificate of Designations authorized the issuance of up to 10,000 shares of Series A Preferred Stock. As of September 30, 2023, there were no shares of Series A Convertible Preferred Stock outstanding (see Notes 5 and 14).

BLUE WATER BIOTECH, INC.
Notes to Condensed Financial Statements

September 30, 2023

(Unaudited)

Note 8 — Stockholders’ Equity (cont.)

Common Stock

As of September 30, 2023, and December 31, 2022, there were 18,336,597 and 15,724,957 shares of common stock issued, respectively, and 17,819,198 and 15,265,228 shares of common stock outstanding, respectively.

Holders of the Company’s common stock are entitled to one vote for each share held of record and are entitled upon liquidation of the Company to share ratably in the net assets of the Company available for distribution after payment of all obligations of the Company and after provision has been made with respect to each class of stock, if any, having preference over the common stock. The shares of common stock are not redeemable and have no preemptive or similar rights.

On February 17, 2022, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Boustead Securities, LLC, acting as representative of the underwriters (“Boustead”), in relation to the Company’s IPO, pursuant to which the Company agreed to sell to the underwriters an aggregate of 2,222,222 shares of the Company’s common stock, at a price of $9.00 per share. The IPO closed on February 23, 2022 and resulted in net proceeds to the Company, after deducting the 8% underwriting discount, and other offering costs, of approximately $17.1 million.

Treasury Stock

On November 10, 2022, the Board approved a stock repurchase program (the “Repurchase Program”) to allow the Company to repurchase up to 5.0 million shares of common stock with a maximum price of $1.00 per share, with discretion to management to make purchases subject to market conditions. On November 18, 2022, the Board approved an increase to the maximum price to $2.00 per share. There is no expiration date for this program.

During the nine months ended September 30, 2023, the Company repurchased 57,670 shares of common stock, for an aggregate of approximately $59,000, at an average price of $1.02 per share. There were no repurchases of common stock during the three months ended September 30, 2023. Shares that are repurchased are classified as treasury stock pending future use and reduce the number of shares outstanding used in calculating earnings per share. As of September 30, 2023, there are approximately 4.5 million shares remaining, that can be repurchased under the Repurchase Program.

Private Investments in Public Equity

April 2022 Private Placement

On April 19, 2022, the Company consummated the closing of a private placement (the “April 2022 Private Placement”), pursuant to the terms and conditions of a securities purchase agreement, dated as of April 13, 2022. At the closing of the April 2022 Private Placement, the Company issued 590,406 shares of common stock, pre-funded warrants to purchase an aggregate of 590,406 shares of common stock and preferred investment options to purchase up to an aggregate of 1,180,812 shares of common stock. The purchase price of each share of common stock together with the associated preferred investment option was $6.775, and the purchase price of each pre-funded warrant together with the associated preferred investment option was $6.774. The aggregate net cash proceeds to the Company from the April 2022 Private Placement were approximately $6.9 million, after deducting placement agent fees and other offering expenses. The pre-funded warrants had an exercise price of $0.001 per share and were exercised in full on May 24, 2022. The preferred investment options, which had an exercise price of $6.65 per share, were exchanged in connection with the August 2022 Private Placement, as discussed below.

H.C. Wainwright & Co., LLC (“Wainwright”) acted as the exclusive placement agent for the April 2022 Private Placement. The Company agreed to pay Wainwright a placement agent fee and management fee equal to 7.5% and 1.0%, respectively, of the aggregate gross proceeds from the April 2022 Private Placement and reimburse certain out-of-pocket expenses up to an aggregate of $85,000. In addition, the Company issued warrants to Wainwright (the “April Wainwright Warrants”) to purchase up to 70,849 shares of common stock. The Wainwright Warrants are in substantially the same form as the preferred investment options, except that the exercise price is $8.46875. The form of the preferred investment options is a warrant, and as such the preferred investment options, the pre-funded warrants, and the Wainwright Warrants are collectively referred to as the “April 2022 Private Placement Warrants”. Further, upon any exercise for cash of any preferred investment options, the Company agreed to issue to Wainwright additional warrants to purchase the number of shares of common stock equal to 6.0% of the aggregate number of shares of common stock underlying the preferred investment options that have been exercised, also with an exercise price of $8.46875 (the “April Contingent Warrants”). The maximum number of April Contingent Warrants issuable under this provision of 70,849 were exchanged in connection with the August 2022 Private Placement, as discussed below.

BLUE WATER BIOTECH, INC.
Notes to Condensed Financial Statements

September 30, 2023

(Unaudited)

Note 8 — Stockholders’ Equity (cont.)

The Company evaluated the terms of the April 2022 Private Placement Warrants and determined that they should be classified as equity instruments based upon accounting guidance provided in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815-40, Derivatives and Hedging – Contracts in Entity’s Own Equity (“ASC 815-40”). Since the Company determined that the April 2022 Private Placement Warrants were equity-classified, the Company recorded the proceeds from the April 2022 Private Placement, net of issuance costs, within common stock at par value and the balance of the net proceeds to additional paid in capital.

The Company evaluated the terms of the April Contingent Warrants and determined that they should be classified as a liability based upon accounting guidance provided in ASC 815-40. Since the April Contingent Warrants are a form of compensation to Wainwright, the Company recorded the value of the liability as a reduction of additional paid in capital, with subsequent changes in the value of the liability recorded in other income (expense) in the accompanying condensed statements of operations.

August 2022 Private Placement

On August 11, 2022, the Company consummated the closing of a private placement (the “August 2022 Private Placement”), pursuant to the terms and conditions of a securities purchase agreement, dated as of August 9, 2022. At the closing of the August 2022 Private Placement, the Company issued 1,350,000 shares of common stock, pre-funded warrants to purchase an aggregate of 2,333,280 shares of common stock and preferred investment options to purchase up to an aggregate of 4,972,428 shares of common stock. The purchase price of each share of common stock together with the associated preferred investment option was $2.715, and the purchase price of each pre-funded warrant together with the associated preferred investment option was $2.714. The aggregate net cash proceeds to the Company from the August 2022 Private Placement were approximately $8.7 million, after deducting placement agent fees and other offering expenses. In addition, the investors in the August 2022 Private Placement, who are the same investors from the April 2022 Private Placement, agreed to cancel preferred investment options to purchase up to an aggregate of 1,180,812 shares of the Company’s common stock issued in April 2022. The pre-funded warrants had an exercise price of $0.001 per share. During 2022, an aggregate of 1,686,640 of the pre-funded warrants were exercised. The remaining 646,640 of pre-funded warrants were exercised during the nine months ended September 30, 2023. The preferred investment options are exercisable at any time on or after August 11, 2022 through August 12, 2027, at an exercise price of $2.546 per share, subject to certain adjustments as defined in the agreement. During the three and nine months ended September 30, 2023, 2,486,214 of these preferred investment options were exercised at a reduced exercise price of $1.09, in connection with the warrant inducement transaction discussed below. As of September 30, 2023, 2,486,214 preferred investment options are outstanding.

Wainwright acted as the exclusive placement agent for the August 2022 Private Placement. The Company agreed to pay Wainwright a placement agent fee and management fee equal to 7.5% and 1.0%, respectively, of the aggregate gross proceeds from the August 2022 Private Placement and reimburse certain out-of-pocket expenses up to an aggregate of $85,000. In addition, the Company issued warrants to Wainwright (the “August Wainwright Warrants”) to purchase up to 220,997 shares of common stock. The August Wainwright Warrants are in substantially the same form as the preferred investment options, except that the exercise price is $3.3938. The form of the preferred investment options is a warrant, and as such the preferred investment options, the pre-funded warrants, and the August Wainwright Warrants are collectively referred to as the “August 2022 Private Placement Warrants”. Further, upon any exercise for cash of any preferred investment options, the Company agreed to issue to Wainwright additional warrants to purchase the number of shares of common stock equal to 6.0% of the aggregate number of shares of common stock underlying the preferred investment options that have been exercised, also with an exercise price of $3.3938 (the “August Contingent Warrants”). The maximum number of August Contingent Warrants issuable under this provision is 298,346, which includes 70,849 of April Contingent Warrants that were modified in connection with the August 2022 Private Placement.

The Company evaluated the terms of the August 2022 Private Placement Warrants and determined that they should be classified as equity instruments based upon accounting guidance provided in ASC 480 and ASC 815-40. Since the Company determined that the August 2022 Private Placement Warrants were equity-classified, the Company recorded the proceeds from the August 2022 Private Placement, net of issuance costs, within common stock at par value and the balance of the net proceeds to additional paid in capital.

BLUE WATER BIOTECH, INC.
Notes to Condensed Financial Statements

September 30, 2023

(Unaudited)

Note 8 — Stockholders’ Equity (cont.)

The investors in the April 2022 Private Placement agreed to cancel the aggregate of 1,180,812 preferred investment options issued in the April 2022 Private Placement, as part of their participation in the August 2022 Private Placement. The preferred investment options that were cancelled were effectively exchanged for 1,289,148 new preferred investment options in the August 2022 Private Placement, and accordingly have been accounted for as a modification or exchange of equity-linked instruments. In accordance with ASC 815-40, as the preferred investment options were classified as equity instruments before and after the exchange, and as the exchange is directly attributable to an equity offering, the Company recognized the effect of the exchange as an equity issuance cost.

The Company evaluated the terms of the August Contingent Warrants and determined that they should be classified as a liability based upon accounting guidance provided in ASC 815-40. As a result of the exchange of the preferred investment options issued in the April 2022 Private Placement, the underlying equity-linked instruments that would trigger issuance of the April Contingent Warrants was replaced, and therefore the 70,849 of April Contingent Warrants were exchanged for 70,849 of the August Contingent Warrants. The value of the April Contingent Warrant liability was adjusted to fair value on the date of modification, using a Monte Carlo simulation, with the change in fair value recognized in the accompanying condensed statements of operations. The remaining 227,497 August Contingent Warrants were measured as a liability upon the close of the August 2022 Private Placement. Since the Contingent Warrants are a form of compensation to the placement agent, the Company recorded the value of the liability as a reduction of additional paid in capital.

During the three and nine months ended September 30, 2023, in connection with the warrant inducement transaction, the Company issued to Wainwright as settlement of the contingent warrant liability associated with 149,173 of the August Contingent Warrants, which was triggered upon exercise of the underlying preferred investment options. See Warrant Inducement below for further discussion.

At the Market Offering Agreement

On March 29, 2023, the Company entered into an At The Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC, as sales agent (the “Agent”), to create an at-the-market equity program under which it may sell up to $3,900,000 of shares of the Company’s common stock (the “Shares”) from time to time through the Agent (the “ATM Offering”). Under the ATM Agreement, the Agent will be entitled to a commission at a fixed rate of 3.0% of the gross proceeds from each sale of Shares under the ATM Agreement. The Company has no obligation to sell, and the Agent is not obligated to buy or sell, any of the Shares under the Agreement and may at any time suspend offers under the Agreement or terminate the Agreement. The ATM Offering will terminate upon the termination of the ATM Agreement as permitted therein.

Deferred offering costs associated with the ATM Agreement are reclassified to additional paid in capital on a pro-rata basis when the Company completes offerings under the ATM Agreement. Any remaining deferred costs will be expensed to the statements of operations should the planned offering be abandoned.

As of September 30, 2023, no shares have been sold under the ATM Offering.

Warrant Inducement

On July 31, 2023, the Company entered into a common stock preferred investment options exercise inducement offer letter (the “Inducement Letter”) with a certain holder (the “Holder”) of existing preferred investment options (“PIOs”) to purchase shares of the Company’s common stock at the original exercise price of $2.546 per share, issued on August 11, 2022 (the “Existing PIOs”). Pursuant to the Inducement Letter, the Holder agreed to exercise for cash its Existing PIOs to purchase an aggregate of 2,486,214 shares of the Company’s common stock (the “Inducement PIO Shares”), at a reduced exercised price of $1.09 per share, in exchange for the Company’s agreement to issue new preferred investment options (the “Inducement PIOs”) to purchase up to 4,972,428 shares of the Company’s common stock. The Inducement PIOs have substantially the same terms as the Existing PIOs.

On August 2, 2023, the Company consummated the transactions contemplated by the Inducement Letter (the “Warrant Inducement”). The Company received aggregate net proceeds of approximately $2.3 million from the Warrant Inducement, after deducting placement agent fees and other offering expenses payable by the Company.

Upon the close of the transaction, the Company issued the Holder 1,575,000 of the 2,486,214 shares of common stock that were issuable upon exercise of the Existing PIOs. Due to the beneficial ownership limitation provisions in the Inducement Letter, the remaining 911,214 shares were initially unissued, and held in abeyance for the benefit of the Holder until notice from the Holder that the shares may be issued in compliance with such limitation is received. These shares were issued to the Holder in October 2023.

BLUE WATER BIOTECH, INC.
Notes to Condensed Financial Statements

September 30, 2023

(Unaudited)

Note 8 — Stockholders’ Equity (cont.)

The Company agreed to file a registration statement covering the resale of the Inducement PIO Shares issued or issuable upon the exercise of the Inducement PIOs (the “Resale Registration Statement”), as soon as practicable, and to use commercially reasonable efforts to have such Resale Registration Statement declared effective by the SEC within 90 days following the date of the Inducement Letter, and to keep the Resale Registration Statement effective at all times until there are no Inducement PIO Shares. The provision to register the underlying shares in the Warrant Inducement does not require payment related to the registration rights provided. As such, while the shares were not registered within 90 days of the date of the Inducement Letter, there is no accounting impact for this provision.

The Company engaged Wainwright to act as its placement agent in connection with the Warrant Inducement and paid Wainwright a cash fee equal to 7.5% of the gross proceeds received from the exercise of the Existing PIOs as well as a management fee equal to 1.0% of the gross proceeds from the exercise of the Existing PIOs. The Company also agreed to reimburse Wainwright for its expenses in connection with the exercise of the Existing PIOs and the issuance of the Inducement PIOs, up to $50,000 for fees and expenses of legal counsel and other out-of-pocket expenses and agreed to pay Wainwright for non-accountable expenses in the amount of $35,000. In addition, the exercise for cash of the Existing PIOs triggered the issuance to Wainwright or its designees, warrants to purchase 149,173 shares of common stock (“Wainwright Inducement Warrants”), which were issuable in accordance with the terms of the August Contingent Warrants, and have the same terms as the Inducement PIOs except for an exercise price equal to $1.3625 per share. The Company also agreed to issue warrants to Wainwright upon any exercise for cash of the Inducement PIOs, that number of shares of common stock equal to 6.0% of the aggregate number of such shares of common stock underlying the Inducement PIOs that have been exercised, also with an exercise price of $1.3625 (the “Inducement Contingent Warrants”). The maximum number of Inducement Contingent Warrants issuable under this provision is 298,346.

The Company evaluated the terms of the Inducement PIOs and the Wainwright Inducement Warrants (collectively, the “August 2023 Inducement Warrants”), and determined that they should be classified as equity instruments based upon accounting guidance provided in ASC 480 and ASC 815-40. The Company also evaluated the unissued shares held in abeyance, which represent a prepaid forward contract, and determined that it is an equity instrument based on the guidance provided in ASC 480 and ASC 815-40.

The Warrant Inducement, which resulted in the lowering of the exercise price of the Existing PIOs and the issuance of the Inducement PIOs, is considered a modification of the Existing PIOs under the guidance of Accounting Standards Update (“ASU”) No. 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Equity Classified Written Call Options. The modification is consistent with the “Equity Issuance” classification under that guidance as the reason for the modification was to induce the holders of the Existing PIOs to cash exercise their warrants, resulting in the imminent exercise of the Existing PIOs, which raised equity capital and generated net proceeds for the Company of approximately $2.3 million. As the Existing PIOs and the Inducement PIOs were classified as equity instruments before and after the exchange, and as the exchange is directly attributable to an equity offering, the Company recognized the effect of the modification of approximately $2.6 million as an equity issuance cost.

In addition, the change in fair value of the contingent warrant liability associated with 149,173 of the August Contingent Warrants that were settled through issuance of the Wainwright Inducement Warrants, of approximately $122,000, was recognized in other income (expense) in the accompanying condensed statements of operations, and the fair value of the contingent warrant liability of approximately $129,000 was derecognized as of the settlement date. The corresponding amount, representing the fair value of the Wainwright Inducement Warrants, was recognized as additional paid in capital.

BLUE WATER BIOTECH, INC.
Notes to Condensed Financial Statements

September 30, 2023

(Unaudited)

Note 8 — Stockholders’ Equity (cont.)

The Company evaluated the terms of the Inducement Contingent Warrants and determined that they should be classified as a liability based upon accounting guidance provided in ASC 815-40. Since the Inducement Contingent Warrants are a form of compensation to Wainwright, the Company recorded the value of the liability of approximately $26,000 as a reduction of additional paid in capital, with subsequent changes in the value of the liability recorded in other income (expense) in the accompanying condensed statements of operations.

Warrants

The following summarizes activity related to the Company’s outstanding warrants, excluding contingent warrants issuable upon exercise of the preferred investment options, for the nine months ended September 30, 2023:

						Weighted
						Average
				Weighted		Remaining
				Average		Contractual
	Number of			Exercise		Life
	Shares			Price		(in years)
Outstanding as of December 31, 2022		5,910,914		$	2.37		4.7
Granted		5,121,601			1.10
Exercised		(3,132,854	)		0.865
Cancelled		—			—
Outstanding as of September 30, 2023		7,899,661			1.68		4.6
Warrants vested and exercisable as of September 30, 2023		7,899,661		$	1.68		4.6

As of September 30, 2023, the outstanding warrants include 70,849 April 2022 Private Placement Warrants, 2,707,211 August 2022 Private Placement Warrants, and 5,121,601 August 2023 Inducement Warrants, which are exercisable into 7,899,661 shares of common stock which had a fair value of $0.51 per share, based on the closing trading price on that day.

Additionally, as of September 30, 2023, and December 31, 2022, the value of the August Contingent Warrants and the Inducement Contingent Warrants (collectively the “Contingent Warrants”) was approximately $10,000 and $14,000, respectively. The maximum number of warrants issuable upon settlement of the Contingent Warrants as of September 30, 2023 and December 31, 2023 was 447,519 and 298,346, respectively.

Equity Incentive Plans

The Company’s 2019 Equity Incentive Plan (the “2019 Plan”) was adopted by the Board and by its stockholders on July 1, 2019. The Company has reserved 1,400,000 shares of common stock for issuance pursuant to the 2019 Plan.

On February 23, 2022, and in connection with the closing of the IPO, the Board adopted the Company’s 2022 Equity Incentive Plan (the “2022 Plan”), which is the successor and continuation of the Company’s 2019 Plan. Under the 2022 Plan, the Company may grant stock options, restricted stock, restricted stock units, stock appreciation rights, and other forms of awards to employees, directors and consultants of the Company. Upon its effectiveness, a total of 1,600,000 shares of common stock were reserved for issuance under the 2022 Plan. In August 2022, the number of shares of common stock reserved for issuance under the 2022 Plan was increased to 2,600,000 and in May 2023, the number of shares of common stock reserved for issuance under the 2022 Plan was increased to 3,150,000. The stock options and restricted stock granted during the nine months ended September 30, 2023 were all granted under the 2022 Plan. As of September 30, 2023, there are 1,146,878 shares available for issuance under the 2022 Plan.

BLUE WATER BIOTECH, INC.
Notes to Condensed Financial Statements

September 30, 2023

(Unaudited)

Note 8 — Stockholders’ Equity (cont.)

Stock Options

The following summarizes activity related to the Company’s stock options under the 2019 Plan and the 2022 Plan for the nine months ended September 30, 2023:

								Weighted
								Average
				Weighted				Remaining
				Average		Total		Contractual
	Number of			Exercise		Intrinsic		Life
	Shares			Price		Value		(in years)
Outstanding as of December 31, 2022		1,392,654		$	3.30	$	670,161		8.2
Granted		102,386			1.19		—		—
Forfeited / cancelled		(70,265	)		3.35		—		—
Exercised		(45,920	)		0.01		45,920		—
Outstanding as of September 30, 2023		1,378,855			3.25		274,299		7.8
Options vested and exercisable as of September 30, 2023		1,094,563		$	2.95	$	269,994		7.5

The fair value of options granted in 2023 was estimated using the following assumptions:

	For the Nine Months Ended September 30,
	2023
Exercise price	$	1.05 – 1.29
Term (years)		5.00 – 10.00
Expected stock price volatility		113.1% – 119.5	%
Risk-free rate of interest		3.5% – 3.6	%

The weighted average grant date fair value of stock options granted during the nine months ended September 30, 2023 was $1.08. The aggregate fair value of stock options that vested during the three and nine months ended September 30, 2023 was approximately $137,000 and $616,000, respectively.

Restricted Stock

On May 9, 2023, the Board’s Compensation Committee approved the issuance of restricted stock, granted under the Company’s 2022 Plan, to the Company’s executive officers, employees, and certain of the Company’s consultants. The restricted shares granted totaled 487,500, of which 150,000, 75,000, and 150,000 were granted to the Company’s Chief Executive Officer (“CEO”), Chief Financial Officer, and Chief Business Officer, respectively. All of the restricted shares granted vest as follows: 50% in January 2024, 25% in August 2024, and 25% in August 2025. In addition, on May 31, 2023, the Board’s Compensation Committee approved the issuance of 25,440 shares of restricted stock, granted to the Company’s non-executive Board members, with full vesting on May 31, 2024.

BLUE WATER BIOTECH, INC.
Notes to Condensed Financial Statements

September 30, 2023

(Unaudited)

Note 8 — Stockholders’ Equity (cont.)

On August 16, 2023, upon his resignation, the Company’s former Chief Executive Officer forfeited 150,000 shares of unvested restricted stock.

				Weighted
				Average
				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Nonvested as of December 31, 2022		—		$	—
Granted		512,940			1.01
Forfeited / cancelled		(168,860	)		1.02
Vested		—			—
Nonvested as of September 30, 2023		344,080		$	1.01

Stock-Based Compensation

Stock-based compensation expense related to stock options and restricted stock, for the three and nine months ended September 30, 2023, and 2022 was as follows:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
Selling, general and administrative	$	89,832	$	255,115	$	362,191	$	1,193,743
Research and development		15,570		74,694		201,570		602,525
Total	$	105,402	$	329,809	$	563,761	$	1,796,268

As of September 30, 2023, unrecognized stock-based compensation expense relating to outstanding stock options and unvested restricted stock is approximately $394,000 and $143,000, respectively, which is expected to be recognized over a weighted-average period of 1.67 years and 1.49 years, respectively.

BLUE WATER BIOTECH, INC.
Notes to Condensed Financial Statements

September 30, 2023

(Unaudited)

Note 9 — Commitments and Contingencies

Office Leases

The Company entered into a short-term lease in Palm Beach, Florida with an unrelated party, with a commencement date of May 1, 2022, for approximately $14,000 per month. The lease, which was personally guaranteed by the Company’s former CEO, ended on April 30, 2023. During the nine months ended September 30, 2023, the Company incurred rent expense on this lease of approximately $51,000, and variable lease expense of approximately $4,000. The Company incurred rent expense for the three and nine months ended September 30, 2022 of approximately $53,000 and $89,000, respectively.

Litigation

From time to time, the Company may be subject to various legal proceedings and claims that arise in the ordinary course of its business activities. As of September 30, 2023, the Company is not a party to any material legal proceedings and is not aware of any pending or threatened claims.

Registration Rights Agreements

In connection with the April 2022 Private Placement (see Note 8), the Company entered into a Registration Rights Agreement with the purchasers, dated as of April 13, 2022 (the “April Registration Rights Agreement”). The April Registration Rights Agreement provides that the Company shall file a registration statement covering the resale of all of the registrable securities (as defined in the April Registration Rights Agreement) with the SEC. The registration statement on Form S-1 required under the April Registration Rights Agreement was filed with the SEC on May 3, 2022, and became effective on May 20, 2022. A post-effective amendment to the Form S-1 on Form S-3 relating to such registration statement was filed with the SEC on April 28, 2023.

In connection with the August 2022 Private Placement (see Note 8), the Company entered into a Registration Rights Agreement with the purchasers, dated as of August 9, 2022 (the “August Registration Rights Agreement”). The August Registration Rights Agreement provides that the Company shall file a registration statement covering the resale of all of the registrable securities (as defined in the August Registration Rights Agreement) with the SEC. The registration statement on Form S-1 required under the August Registration Rights Agreement was filed with the SEC on August 29, 2022, and became effective on September 19, 2022. A post-effective amendment to the Form S-1 on Form S-3 relating to such registration statement was filed with the SEC on April 28, 2023.

Upon the occurrence of any Event (as defined in the April Registration Rights Agreement and the August Registration Rights Agreement), which, among others, prohibits the purchasers from reselling the securities for more than ten consecutive calendar days or more than an aggregate of fifteen calendar days during any 12-month period, and should the registration statement cease to remain continuously effective, the Company would be obligated to pay to each purchaser, on each monthly anniversary of each such Event, an amount in cash, as partial liquidated damages and not as a penalty, equal to the product of 2.0% multiplied by the aggregate subscription amount paid by such purchaser in the Private Placement. As of September 30, 2023, the Company determined that the likelihood of the Company incurring liquidated damages pursuant to the April Registration Rights Agreement and the August Registration Rights Agreement is remote, and as such, no accrual of these payments is required as of September 30, 2023.

BLUE WATER BIOTECH, INC.
Notes to Condensed Financial Statements

September 30, 2023

(Unaudited)

Note 9 — Commitments and Contingencies (cont.)

Milestone and Royalty Obligations

The Company has entered into various license agreements with third parties that obligate the Company to pay certain development, regulatory, and commercial milestones, which aggregate to $115.1 million, as well as royalties based on product sales (see Note 6). As of September 30, 2023, the Company evaluated the likelihood of the Company achieving the specified milestones and generating product sales and determined that the likelihood is not yet probable and as such no accrual of these payments is required as of September 30, 2023. Subsequent to the balance sheet date, the Company terminated two of these license agreements (see Note 14).

Indemnification

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future but have not yet been made. To date, the Company has not paid any claims related to its indemnification obligations. However, during the third quarter of 2023, the Company received a claim from its former CEO and a former accounting employee requesting advancement of certain expenses, which may result in related expenses in the future. As of September 30, 2023, the Company recorded a related accrual of approximately $91,000, which is included in accrued expenses in the accompanying condensed balance sheet. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is not estimable at this time.

Note 10 — Related Party Transactions

The Company originally engaged the former CEO, who was also the Board Chairman and prior to the close of the IPO, sole common stockholder of the Company, pursuant to a consulting agreement commencing October 22, 2018, which called for the Company to pay for consulting services performed on a monthly basis. Upon the close of the Company’s IPO, the consulting agreement was terminated, and the former CEO’s employment agreement became effective. During the nine months ended September 30, 2022, the Company incurred approximately $63,000 in fees under the consulting agreement, which is recognized in general and administrative expenses in the accompanying condensed statement of operations.

During 2022 the Company entered into a lease agreement that was personally guaranteed by the Company’s former CEO. The lease expired on April 30, 2023 (see Note 9).

During the year ended December 31, 2022, the Company’s compensation committee approved one-time bonus awards of $140,000 and $100,000 to the Company’s former CEO and Chief Business Officer (“CBO”), respectively, in recognition of their efforts in connection with the Company’s IPO. These bonuses were recognized during the nine months ended September 30, 2022, as selling, general and administrative expenses in the accompanying condensed statement of operations.

During the three and nine months ended September 30, 2023, the Company’s Audit Committee completed a review of the Company’s expenses due to certain irregularities identified with regards to the related party balance. Based on the results of the review, it was determined that the Company paid and recorded within selling, general and administrative expense personal expenditures of the Company’s former CEO and an accounting employee who was also the former CEO’s assistant, during 2022 and during the first three quarters of 2023. The Company evaluated the receivable, which aggregates to approximately $522,000 as of September 30, 2023, and which represents the total of the items identified as personal in nature for which the Company does not anticipate recovery from the related party. The Company recorded a corresponding reserve for the full amount, resulting in a net related party receivable balance of $0 as of September 30, 2023. As the Company concluded that the amounts are not likely to be recovered, this would not cause an adjustment to previously issued financial statements.

Further, the credit card misuse described above resulted in a loss on related party receivable of approximately $100,000 and $266,000 during the three and nine months ended September 30, 2023, respectively, which was recorded in selling, general, and administrative expenses in the accompanying statements of operations.

BLUE WATER BIOTECH, INC.
Notes to Condensed Financial Statements

September 30, 2023

(Unaudited)

Note 10 — Related Party Transactions (cont.)

As of December 31, 2022, the Company had a receivable from related party of approximately $36,000, consisting of miscellaneous payments made by the Company on the behalf of the Company’s former CEO, and which was paid in full during the first quarter of 2023.

A former director of the Company, who currently serves on the Company’s Scientific Advisory Board, serves on the Advisory Board for the Cincinnati Children’s Hospital Medical Center Innovation Fund, which is affiliated with CHMC. The Company has an exclusive license agreement with CHMC as disclosed in Note 6. This director resigned from the Board upon the close of the IPO, and also resigned from the Scientific Advisory Board on August 28, 2023.

Note 11 — Income Taxes

No provision for federal, state or foreign income taxes has been recorded for the three and nine months ended September 30, 2023, and 2022. The Company has incurred net operating losses for all of the periods presented and has not reflected any benefit of such net operating loss carryforwards in the accompanying condensed financial statements due to uncertainty around utilizing these tax attributes within their respective carryforward periods. The Company has recorded a full valuation allowance against all of its deferred tax assets as it is not more likely than not that such assets will be realized in the near future. The Company’s policy is to recognize interest expense and penalties related to income tax matters as income tax expense. For the three and nine months ended September 30, 2023, and 2022, the Company has not recognized any interest or penalties related to income taxes.

Note 12 — Net Loss Per Share

Basic net loss per share is computed by dividing the net income or loss applicable to common shares by the weighted average number of common shares outstanding during the period. The weighted average number of shares of common stock outstanding includes (i) pre-funded warrants because their exercise requires only nominal consideration for delivery of shares, and (ii) the shares held in abeyance because there is no consideration required for delivery of the shares; it does not include any potentially dilutive securities or any unvested restricted shares of common stock. Certain restricted shares, although classified as issued and outstanding at September 30, 2023, are considered contingently returnable until the restrictions lapse and will not be included in the basic net loss per share calculation until the shares are vested. Unvested shares of the Company’s restricted stock do not contain non-forfeitable rights to dividends and dividend equivalents. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the Company’s warrants, options, and restricted shares. Diluted net loss per share is computed by giving effect to all potential shares of common stock, including warrants, stock options, and unvested restricted shares, to the extent they are dilutive.

The two-class method is used to determine earnings per share based on participation rights of participating securities in any undistributed earnings. Each share of preferred stock that includes rights to participate in distributed earnings is considered a participating security and the Company uses the two-class method to calculate net income available to the Company’s common stockholders per common share — basic and diluted.

The following securities were excluded from the computation of diluted shares outstanding due to the losses incurred in the periods presented, as they would have had an anti-dilutive impact on the Company’s net loss:

	Three and Nine Months Ended September 30,
	2023		2022
Unvested shares of restricted stock		344,080		—
Options to purchase shares of common stock		1,378,855		1,383,801
Warrants		7,899,661		5,375,385
Total		9,622,596		6,759,186

BLUE WATER BIOTECH, INC.
Notes to Condensed Financial Statements

September 30, 2023

(Unaudited)

Note 13 — Retirement Plan

On May 31, 2023, the Board voted to adopt a 401(k) Safe Harbor Non-Elective Plan (the “401(k) Plan”). The 401(k) Plan was an employee savings and retirement plan to which substantially all employees could have contributed, including the Company’s named executive officers, effective July 1, 2023. Pursuant to the 401(k) Plan, employee and Company contributions would vest immediately, subject to a three-month waiting period for new hires. The Company was required to contribute 3% of gross pay to eligible employees’ 401(k) Plans. On November 16, 2023, the 401(k) Plan was terminated.

Note 14 — Subsequent Events

Veru APA Amendment

On October 3, 2023, in accordance with the terms of the Veru APA Amendment, the Company issued 3,000 shares of Series A Preferred Stock to Veru as settlement for the $3,000,000 note payable that had an original maturity date of September 30, 2023 (see Note 5).

WraSer APA Amendment

On October 4, 2023, the parties agreed to amend the WraSer APA, which is subject to court approval. Shortly after its bankruptcy filing, WraSer filed a motion seeking approval of the WraSer APA as amended. The amendment, among other things, eliminates the $500,000 post-closing payment due June 13, 2024 and staggers the $4.5 million cash payment that the Company would otherwise have to pay at closing to: (i) $2.2 million to be paid at closing, (ii) $2.3 million, to be paid in monthly installments of $150,000 commencing January 2024 and (iii) 789 shares of Series A Preferred Stock to be paid at closing. The amendment also reduced the number of products we were acquiring by excluding pain medications and including only (i) Ciprofloxacin 0.3% and Fluocinolone 0.025% Otic Solution, under the trademark OTOVEL and its Authorized Generic Version approved under US FDA NDA No. 208251, (ii) Ciprofloxacin 0.2% Otic solution, under the trademark CETRAXAL, and (iii) Vorapaxar Sulfate tablets under the trademark Zontivity approved under US FDA NDA N204886.

On October 6, 2023, the Company was alerted to certain issues in WraSer’s operations relating to WraSer’s inability to manufacture the active pharmaceutical ingredient for one of the key WraSer Assets, which development, the Company believes, constitutes a Material Adverse Effect (as such term is defined in the WraSer APA) that will prevent the Company from closing the transaction. On October 20, 2023, the Company filed a motion for relief from the automatic stay in the Bankruptcy Court so that we can exercise our termination rights under the WraSer APA, as amended. WraSer has advised the Company that it does not believe that a Material Adverse Event occurred. If the Bankruptcy Court does not grant the Company’s motion and requires it to complete the transaction, the Company will not be able to execute its commercialization strategy for the WraSer Assets because there is no manufacturer for the active pharmaceutical ingredient for Zontivity, the key driver for the WraSer acquisition. Due to the WraSer bankruptcy filing and the Company’s status as an unsecured creditor of WraSer, it is unlikely that the Company will recover the $3.5 million initial payment made or any costs and resources in connection with services provided by the Company under the WraSer MSA. If the Company does not complete the purchase of the WraSer Assets and the WraSer APA is terminated, the Company will not be able to recover any such costs. Any claims the Company makes for such payment will be general unsecured claims (see Note 5).

BLUE WATER BIOTECH, INC.
Notes to Condensed Financial Statements

September 30, 2023

(Unaudited)

Note 14 — Subsequent Events (cont.)

Chief Financial Officer Separation Agreement

Effective as of October 4, 2023, Jon Garfield resigned as Chief Financial Officer of the Company. The Company and Mr. Garfield entered into a separation agreement, which provides for a two-month severance payment.

Equity Incentive Plan Activity

On October 4, 2023, the Company’s Board granted stock options to the Company’s newly hired Chief Executive Officer and Chief Financial Officer. The options granted to the Chief Executive Officer and Chief Financial Officer totaled 532,326 and 177,442, respectively, have an exercise price of $0.4305 per share, and vest quarterly over a three-year period.

On October 4, 2023, upon his resignation, the Company’s former Chief Financial Officer forfeited 75,000 shares of unvested restricted stock, and 50,000 stock options.

Services Agreement

On October 12, 2023, the Company terminated a Master Services Agreement and statements of work with a vendor, resulting in early termination fees of approximately $2.3 million. The Company will record these fees during the quarter ending December 31, 2023 (see Note 6).

License Terminations

On November 15, 2023, the Company informed Oxford University Innovation and St. Jude of its termination of the respective license agreements (see Note 6). The amounts due upon termination of these license agreements were not significant.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes to those statements included elsewhere in this Report and with the audited financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the SEC, on March 9, 2023. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Some of the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors. See “Cautionary Note Regarding Forward-Looking Statements.”

Overview

We are a commercial stage biotechnology company focused on the research, development, and commercialization of innovative solutions for oncology. We own ENTADFI^®, an FDA-approved, once daily pill that combines finasteride and tadalafil for the treatment of benign prostatic hyperplasia (“BPH”), a disorder of the prostate. This combination allows men to receive treatment for their symptoms of BPH without the negative sexual side effects typically seen in patients on finasteride alone. Following a recent business strategy shift towards the field of oncology and deprioritization of preclinical vaccine programs, we are building additional assets in therapeutics, diagnostics, and clinician services for oncology. ENTADFI® will become the inaugural therapeutic drug in the Company’s expanding portfolio of oncology therapeutics once launched.

Prior to the acquisition of ENTADFI^®, we managed one distinct business segment, which was research and development. Beginning in the second quarter of 2023, as a result of the acquisition of ENTADFI^®, for which we are working towards commercial launch, we operated in two business segments: research and development and commercial. During the third quarter of 2023, we deprioritized our vaccine discovery and development programs, and accordingly, we now operate in one segment: commercial. The research and development segment was our historical business, and was dedicated to the research and development of various vaccines to prevent infectious diseases. The commercial segment was new in the second quarter of 2023 and is dedicated to the commercialization of our FDA-approved products, this currently being ENTADFI^®.

Since June 30, 2023, some key developments affecting our business include:

●

Announced Shift in Business Strategy to Focus on the Field of Oncology: On October 30, 2023, in a letter to shareholders, President and CEO, Dr. Neil Campbell, announced that the Company intends to shift its focus toward building a foundation of therapeutic, diagnostic, and service products in the field of oncology. The Company’s previous activities in acquiring assets from WraSer and Xspire Pharma, including certain commercial relationships intended for the marketing and sale of these assets, were reassessed and it was decided that they would not align with the new shift towards oncology. Additionally, the Company conducted a strategic and tactical assessment of its preclinical vaccine programs and, considering the immense amount of time and resources needed to pursue these programs as well as evolving market dynamics, these programs have been deprioritized. The Company believes that the strategic shift in business strategy towards the field of oncology, as well as pursuing the launch of Entadfi^® in 2024, will enhance shareholder value and enable the Company to provide leading-edge therapeutics, diagnostics, and services to clinicians, patients, and caregivers.

●

Signed Non-Binding Term Sheet to Acquire a Commercial Stage Oncology Company: On November 2, 2023, the Company announced the execution of a non-binding term sheet regarding the acquisition of a private commercial stage oncology biotechnology company (the “Proposed Transaction”). This announcement furthers a shift in business strategy driven by the Company’s decision to align with both the market value drivers provided by its new oncology focus and the extensive life sciences company-building expertise of its new leadership team. After stockholder approval of the Proposed Transaction, shareholders of the target company will own a majority of the Company. The Company expects to announce additional details regarding the Proposed Transaction when a definitive agreement is executed. The completion of the transaction is subject to, among other matters, the completion of due diligence, the negotiation of a definitive agreement, obtaining adequate financing, satisfaction of the conditions negotiated therein and approval of the Proposed Transaction by the board and stockholders, as and when applicable. There can be no assurance that a definitive agreement will be entered into or that the Proposed Transaction will be consummated on the terms or timeframe currently contemplated, or at all.

●

Dr. Neil Campbell appointed as CEO and President and a member of the Board: On October 4, 2023, Dr. Neil Campbell was appointed as CEO and President and a member of the Board. Dr. Campbell has over 30 years of successful experience with public and private companies in the life sciences, medical, healthtech, nanotechnology, artificial intelligence, and high-performance computing technologies. Previously, Dr. Campbell was Chairman, CEO, and founder of Celios, a respiratory and therapeutic device. Prior to founding Celios, Dr. Campbell was co-founder, President and CEO of Helomics, a personalized healthcare company focused on next-generation oncology therapeutics and diagnostics. Dr. Campbell has prior institutional investment experience as a partner in venture capital, and operating partner and industry advisor in private equity. Dr. Campbell has also held senior executive positions at SuperNova Diagnostics, EntreMed Pharmaceuticals, Life Technologies, IGEN International (now Roche), Celera Genomics, and Abbott Laboratories. Dr. Campbell has also held academic positions at Johns Hopkins University and Medical Institutes, Hong Kong University of Science and Tech (HKUST), University of Liverpool (UK), University of Baltimore and Duquesne University. Dr. Campbell is a veteran of the U.S. Air Force. Dr. Campbell received his B.S. from Norwich University, M.A. and M.B.A. from Webster University and Doctorate from the University of Liverpool in the United Kingdom.

●

Bruce Harmon appointed as CFO: On October 4, 2023, Bruce Harmon was appointed as Chief Financial Officer. Mr. Harmon has over 40 years of experience as a financial professional, with more than 30 years serving as a controller, chief financial officer, director, audit chairman, and as a consultant providing CFO services primarily to publicly traded companies. Mr. Harmon has served as CFO of Marizyme, Inc. from 2020 through 2021, as CFO of bioAffinity Technologies, Inc. in 2022, a director for Dale Biotech LLC since 2017, and as a director of Patriax Industries™ since 2023. Mr. Harmon has, through his consulting firm, Lakeport Business Services, Inc., worked with more than 150 clients since 2008, primarily providing CFO services. Mr. Harmon has extensive experience with fund raising, mergers and acquisitions, and turnarounds. Mr. Harmon has been a key person in the public registration of 15 companies, including an IPO to The Nasdaq Stock Market LLC (“Nasdaq”). Mr. Harmon was part of a three-person team that, at the invitation of the Environmental Programmé, presented a green building product to 84 delegates at the United Nations in 2008. Mr. Harmon has an accounting degree from Missouri State University.

	●	*Regained Compliance with Nasdaq Listing Rule 5250(c)(1):* On November 1, 2023, the Company announced that it had regained compliance with Nasdaq Listing Rule 5250(c)(1) (“The Rule”). The Rule requires listed companies to timely file all required periodic financial reports with the Securities and Exchange Commission (“SEC”). On October 20, 2023, the Company filed its Form 10-Q for the period ended June 30, 2023. We are not currently in compliance with Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). We have 180 days from September 18, 2023, or through March 16, 2024, to regain compliance with the Bid Price Rule.

	●	*Signed Various Agreements to Support the Commercial Launch of ENTADFI^®:* Throughout the third quarter of 2023, the Company signed several agreements and established key relationships to support the commercial launch of ENTADFI^®. These agreements include the following:

●

Marketing and Advertising Support: In July 2023, the Company signed a Master Services Agreement with bfw Advertising Inc. (“bfw”) to generate marketing and advertising material for Blue Water’s commercial stage drug portfolio. Bfw will work with Blue Water’s commercial team to increase awareness for its commercial products through patient-facing materials, website updates, social ads, targeted provider engagement, as well as materials to support Blue Water’s sales team, among other services.

●

Healthcare Payer Coverage Support: In July 2023, Blue Water signed an agreement with Advantage Point Solutions, LLC (“APS”) to support Blue Water’s market access strategy for its commercial pharmaceutical portfolio. APS will support market access for ENTADFI^®, including assistance in formulary negotiations with key healthcare payers and pharmacy benefit managers in the commercial and government sectors. With its robust network of relationships, APS helps commercial stage pharmaceutical companies build long-term relationships with payers with the goal of maximizing access and reimbursement for approved pharmaceutical products. APS also has decades of experience advising companies on product launches across a broad spectrum of therapeutic areas.

●

Telemedicine Channel: In July 2023, Blue Water signed an agreement with UpScriptHealth to generate a robust, online telemedicine platform to distribute ENTADFI^®. Through this platform, UpScriptHealth will help support patients with benign prostatic hyperplasia throughout the prescription and coverage process, as well as provide eligible patients access to ENTADFI^®mailed directly to their homes.

●

Entered into Distribution Agreement: On September 21, 2023, the Company entered into an Exclusive Distribution Agreement to engage Cardinal Health 105, LLC as its exclusive third-party logistics distribution agent for sales of all of the Company’s commercial assets.

●

Granted Pharmaceutical Wholesaler License in Ohio and Tennessee: The Ohio State Board of Pharmacy and the Tennessee State Board of Pharmacy, in July 2023 and September 2023, respectively, granted Blue Water a license to operate as a pharmaceutical wholesaler. These licenses allow Blue Water to conduct business in the States of Ohio and Tennessee.

Since our inception in October 2018 until April 2023, when we acquired ENTADFI^®, we devoted substantially all of our resources to performing research and development, undertaking preclinical studies and enabling manufacturing activities in support of our product development efforts, hiring personnel, acquiring and developing our technology and now deprioritized vaccine candidates, organizing and staffing our company, performing business planning, establishing our intellectual property portfolio and raising capital to support and expand such activities.

Since our April 2023 acquisition of ENTADFI^®, we have been focusing our efforts on building out our commercial capabilities to launch ENTADFI^® in the marketplace.

Given ENTADFI^® is currently FDA-approved, we expect to generate revenue from sales of ENTADFI^® in the near term. Although we anticipate these sales to offset some expenses relating to commercial scale up and development, we expect our expenses will increase substantially in connection with our ongoing activities, as we:

●

Commercialize and launch ENTADFI^®, and other commercial-stage products,

●

hire additional personnel;

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operate as a public company, and;

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obtain, maintain, expand and protect our intellectual property portfolio.

We rely and will continue to rely on third parties for the manufacturing of ENTADFI^®. We have no internal manufacturing capabilities, and we will continue to rely on third parties, of which the main suppliers are single-source suppliers, for commercial products.

As we have a product in commercial stage, we are seeking to build a robust and efficient commercial team to accommodate this development. This includes appropriate personnel and third-party relationships and contracts to execute our commercialization strategy. We also expect to incur significant commercialization expenses related to marketing, manufacturing and distribution for those products.

We do not have any products approved for sale, aside from ENTADFI^®, and have not generated any revenue from product sales. To date, we have financed our operations primarily with proceeds from our sale of preferred securities to seed investors, the close of the IPO, the close of the 2022 Private Placements, and the proceeds received from a warrant exercise in August 2023. We will continue to require significant additional capital to commercialize ENTADFI^® and fund operations for the foreseeable future. Accordingly, until such time as we can generate significant revenue, if ever, we expect to finance our cash needs through public or private equity or debt financings, third-party (including government) funding and to rely on third-party resources for marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches, to support our operations.

We have incurred net losses since inception and expect to continue to incur net losses in the foreseeable future. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending in large part on the timing of our preclinical studies, clinical trials and manufacturing activities, our expenditures on other research and development activities and commercialization activities. As of September 30, 2023, the Company had a working capital deficit of approximately $8.1 million and an accumulated deficit of approximately $34.4 million. We will need to raise additional capital to sustain operations within the one-year period following the issuance of the accompanying condensed financial statements.

Until we generate revenue sufficient to support self-sustaining cash flows, if ever, we will need to raise additional capital to fund our continued operations, including our product development and commercialization activities related to our current and future products. There can be no assurance that additional capital will be available to us on acceptable terms, or at all, or that we will ever generate revenue sufficient to provide for self-sustaining cash flows. These circumstances raise substantial doubt about our ability to continue as a going concern. The accompanying condensed financial statements do not include any adjustment that might be necessary if the Company is unable to continue as a going concern.

Because of the numerous risks and uncertainties associated with our business, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Additionally, even if we are able to generate revenue from ENTADFI®, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and may be forced to reduce our operations.

Management and Board Changes

Effective as of August 16, 2023, Joseph Hernandez resigned as Chairman, Chief Executive Officer, and a member of the Board of Directors (the “Board”) of the Company.

Effective August 16, 2023, the Board appointed Jon Garfield, the Company’s former Chief Financial Officer, to serve as the Company’s interim principal executive officer. Effective as of October 4, 2023, Jon Garfield resigned as Chief Financial Officer of the Company. The Company and Mr. Garfield entered into a separation agreement, which provides for two months of severance payment.

Effective as of September 2, 2023, Vuk Jeremic resigned as a member of the Board of the Company as well as from his positions as a member of the Compensation Committee and Nominating and Corporate Governance Committee of the Board. Mr. Jeremic’s departure was not the result of any disagreement with management or the Board on any matter relating to the Company’s operations, policies or practices.

On October 4, 2023 (the “Effective Date”), the Company appointed Dr. Neil Campbell, 63, as President and Chief Executive Officer of the Company and as a member of the Board of Directors (the “Board”) of the Company, effective immediately. As a Class III director, Dr. Campbell’s term lasts until the Company’s 2024 annual meeting of stockholders.

Dr. Campbell’s appointment as President and Chief Executive Officer replaces the Company’s prior intentions for James Sapirstein to step in as Interim Executive Chairman. As previously disclosed in the Company’s Current Report on Form 8-K filed on August 22, 2023, Mr. Sapirstein served as Lead Independent Director during the Company’s search for a replacement for Joseph Hernandez. Mr. Sapirstein was originally intended to assume the position of Interim Executive Chairman on September 30, 2023. Instead, effective October 4, 2023, the Board elected Mr. Sapirstein as non-executive Chairman of the Board. Mr. Sapirstein will continue to serve as Lead Independent Director through October 31, 2023. In recognition of Mr. Sapirstein’s contributions to the Company as Lead Independent Director, the Board of Directors approved an increase in Mr. Sapirstein’s compensation for serving as Lead Independent Director from $25,000 to $40,000 per month for the period from August 2023 through October 2023.

In connection with Dr. Campbell’s appointment, the Company and Dr. Campbell entered into an employment agreement (the “Campbell Employment Agreement”), pursuant to which Dr. Campbell will serve as President and Chief Executive Officer of the Company and will be paid a signing bonus of $75,000 and an annual base salary of $475,000. In addition, Dr. Campbell is entitled to receive, subject to employment by the Company on the applicable date of bonus payout, an annual target discretionary bonus of up to 50% of his annual base salary, payable at the discretion of the Compensation Committee of the Board. Dr. Campbell is also eligible to receive healthcare benefits as may be provided from time to time by the Company to its employees generally, and to receive paid time off annually. Pursuant to the Campbell Employment Agreement, Dr. Campbell was granted a long-term equity incentive grant in the form of an option to purchase 3% of the total outstanding shares of the Company’s common stock as of the Effective Date. Such award vests in quarterly increments over a period of three years from the Effective Date, subject to Dr. Campbell’s continued employment by the Company on the applicable vesting date. Dr. Campbell’s option grant has an exercise price per share equal to $0.4305, which was the closing price of the Company’s common stock on Nasdaq on the grant date.

On the Effective Date, the Company also appointed Bruce Harmon, 65, as Chief Financial Officer of the Company, effective immediately.

In connection with Mr. Harmon’s appointment, the Company and Mr. Harmon entered into an employment agreement (the “Harmon Employment Agreement”), pursuant to which Mr. Harmon will serve as Chief Financial Officer of the Company and will be paid an annual base salary of $325,000. In addition, Mr. Harmon is entitled to receive, subject to employment by the Company on the applicable date of bonus payout, an annual target discretionary bonus of up to 30% of his annual base salary, payable at the discretion of the Compensation Committee of the Board. Pursuant to the Harmon Employment Agreement, Mr. Harmon is also eligible to receive healthcare benefits as may be provided from time to time by the Company to its employees generally, and to receive paid time off annually. Pursuant to the Harmon Employment Agreement, Mr. Harmon was granted a long-term equity incentive grant in the form of an option to purchase 1% of the total outstanding shares of the Company’s common stock as of the Effective Date. Such award vests in quarterly increments over a period of three years from the Effective Date, subject to Mr. Harmon’s continued employment by the Company on the applicable vesting date. Mr. Harmon’s option grant has an exercise price per share equal to $0.4305, which was the closing price of the Company’s common stock on Nasdaq on the grant date.

Recent Acquisitions:

ENTADFI®

On April 19, 2023, the Company entered into the Veru APA. Pursuant to, and subject to the terms and conditions of, the Veru APA, the Company purchased substantially all of the assets related to Veru’s ENTADFI® business and assumed certain liabilities of Veru. The Transaction closed on April 19, 2023.

The Company purchased substantially all of Veru’s assets, rights and property related to ENTADFI® for a total possible consideration of $100.0 million (as described below). The acquisition of ENTADFI® capitalizes on the demonstrable success of the FDA-approved drug ENTADFI® for treating benign prostatic hyperplasia and counteracting negative sexual side effects seen in men on alternative BPH therapies.

Pursuant to the terms of the Veru APA, the Company agreed to provide Veru with initial consideration totaling $20.0 million, consisting of (i) $6.0 million paid upon the closing of the Transaction, (ii) an additional $4.0 million in the form of a non-interest bearing note payable due on September 30, 2023, and (iii) an additional $10.0 million in the form of two equal (i.e. each for $5.0 million) non-interest bearing notes payable, each due on April 19, 2024 and September 30, 2024. On September 29, 2023, the Company entered into an amendment (the “Amendment”) of the Veru APA. Pursuant to the Amendment, the $4.0 million note payable originally due on September 30, 2023, was deemed paid and fully satisfied upon (1) the payment to Veru of $1 million in immediately available funds on September 29, 2023, and (2) the issuance to Veru by October 3, 2023 of 3,000 shares of Series A Preferred Stock of the Company.

The terms of the Series A Preferred Stock are set forth in the Certificate of Designations, which was filed with the State of Delaware on September 29, 2023. Pursuant to the Certificate of Designations, each share of Series A Preferred Stock will convert one year from the date of issuance of the Series A Preferred Stock into that number of shares of the Company’s common stock determined by dividing the Stated Value (as defined in the Certificate of Designations) of $1,000 per share by the Conversion Price (as defined in the Certificate of Designations) of $0.5254 per share, subject to adjustment as provided in the Certificate of Designations, subject to certain shareholder approval limitations. The Series A Preferred Stock is entitled to share ratably in any dividends paid on the Company’s common stock (on an as-if-converted-to-common-stock basis), has no voting rights except as to certain significant matters specified in the Certificate of Designations, and has a liquidation preference equal to the Stated Value of $1,000 per share plus any accrued but unpaid dividends thereon. The Series A Preferred Stock is redeemable in whole or in part at the Company’s option at any time. The Certificate of Designations authorized the issuance of up to 10,000 shares of Series A Preferred Stock.

The Series A Preferred Stock issued to Seller is initially convertible, in the aggregate, into approximately 5,709,935 shares of the Company’s common stock, subject to adjustment and certain shareholder approval limitations specified in the Certificate of Designations. Pursuant to the Amendment, the Company agreed to use commercially reasonable efforts to obtain such shareholder approval by December 31, 2023. The Company also agreed to include the shares of common stock issuable upon conversion of the Series A Preferred Stock in the next resale registration statement filed with the SEC.

Additionally, the terms of the Veru APA require the Company to pay Veru up to an additional $80.0 million based on the Company’s net sales from the ENTADFI® business after closing. The Milestone Payments are payable as follows: (i) $10.0 million is payable if the Company’s annual net sales from the ENTADFI® business equal or exceed $100.0 million, (ii) $20.0 million is payable if the Company’s annual net sales from the ENTADFI® business equal or exceed $200.0 million, and (3) $50.0 million is payable if annual net sales from the ENTADFI® business equal or exceed $500.0 million. No more than one Milestone Payment shall be made for the achievement of each net sales milestone. There can be no assurance that the net sales milestones for payment of any of the Milestone Payments will be reached.

Furthermore, in connection with the Transaction, the Company assumed royalty and milestone obligations under an asset purchase agreement for tadalafil-finasteride combination entered into by Veru and Camargo Pharmaceutical Services, LLC on December 11, 2017. The Camargo Obligations assumed by the Company include a 6% royalty on all sales of tadalafil-finasteride and sales milestone payments of up to $22.5 million as follows: (i) $5.0 million is payable upon the first time the Company achieves net sales from ENTADFI® of $100.0 million during a calendar year, (ii) $7.5 million is payable upon the first time the Company achieves net sales from ENTADFI® of $200.0 million during a calendar year, and (3) $10.0 million is payable upon the first time the Company achieves net sales from ENTADFI® of $300.0 million during a calendar year.

WraSer (Acquisition closing pending as of September 30, 2023)

On June 13, 2023 (the “Execution Date”), the Company entered into an asset purchase agreement with WraSer, LLC, a Mississippi limited liability company, Xspire Pharma, LLC, a Mississippi limited liability company (collectively, the “Seller”), and Legacy-Xspire Holdings, LLC, a Delaware limited liability company and the parent company of the Seller (“Parent”) (the “WraSer APA”). Pursuant to, and subject to the terms and conditions of, the WraSer APA, on the Closing Date (as defined below) the Company will purchase six FDA-approved pharmaceutical assets across several indications, including cardiology, otic infections, and pain management (the “WraSer Assets”).

Under the terms of the WraSer APA, the Company will purchase the WraSer Assets for (i) $3.5 million in cash at signing of the WraSer APA; (ii) $4.5 million in cash on the later of (x) 90 days after the signing of the WraSer APA or (y) the date that all closing conditions under the WraSer APA are met or otherwise waived (the “Closing Date”); (iii) 1.0 million shares of the Company’s common stock (the “Closing Shares”) issuable on the Closing Date, and (iv) $500,000 in cash one year from the Closing Date. The closing of the transaction is subject to certain customary closing conditions and the delivery to the Company of financial statements of Seller and Parent for the fiscal years ended December 31, 2022 and 2021 audited by a qualified auditor reasonably acceptable to the Company.

Within 90 days of the Closing Date, the Company will use its best efforts to file with the SEC, (at its sole cost and expense,) a registration statement to register on Form S-3 registering under the Securities Act of 1933, as amended (the “Securities Act”), the resale of the Closing Shares and will use its best efforts to have the registration statement declared effective as soon as practicable after filing.

In conjunction with the WraSer APA, the Company and the Seller entered into a Management Services Agreement (the “MSA”) on the Execution Date. Pursuant to the terms of the MSA, the Company will act as the manager of the Seller’s business during the period between the Execution Date and Closing Date. During this period, the Company will make advances to WraSer, if needed to sustain operations. The Company’s involvement as manager of the Seller’s business ended when WraSer filed for relief under chapter 11 of the U.S. Bankruptcy Code in the Bankruptcy Court (see below). If, on the Closing Date, the Seller’s cash balance is in excess of the target amount specified in the MSA of $1.1 million (the “Cash Target”), the Company will apply that excess to the $4.5 million cash payment due upon closing. Conversely, if there is a shortfall, the Company will be required to remit the difference to the Seller over time. Specifically, as the Company collects accounts receivable generated after the Closing Date, the Company will be required to remit 50% of the collections to the Seller until the shortfall is paid in full. The MSA terminates on the Closing Date.

The WraSer APA can be terminated prior to closing as follows (i) upon agreement with all parties; (ii) upon breach of contract of either party, uncured within 20 days of notice. If the WraSer APA is terminated upon agreement with all parties or upon uncured breach of contract by the Seller, the initial $3.5 million payment is retained by the Sellers. If it is determined that there is an uncured breach of contract by the Seller, and the WraSer APA is terminated, the Company will have an unsecured claim against WraSer for the $3.5 million payment made by the Company upon execution of the WraSer APA. The closing of the Transaction is subject to various closing conditions, including submission of the FDA transfer documentation to transfer ownership of the acquired product regulatory approvals to the Company.

On September 26, 2023, WraSer and its affiliates filed for relief under chapter 11 of the U.S. Bankruptcy Code in the Bankruptcy Court.

On October 4, 2023, the parties agreed to amend the WraSer APA. Shortly after its bankruptcy filing, WraSer filed a motion seeking approval of the WraSer APA as amended. The amendment, among other things, eliminates the $500,000 post-closing payment due June 13, 2024 and staggers the $4.5 million cash payment that the Company would otherwise have to pay at closing to: (i) $2.2 million to be paid at closing, (ii) $2.3 million, to be paid in monthly installments of $150,000 commencing January 2024 (the “Post-Closing Payment”) and (iii) 789 shares of Series A Preferred Stock to be paid at closing. The amendment also reduced the number of products we were acquiring by excluding pain medications and including only (i) Ciprofloxacin 0.3% and Fluocinolone 0.025% Otic Solution, under the trademark OTOVEL and its Authorized Generic Version approved under US FDA NDA No. 208251, (ii) Ciprofloxacin 0.2% Otic solution, under the trademark CETRAXAL, and (iii) Vorapaxar Sulfate tablets under the trademark Zontivity approved under US FDA NDA N204886.

On October 6, 2023, we were alerted to certain developments in WraSer’s operations relating to WraSer’s inability to manufacture the active pharmaceutical ingredient for one of the key WraSer Assets, which development we believe constitutes a Material Adverse Effect (as such term is defined in the WraSer APA) that will prevent us from closing the transaction. On October 20, 2023, we filed a motion for relief from the automatic stay in the Bankruptcy Court so that we can exercise our termination rights under the WraSer APA, as amended. WraSer has advised us that it does not believe that a Material Adverse Event occurred. If the Bankruptcy Court does not grant our motion and requires us to complete the transaction, we will not be able to execute our commercialization strategy for the WraSer Assets because there is no manufacturer for the active pharmaceutical ingredient for Zontivity, the key driver for the WraSer acquisition. Due to the WraSer bankruptcy filing and our status as an unsecured creditor of WraSer, it is also unlikely that we will recover the $3.5 million initial payment made or any costs and resources in connection with services provided by the Company under the WraSer MSA. In addition, if the WraSer APA is terminated, we will not be able to recover any such costs.

Agreement with Cardinal Health

On September 21, 2023, the Company entered into an Exclusive Distribution Agreement (the “Exclusive Distribution Agreement”), effective as of September 20, 2023 (the “Effective Date”), with Cardinal Health 105, LLC (“Cardinal Health”). Pursuant to, and subject to the terms and conditions of, the Exclusive Distribution Agreement, the Company engaged Cardinal Health as its exclusive third-party logistics distribution agent for sales of all of the Company’s commercial assets. The term of the Distribution Agreement is three years from the Effective Date and automatically renews for additional terms of one year each unless terminated pursuant to the terms of the Exclusive Distribution Agreement. Under the terms of the Exclusive Distribution Agreement, the Company must pay to Cardinal Health a one-time start-up fee of $15,500, a monthly account management fee of $7,000, and other fees for various services, including post-launch program implementation, information systems, warehouse operations, and financial services.

Corporate Name Change and Amendment to Bylaws

On April 21, 2023, the Company filed an amendment to its A&R COI with the Secretary of State of Delaware to change its corporate name from “Blue Water Vaccines Inc.” to “Blue Water Biotech, Inc.” The name change was effective as of April 21, 2023.

In connection with the name change, the Company amended the Company’s bylaws to reflect the corporate name Blue Water Biotech, Inc., also effective on April 21, 2023.

On May 31, 2023, the Board amended the Company’s bylaws to reduce the quorum requirement at meetings of the Company’s stockholders from a majority of the voting power of the outstanding shares of stock of the Company entitled to vote, to one-third of the voting power of the outstanding shares of stock of the Company entitled to vote, effective immediately. No other changes were made to the bylaws.

Warrant Inducement

On July 31, 2023, the Company entered into the Inducement Letter with the Holder of the Existing PIOs. Pursuant to the Inducement Letter, the Holder agreed to exercise for cash its Existing PIOs to purchase an aggregate of 2,486,214 shares of the Company’s common stock, at a reduced exercise price of $1.09 per share, in exchange for the Company’s agreement to issue Inducement PIOs to purchase up to 4,972,428 shares of the Company’s common stock. The Inducement PIOs have substantially the same terms as the Existing PIOs. On August 2, 2023, the Company consummated the Warrant Inducement. The Company received aggregate net proceeds of approximately $2.3 million from the Warrant Inducement, after deducting placement agent fees and other offering expenses payable by the Company.

The Company engaged Wainwright to act as its placement agent in connection with the Warrant Inducement and paid Wainwright a cash fee equal to 7.5% of the gross proceeds received from the exercise of the Existing PIOs as well as a management fee equal to 1.0% of the gross proceeds from the exercise of the Existing PIOs. The Company also agreed to reimburse Wainwright for its expenses in connection with the exercise of the Existing PIOs and the issuance of the Inducement PIOs, up to $50,000 for fees and expenses of legal counsel and other out-of-pocket expenses and agreed to pay Wainwright for non-accountable expenses in the amount of $35,000. In addition, the exercise for cash of the Existing PIOs triggered the issuance to Wainwright or its designees, warrants to purchase 149,173 shares of common stock, which were issuable in accordance with the terms of Contingent Warrants issuable to Wainwright in connection with the August 2022 Private Placement Transaction, and have the same terms as the Inducement PIOs, except for an exercise price equal to $1.3625 per share. The Company also agreed to issue warrants to Wainwright upon any exercise for cash of the Inducement PIOs, that number of shares of common stock equal to 6.0% of the aggregate number of such shares of common stock underlying the Inducement PIOs that have been exercised, also with an exercise price of $1.3625. The maximum number of warrants issuable under this provision is 298,346.

Nasdaq Compliance

On September 18, 2023, we received notice from Nasdaq staff indicating that, based upon the closing bid price of the Common Stock for the prior 30 consecutive business days, we were not in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing on Nasdaq, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). We have 180 days from September 18, 2023, or through March 16, 2024, to regain compliance with the Bid Price Rule.

On November 1, 2023, we announced that we had regained compliance with Nasdaq Listing Rule 5250(c)(1). The Rule requires listed companies to timely file all required periodic financial reports with the SEC. On October 20, 2023, the Company filed its Form 10-Q for the period ended June 30, 2023.

Certain Significant Relationships

We have entered into grant, license and collaboration arrangements with various third parties as summarized below. For further details regarding these and other agreements, see Notes 6 and 9 to each of our audited financial statements included in the Form 10-K and unaudited financial statements included elsewhere in this Report.

Ology MSA

In July 2019, we entered into a development and manufacturing master services agreement with Ology, pursuant to which Ology is obligated to perform manufacturing process development and clinical manufacture and supply of components.

The Company entered into an initial Project Addendum on October 18, 2019 and the Company was required to pay Ology an aggregate of approximately $4 million. Due to unforeseen delays associated with COVID-19, the Company and Ology entered into a letter agreement dated January 9, 2020 to stop work on the project, at which point, the Company had paid Ology $100,000 for services. The second Project Addendum was executed May 21, 2021, pursuant to which the Company is obligated to pay Ology an aggregate amount of approximately $2.8 million, plus reimbursement for materials and outsourced testing, which will be billed at cost plus 15%.

During 2022, the Company entered into three amendments to the Ology MSA, to adjust the scope of work defined in the second Project Addendum. The amendments resulted in a net increase to the Company’s obligations under the second Project Addendum of $154,000. On March 27, 2023, the second Project Addendum to the Ology MSA was further amended to increase the scope of the project, resulting in an increase to the Company’s obligations of $180,000 under the Ology MSA.

For additional details regarding our relationship with Ology, see Note 6 to our condensed financial statements included elsewhere in this Report.

Cincinnati Children’s Hospital Medical Center Agreement

On June 1, 2021, we entered into an exclusive, worldwide license agreement with CHMC, pursuant to which we obtained the right to develop and commercialize certain CHMC patents and related technology directed at a virus-like particle vaccine platform that utilizes nanoparticle delivery technology, which may have potential broad application to develop vaccines for multiple infectious diseases.

Under the CHMC Agreement, we agreed to pay CHMC certain license fees, deferred license fees, development milestone fees, and running royalties beginning on the first net sale (among others). For additional details regarding our relationship with CHMC, see Notes 6 and 9 to our financial statements included elsewhere in this Report. The CHMC license includes the following patents:

U.S. Patent Application No.	U.S. Patent No.		Granted Claim Type	U.S. Expiration	Foreign Counterparts
12/797,396		8,486,421	Compositions of the vaccine/vaccine platform	1/13/2031	CN107043408B EP2440582B1 JP5894528B2

13/924,906		9,096,644	Method of treatment	9/20/2030	CN107043408B EP2440582B1 JP5894528B2

13/803,057		9,562,077	Compositions of the vaccine platform	4/10/2034	none

16/489,095		pending	pending**	[3/15/2038]*	Pending applications in Canada, China, EU, Hong Kong and Japan

63/149,742 (filed 2/16/2021)		pending	pending**	[February 2042]^#	TBD

63/162,369 (filed 3/17/2021)		pending	pending**	[March 2042]^#	TBD

*	Projected expiration if patent issues: 20 years from earliest non-provisional application filing date.

#	Non-provisional application not yet filed. Expiration projected 21 years from provisional application filing date. Dependent on timely conversion to non-provisional application and issuance of patent.

**	This is a pending application. Claim type will be determined after U.S. prosecution is complete. The claim type sought includes compositions of the vaccine and vaccine platform.

Oxford University Innovation Limited Agreement

On July 16, 2019, we entered into an exclusive, worldwide license agreement with Oxford University Innovation Limited, pursuant to which we obtained the right to develop and commercialize certain licensed technology entitled “Immunogenic Composition.”

Under the OUI Agreement, we agreed to fund three years’ worth of salaries for Dr. Craig Thompson in the University’ Department of Zoology through a sponsored research agreement with Oxford University, as well as royalties on all net sales of licensed products, along with certain development and milestone payments (among others). For additional details regarding our relationship with OUI, see Notes 6 and 9 to our financial statements included elsewhere in this Report.

On November 15, 2023, the Company informed Oxford University Innovation of its termination of the OUI Agreement.

St. Jude Children’s Research Hospital, Inc. Agreement

On January 27, 2020, we entered into an exclusive, worldwide license agreement with St. Jude, pursuant to which we acquired the right to develop certain licensed products and produce vaccines for use in humans.

Under the St. Jude Agreement, we agreed to pay an initial license fee, an annual maintenance fee, milestone payments, patent reimbursement, and running royalties based on the net sales of licensed products. On May 11, 2022, the Company and St. Jude entered into the St. Jude Amendment. The St. Jude Amendment provided for a revised development milestone timeline, a one-time license fee of $5,000, and an increase to the royalty rate from 4% to 5%. The St. Jude Amendment also provided for an increase to the contingent milestone payments, from $1.0 million to $1.9 million in the aggregate; specifically, development milestones of $0.3 million, regulatory milestones of $0.6 million, and commercial milestones of $1.0 million. On March 22, 2023, the Company entered into another amendment to the St. Jude Agreement, whereby the development milestone timeline was further revised. For additional details regarding our relationship with St. Jude, see Notes 6 and 9 to our financial statements included elsewhere in this Report. On November 15, 2023, the Company informed St. Jude of its termination of the St. Jude Agreement.

AbVacc Co-Development Agreement

On February 1, 2023, the Company entered into the Co-Development Agreement with AbVacc for the purpose of conducting research aimed at co-development of specific vaccine candidates, including monkeypox and Marburg virus disease with the potential to expand to others using the Norovirus nanoparticle platform, and to govern the sharing of materials and information, as defined in the agreement, for the Co-Development Project. Under the Co-Development Agreement, AbVacc and the Company will collaborate, through a joint development committee, to establish and implement a development plan or statement of work for each Co-Development Project targeted product. Under the Co-Development Agreement, either the Company or AbVacc, whichever party is the primary sponsor of any resulting product (as defined in the Co-Development Agreement), will be obligated to compensate the other party for certain milestone payments that would range between $2.1 million and $4.75 million, plus royalties of between 2% to 4%. The term of the Co-Development Agreement is three years from the effective date, unless previously terminated by either party, in accordance with the Co-Development Agreement.

Services Agreement

On July 21, 2023, the Company, entered into Master Services Agreement and a related statement of work with a vendor, pursuant to which the vendor would provide to the Company commercialization services for the Company’s products, including recruiting, managing, supervising and evaluating sales personnel and providing sales-related services for such products, for fees totaling up to $29.1 million over the term of the statement of work. The statement of work had a term through September 6, 2026, unless earlier terminated in accordance with the Master Services Agreement and the statement of work. On July 29, 2023, a second statement of work was entered into with the same vendor for certain subscription services providing prescription market data access to the Company. The fees under this statement of work total approximately $800,000, and the term was through July 14, 2025. As of September 30, 2023, the Company prepaid approximately $865,000 for commercialization services under the first statement of work. The Company also had approximately $898,000 recorded in related accounts payable as of September 30, 2023. As the prepayment can be applied against amounts invoiced from the vendor, the prepayment of approximately $865,000 has been offset against accounts payable in the accompanying condensed balance sheet. On October 12, 2023, the Company terminated the Master Services Agreement and statements of work, resulting in an early termination fee of approximately $2.3 million. The Company will record the early termination fee during the quarter ending December 31, 2023 (see Note 6).

Butantan Letter of Intent

On May 19, 2022, the Company and Instituto Butantan (“Butantan”) entered into a letter of intent, pursuant to which the Company and Butantan intend to establish a future technological collaboration in order to improve Butantan’s platform and develop the universal influenza vaccine candidate in collaboration with the Company.

Components of Results of Operations

Research and Development Expenses

Substantially all of our research and development expenses have consisted of expenses incurred in connection with the development of our product candidates. These expenses include fees paid to third parties to conduct certain research and development activities on our behalf, consulting costs, costs for laboratory supplies, product acquisition and license costs, certain payroll and personnel-related expenses, including salaries and bonuses, employee benefit costs and stock-based compensation expenses for our research and product development employees and allocated overheads, including information technology costs and utilities. We expense both internal and external research and development expenses as they are incurred.

We do not allocate our internal costs by product candidate, as a significant amount of research and development expenses include costs, such as payroll and other personnel expenses, laboratory supplies and allocated overhead, and external costs, such as fees paid to third parties to conduct research and development activities on our behalf, which are not tracked by product candidate.

We expect our research and development expenses to increase, once research and development activities are resumed. Predicting the timing or cost to complete our clinical programs or validation of our commercial manufacturing and supply processes is difficult and delays may occur because of many factors, including factors outside of our control. For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate, we could be required to expend significant additional financial resources and time on the completion of clinical development. Furthermore, we are unable to predict when or if our product candidates will receive regulatory approval with any certainty.

SEC Form 10-Q filed by Blue Water Biotech Inc.