Property
and Equipment, Net
Property
and equipment are stated at cost and are presented net of accumulated depreciation. Depreciation is provided for on a straight-line
basis over the estimated useful lives of the related assets as follows:
|
Machinery
and equipment
|
5
years
|
|
Computer
equipment
|
3
years
|
|
Molds
and tooling
|
5
years
|
|
Office
furniture and equipment
|
5
years
|
Leasehold
improvements are amortized on a straight-line basis over the shorter of the lease term or their estimated useful lives. The Company
occasionally designs and builds its own machinery. The costs of these projects, which includes the cost of construction and other
direct costs attributable to the construction, are capitalized as construction in progress. No provision for depreciation is made
on construction in progress until the relevant assets are completed and placed in service.
The
Company’s policy is to evaluate the remaining lives and recoverability of long-term assets on at least an annual basis or
when conditions are present that indicate impairment.
Intangible
Assets, Net
Intangibles
consist of patent-related costs and costs for license agreements. Management reviews the carrying value of intangible assets that
are being amortized on an annual basis or sooner when there is evidence that events or changes in circumstances may indicate that
impairment exists. The Company considers relevant cash flow and profitability information, including estimated future operating
results, trends and other available information, in assessing whether the carrying value of intangible assets being amortized
can be recovered.
If
the Company determines that the carrying value of intangible assets will not be recovered from the undiscounted future cash flows
expected to result from the use and eventual disposition of the underlying assets, the Company considers the carrying value of
such intangible assets as impaired and reduces them by a charge to operations in the amount of the impairment.
Costs
related to acquiring patents and licenses are capitalized and amortized over their estimated useful lives, which is generally
5 to 17 years, using the straight-line method. Amortization of patents and licenses commences once final approval of the
patent has been obtained. Patent and licenses costs are charged to operations if it is determined that the patent will
not be obtained.
The
carrying value of the patents of approximately $769,000 and $715,000 at September 30, 2020 and March 31, 2020, respectively,
are stated net of accumulated amortization of approximately $300,000 and $293,000, respectively. Amortization of patents charged
to operations for the three months ended September 30, 2020 and 2019 were approximately $3,000 for each period, and approximately
$7,000 and $6,000 for the six months ended September 30, 2020 and 2019, respectively. Total future estimated amortization of patent
costs for the five succeeding years is approximately $7,000 for the remaining six months in the year ending March 31, 2021, approximately
$14,000 for each of the years ending March 31, 2022 through 2023, approximately $13,000 for year 2024, approximately $9,000 for
year 2025 and approximately $412,000 thereafter.
The
carrying value of the licenses of approximately $939,000 and $544,000 at September 30, 2020 and March 31, 2020 are stated
net of accumulated amortization of approximately $398,000 and $395,000, respectively. Amortization of licenses charged to operations
for each of the three month periods ended September 30, 2020 and 2019 was approximately $2,000, and approximately $3,000 for each
of the six month periods ended September 30, 2020 and 2019. Total future estimated amortization of license costs is approximately
$4,000 for the remaining six months in the year ending March 31, 2021, approximately $7,000 for each of the years ending March
31, 2022 through 2023 and approximately $3,000 for year 2024, $0 for year 2025 and approximately $520,000 thereafter.
Derivative
Financial Instruments and Warrant Liabilities
The
Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates
all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or
contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities,
the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in
the fair value reported in the Condensed Consolidated Statements of Operations. Depending on the features of the derivative financial
instrument, the Company uses either the Black-Scholes option-pricing model or a Monte Carlo simulation to value the derivative
instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such
instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period (See Note 8).
Fair
value measurements The Company determines the fair value measurements of applicable assets and liabilities based on a three-tier
fair value hierarchy established by accounting guidance and prioritizes the inputs used in measuring fair value. The Company discloses
and recognizes the fair value of its assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable
inputs that are significant to the valuation (Level 3 measurements). The guidance establishes three levels of the fair value hierarchy
as follows:
|
●
|
Level
1 - Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability
to access at the measurement date;
|
|
●
|
Level
2 - Inputs other than quoted prices that are observable for the assets or liability either directly or indirectly, including
inputs in markets that are not considered to be active; and
|
|
●
|
Level
3 - Inputs that are unobservable.
|
Fair
Value of Financial Instruments
Cash
and cash equivalents, accounts receivable, accounts payable,
accrued liabilities, and debt are carried at cost, which management believes approximates fair value due to the short-term nature
of these instruments.
Stock-Based
Compensation
Stock-based
compensation cost for equity awards granted to employees and non-employees is measured at the grant date based on the calculated
fair value of the award using the Black-Scholes option-pricing model, and is recognized as an expense, under the straight-line
method, over the requisite service period (generally the vesting period of the equity grant). If we determine that other methods
are more reasonable, or other methods for calculating these assumptions are prescribed by regulators, the fair value calculated
for our stock options could change significantly. Higher volatility and longer expected lives would result in an increase to stock-based
compensation expense to employees and non-employees determined at the date of grant.
Income
Taxes
Deferred
income taxes are recognized for temporary differences in the basis of assets and liabilities for financial statement and income
tax reporting that arise due to net operating loss carry forwards, research and development credit carry forwards and from using
different methods and periods to calculate depreciation and amortization, allowance for doubtful accounts, accrued vacation, research
and development expenses, and state taxes. A provision has been made for income taxes due on taxable income and for the deferred
taxes on the temporary differences. The components of the deferred tax asset and liability are individually classified as current
and noncurrent based on their characteristics.
Deferred
tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes
in tax laws and rates on the date of enactment. Realization of the deferred income tax asset is dependent on generating sufficient
taxable income in future years.
Sales
and Excise Taxes
Sales
and other taxes collected from customers and subsequently remitted to government authorities are recorded as accounts receivable
with corresponding tax payable. These balances are removed from the balance sheet as cash is collected from customers and remitted
to the tax authority.
Warranty
Costs
The
Company’s warranty policy generally provides for one year of coverage against defects and nonperformance within published
specifications for sold analyzers and for the term of the contract for equipment held for lease. The Company accrues for estimated
warranty costs in the period in which the revenue is recognized based on historical data and the Company’s best estimates
of analyzer failure rates and costs to repair.
Accrued
warranty liabilities were approximately $29,000 and $35,000, respectively, at September 30, 2020 and March 31, 2020 and are included
in accrued expenses and other current liabilities on the balance sheets. Warranty costs were approximately $28,000 and $27,000
for the three months ended September 30, 2020 and 2019, respectively, and approximately $59,000 and $55,000 for the six months
ended September 30, 2020 and 2019, respectively, and are included in cost of product sales in the statements of operations.
Recent
Accounting Pronouncements
In
August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and
Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments
and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies accounting for convertible
instruments by removing major separation models required under current U.S. GAAP. ASU 2020-06 removes certain settlement conditions
that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings
per share calculation in certain areas. ASU 2020-06 is effective for the Company for fiscal years beginning after December 15,
2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning
after December 15, 2020 and adoption must be as of the beginning of the Company’s annual fiscal year. The Company is currently
evaluating the impact of this standard on its consolidated financial statements and related disclosures.
In
May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“Topic 606”).
The guidance in Topic 606 provides that an entity should recognize revenue to depict the transfer of goods or services provided
and establishes the following steps to be applied by an entity: (1) identify the contract with a customer; (2) identify the performance
obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations
in the contract; and (5) recognize revenue when (or as) the entity satisfies the performance obligation. Topic 606 will be effective
for fiscal years beginning after December 15, 2019 for the Company, based on the issuance of ASU 2020-05, which provided deferral
of the effective date for an additional one year in response to the coronavirus (COVID-19) pandemic. The Company adopted the new
revenue standard as of April 1, 2020 using the modified retrospective approach. The adoption of ASU 2014-09 did not have a material
impact on the Company’s condensed consolidated financial statements.
Other
accounting standard updates are either not applicable to the Company or are not expected to have a material impact on the Company’s
condensed consolidated financial statements.
NOTE
2 — LIQUIDITY
The
Company has incurred recurring losses from operations and has a net working capital deficit and an accumulated deficit
at September 30, 2020, and the Company continued to incur losses subsequent to the balance sheet date of September 30, 2020.
The Company’s reverse recapitalization transaction with Ritter Pharmaceuticals, Inc. (“Ritter”) closed in
May 2020 together with an associated new equity capital raise of approximately $4.0 million, and approximately $1.9 million in
convertible notes payable were converted into shares of the Company’s capital stock. In July and August 2020, the Company
raised an additional $18.0 million through two Securities Purchase Agreements with a single institutional investor (see Note 12).
Based on our current cash position, and assuming currently planned expenditures and level of operations, we believe we have
sufficient capital to fund operations for the twelve-month period subsequent to the issuance of the interim financial information.
However, there is no assurance that profitable operations will ever be achieved, or if achieved, could be sustained on a continuing
basis. Also, beyond such 12-month period, planned research and
development activities, capital expenditures, clinical and pre-clinical testing, and commercialization activities of the Company’s
products are expected to require significant additional financing. Additional financing may not be available on acceptable terms
or at all.
NOTE
3 — INVENTORY, NET
Inventory,
net consisted of the following at September 30, 2020 and March 31, 2020:
|
|
September
30, 2020
|
|
|
March
31, 2020
|
|
Raw
materials
|
|
$
|
537,502
|
|
|
$
|
457,425
|
|
Work
in process
|
|
|
156,679
|
|
|
|
117,729
|
|
Finished
goods
|
|
|
111,202
|
|
|
|
84,984
|
|
|
|
$
|
805,383
|
|
|
$
|
660,138
|
|
NOTE
4 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid
expenses and other current assets consisted of the following at September 30, 2020 and March 31, 2020:
|
|
September
30, 2020
|
|
|
March
31, 2020
|
|
Prepaid
insurance
|
|
$
|
1,643,060
|
|
|
$
|
26,981
|
|
Other
prepaid expenses and current assets
|
|
|
282,386
|
|
|
|
71,404
|
|
|
|
$
|
1,925,446
|
|
|
$
|
98,385
|
|
NOTE
5 — PROPERTY AND EQUIPMENT, NET
Property
and equipment, net consisted of the following at September 30, 2020 and March 31, 2020:
|
|
September
30, 2020
|
|
|
March
31, 2020
|
|
Machinery
and equipment
|
|
$
|
2,364,471
|
|
|
$
|
2,355,165
|
|
Construction
in progress–equipment
|
|
|
1,480,400
|
|
|
|
1,376,000
|
|
Computer
equipment
|
|
|
431,091
|
|
|
|
420,552
|
|
Leasehold
improvements
|
|
|
317,157
|
|
|
|
307,539
|
|
Molds
and tooling
|
|
|
260,002
|
|
|
|
260,002
|
|
Office
furniture and equipment
|
|
|
137,374
|
|
|
|
136,275
|
|
|
|
|
4,990,495
|
|
|
|
4,855,533
|
|
Less
Accumulated depreciation
|
|
|
(3,425,220
|
)
|
|
|
(3,408,019
|
)
|
|
|
$
|
1,565,275
|
|
|
$
|
1,447,514
|
|
Depreciation
expense relating to property and equipment was approximately $10,000 and $17,000 for the three months ended September 30, 2020
and 2019, respectively, and approximately $18,000 and $34,000 for the six months ended September 30, 2020 and 2019, respectively.
NOTE
6 — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued
expenses and other current liabilities consisted of the following at September 30, 2020 and March 31, 2020:
|
|
September
30, 2020
|
|
|
March
31, 2020
|
|
Board
compensation
|
|
$
|
53,809
|
|
|
$
|
—
|
|
Vacation
|
|
|
221,866
|
|
|
|
160,024
|
|
Royalties
|
|
|
11,361
|
|
|
|
26,099
|
|
Research
and development
|
|
|
152,815
|
|
|
|
288,184
|
|
Professional
fees
|
|
|
101,647
|
|
|
|
277,900
|
|
Office
rent
|
|
|
10,544
|
|
|
|
—
|
|
Deferred
rent
|
|
|
—
|
|
|
|
77,597
|
|
Warranty
costs
|
|
|
28,978
|
|
|
|
30,119
|
|
Payroll
|
|
|
55,031
|
|
|
|
35,052
|
|
Patent
and license fees
|
|
|
—
|
|
|
|
51,007
|
|
Sales
and use taxes
|
|
|
12,800
|
|
|
|
16,755
|
|
Income
taxes
|
|
|
6,230
|
|
|
|
8,100
|
|
Interest
|
|
|
1,820
|
|
|
|
247,569
|
|
Other
|
|
|
69,641
|
|
|
|
25,358
|
|
|
|
$
|
726,542
|
|
|
$
|
1,243,764
|
|
NOTE
7 — NOTES PAYABLE
Notes
payable consisted of the following at September 30, 2020 and March 31, 2020:
|
|
September
30, 2020
|
|
|
March
31, 2020
|
|
Insurance
Financing Agreement with a finance company, monthly payments of $119,943 including interest of 4.54% per annum; secured by
an insurance policy; due January 2021
|
|
$
|
475,269
|
|
|
$
|
—
|
|
An
unsecured promissory note with a bank, pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and
Economic Security Act
|
|
|
449,050
|
|
|
|
—
|
|
Equipment
Financing Agreement with a bank, monthly payments of $720 including imputed interest at 6.95% per annum; secured by laboratory
equipment; due October 2022
|
|
|
16,706
|
|
|
|
20,370
|
|
Equipment
Financing Agreement with a bank, monthly payments of $596 including imputed interest at 6.590% per annum; secured by manufacturing
equipment; due July 2021
|
|
|
6,123
|
|
|
|
9,441
|
|
A
Factoring and Security Agreement for up to $2,000,000 with a bank, interest at Prime plus 2% of the amount of advances outstanding
and a factoring fee of 0.01% per day of the face amount of each invoice for each calendar day that a factored invoice is outstanding
|
|
|
—
|
|
|
|
489,051
|
|
An
unsecured convertible note with an investor including interest at 10% per annum; due September 2019, which was extended by
the noteholder until May 2020
|
|
|
—
|
|
|
|
1,000,000
|
|
A
series of unsecured convertible bridge notes with investors, including interest of 8% per annum; due between June 2020 and
February 2021
|
|
|
—
|
|
|
|
410,000
|
|
A
series of unsecured convertible bridge notes with investors, including interest of 8% per annum; due between January and February
2022
|
|
|
—
|
|
|
|
290,198
|
|
|
|
|
947,148
|
|
|
|
2,219,060
|
|
Less
current portion, net of debt issuance costs
|
|
|
(787,478
|
)
|
|
|
(1,913,255
|
)
|
Notes
Payable, net of current portion
|
|
$
|
159,670
|
|
|
$
|
305,805
|
|
Future
maturities of notes payable are as follows as of September 30, 2020:
Year
Ending March 31,
|
|
Amount
|
|
2021
(six months)
|
|
$
|
668,505
|
|
2022
|
|
|
235,955
|
|
2023
|
|
|
42,688
|
|
Total
balance
|
|
$
|
947,148
|
|
NOTE
8 – WARRANT LIABILITIES
In
2004, the Company issued warrants to various investors and brokers for the purchase of Series C preferred stock in connection
with a private placement (the “Series C Warrants”). The Series C Warrants were subsequently extended and, upon closing
of the reverse recapitalization transaction with Ritter, exchanged for warrants to purchase common stock of the Company, pursuant
to the Series C Warrant terms as adjusted. The Series C Warrants were classified as liabilities, but had minimal fair value prior
to the merger with Ritter.
In
exchange for the Series C Warrants, upon closing of the merger with Ritter, the holders received warrants to purchase an aggregate
of 4,713,490 shares of the Company’s common stock at $0.72 per share, subject to adjustment. As of September 30, 2020, the
warrants have received in exchange for the Series C Warrants remaining terms ranging from 2.9 to 5.0 years.
The warrants were determined to be liability-classified pursuant to the guidance in ASC 480 and ASC 815-40, resulting from inclusion
of a leveraged ratchet provision for subsequent dilutive issuances.
The
following table summarizes the activity in the warrants received in exchange for the Series C Warrants for the six months
ended September 30, 2020:
|
|
Common
Stock Warrants (received in exchange for the
Series C Warrants)
|
|
|
|
Shares
|
|
|
Weighted–
Average
Exercise
Price
|
|
|
Range
of Exercise
Price
|
|
|
Weighted–
Average
Remaining
Life (Years)
|
|
Total outstanding
– March 31, 2020
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Series
C preferred stock warrants exchanged for common stock warrants upon reverse recapitalization
|
|
|
4,713,490
|
|
|
|
0.72
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total outstanding
– September 30, 2020
|
|
|
4,713,490
|
|
|
$
|
0.72
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
|
4,713,490
|
|
|
$
|
0.72
|
|
|
$
|
0.72
|
|
|
|
3.25
|
|
Non-Exercisable
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
The
following table summarizes the Series C Warrants activity for the six months ended September 30, 2019:
|
|
Series
C Preferred Stock Warrants
|
|
|
|
Shares
|
|
|
Weighted–
Average Exercise Price
|
|
|
Range
of Exercise Price
|
|
|
Weighted–
Average Remaining Life (Years)
|
|
Total
outstanding – March 31, 2019
|
|
|
1,441,180
|
|
|
$
|
2.35
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total outstanding
– September 30, 2019
|
|
|
1,441,180
|
|
|
$
|
2.35
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
|
1,441,180
|
|
|
$
|
2.35
|
|
|
|
$
2.25 – $2.70
|
|
|
|
5.35
|
|
Non-Exercisable
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
The
following table presents the Company’s fair value hierarchy for its warrant liabilities (all of which arise under the
warrants received in exchange for the Series C Warrants) measured at fair value on a recurring basis as of September 30, 2020:
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Prices
for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
Warrant
liabilities
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
|
Total
|
|
Balance
as of September 30, 2020
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
20,596,700
|
|
|
$
|
20,596,700
|
|
The
following table is a reconciliation for those items measured at fair value on a recurring basis using Level 3 inputs during the
six months ended September 30, 2020:
Warrant
liabilities
|
|
As
of September 30, 2020
|
|
Balance, March
31, 2020
|
|
$
|
—
|
|
Fair
value at issuance date
|
|
|
—
|
|
Change
in fair value included in the statement of comprehensive loss
|
|
|
20,596,700
|
|
Balance, September
30, 2020
|
|
$
|
20,596,700
|
|
The
value of the warrant liabilities is based on a valuation received from an independent valuation firm was determined using
a Monte-Carlo simulation.
The
value of the warrant liabilities (all of which arise under the warrants received in exchange for the Series C Warrants),
as of the dates set forth in the table above, was based on upon the following assumptions:
|
|
September
30, 2020
|
|
Stock
price
|
|
$
|
4.95
|
|
Exercise
price per share
|
|
$
|
0.72
|
|
Risk-free
interest rate
|
|
|
0.16%
— 0.28
|
%
|
Expected
volatility (peer group)
|
|
|
82.00%
— 85.00
|
%
|
Expected
life (in years)
|
|
|
2.85
— 5.02
|
|
Expected
dividend yield
|
|
|
0.00
|
%
|
Number
outstanding
|
|
|
4,713,490
|
|
NOTE
9 — LEASE OBLIGATIONS
The
tables below show the initial measurement of the operating lease right-of-use assets and liabilities as of April 1, 2020 and the
balances as of September 30, 2020, including the changes during the periods:
|
|
Operating
lease right-of-use assets
|
|
Operating
lease right-of-use-assets obtained in exchange for lease obligation at April 1, 2020:
|
|
$
|
585,513
|
|
Less
amortization of operating lease right-of-use assets
|
|
|
(101,870
|
)
|
Operating
lease right-of-use assets at September 30, 2020
|
|
$
|
483,643
|
|
|
|
Operating
lease liabilities
|
|
Lease
liabilities arising from obtaining right-of-use assets at April 1, 2020:
|
|
$
|
663,110
|
|
Less
principal payments on operating lease liabilities
|
|
|
(112,166
|
)
|
Lease liabilities
at September 30, 2020
|
|
|
550,944
|
|
Less
non-current portion
|
|
|
303,894
|
|
Current portion
at September 30, 2020
|
|
$
|
247,050
|
|
As
of September 30, 2020, the Company’s operating leases have a weighted-average remaining lease term of 2.1 years and a weighted-average
discount rate of 8.9%.
Total
lease expense was approximately $86,000 and $84,000, respectively, for the three month periods ended September 30, 2020 and 2019,
and approximately $173,000 for each of the six month periods ended September 30, 2020 and 2019. Lease expense was recorded in
cost of product sales, general and administrative expenses, research and development and sales and marketing expenses.
NOTE
10 — COMMITMENTS
The
Company leases its facilities under a long-term operating lease agreement expiring in October 2022. The agreement generally requires
the payment of utilities, real estate taxes, insurance, and repairs. Rent expense was approximately $65,000 for the three month
periods ended September 30, 2020 and 2019 and approximately $129,000 for each of the six month periods ended September 30, 2020
and 2019.
As
of September 30, 2020, future minimum payments during the next five fiscal years and thereafter are as follows:
Year
Ending March 31,
|
|
Amount
|
|
2021
(six months)
|
|
$
|
142,398
|
|
2022
|
|
|
290,492
|
|
2023
|
|
|
173,315
|
|
Total
|
|
|
606,205
|
|
Less
present value discount
|
|
|
(55,261
|
)
|
Operating
lease liabilities
|
|
$
|
550,944
|
|
NOTE
11 — RESEARCH AND LICENSE AGREEMENTS
Between
June 2018 and September 2020, the Company entered into license and sponsored research agreements with the University of Louisville
Research Foundation (“ULRF”) for ALAN (AS1411-GNP), a novel molecular-based compound that has shown promise as an
anticancer drug. Under the agreements, the Company will take over development, regulatory approval and commercialization of the
compound from ULRF and is responsible for maintenance of the related intellectual property portfolio. In return, ULRF received
a $50,000 convertible promissory note in payment of an upfront license fee, which was subsequently converted into the Company’s
common stock, and the Company will reimburse ULRF for sponsored research expenses of up to $805,000 and prior patent costs of
up to $200,000. In addition, the Company has agreed to pay ULRF (i) royalties, on patent-covered net sales associated with the
commercialization of anti-nucleolin agent-conjugated nanoparticles, of 4% (on net sales up to a cumulative $250,000,000) or 5%
(on net sales above a cumulative $250,000,000), until expiration of the last to expire of the licensed patents, (ii) 30% to 50%
of any non-royalty sublicensee income received (50% for sublicenses granted in the first two years of the ULRF license agreement,
40% for sublicenses granted in the third or fourth years of the ULRF license agreement, and 30% for sublicenses granted in the
fifth year of the ULRF license agreement or thereafter), (iii) reimbursements for ongoing costs associated with the preparation,
filing, prosecution and maintenance of licensed patents, incurred prior to June 2018, and (iv) payments ranging from $100,000
to $5,000,000 upon the achievement of certain regulatory and commercial milestones. Milestone payments for the first therapeutic
indication would be $100,000 for first dosing in a Phase 1 clinical trial, $200,000 for first dosing in a Phase 2 clinical trial,
$350,000 for first dosing in a Phase 3 clinical trial, $500,000 for regulatory marketing approval and $5,000,000 upon achieving
a cumulative $500,000,000 of Licensed Product sales; the Company would also pay another $500,000 milestone payment for any additional
regulatory marketing approval for each additional therapeutic (or diagnostic) indication. The Company also must pay ULRF shortfall
payments if the total amounts actually paid with respect to royalties and non-royalty sublicensee income for any year is less
than the applicable annual minimum (ranging from $10,000 to $50,000) for such year.
Sponsored
research expenses related to these agreements for the three months ended September 30, 2020 and 2019 were approximately $0 and
$93,000, and approximately $2,000 and $126,000 for the six months ended September 30, 2020 and 2019, respectively, and are recorded
in research and development expenses in the statements of operations. Patent
costs related to these agreements for the three months ended September 30, 2020 and 2019 were approximately $17,000 and $6,000
respectively, and approximately $164,000 and $66,000 for the six months ended September 30, 2020 and 2019, respectively. These
amounts are included in intangible assets on the balance sheets.
In
December 2018, the Company entered into a license agreement with Advanced Cancer Therapeutics, LLC (“ACT”), granting
the Company exclusive rights to develop and commercialize a novel aptamer-based anticancer technology. In return, ACT received
a $25,000 convertible promissory note in payment of an upfront license fee, which was subsequently converted into the Company’s
common stock. In addition, the Company agreed to pay ACT (i) royalties, on net sales associated with the commercialization of
ACT-GRO-777/AS1411, of 2% (only if patent-covered and only on net sales above a cumulative $3,000,000) or 1% (if not patent-covered,
but only on net sales above a cumulative $3,000,000), until the 15th anniversary of the ACT license agreement and (ii) milestone
payments of $100,000 for the Company raising a cumulative total of $2,000,000 in new equity financing after the date of the ACT
license agreement, $100,000 upon any first AS1411-based licensed product receiving the CE Mark or similar FDA status, and $500,000
upon cumulative worldwide AS1411-based licensed product net sales reaching $3,000,000. In May 2020, the $100,000 milestone payment
for the Company raising a cumulative total of $2,000,000 in new equity financing was triggered. This amount is included in intangible
assets as of September 30, 2020. Between April and August 2020, the Company purchased drug compounds from ACT for $10,000, and
an Investigational New Drug (IND) application from ACT for an additional $100,000. Upon successful recertification of the drug
compounds, ACT will receive an additional $50,000. Of these amounts, for the three and six months ended September 30, 2020, $100,000
and $110,000 respectively, are included in research and development expenses in the statements of operations.
In
March 2019, the Company entered into a sponsored research agreement and an option for a license agreement with ULRF for development
of several small-molecule RAS Inhibitor drug candidates. Under the terms of this agreement, the Company will reimburse ULRF for
sponsored research expenses of up to $693,000 for this program. In July 2020, the Company entered into an exclusive license agreement
with ULRF for RAS Interaction Inhibitor Drug Candidates. Under the agreement, the Company will take over development, regulatory
approval and commercialization of the candidates from ULRF and is responsible for maintenance of the related intellectual property
portfolio. In return, ULRF received approximately $112,000 for an upfront license fee and reimbursement of prior patent costs.
In addition, the Company has agreed to pay ULRF (i) royalties, on patent-covered net sales associated with the commercialization,
of 4% (on net sales up to a cumulative $250,000,000) or 5% (on net sales above a cumulative $250,000,000), until expiration of
the licensed patent, and 2.5% (on net sales for any sales not covered by Licensed Patents), (ii) 30% to 50% of any non-royalty
sublicensee income received (50% for sublicenses granted in the first two years of the ULRF license agreement, 40% for sublicenses
granted in the third or fourth years of the ULRF license agreement, and 30% for sublicenses granted in the fifth year of the ULRF
license agreement or thereafter), (iii) reimbursements for ongoing costs associated with the preparation, filing, prosecution
and maintenance of licensed patents, incurred prior to July 2020, and (iv) payments ranging from $50,000 to $5,000,000 upon the
achievement of certain regulatory and commercial milestones. Milestone payments for the first therapeutic indication would be
$50,000 for first dosing in a Phase 1 clinical trial, $100,000 for first dosing in a Phase 2 clinical trial, $150,000 for first
dosing in a Phase 3 clinical trial, $300,000 for regulatory marketing approval and $5,000,000 upon achieving a cumulative $500,000,000
of Licensed Product sales. The Company also must pay ULRF shortfall payments if the total amounts actually paid with respect to
royalties and non-royalty sublicensee income for any year is less than the applicable annual minimum (ranging from $20,000 to
$100,000) for such year.
Sponsored
research expenses related to these agreements for the three months ended September 30, 2020 and 2019 were approximately $50,000
and $39,000, and approximately $189,000 and $59,000 for the six months ended September 30, 2020 and 2019, respectively, and are
recorded in research and development expenses in the statements of operations. Patent costs related to these agreements for the
three and six months ended September 30, 2020 and 2019 were approximately $112,000 and $14,000, respectively. These amounts are
included in intangible assets on the balance sheets.
In
June 2020, the Company entered into an exclusive license agreement with ULRF for its intellectual property in the use of AS1411
as a treatment for COVID-19. Under the agreement, the Company will take over development, regulatory approval and commercialization
of the compound (for such use) from ULRF and is responsible for maintenance of the related intellectual property portfolio. In
return, ULRF received approximately $24,000 for an upfront license fee and reimbursement of prior patent costs. For the three
and six months ended September 30, 2020, the Company also incurred approximately $490,000 and $678,000 in costs respectively,
related to this agreement which are included in research and development expenses in the statement of operations. In addition,
the Company was required to enter into a separate sponsored research agreement with ULRF for at least $250,000. In November
2020, the Company executed a sponsored research agreement supporting up to approximately $430,000 in research
(see Note 14).
In
addition, the Company has agreed to pay ULRF (i) royalties, on patent-covered net sales associated with the commercialization,
of 4% (on net sales up to a cumulative $250,000,000) or 5% (on net sales above a cumulative $250,000,000), until expiration of
the licensed patent, and 2.5% (on net sales for any sales not covered by Licensed Patents), (ii) 30% to 50% of any non-royalty
sublicensee income received (50% for sublicenses granted in the first two years of the ULRF license agreement, 40% for sublicenses
granted in the third or fourth years of the ULRF license agreement, and 30% for sublicenses granted in the fifth year of the ULRF
license agreement or thereafter), (iii) reimbursements for ongoing costs associated with the preparation, filing, prosecution
and maintenance of licensed patents, incurred prior to June 2020, and (iv) payments ranging from $50,000 to $5,000,000 upon the
achievement of certain regulatory and commercial milestones. Milestone payments for the first therapeutic indication would be
$50,000 for first dosing in a Phase 1 clinical trial, $100,000 for first dosing in a Phase 2 clinical trial, $150,000 for first
dosing in a Phase 3 clinical trial, $300,000 for regulatory marketing approval and $5,000,000 upon achieving a cumulative $500,000,000
of Licensed Product sales. The Company also must pay ULRF shortfall payments if the total amounts actually paid with respect to
royalties and non-royalty sublicensee income for any year is less than the applicable annual minimum (ranging from $5,000 to $50,000)
for such year.
In
November 2015, the Company entered into a long-term development and supply agreement with Prediction Biosciences, SAS, an unrelated
party, to develop and manufacture diagnostic tests for use in the stroke point-of-care market. The Company recognizes development
revenue and product sales over the performance period of the contract. For the three and six months ended September 30, 2020,
there was no collaborative research revenue, and for the three and six months ended September 30, 2019, there was $40,000 collaborative
research revenue related to this agreement.
During
the year ended March 31, 2018, the Company extended a strategic partnership entered into in May 2016 with Sekisui Diagnostics,
LLC (“Sekisui”) until May 2022. The Company appointed Sekisui as its commercial partner and exclusive worldwide distributor
with the exception of certain customer accounts retained by Qualigen. The agreement contains a right of first refusal for
a potential acquisition of the Company by Sekisui until May 2022.
There
were product sales of approximately $476,000 and $634,000 for the three months ended September 30, 2020 and 2019, and product
sales of approximately $896,000 and $1,584,000 for the six months ended September 30, 2020 and 2019, respectively, related to
this agreement.
NOTE
12 — STOCKHOLDERS’ DEFICIT
As
of September 30, 2020, the Company had two classes of capital stock: common stock and Series Alpha convertible preferred stock.
As of March 31, 2020, the Company had two classes of capital stock with one being divided into five series: common stock and preferred
stock (Series A convertible preferred stock, Series B convertible preferred stock, Series C convertible preferred stock, Series
D convertible preferred stock and Series D-1 convertible preferred stock).
Common
Stock
Holders
of common stock generally vote as a class with the holders of the preferred stock and are entitled to one vote for each share
held. Subject to the rights of the holders of the preferred stock to receive preferential dividends, the holders of common stock
are entitled to receive dividends when and if declared by the Board of Directors. Following payment of the liquidation preference
of the preferred stock, as of March 31, 2020 any remaining assets would be distributed ratably among the holders of the common
stock and, on an as-if-converted basis, the holders of Series C convertible preferred stock, Series D convertible preferred stock
and Series D-1 convertible preferred stock) upon liquidation, dissolution or winding up of the affairs of the Company. Following
payment of the liquidation preference of the preferred stock, as of September 30, 2020 any remaining assets would be distributed
ratably among the holders of the common stock and, on an as-if-converted basis, the holders of Series Alpha convertible preferred
stock upon liquidation, dissolution or winding up of the affairs of the Company. The holders of common stock have no preemptive,
subscription or conversion rights and there are no redemption or sinking fund provisions.
At
September 30, 2020, the Company has reserved 14,418,983 shares of authorized but unissued common stock for possible future issuance.
At September 30, 2020, shares were reserved in connection with the following:
Exercise
of issued and future grants of stock options
|
|
|
3,723,356
|
|
Exercise of
stock warrants
|
|
|
9,751,712
|
|
Conversion
of Series Alpha preferred stock
|
|
|
943,915
|
|
Total
|
|
|
14,418,983
|
|
Series
A, B, C, D, D-1, Alpha Convertible Preferred Stock
At
March 31, 2020, there were 2,412,887, 7,707,736, 3,300,715, 1,508,305, 643,511 shares of Series A, B, C, D, D-1 convertible preferred
stock outstanding respectively. All shares of Series A, B, C, D, D-1 convertible preferred stock were converted into common stock
at the time of the May 2020 reverse recapitalization transaction.
In
the six-month period ended September 30, 2020, the holder of 4,662 shares of Series Alpha preferred stock converted its shares
of Series Alpha preferred stock into an aggregate of 6,304,485 shares of the Company’s common stock, and there were 698
shares of Series Alpha preferred stock outstanding at September 30, 2020.
Alpha
Securities Purchase Agreements
On
July 10, 2020, the Company closed a Securities Purchase Agreement (dated July 8, 2020) with a single institutional investor for
the purchase and sale for $8.0 million for (i) 1,140,570 shares of Company common stock, (ii) 780,198 pre-funded warrants (i.e.,
warrants to purchase shares of Company common stock, for which the exercise price is almost entirely prepaid) and (iii) 1,920,768
two-year warrants to purchase shares of Company common stock for an exercise price of $5.25 per share. Both sets of warrants included
a 9.99% beneficial-ownership blocker provision. The 780,198 pre-funded warrants were then exercised on July 21 and 22, 2020.
On
August 4, 2020, the Company closed a Securities Purchase Agreement (dated August 2, 2020) with a single institutional investor
for the purchase and sale for $10.0 million for (i) 1,717,106 shares of Company common stock, and (ii) 1,287,829 two-year warrants
to purchase shares of Company common stock for an exercise price of $6.00 per share. The warrants included a 9.99% beneficial-ownership
blocker provision.
Stock
Options and Warrants
The
Company recognizes all compensatory share-based payments as compensation expense over the service period, which is generally the
vesting period.
In
April 2020, the Company adopted the 2020 Stock Incentive Plan (the “2020 Plan”) which provides for the granting of
incentive or nonstatutory common stock options to qualified employees, officers, directors, consultants and other service providers.
At September 30, 2020 and 2019 there were 3,629,500 and 0 outstanding options respectively under the 2020 Plan and there were
427,657 and 0 options available respectively for future grant.
The
Company has in 2017 and earlier also granted equity classified warrants (originally exercisable to purchase Series C convertible
preferred stock, and now instead exercisable to purchase common stock) to service providers, as compensation for services. These
are to be differentiated from the Series C Warrants described in Note 8.
In
addition, the Company has granted warrants for purposes other than compensation for services.
The
following represents a summary of the options granted to employees and non-employee service providers that are outstanding at
September 30, 2020, and changes during the six-month period then ended:
|
|
Shares
|
|
|
Weighted–
Average Exercise Price
|
|
|
Range
of Exercise Price
|
|
|
Weighted–
Average Remaining Life (Years)
|
|
Total outstanding
– March 31, 2020
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Legacy
Ritter options
|
|
|
95,124
|
|
|
|
92.80
|
|
|
$
|
5.75—$1,465.75
|
|
|
|
1.65
|
|
Granted
|
|
|
3,629,500
|
|
|
|
5.09
|
|
|
$
|
4.70—$5.10
|
|
|
|
9.70
|
|
Expired
|
|
|
(1,268
|
)
|
|
|
34.54
|
|
|
$
|
15.00
— 562.50
|
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total outstanding
– September 30, 2020
|
|
|
3,723,356
|
|
|
$
|
7.33
|
|
|
$
|
4.70—$1,465.75
|
|
|
|
9.49
|
|
Exercisable
(vested)
|
|
|
108,856
|
|
|
$
|
2.72
|
|
|
$
|
4.70—$1,465.75
|
|
|
|
2.76
|
|
Non-Exercisable
(non-vested)
|
|
|
3,614,500
|
|
|
$
|
5.09
|
|
|
$
|
4.70—$5.10
|
|
|
|
9.70
|
|
There
was approximately $1.2 million and $0 of compensation costs related to outstanding options for the three months ended September
30, 2020 and 2019, and approximately $1.6 million and $0 for the six months ended September 30, 2020 and 2019, respectively.
As of September 30, 2020, there was approximately $13.1 million of total unrecognized compensation cost related to unvested stock-based
compensation arrangements. This cost is expected to be recognized over a weighted average period of 2.69 years.
No
stock options were exercised during the three months ended September 30, 2020.
The
exercise price for an option issued under the 2020 Plan is determined by the Board of Directors, but will be (i) in the case of
an incentive stock option (A) granted to an employee who, at the time of grant of such option, is a 10% stockholder, no less than
110% of the fair market value per share on the date of grant; or (B) granted to any other employee, no less than 100% of the fair
market value per share on the date of grant; and (ii) in the case of a non-statutory stock option, no less than 100% of the fair
market value per share on the date of grant. The options awarded under the 2020 Plan will vest as determined by the Board of Directors
but will not exceed a ten-year period. The weighted average grant date fair value per share of options granted during the six
months ended September 30, 2020 was $5.09.
Fair
Value of Equity Awards
The
Company utilizes the Black-Scholes option pricing model to value awards under its Plans. Key valuation assumptions include:
●
|
Expected
dividend yield. The expected dividend is assumed to be zero, as the Company has never paid dividends and has no current
plans to pay any dividends on the Company’s common stock.
|
|
|
●
|
Expected
stock-price volatility. The Company’s expected volatility is derived from the average historical volatilities of
publicly traded companies within the Company’s industry that the Company considers to be comparable to the Company’s
business over a period approximately equal to the expected term.
|
|
|
●
|
Risk-free
interest rate. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero
coupon U.S. Treasury notes with maturities approximately equal to the expected term.
|
|
|
●
|
Expected
term. The expected term represents the period that the stock-based awards are expected to be outstanding. The Company’s
historical share option exercise experience does not provide a reasonable basis upon which to estimate an expected term because
of a lack of sufficient data. Therefore, the Company estimates the expected term by using the simplified method provided by
the Securities and Exchange Commission. The simplified method calculates the expected term as the average of the time-to-vesting
and the contractual life of the options.
|
The
material factors incorporated in the Black-Scholes model in estimating the fair value of the options granted for the periods presented
were as follows:
|
|
For
the six months
ended
September
30, 2020
|
|
Expected
dividend yield
|
|
|
0.00
|
%
|
Expected
stock-price volatility
|
|
|
102
|
%
|
Risk-free
interest rate
|
|
|
0.33%
— 0.59
|
%
|
Expected average
term of options
|
|
|
6.0
|
|
Stock price
|
|
$
|
4.70
— 5.13
|
|
The
Company recorded share-based compensation expense and classified it in the condensed consolidated statements of operations as
follows:
|
|
For
the six months ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
General
and administrative
|
|
$
|
1,312,433
|
|
|
$
|
—
|
|
Research
and development
|
|
|
258,643
|
|
|
|
—
|
|
Total
|
|
$
|
1,571,076
|
|
|
$
|
—
|
|
Compensatory
Warrants
In
the six months ended September 30, 2020, in connection with the $4.0 million equity capital raise as part of the May 2020 reverse
recapitalization transaction, the Company issued common stock warrants to an advisor and its designees for the purchase of 811,431
shares of the Company’s common stock at an exercise price of $1.11 per share. The issuance cost of these warrants was charged
to additional paid-in capital, and did not result in expense on the Company’s statements of operations.
In
addition, various service providers hold equity classified compensatory warrants issued in 2017 and earlier (originally exercisable
to purchase Series C convertible preferred stock, and now instead exercisable to purchase common stock) for the purchase of
668,024 shares of Company common stock at a weighted average exercise price of $2.34 per share. These are to be differentiated
from the Series C Warrants described in Note 8. No compensatory warrants were issued in the six months ended September 30,
2019.
The
following table summarizes the equity classified compensatory warrant activity for the six months ended September 30, 2020:
|
|
Common
Stock
|
|
|
|
Shares
|
|
|
Weighted–
Average
Exercise
Price
|
|
|
Range
of Exercise Price
|
|
|
Weighted–
Average
Remaining
Life (Years)
|
|
Total outstanding
– March 31, 2020
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Series
C preferred stock compensatory warrants exchanged for common stock warrants upon reverse recapitalization
|
|
|
668,024
|
|
|
|
2.34
|
|
|
|
|
|
|
|
|
|
Granted
to advisor and its designees
|
|
|
811,431
|
|
|
|
1.11
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total outstanding
– September 30, 2020
|
|
|
1,479,455
|
|
|
$
|
1.67
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
|
664,428
|
|
|
$
|
2.34
|
|
|
$
|
2.07
—$2.54
|
|
|
|
3.78
|
|
Non-Exercisable
|
|
|
815,027
|
|
|
$
|
1.11
|
|
|
$
|
1.11
—$2.54
|
|
|
|
4.65
|
|
The
following table summarizes the compensatory warrant activity for the six months ended September 30, 2019:
|
|
Series C Preferred Stock
Warrants
|
|
|
|
Shares
|
|
|
Weighted– Average
Exercise Price
|
|
|
Range of Exercise Price
|
|
|
Weighted– Average
Remaining Life (Years)
|
|
Total outstanding – March 31, 2019
|
|
|
756,262
|
|
|
$
|
1.99
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(2,000
|
)
|
|
|
2.25
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total outstanding – September 30, 2019
|
|
|
754,262
|
|
|
$
|
1.99
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
|
746,142
|
|
|
$
|
1.99
|
|
|
|
$
1.83 – $2.25
|
|
|
|
5.09
|
|
Non-Exercisable
|
|
|
8,120
|
|
|
$
|
2.25
|
|
|
$
|
2.25
|
|
|
|
6.98
|
|
There
were no compensation costs related to outstanding warrants for the six months ended September 30, 2020 and 2019. As of September
30, 2020 and 2019, there was approximately $0 and $11,000 of unrecognized compensation cost related to nonvested warrants, respectively.
Noncompensatory
Equity Classified Warrants
In
the six months ended September 30, 2020, as a commitment fee, the Company issued noncompensatory equity classified warrants to
an investor for the purchase of 270,478 shares of Company common stock at an exercise price of $1.11 per share. In addition, in
July 2020 the Company issued noncompensatory equity classified warrants to an investor for the purchase of 2,700,966 shares of
Company common stock at an exercise price of $5.25 per share, and in August 2020 the Company issued noncompensatory equity classified
warrants to such investor for the purchase of 1,287,829 shares of Company common stock at an exercise price of $6.00 per share.
No noncompensatory equity classified warrants were issued in the six months ended September 30, 2019.
The
following table summarizes the noncompensatory equity classified warrant activity for the six months ended September 30, 2020:
|
|
Common
Stock
|
|
|
|
Shares
|
|
|
Weighted–
Average
Exercise
Price
|
|
|
Range
of Exercise Price
|
|
|
Weighted–
Average
Remaining
Life (Years)
|
|
Total outstanding
– March 31, 2020
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Legacy
Ritter warrants
|
|
|
81,455
|
|
|
|
54.04
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,478,985
|
|
|
|
5.21
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(1,673
|
)
|
|
|
1,562.50
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total
outstanding – September 30, 2020
|
|
|
3,558,767
|
|
|
$
|
5.59
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
|
3,558,767
|
|
|
$
|
5.59
|
|
|
$
|
1.11
– $2,325.00
|
|
|
|
2.03
|
|
Non-Exercisable
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
NOTE
13 — RELATED PARTY TRANSACTIONS
In
October 2017, Sekisui purchased all outstanding shares of the Company’s Series D and Series D-1 preferred stock from Gen-Probe
Incorporated. As such, Sekisui became a related party as of October 2017. These Series D and Series D-1 preferred stock shares
were converted into 1,980,233 shares of the Company’s common stock in connection with the reverse recapitalization transaction
in May 2020. The following are transactions made between the Company and Sekisui as of and for the three and six months ended
September 30, 2020 and 2019.
|
●
|
The
Company sells products and provides collaborative research & development (“R&D”) services to Sekisui.
As of September 30, 2020 and March 31, 2020, the Company had a receivable from Sekisui of approximately $189,000 and
$290,000, respectively. The Company recorded product sales of approximately $476,000 and $634,000 for the three months ended
September 30, 2020 and 2019, and approximately $896,000 and $1,584,000 for the six months ended September 30, 2020 and 2019,
respectively. In May 2019, the Company and Sekisui terminated the R&D portion of their distribution and development agreement.
There was no collaborative R&D revenue from Sekisui for the three and six months ended September 30, 2020 and 2019. The
Company had cost of product sales relating to Sekisui of approximately $603,000 and $604,000 for the three months ended September
30, 2020 and 2019, and approximately $1.1 million and $1.3 million for the six months ended September 30, 2020 and 2019, respectively.
R&D expenses relating to Sekisui were approximately $0 and $1,000 for the three months ended September 30, 2020 and 2019,
and approximately $0 and $541,000 for the six months ended September 30, 2020 and 2019, respectively.
|
|
|
|
|
●
|
As
of September 30, 2020 and March 31, 2020, the Company had approximately $0.2 million and $0.9 million, respectively, classified
as due to related party (Sekisui) on the accompanying balance sheets. The Company satisfied the $0.9 million obligation at
March 31, 2020 (related to product development financing payments made by Sekisui) by payment in full on July 21, 2020. The
$0.2 million obligation at September 30, 2020 represents amounts due related to the distribution portion of our strategic
partnership with Sekisui.
|
|
|
|
|
●
|
As
of September 30, 2020 and March 31, 2020, the Company had approximately $95,000 and $271,000 of deferred revenue from Sekisui
classified as deferred revenue on the accompanying balance sheets, respectively.
|
NOTE
14 — SUBSEQUENT EVENTS
The
Company entered into a Technology Transfer Agreement dated as of October 7, 2020 with Yi Xin Zhen Duan Jishu (Suzhou) Ltd. (“Yi
Xin”), of Suzhou, China, for Yi Xin to develop, manufacture and sell new generations of diagnostic test systems based on
the Company’s core FastPack® “laboratory in a pouch” technology. In addition, the Technology Transfer Agreement
authorized Yi Xin to manufacture and sell the Company’s current generations of rapid point-of-care FastPack diagnostic products
in China.
Under
the Technology Transfer Agreement, the Company is to receive certain cash payments in the third and fourth quarters of the Company’s
2021 fiscal year, plus royalties on all future new-generations and current-generations product sales by Yi Xin.
The
Company agreed to provide technology transfer and patent/know-how license rights to facilitate Yi Xin’s development and
commercialization.
The
Company gave Yi Xin the exclusive rights for China – which is a market the Company has not otherwise entered – both
for Yi Xin’s new generations of FastPack-based products and for Yi Xin-manufactured versions of the Company’s existing
FastPack product lines (1.0, IP and PRO). Yi Xin will also have the right to sell its new generations of FastPack-based diagnostic
test systems throughout the world (but not to or toward current customers of the Company’s existing generations of FastPack
products); any such non-China sales will, until May 1, 2022, be through Sekisui. In addition, after May 1, 2022, Yi Xin will have
the right to sell Yi Xin-manufactured versions of the Company’s existing FastPack 1.0, IP and PRO product lines worldwide
(other than in the United States and other than to or toward current non-US customers of those products). Also, after May 1, 2022,
Yi Xin will have the right to buy FastPack 1.0, IP and PRO products from the Company at distributor prices for resale in and for
the United States (but not to or toward current US customers of those products); the Company did not license Yi Xin to sell in
the United States market any Yi Xin-manufactured versions of those legacy FastPack PRO product lines, even after May 1, 2022.
The Company confirmed that it would not, after May 1, 2022, seek new FastPack customers outside the United States.
On
October 14, 2020, the Company issued 30,645 shares of its common stock upon the exercise of 30,645 warrants exercisable at $0.72
per share.
On
October 29, 2020, 370 shares of Series Alpha preferred stock were converted into 500,356 shares of the Company’s common
stock.
On
November 1, 2020, the Company entered into a contract with STA Pharmaceutical Co., Ltd. (WuXi STA), a subsidiary of WuXi AppTec,
for GMP production of AS1411, the Company’s lead drug candidate for the treatment of COVID-19 and other viral diseases,
for potential clinical trials in 2021.
On
November 11, 2020, the Company entered into a Sponsored Research Agreement with ULRF in connection with its license agreement
for the use of AS1411 as a treatment for COVID-19 (see Note 11).
On
November 12, 2020, the Company issued 1,000 shares of its common stock upon the exercise of 1,000 warrants exercisable at $0.72
per share.
Risks
Related to COVID-19 Pandemic
The
COVID-19 pandemic is affecting the United States and global economies and may affect the Company’s operations and those
of third parties on which the Company relies. While the potential economic impact brought by, and the duration of, the COVID-19
pandemic are difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce the
Company’s ability to access capital, which could negatively impact the Company’s short-term and long-term liquidity.
The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. The Company does not yet know the full
extent of potential delays or impacts on its business, financing or other activities or on healthcare systems or the global economy
as a whole. However, these effects could have a material impact on the Company’s liquidity, capital resources, operations
and business and those of the third parties on which the Company relies. For example, the Company believes the COVID-19 pandemic
was a primary cause of the Company’s decline in diagnostic product sales in the first two quarters of fiscal 2021. Deferral
of patients’ non-emergency visits to the facilities of the Company’s physician-office, clinic and small-hospital users
sharply reduced their use of the Company’s tests and their need to place further orders. This phenomenon is expected to
continue for the duration of the pandemic, although the degree of it will probably vary depending on progress toward suppressing
the pandemic, lockdowns and similar responses, and personal and societal behavior changes arising from psychological factors.