Ocean Biomedical(OCEA) - 2023 Q4 - Annual Report

Financial Performance and Capital Requirements - The company has incurred significant net losses since inception and is expected to continue incurring substantial net losses for the foreseeable future[22] - The company requires substantial additional capital to finance operations, and failure to raise such capital may delay or reduce research and drug development programs[22] - The company may face increased regulatory costs and compliance requirements in connection with drug development, impacting financial performance[17] Regulatory and Compliance Issues - The company is subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expenses[26] - The company has identified a material weakness in internal control over financial reporting, which may affect the accuracy of financial condition reporting[24] - The company could be subject to investigations by Nasdaq, the SEC, or other regulatory authorities due to control deficiencies[1031] Internal Control and Governance - The company identified a material weakness in internal control over financial reporting due to inadequate staffing in the accounting department[28] - The company plans to hire additional accounting personnel and implement new controls to remediate the identified material weakness[29] - Current and future controls may become inadequate due to changes in business conditions, leading to undiscovered material weaknesses[1030] - Difficulties in developing or maintaining effective controls may negatively impact operating results and reporting obligations[1031] Ownership and Control - The company's principal stockholders and management own a significant percentage of common stock, exerting substantial control over shareholder matters[27] - The company qualifies as an "emerging growth company," which may make its securities less attractive to investors[31] Stock-Based Compensation and Valuation - The company recorded stock-based compensation expense of $0.6 million for the fiscal year ended December 31, 2023, primarily within general and administrative expenses[11] - The estimated fair value of stock options granted to non-employee directors was$3.73 per share, with a strike price of $10.00 per share[11] - The company utilized a Monte-Carlo simulation to value the Backstop Put Option Liability, with an estimated volatility of 100% and a risk-free rate of 4.4%[16] - The fair value of the 2023 Convertible Note was estimated using a Monte-Carlo simulation, with an estimated volatility of 50% and a risk-free rate of 5.3%[17] Segment and Reporting Structure - The company operates as a single reportable segment focused on developing therapeutic products in oncology, fibrosis, infectious diseases, and inflammation[19] - The company early adopted ASU 2020-06, simplifying the accounting for convertible instruments, effective January 1, 2023[21] - The company is evaluating the impact of ASU 2023-07 on its consolidated financial statements, which expands segment disclosures[22] Risks of Financial Reporting - The company may face material weaknesses in internal control over financial reporting, potentially affecting the accuracy and timing of financial reporting[1030] - Failure to remediate existing or future material weaknesses could result in loss of investor confidence and a decline in share price[1030] - A restatement of financial statements for prior periods could occur, potentially causing a decline in the price of common stock and warrants[1031] - The market opportunities for the company's product candidates may be relatively small, targeting patients ineligible for or who have failed prior treatments[22]