REVELATION BIOSCIENCES, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

REVELATION BIOSCIENCES, INC.  Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)
You should read the following discussion of our financial condition and results
of operations in conjunction with our financial statements and the notes
included elsewhere in the Form 10-Q. The following discussion contains
forward-looking statements that involve certain risks and uncertainties. Our
actual results could differ materially from those discussed in these statements.
Factors that could cause or contribute to these differences include those
discussed below and elsewhere in the Form 10-Q and our Annual Report on Form
10-K for the year ended December 31, 2021, particularly under the "Risk Factors"
and "Disclosure Regarding Forward-Looking Statements" sections.


Throughout this section, unless otherwise indicated, “we”, “our”, “us”, “Revelation” and the “Company” refer to Revelation Biosciences, Inc. and its subsidiary.

Overview


Revelation is a clinical-stage biopharmaceutical company founded in May 2020. We
are focused on the development or commercialization of innate immune system
therapeutics and diagnostics. Our current product candidates were developed by
Revelation to potentially prevent, treat and detect disease. Our therapeutic
product candidates are based on our therapeutic platform and consist of
REVTx-100, which is being developed for the prevention or treatment of
infections including those resulting from surgery, severe burns and antibiotic
resistance; REVTx-200, which is being developed as a potential intranasal
therapy that will be administered concurrently with a commercially available IM
vaccine; REVTx-300, which is being developed as a potential therapy for the
treatment of chronic organ disease including CKD and NASH; REVTx-99b, which is
being developed for the treatment of food allergies; and REVTx-99a, which was
being developed as a broad anti-viral nasal drop solution for the potential
prevention or potential treatment of respiratory viral infections until June of
2022. Our diagnostic, REVDx-501 (REVIDTM Rapid Test Kit), is being developed as
a rapid point of care or at home diagnostic product that can potentially be used
to detect various respiratory viral infections. The results display diagnostic
is similar to a home pregnancy test with a simple to read visual readout in less
than 15 minutes without the need for specialized instrumentation or complicated
sample collection.


From our beginnings in May 2020we have devoted substantially all of our resources to organizing and staffing our company, planning business, raising capital, and researching and developing REVTx-99a/b, REVTx-100, REVTx-200, REVTx-300, and REVDx-501, our candidates for products.



We have funded our operations since our inception in May 2020 to September 30,
2022 through the issuance and sale of our capital stock, from which we have
raised net proceeds of $29.9 million. Our current cash and cash equivalents
balance will not be sufficient to complete all necessary product development or
future commercialization efforts. We anticipate that our current cash and cash
equivalents balance will not be sufficient to sustain operations within one year
after the date that our unaudited financial statements for September 30, 2022
were issued, which raises substantial doubt about our ability to continue as a
going concern.


We plan to seek additional funding through public or private equity or debt
financings. We may not be able to obtain financing on acceptable terms, or at
all. The terms of any financing may adversely affect the holdings or the rights
of our stockholders. If we are unable to obtain funding we could be required to
delay, reduce or eliminate research and development programs, product portfolio
expansion or future commercialization efforts, which could adversely affect our
business operations.


We have incurred recurring losses since our inception, including a net loss of
$1.2 million and $9.6 million for the three and nine months ended September 30,
2022, respectively, and $3.0 million and $8.1 million for the three and nine
months ended September 30, 2021. As of September 30, 2022 we had an accumulated
deficit of $24.1 million. We expect to continue to generate operating losses and
negative operating cash flows for the foreseeable future if and as we:

continue research and development of our product candidates;

initiate clinical studies or preclinical development of our product candidates;

further develop and refine the manufacturing processes for our product candidates;

change or add manufacturers or suppliers of candidate materials to products;

seek regulatory and marketing clearances for any of our candidate products that successfully complete development;

acquire or license other candidate products, technologies or biological materials;

make milestone, royalty or other payments under future license agreements;

obtain, maintain, protect and enforce our portfolio of intellectual property;

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try to attract and retain qualified new and existing staff;

create additional infrastructure to support our operations as a public company
and incur increased legal, accounting, investor relations and other expenses;
and

experience delays or encounter problems with any of the above.

Our net losses can fluctuate significantly from quarter to quarter and from year to year, depending on the timing of our clinical trials and our expenditures on other research and development activities.



We have never generated revenue and do not expect to generate revenue from
product sales unless and until we successfully complete development and obtain
regulatory approval for REVTx-99b, REVTx-100, REVTx-200, REVTx-300, REVDx-501 or
other product candidates, which we expect will not be for at least several
years, if ever. Accordingly, until such time as we can generate significant
revenue from sales of REVTx-99b, REVTx-100, REVTx-200, REVTx-300, REVDx-501 or
other product candidates, if ever, we expect to finance our cash needs through a
combination of public or private equity offerings, debt financings or other
capital sources, including potential collaborations, licenses and other similar
arrangements. However, we may be unable to raise additional funds or enter into
such other arrangements when needed on favorable terms or at all. Our failure to
raise capital or enter into such other arrangements when needed would have a
negative impact on our financial condition and could force us to delay, limit,
reduce or terminate our product development or future commercialization efforts
or grant rights to develop and market product candidates that we would otherwise
prefer to develop and market ourselves.


Recent Developments

Business Combination

On January 10, 2022, we consummated the previously announced Business
Combination, pursuant to the terms of the agreement and plan of merger, dated as
of August 29, 2021 with Petra and Merger Sub. Pursuant to the Business
Combination Agreement, on the Closing Date, (i) Merger Sub merged with and into
Revelation Sub, with Revelation Sub as the surviving company in the Business
Combination, and became a wholly-owned subsidiary of Petra and (ii) Petra
changed its name to "Revelation Biosciences, Inc."


Investigation and development


Research and development expenses consist primarily of costs incurred for the
development of our product candidates, REVTx-99a/b, REVTx-100, REVTx-200,
REVTx-300 and REVDx-501. Our research and development expenses consist primarily
of external costs related to clinical development, costs related to contract
research organizations, costs related to consultants, costs related to acquiring
and manufacturing clinical study materials, costs related to contract
manufacturing organizations and other vendors, costs related to the preparation
of regulatory submissions, costs related to laboratory supplies and services,
and personnel costs. Personnel and related costs consist of salaries, employee
benefits and stock-based compensation for personnel involved in research and
development efforts.


We expense all research and development expenses in the periods in which they
are incurred. We accrue for costs incurred as the services are being provided by
monitoring the status of specific activities and the invoices received from our
external service providers. We adjust our accrual as actual costs become known.


We expect our research and development expenses to increase substantially for
the foreseeable future as we continue the development of REVTx-99b, REVTx-100,
REVTx-200, REVTx-300 and REVDx-501 and continue to invest in research and
development activities. The process of conducting the necessary clinical
research and product development to obtain regulatory approval is costly and
time consuming, and the successful development of REVTx-99b, REVTx-100,
REVTx-200, REVTx-300, REVDx-501 and any future product candidates is highly
uncertain. To the extent that our product candidates continue to advance into
larger and later stage clinical studies, our expenses will increase
substantially and may become more variable.


The actual probability of success for REVTx-99b, REVTx-100, REVTx-200,
REVTx-300, REVDx-501 or any future product candidate may be affected by a
variety of factors, including the safety and efficacy of our product candidates,
investment in the development of REVDx-501, investment in our clinical programs,
manufacturing capability and competition with other products. As a result, we
are unable to determine the timing of initiation, duration and completion costs
of our research and development efforts or when and to what extent we will
generate revenue from the commercialization and sale of REVTx-99b, REVTx-100,
REVTx-200, REVTx-300, REVDx-501 or any future product candidate.


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General and administrative


Our general and administrative expenses consist primarily of personnel costs,
expenses for outside professional services, including financial advisory, legal,
human resource, audit and accounting services and consulting costs. Personnel
and related costs consist of salaries, employee benefits and stock-based
compensation for personnel involved in executive, finance and other
administrative functions. We expect our general and administrative expenses to
increase for the foreseeable future as we increase the size of our
administrative function to support the growth of our business and support our
continued research and development activities. We also anticipate increased
expenses as a result of operating as a public company, including increased
expenses related to financial advisory services, audit, legal, regulatory,
investor relations costs, director and officer insurance premiums associated
with maintaining compliance with exchange listing and SEC requirements.


Other Income (Expenses), Net

Other income (expense), net consists primarily of gains and losses on foreign currency transactions, interest expense on notes payable and convertible notes, and interest income on our cash balances in savings accounts.



Results of Operations

The following table summarizes our results of operations for the periods
presented:

                                                  Three Months Ended                                 Nine Months Ended
                                                    September 30,                                      September 30,
                                        2022             2021            Change            2022             2021            Change
Operating expenses:
Research and development            $    381,566     $  1,532,782     $ 

(1,151,216 ) $5,037,429 $4,249,326 $788,103
General and administrative

               817,898        1,511,165         

(693,267) 4,608,755 3,844,212 764,543 Total operating expenses

               1,199,464        3,043,947       

(1,844,483 ) 9,646,184 8,093,538 1,552,646 Loss from operations

                  (1,199,464 )     (3,043,947 )      

1,844,483 (9,646,184) (8,093,538) (1,552,646) Total other income (expenses), net 28,728

             (557 )         29,285           24,221          (32,913 )         57,134
Net loss                            $ (1,170,736 )   $ (3,044,504 )   $  1,873,768     $ (9,621,963 )   $ (8,126,451 )   $ (1,495,512 )



Research and development expenses

The following table summarizes our research and development expenses for the periods presented:

                                                 Three Months Ended                              Nine Months Ended
                                                   September 30,                                   September 30,
                                       2022           2021            Change           2022            2021            Change

REVTx-99a clinical study expenses $8,993 $680,975 $(671,982) $3,086,960 $1,656,846 $1,430,114
REVTx-99b clinical study expenses 110,389 87,996 22,393 385,886 110,208 275,678 REVTx-99a/b manufacturing expenses 8,665

               -            8,665         225,578               -          225,578
REVDx-501 diagnostic development             -         336,521         

(336,521 ) 27,660 1,059,815 (1,032,155 ) Personnel expenses (including stock compensation)

               84,315         391,852         

(307,537) 1,078,573 1,158,260 (79,687) Other expenses

                         169,204          35,438          133,766         232,772         264,197          (31,425 )
Total research and development
expenses                             $ 381,566     $ 1,532,782     $ (1,151,216 )   $ 5,037,429     $ 4,249,326     $    788,103




Research and development expenses decreased by $1.2 million, from $1.5 million
for the three months ended September 30, 2021 to $0.4 million for the three
months ended September 30, 2022. The decrease was primarily due to a decrease of
$0.7 million in clinical study expenses related to REVTx-99a, $0.3 million in
diagnostic development expenses related to REVDx-501, and $0.3 million in
personnel expenses. The decrease in personnel expenses is primarily due to the
release of employees in July 2022, including a decrease of $0.1 million due to
the reversal of accrued bonus expense and non-cash, share-based compensation
expense related to forfeited, unvested equity awards, offset by an increase in
severance expense. These decreases were offset by an increase of $0.1 in other
expenses as a result of an increase in pre-clinical development costs related to
REVTx-200 and REVTx-300, lab supplies, lab facilities costs and consulting
expenses that were not specific to REVTx-99a/b or REVDx-501.



Research and development expenses increased by $0.8 million, from $4.2 million
for the nine months ended September 30, 2021 to $5.0 million for the nine months
ended September 30, 2022. The increase was primarily due to an increase of $1.4
million in clinical study expenses related to REVTx-99a, $0.3 million in
clinical study expenses related to REVTx-99b, and $0.2 million in REVTx-99a/b
manufacturing expenses. These increases were offset by a decrease of $1.0
million in diagnostic development expenses
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related to REVDx-501 and $0.1 million in personnel expenses. The decrease in
personnel expenses is primarily due to the release of employees in July 2022,
including a decrease of $0.1 million due to the reversal of accrued bonus
expense and non-cash, share-based compensation expense related to forfeited,
unvested equity awards, offset by an increase in severance expense.


General and adminsitrative expenses

The following table summarizes our general and administrative expenses for the periods presented:

                                               Three Months Ended                             Nine Months Ended
                                                 September 30,                                  September 30,
                                      2022           2021           Change          2022            2021           Change
Personnel expenses (including
employee stock-based
compensation)                       $ 364,988     $   615,934     $ (250,946 )   $ 1,551,447     $ 1,880,140     $  (328,693 )
Legal and professional fees
(including non-employee
stock-based compensation)             138,896         838,651       (699,755 )     1,775,839       1,858,556         (82,717 )
Other expenses                        314,014          56,580        257,434       1,281,469         105,516       1,175,953
Total general and administrative
expenses.                           $ 817,898     $ 1,511,165     $ (693,267 )   $ 4,608,755     $ 3,844,212     $   764,543




General and administrative expenses decreased by $0.7 million, from $1.5 million
for the three months ended September 30, 2021 to $0.8 million for the three
months ended September 30, 2022. The decrease was primarily due to a decrease of
$0.7 million in financial advisory fees, legal fees and professional consulting
service fees and $0.3 million in personnel expenses. The decrease in personnel
expenses is primarily due to the release of employees in July 2022, including a
decrease of $0.1 million due to the reversal of accrued bonus expense and
non-cash, share-based compensation expense related to forfeited, unvested equity
awards, offset by an increase in severance expense. These decreases were offset
by an increase of $0.3 million in other expenses as a result of an increase in
D&O Insurance.



General and administrative expenses increased by $0.8 million, from $3.8 million
for the nine months ended September 30, 2021 to $4.6 million for the nine months
ended September 30, 2022. The increase was primarily due to an increase of $1.2
million in other expense as a result of an increase in D&O Insurance. These
increases were offset by a decrease of $0.3 million in personnel expenses and
$0.1 million in financial advisory fees, legal fees and professional consulting
service fees. The decrease in personnel expenses is primarily due to the release
of employees in July 2022, including a decrease of $0.1 million due to the
reversal of accrued bonus expense and non-cash, share-based compensation expense
related to forfeited, unvested equity awards, offset by an increase in severance
expense.


Other Income (Expense), Net

Other income (expense), net was $557 for the three months ended September 30,
2021 and $28,728 for the three months ended September 30, 2022, related to
interest expense for foreign currency transaction gains and losses and interest
income from our cash balances in savings accounts.

Other income (expense), net was $32,913 for the nine months ended September 30,
2021 and $24,221 for the nine months ended September 30, 2022, related to
interest expense for the Promissory Notes Payable and Convertible Note, foreign
currency transaction gains and losses, and interest income from our cash
balances in savings accounts.


Liquidity and Capital Resources


Since our inception to September 30, 2022, we have funded our operations from
the issuance and sale of our common stock, preferred stock and warrants, from
which we have raised net proceeds of $29.9 million, of which $16.0 million was
received during the nine months ended September 30, 2022. As of September 30,
2022, we had available cash and cash equivalents of $6.2 million and an
accumulated deficit of $24.1 million.


Our use of cash is to fund operating expenses, which consist primarily of
research and development expenditures related to our therapeutic product
candidate, REVTx-99b, REVTx-100, REVTx-200, REVTx-300, and the development of
our diagnostic product, REVDx-501. We plan to increase our research and
development expenses substantially for the foreseeable future as we continue the
clinical development of our current and future product candidates. At this time,
due to the inherently unpredictable nature of product development, we cannot
reasonably estimate the costs we will incur and the timelines that will be
required to complete development, obtain marketing approval, and commercialize
our current product candidate, diagnostic product or any future product
candidates. For the same reasons, we are also unable to predict when, if ever,
we will generate revenue from product sales or any future license agreements
which we may enter into or whether, or when, if ever, we may achieve
profitability. Clinical and preclinical
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development timelines, the probability of success, and development costs can
differ materially from expectations. In addition, we cannot forecast the timing
and amounts of milestone, royalty and other revenue from licensing activities,
which future product candidates may be subject to future collaborations, when
such arrangements will be secured, if at all, and to what degree such
arrangements would affect our development plans and capital requirements.


We expect to continue to generate substantial operating losses for the
foreseeable future as we expand our research and development activities. We will
continue to fund our operations primarily through utilization of our current
financial resources and through additional raises of capital.


To the extent that we raise additional capital through partnerships or licensing
arrangements with third parties, we may have to relinquish valuable rights to
our product candidates, future revenue streams or research programs or to grant
licenses on terms that may not be favorable to us. If we raise additional
capital through public or private equity offerings, the ownership interest of
our then-existing stockholders will be diluted, and the terms of these
securities may include liquidation or other preferences that adversely affect
our stockholders' rights. If we raise additional capital through debt financing,
we may be subject to covenants limiting or restricting our ability to take
specific actions, such as incurring additional debt, making capital expenditures
or declaring dividends. If we are unable to obtain adequate financing when
needed, we may have to delay, reduce the scope of or suspend one or more of our
clinical studies or preclinical studies, research and development programs or
commercialization efforts or grant rights to develop and market our product
candidates or diagnostic product even if we would otherwise prefer to develop
and market such product candidates or diagnostic product ourselves.


continuing concern


We have incurred recurring losses since our inception, including a net loss of
$9.6 million for the nine months ended September 30, 2022. As of September 30,
2022 we had an accumulated deficit of $24.1 million, a stockholders' equity of
$2.2 million and available cash and cash equivalents of $6.2 million. We expect
to continue to incur significant operating and net losses, as well as negative
cash flows from operations, for the foreseeable future as we continue to
complete all necessary product development or future commercialization efforts.
We have never generated revenue and do not expect to generate revenue from
product sales unless and until we successfully complete development and obtain
regulatory approval for REVTx-99b, REVTx-100, REVTx-200, REVTx-300, REVDx-501 or
other product candidates, which we expect will not be for at least several
years, if ever. We do not anticipate that our current cash and cash equivalents
balance will be sufficient to sustain operations within one year after the date
that our unaudited financial statements for September 30, 2022 were issued,
which raises substantial doubt about our ability to continue as a going concern.


To continue as a going concern, we will need, among other things, to raise
additional capital resources. We plan to seek additional funding through public
or private equity or debt financings. We may not be able to obtain financing on
acceptable terms, or at all. The terms of any financing may adversely affect the
holdings or the rights of our stockholders. If we are unable to obtain funding
we could be required to delay, reduce or eliminate research and development
programs, product portfolio expansion or future commercialization efforts, which
could adversely affect our business operations.


The unaudited condensed consolidated financial statements for September 30,
2022, have been prepared on the basis that we will continue as a going concern,
and do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the possible inability for us to continue as a
going concern.


Cash Flows

The following table summarizes our cash flows for the periods presented:

                                                             Nine Months Ended
                                                               September 30,
                                                           2022              2021
Net cash used in operating activities                  $ (10,271,929 )   $ (8,211,666 )
Net cash used in investing activities                              -         (148,116 )
Net cash provided by financing activities.                15,192,646        

8,004,865

Net increase (decrease) in cash and cash equivalents $4,920,717 $

 (354,917 )



Net cash used in Operating Activities

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During the nine months ended September 30, 2022, net cash used in operating
activities was $10.3 million, which consisted of a net loss of $9.6 million and
a net change of $1.0 million in our net operating assets and liabilities, offset
by non-cash charges of $0.3 million comprised of stock-based compensation
expense, non-cash lease expense and depreciation expense.


During the nine months ended September 30, 2021, net cash used in operating
activities was $8.2 million, which consisted of a net loss of $8.1 million and a
net change of $0.5 million in our net operating assets and liabilities, offset
by non-cash charges of $0.4 million comprised of stock-based compensation
expense, non-cash lease expense and depreciation expense.


Net cash used in investment activities

During the nine months that ended September 30, 2022no cash was used in investing activities.

During the nine months that ended September 30, 2021net cash used in investing activities consisted of $0.1 million for the purchase of laboratory equipment.

Net cash provided by financing activities


During the nine months ended September 30, 2022, net cash provided by financing
activities was $15.2 million, from net proceeds of $4.2 million received in
connection with the Business Combination, after exercise of the Forward Share
Purchase Agreement of $7.7 million, net proceeds of $7.3 million received from
the PIPE, and net proceeds of approximately $4.5 million received from the July
2022 Public Offering, offset by $0.8 million in repayments of Promissory Notes
Payable, including interest expense.

During the nine months that ended September 30, 2021net cash provided by financing activities was $8.0 millionfrom the sale of our common stock, Series A Preferred Stock and Series A-1 Preferred Stock.

Contractual Obligations and Other Commitments


The following table summarizes our contractual obligations as of September 30,
2022 and the effects of such obligations are expected to have on our liquidity
and cash flow in future periods:

                                       Less than        1 to 3         3 to 5        More than
                                        1 year          years          years          5 years         Total
Operating lease obligations           $    17,192     $        -     $        -     $          -     $ 17,192
Premium Finance Agreement - D&O
Insurance                                  74,428                                                      74,428

Total contractual obligations $91,620 $ – $

  -     $          -     $ 91,620



We have entered into an operating lease for laboratory space in San Diego, California. The table above includes future minimum lease payments under the non-cancellable lease agreement.

We have entered into a Premium Financing Agreement with a lender that directly paid the D&O insurance. The table above includes future minimum payments under the cancellable Premium Financing Agreement.

We enter into contracts in the normal course of business with third party service providers and vendors. These contracts generally provide for termination with notice and are therefore cancellable contracts and are not considered contractual obligations and commitments.

Off-Balance Arrangements

From September 30, 2022we did not have any off-balance sheet arrangements as defined in Section 303(a)(4)(ii) of Regulation SK.

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