The accompanying unaudited condensed consolidated
financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United
States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”) applicable
to interim reports of companies filing as a smaller reporting company. These financial statements should be read in conjunction
with the audited financial statements and notes thereto contained in the Company’s Transition Report on Form 10-K for the
fiscal year ended December 31, 2020 filed with the SEC on March 31, 2021. In the opinion of management, the accompanying condensed
consolidated interim financial statements include all adjustments necessary in order to make the financial statements not misleading.
The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year or
any other future period. Certain notes to the financial statements that would substantially duplicate the disclosures contained
in the audited financial statements for the most recent fiscal year as reported in the Company’s Transition Report on Form
10-K have been omitted. The accompanying condensed consolidated balance sheet at March 31, 2021 has been derived from the audited
balance sheet at December 31, 2020 contained in such Form 10-K.
The core principle of
ASC 606 is that a company should recognize revenue to depict the transfer of promised goods or services to customers in
an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.
Under ASC 605, revenues from product
sales which included both the analyzer and various immunoassay products (“reagents”) were generally recognized upon
shipment, as no significant continuing performance obligations remained post shipment. Cash payments received in advance were
classified as deferred revenue and recorded as a liability. The Company was generally not contractually obligated to accept returns,
except for defective products. Revenue was recorded net of an allowance for estimated returns.
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 in-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 $172,000 and $169,000 at March 31, 2021 and December 31, 2020, respectively, are stated
net of accumulated amortization of approximately $307,000 and $303,000, respectively. Amortization of patents charged to operations for
the three months ended March 31, 2021 and 2020 were approximately $3,000 for each period. Total future estimated amortization of patent
costs for the five succeeding years is approximately $11,000 for the remaining nine months in the year ending December 31, 2021, approximately
$15,000 for each of the years ending December 31, 2022 through 2023, approximately $14,000 for year 2024, approximately $11,000 for year
2025 and approximately $106,000 thereafter.
The
carrying value of the in-licenses of approximately $17,000 and $19,000 at March 31, 2021 and December 31, 2020 are stated net
of accumulated amortization of approximately $402,000 and $400,000, respectively. Amortization of licenses charged to operations for
each of the three month periods ended March 31, 2021 and 2020 was approximately $2,000. Total future estimated amortization of license
costs is approximately $5,000 for the remaining nine months in the year ending December 31, 2021, approximately $7,000
for the year ending December 31, 2022 and approximately $5,000 for the year ending December 31, 2023.
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 the Company has 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 the Company determines that other methods are more
reasonable, or other methods for calculating these assumptions are prescribed by regulators, the fair value calculated for the Company-issued
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 $51,000 and $25,000, respectively, at March 31, 2021 and December 31, 2020 and are included in
accrued expenses and other current liabilities on the balance sheets. Warranty costs were approximately $25,000 and $27,000 for the three
months ended March 31, 2021 and 2020, respectively, and are included in cost of product sales in the statements of operations.
Recent
Accounting Pronouncements
In
June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Measurement of Credit Losses
on Financial Instruments, which supersedes current guidance by requiring recognition of credit losses when it is probable that
a loss has been incurred. The new standard requires the establishment of an allowance for estimated credit losses on financial
assets including trade and other receivables at each reporting date. The new standard will result in earlier recognition of allowances
for losses on trade and other receivables and other contractual rights to receive cash. In November 2019, the FASB issued ASU
No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842),
which extends the effective date of Topic 326 for certain companies until fiscal years beginning after December 15, 2022. The
new standard will be effective for the Company in the first quarter of fiscal year beginning January 1, 2023, and early adoption
is permitted. The Company has not completed its review of the impact of this standard on its consolidated financial statements.
However, based on the Company’s history of immaterial credit losses from trade receivables, management does not expect that
the adoption of this standard will have a material effect on the Company’s consolidated financial statements.
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 was 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/Topic 606 did not
have a material impact on its financial statements.
In
June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope
of Topic 718, Compensation—Stock Compensation, to include share-based payments issued to nonemployees for goods or services.
Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. ASU No. 2018-07
supersedes Subtopic 505-50, Equity—Equity-Based Payments to Non-Employees. The amendments in ASU No. 2018-07 are effective
beginning in 2020, with early adoption permitted, but no earlier than a company’s adoption date of Topic
606 Revenue from Contracts with Customers. The Company elected to adopt ASU 2018-07 as of April 1, 2020. The adoption did not
require the Company to restate previously reported results.
In
July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842) Targeted Improvements (“Topic 842”), which provides
for an alternative transition method by allowing companies to continue to use the legacy guidance in Topic 840, Leases, including
its disclosure requirements, in the comparative periods presented in the year of adoption of the new leases standard and recognize
a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather than the earliest
period presented. The Company adopted the standard as of April 1, 2020 and the most significant impact was the recognition of
a right-of-use asset and lease liability for the Company’s sole operating lease—the Company had no finance
leases. Adoption of Topic 842 did not require the Company to restate previously reported results as it elected to apply a
modified retrospective approach at the beginning of the period of adoption rather than at the beginning of the earliest comparative
period presented.
In
August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the
Disclosure Requirements for Fair Value Measurement,” an amendment to the accounting guidance on fair value measurements. The guidance
modifies the disclosure requirements on fair value measurements, including the removal of disclosures of the amount of and reasons for
transfers between Level 1 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes
for Level 3 fair value measurements. The guidance also adds certain disclosure requirements related to Level 3 fair value measurements.
The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company
adopted ASU No. 2018-13 on April 1, 2020 and the adoption of this guidance did not have a material impact on its 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 an accumulated deficit at March 31, 2021, and the Company expects to continue
to incur losses subsequent to the balance sheet date of March 31, 2021. The Company’s reverse recapitalization transaction with
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, August and December 2020,
the Company raised an additional $30.0 million through three Securities Purchase Agreements with a single institutional investor (see
Note 11). Based on the Company’s current cash position, currently planned expenditures and level of operations, the Company believes
it has sufficient capital to fund operations for the 12-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 March 31, 2021 and December 31, 2020:
|
|
March
31, 2021
|
|
|
December
31, 2020
|
|
Raw
materials
|
|
$
|
614,926
|
|
|
$
|
579,765
|
|
Work
in process
|
|
|
182,550
|
|
|
|
309,826
|
|
Finished
goods
|
|
|
88,379
|
|
|
|
63,867
|
|
|
|
$
|
885,855
|
|
|
$
|
953,458
|
|
NOTE
4 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid
expenses and other current assets consisted of the following at March 31, 2021 and December 31, 2020:
|
|
March
31, 2021
|
|
|
December
31, 2020
|
|
Prepaid
insurance
|
|
$
|
955,019
|
|
|
$
|
1,307,864
|
|
Prepaid
manufacturing expenses
|
|
|
57,117
|
|
|
|
1,181,029
|
|
Prepaid
investor relations expenses
|
|
|
133,501
|
|
|
|
150,000
|
|
Other
prepaid expenses
|
|
|
74,122
|
|
|
|
40,001
|
|
|
|
$
|
1,219,759
|
|
|
$
|
2,678,894
|
|
NOTE
5 — PROPERTY AND EQUIPMENT, NET
Property
and equipment, net consisted of the following at March 31, 2021 and December 31, 2020:
|
|
March
31, 2021
|
|
|
December
31, 2020
|
|
Machinery
and equipment
|
|
$
|
2,401,470
|
|
|
$
|
2,401,470
|
|
Construction
in progress–equipment
|
|
|
89,122
|
|
|
|
104,400
|
|
Computer
equipment
|
|
|
451,808
|
|
|
|
443,865
|
|
Leasehold
improvements
|
|
|
321,033
|
|
|
|
321,033
|
|
Molds
and tooling
|
|
|
260,002
|
|
|
|
260,002
|
|
Office
furniture and equipment
|
|
|
138,699
|
|
|
|
138,699
|
|
|
|
|
3,662,134
|
|
|
|
3,669,469
|
|
Less
Accumulated depreciation
|
|
|
(3,437,202
|
)
|
|
|
(3,422,146
|
)
|
|
|
$
|
224,932
|
|
|
$
|
247,323
|
|
Depreciation
expense relating to property and equipment was approximately $15,000 and $10,000 for the three months ended March 31, 2021 and 2020,
respectively.
NOTE
6 — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued
expenses and other current liabilities consisted of the following at March 31, 2021 and December 31, 2020:
|
|
March
31, 2021
|
|
|
December
31, 2020
|
|
Board
compensation
|
|
$
|
15,833
|
|
|
$
|
15,091
|
|
Vacation
|
|
|
248,071
|
|
|
|
230,457
|
|
Royalties
|
|
|
17,193
|
|
|
|
491
|
|
Research
and development
|
|
|
882,040
|
|
|
|
237,504
|
|
Professional
fees
|
|
|
181,636
|
|
|
|
58,261
|
|
Warranty
costs
|
|
|
51,487
|
|
|
|
24,871
|
|
Payroll
|
|
|
69,358
|
|
|
|
4,566
|
|
Patent
and license fees
|
|
|
—
|
|
|
|
7,204
|
|
Franchise,
Sales and use taxes
|
|
|
139,257
|
|
|
|
30,353
|
|
Income
taxes
|
|
|
6,256
|
|
|
|
3,326
|
|
Interest
|
|
|
—
|
|
|
|
—
|
|
Other
|
|
|
258,293
|
|
|
|
134,614
|
|
|
|
$
|
1,869,424
|
|
|
$
|
746,738
|
|
NOTE
7 — NOTES PAYABLE
Notes
payable consisted of the following at March 31, 2021 and December 31, 2020:
|
|
March
31, 2021
|
|
|
December
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; paid January 2021
|
|
$
|
—
|
|
|
$
|
119,491
|
|
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
|
|
|
12,913
|
|
|
|
14,826
|
|
Equipment
Financing Agreement with a bank, monthly payments of $596 including imputed interest at 6.59% per annum; secured by manufacturing
equipment; due July 2021
|
|
|
2.693
|
|
|
|
4,422
|
|
|
|
|
15,606
|
|
|
|
138,739
|
|
Less
current portion
|
|
|
(10,683
|
)
|
|
|
(131,766
|
)
|
Notes
Payable, net of current portion
|
|
$
|
4,923
|
|
|
$
|
6,973
|
|
Future
maturities of notes payable are as follows as of March 31, 2021:
Year
Ending December 31,
|
|
Amount
|
|
2021
(nine months)
|
|
$
|
8,633
|
|
2022
|
|
|
6,973
|
|
Total
balance
|
|
$
|
15,606
|
|
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 March 31, 2021, the warrants received
in exchange for the Series C Warrants have remaining terms ranging from 2.7 to 3.2 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 three months ended March
31, 2021:
|
|
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 – December 31, 2020
|
|
|
3,378,596
|
|
|
$
|
0.72
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(473,608
|
)
|
|
|
0.72
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(36,097
|
)
|
|
|
0.72
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total
outstanding – March 31, 2021
|
|
|
2,868,891
|
|
|
$
|
0.72
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
|
2,868,891
|
|
|
$
|
0.72
|
|
|
$
|
0.72
|
|
|
|
2.75
|
|
Of the 473,608 shares issued upon the
exercise of warrants during the three months ended March 31, 2021, 192,373 shares were issued upon net-exercises rather than
upon exercises for cash.
The
following table summarizes the Series C Warrants activity for the three months ended March 31, 2020:
|
|
Series
C Preferred Stock Warrants
|
|
|
|
Shares
|
|
|
Weighted–
Average
Exercise
Price
|
|
|
Range
of Exercise
Price
|
|
|
Weighted–
Average Remaining
Life
(Years)
|
|
Total
outstanding – December 31, 2019
|
|
|
1,441,180
|
|
|
$
|
2.35
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total
outstanding – March 31, 2020
|
|
|
1,441,180
|
|
|
$
|
2.35
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
|
1,441,180
|
|
|
$
|
2.35
|
|
|
$
|
2.25
– 2.70
|
|
|
|
4.85
|
|
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 using Level 3 inputs as of
March 31, 2021:
|
|
|
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 March 31, 2021
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,187,200
|
|
|
$
|
6,187,200
|
|
There
were no transfers of financial assets or liabilities between category levels for the three months ended March 31, 2021.
During the
three months ended March 31, 2021 the Company experienced $2.1 million in other income because the fair value of the warrant liabilities
declined to $6.2 million from $8.3 million at December 31, 2020, primarily due to warrant exercises. For the three
months ended March 31, 2020, change in fair value of warrant liabilities was $0 because the fair value was immaterial at both
the beginning and the end of the three months ended March 31, 2020.
The
value of the warrant liabilities was based on a valuation received from an independent valuation firm determined using a Monte-Carlo
simulation. For volatility, the Company considers comparable public companies as a basis for its expected volatility to calculate the
fair value of common stock warrants and transitions to its own volatility as the Company develops sufficient appropriate history as a
public company. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected term of the common
stock warrant. The Company uses an expected dividend yield of zero based on the fact that the Company has never paid cash dividends and
does not expect to pay cash dividends in the foreseeable future. Any significant changes in the inputs may result in significantly higher
or lower fair value measurements.
The
following are the weighted average and the range of assumptions used in estimating the fair value of warrant liabilities (weighted average
calculated based on the number of outstanding warrants on each issuance) as of March 31, 2021:
|
|
March
31, 2021
|
|
|
|
Range
|
|
|
Weighted
Average
|
|
Risk-free
interest rate
|
|
|
0.28%
— 0.42
|
%
|
|
|
0.30
|
%
|
Expected
volatility (peer group)
|
|
|
81.00
— 84.00
|
%
|
|
|
83.52
|
%
|
Term
of warrants (in years)
|
|
|
2.65
— 3.24
|
|
|
|
2.75
|
|
Expected
dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
NOTE
9 — LEASES
The Company leases its facilities under a
long-term operating lease agreement expiring in October 2022. The tables below show the operating lease right-of-use assets and
operating lease liabilities as of December 31, 2020 and the balances as of March 31, 2021, including the changes during
the periods:
|
|
Operating lease right-of-use assets
|
|
Net right-of-use assets at December 31, 2020
|
|
|
430,795
|
|
Less amortization of operating lease right-of-use assets
|
|
|
(54,179
|
)
|
Operating lease right-of-use assets at March 31, 2021
|
|
$
|
376,616
|
|
|
|
Operating lease liabilities
|
|
At December 31, 2020
|
|
$
|
491,565
|
|
Less principal payments on operating lease liabilities
|
|
|
(60,710
|
)
|
Operating lease liabilities at March 31, 2021
|
|
|
430,855
|
|
Less non-current portion
|
|
|
(168,254
|
)
|
Current portion at March 31, 2021
|
|
$
|
262,601
|
|
As
of March 31, 2021, the Company’s operating leases have a weighted-average remaining lease term of 1.6 years and a weighted-average
discount rate of 8.9%.
As
of March 31, 2021, future minimum payments during the next five fiscal years and thereafter are as follows:
Year
Ending December 31,
|
|
Amount
|
|
2021
(nine months)
|
|
$
|
217,156
|
|
2022
|
|
|
246,650
|
|
Total
|
|
|
463,806
|
|
Less
present value discount
|
|
|
(32,951
|
)
|
Operating
lease liabilities
|
|
$
|
430,855
|
|
Total
lease expense was approximately $86,000 and $84,000, respectively, for the three month periods ended March 31, 2021 and 2020. Lease expense
was recorded in cost of product sales, general and administrative expenses, research and development and sales and marketing expenses.
NOTE
10 — RESEARCH AND LICENSE AGREEMENTS
The
University of Louisville Research Foundation
Between
June 2018 and September 2020, the Company entered into license and sponsored research agreements with the University of Louisville Research
Foundation (“ULRF”) for QN-247, a novel aptamer-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 agreed to reimburse ULRF for sponsored
research expenses of up to $805,000 and prior patent costs of up to $200,000. In addition, the Company 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.
There
was approximately $62,000 and $0 in sponsored research expenses related to these agreements for the three months ended March 31, 2021
and 2020, respectively, and these amounts are recorded in research and development expenses in the statements of operations. Minimum
annual royalties of $0 and $10,000 related to these agreements are included in research and development expenses in the statements of
operations for the three months ended March 31, 2021 and 2020, respectively. License costs were approximately $36,000 and $0 related
to these agreements for the three months ended March 31, 2021 and 2020, respectively, and 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 interaction 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 February 2021, the Company extended the term of this agreement
for an additional 18 months (expires July 2022) and increased the amount that the Company will reimburse ULRF for sponsored research
expenses from $693,000 to approximately $1.4 million. 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 March 31, 2021 and 2020 were approximately $107,000 and $108,000,
respectively, and are recorded in research and development expenses in the statements of operations. License costs related to these agreements
for the three months ended March 31, 2021 and 2020 were approximately $46,000 and $0, respectively, and are included in research and
development expenses in the statements of operations.
In
June 2020, the Company entered into an exclusive license agreement with ULRF for its intellectual property in the use of QN-165 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. In addition, the Company was required
to enter into a separate sponsored research agreement with ULRF (for QN-165 as a treatment for COVID-19) for at least $250,000. In November
2020, the Company executed a sponsored research agreement with ULRF (for QN-165 as a treatment for COVID-19) supporting up to approximately
$430,000 in research which satisfied this requirement.
In
addition, the Company has agreed to pay ULRF (i) royalties, on patent-covered net sales associated with the commercialization of QN-165
as a treatment for COVID-19, 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 patents, 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 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.
Sponsored research expenses related to these agreements for the three
months ended March 31, 2021 and 2020 were approximately $69,000 and $0, respectively, and are recorded in research and development expenses
in the statements of operations. License costs related to these agreements for the three months ended March 31, 2021 and 2020 were $0
for each period.
Advanced
Cancer Therapeutics
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 QN-165, an aptamer-based drug candidate. 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 QN-165, 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 QN-165-based licensed
product receiving the CE Mark or similar FDA status, and $500,000 upon cumulative worldwide QN-165-based licensed product net sales reaching
$3,000,000. For the three months ended March 31, 2021 and 2020, license costs of approximately $2,000 and $0 related to this agreement,
respectively, are included in research and development expenses in the statements of operations.
Prediction
Biosciences
In
November 2015, the Company entered into a long-term development and supply agreement with Prediction Biosciences SAS 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 months ended March 31, 2021 and 2020, there was $0 and $45,000,
respectively, in collaborative research revenue related to this agreement.
Sekisui
Diagnostics
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 diagnostics 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 Sekisui against any potential
acquisition of the Company until May 2022.
There
were product sales to Sekisui of approximately $1.0 million for both of the three month periods ended March 31, 2021 and 2020, related
to this agreement.
Yi
Xin
In
October 2020, the Company entered into a Technology Transfer Agreement 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 technology. In addition, the Technology Transfer Agreement authorized Yi Xin to manufacture and sell the Company’s
current generations of FastPack System diagnostic products (1.0, IP and PRO) in China.
Under
the Technology Transfer Agreement, the Company received net cash payments of $250,000 in the final quarter of the year ended December
31, 2020, classified as deferred revenue on the December 31, 2020 balance sheet, and a cash payment of $420,000 during the three
months ended March 31, 2021. The Company will also receive low- to mid-single-digit royalties on any future new-generations and current-generations
product sales by Yi Xin. Of these amounts, the Company recognized approximately $38,000 in product sales and $479,000 in license
revenue included in the statement of operations for the three months ended March 31, 2021. The Company provided 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. 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 would,
until May 1, 2022, need to be through Sekisui. In addition, after May 1, 2022, Yi Xin will have the right to sell Yi Xin-manufactured
versions of 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 Company-manufactured 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 1.0, IP and PRO product lines, even after May 1, 2022. In the Technology Transfer Agreement, the Company confirmed that
it would not, after May 1, 2022, seek new FastPack customers outside the United States.
STA
Pharmaceutical
In
November 2020, the Company entered into a contract with STA Pharmaceutical Co., Ltd., a subsidiary of WuXi AppTec, for GMP production
of QN-165, the Company’s lead drug candidate for the treatment of COVID-19 and other viral diseases, for potential clinical trials
in 2021. In connection with this agreement, the Company paid an upfront deposit of approximately $1.1 million which was classified as
prepaid expenses on the December 31, 2020 balance sheet date, and all of which was included in research and development expenses in the
statement of operations for the three months ended March 31, 2021.
NOTE
11 — STOCKHOLDERS’ EQUITY
As
of March 31, 2021 and December 31, 2020, the Company had two classes of capital stock: common stock and Series Alpha 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, 2021 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
March 31, 2021, the Company has reserved 13,886,590 shares of authorized but unissued common stock for possible future issuance. At March
31, 2021, shares were reserved in connection with the following:
Exercise
of outstanding stock options and future grants of stock options
|
|
|
4,033,856
|
|
Exercise of outstanding
stock warrants
|
|
|
9,609,316
|
|
Conversion
of outstanding Series Alpha preferred stock
|
|
|
243,418
|
|
Total
|
|
|
13,886,590
|
|
Series
Alpha Preferred Stock
In
the three-month period ended March 31, 2021, no shares of Series Alpha convertible preferred stock were converted into shares of the
Company’s common stock, and there were 180 shares of Series Alpha preferred stock outstanding at March 31, 2021.
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.
On
December 18, 2020, the Company closed a Securities Purchase Agreement (dated December 16, 2020) with a single institutional investor
for the purchase and sale for $12,000,000 of (i) 2,370,786 shares of Company common stock, (ii) 1,000,000 pre-funded warrants (i.e.,
warrants to purchase shares of Company common stock, for which the exercise price is almost entirely prepaid) (iii) 1,348,314 two-year
warrants to purchase shares of Company common stock for an exercise price of $4.07 per share, and (iv) 842,696 warrants (first exercisable
6 months after issuance, and with an expiration date 30 months after issuance) to purchase shares of Company common stock for an exercise
price of $4.07 per share. The warrants included a 9.99% beneficial-ownership blocker provision. The 1,000,000 pre-funded warrants were
exercised on February 4, 2021.
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 March 31,
2021 and 2020 there were 3,940,000 and 0 outstanding options respectively under the 2020 Plan and there were 117,157 and 0 options available
respectively for future grant.
The
following represents a summary of the options granted (under the 2020 Plan and otherwise) to employees and non-employee service providers
that are outstanding at March 31, 2021, and changes during the three-month period then ended:
|
|
Shares
|
|
|
Weighted–
Average
Exercise
Price
|
|
|
Range
of Exercise
Price
|
|
|
Weighted–
Average Remaining
Life (Years)
|
|
Total
outstanding – December 31, 2020
|
|
|
4,011,356
|
|
|
$
|
7.05
|
|
|
$
|
3.52—1,465.75
|
|
|
|
9.29
|
|
Granted
|
|
|
27,000
|
|
|
|
3.29
|
|
|
|
3.29
|
|
|
|
9.91
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(4,500
|
)
|
|
|
3.68
|
|
|
|
3.52—4.97
|
|
|
|
9.78
|
|
Total
outstanding – March 31, 2021
|
|
|
4,033,856
|
|
|
$
|
7.03
|
|
|
$
|
3.29—1,465.75
|
|
|
|
9.04
|
|
Exercisable
(vested)
|
|
|
108,856
|
|
|
$
|
81.38
|
|
|
$
|
4.97—1,465.75
|
|
|
|
2.26
|
|
Non-Exercisable
(non-vested)
|
|
|
3,925,000
|
|
|
$
|
4.96
|
|
|
$
|
3.29—5.13
|
|
|
|
9.23
|
|
There
was approximately $1.3 million and $0 of compensation costs related to outstanding options for the three months ended March
31, 2021 and 2020, respectively. As of March 31, 2021, there was approximately $11.4 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 2.22 years.
No
stock options were exercised during the three months ended March 31, 2021 and 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 three months ended March 31, 2021 was $3.29.
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 three months
ended
March
31, 2021
|
|
Expected
dividend yield
|
|
|
0.00
|
%
|
Expected
stock-price volatility
|
|
|
102
|
%
|
Risk-free
interest rate
|
|
|
0.84%
— 1.04
|
%
|
Average
expected remaining years of life of options
|
|
|
6.0
|
|
Stock price
|
|
$
|
3.29
|
|
The
Company recorded share-based compensation expense and classified it in the condensed consolidated statements of operations as follows:
|
|
For
the three months ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
General
and administrative
|
|
$
|
1,092,228
|
|
|
$
|
—
|
|
Research
and development
|
|
|
169,895
|
|
|
|
—
|
|
Total
|
|
$
|
1,262,123
|
|
|
$
|
—
|
|
Equity
Classified Compensatory Warrants
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 during the three months ended March 31, 2021.
The
following table summarizes the equity classified compensatory warrant activity for the three months ended March 31, 2021:
|
|
Common
Stock
|
|
|
|
Shares
|
|
|
Weighted–
Average
Exercise
Price
|
|
|
Range
of Exercise
Price
|
|
|
Weighted–
Average
Remaining
Life (Years)
|
|
Total
outstanding – December 31, 2020
|
|
|
1,294,217
|
|
|
$
|
1.66
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(38,390
|
)
|
|
|
2.09
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(65,179
|
)
|
|
|
2.07
|
|
|
|
|
|
|
|
|
|
Total
outstanding – March 31, 2021
|
|
|
1,190,648
|
|
|
$
|
1.61
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
|
1,187,052
|
|
|
$
|
1.60
|
|
|
$
|
1.11
—2.54
|
|
|
|
4.00
|
|
Non-Exercisable
|
|
|
3,596
|
|
|
$
|
2.54
|
|
|
$
|
2.54
|
|
|
|
5.48
|
|
The
following table summarizes the compensatory warrant activity for the three months ended March 31, 2020:
|
|
Series
C Preferred Stock Warrants
|
|
|
|
Shares
|
|
|
Weighted–
Average
Exercise
Price
|
|
|
Range
of Exercise
Price
|
|
|
Weighted–
Average Remaining
Life
(Years)
|
|
Total
outstanding – December 31, 2019
|
|
|
754,262
|
|
|
$
|
1.99
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total
outstanding – March 31, 2020
|
|
|
754,262
|
|
|
$
|
1.99
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
|
746,142
|
|
|
$
|
1.99
|
|
|
$
|
1.83
– $2.25
|
|
|
|
4.59
|
|
Non-Exercisable
|
|
|
8,120
|
|
|
$
|
2.25
|
|
|
$
|
2.25
|
|
|
|
6.48
|
|
There
were no compensation costs related to outstanding warrants for the three months ended March 31, 2021 and approximately $8,000
for the three months ended March 31, 2020. As of March 31, 2021 and 2020, there was no unrecognized compensation cost related
to nonvested warrants.
Noncompensatory
Equity Classified Warrants
In
May 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 (of which warrants for 200,000 shares were subsequently
exercised in December 2020). In July 2020 the Company issued noncompensatory equity classified warrants to such investor
for the purchase of 780,198 shares of Company common stock at an exercise price of $0.001 per share (which were subsequently
exercised in July 2020), and 1,920,678 shares of Company common stock at an exercise price of $5.25 per share. 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. Lastly, in December 2020, the Company issued noncompensatory equity classified
warrants to such investor for the purchase of 1,000,000 shares of Company common stock at an exercise price of $0.01 per share
(which were exercised in February 2021) and 2,191,010 shares of Company common stock at an exercise price of $4.07
per share. No noncompensatory equity classified warrants were issued during the three months ended March 31, 2021.
The
following table summarizes the noncompensatory equity classified warrant activity for the three months ended March 31, 2021:
|
|
Common
Stock
|
|
|
|
Shares
|
|
|
Weighted–
Average
Exercise
Price
|
|
|
Range
of Exercise
Price
|
|
|
Weighted–
Average
Remaining
Life (Years)
|
|
Total
outstanding – December 31, 2020
|
|
|
6,549,777
|
|
|
$
|
4.36
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,000,000
|
)
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total
outstanding – March 31, 2021
|
|
|
5,549,777
|
|
|
$
|
5.15
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
|
4,707,081
|
|
|
$
|
5.34
|
|
|
$
|
1.11
– 2,325.00
|
|
|
|
1.47
|
|
Non-Exercisable
|
|
|
842,696
|
|
|
$
|
4.07
|
|
|
|
4.07
|
|
|
|
2.72
|
|
NOTE
12 — 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. During the nine months ended December 31, 2020, Sekisui ceased to be a related party as to the Company. In the attached
financial statements, information for 2020 periods and dates is presented without distinct “related party” treatment
for items pertaining to Sekisui.
NOTE 13 — SUBSEQUENT EVENTS
Management has evaluated subsequent events
pursuant to the requirements of ASC Topic 855—Subsequent Events, from the balance sheet date through the date the
financial statements were available to be issued, and has determined that there are no material subsequent events that require
disclosure in these financial statements.