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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                    

Commission File Number 000-22245

SEELOS THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Nevada

    

87-0449967

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

300 Park Avenue, 2nd Floor, New York, NY 10022

(Address of Principal Executive Offices) (Zip Code)

(646) 293-2100

(Registrant’s telephone number, including area code)

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

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

Title of Each Class

    

Trading Symbol

    

Name of Each Exchange on Which Registered

Common Stock, par value $0.001 per share

SEEL

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes       No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes   No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of August 4, 2023, 127,365,359 shares of the common stock, par value $0.001, of the registrant were outstanding.

PART I.

ITEM 1. FINANCIAL STATEMENTS

Seelos Therapeutics, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

    

June 30, 

    

December 31, 

2023

2022

Assets

 

  

 

  

Current assets

 

  

 

  

Cash

$

5,843

$

15,533

Grant receivable

431

Prepaid expenses and other current assets

 

5,571

 

7,141

Total current assets

 

11,845

 

22,674

Operating lease right-of-use asset

 

44

 

72

Total assets

$

11,889

$

22,746

Liabilities and stockholders’ equity

 

 

  

Current liabilities

 

 

  

Accounts payable

$

6,437

$

3,626

Accrued expenses

 

5,589

 

7,282

Licenses payable

 

 

2,195

Short-term portion of convertible notes payable, at fair value

 

12,340

 

11,865

Warrant liabilities, at fair value

 

31,700

 

132

Operating lease liability

 

46

 

58

Total current liabilities

 

56,112

 

25,158

Convertible notes payable, at fair value

 

2,957

 

8,184

Operating lease liability, long-term

 

 

15

Total liabilities

 

59,069

 

33,357

Commitments and contingencies (note 12)

 

  

 

  

Stockholders’ equity (deficit)

 

  

 

  

Preferred stock, $0.001 par value, 10,000,000 shares authorized, no shares issued or outstanding as of June 30, 2023 and December 31, 2022

 

 

Common stock, $0.001 par value, 480,000,000 and 240,000,000 shares authorized, 124,188,236 and 107,168,256 issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

 

124

 

107

Additional paid-in-capital

 

210,367

 

204,026

Accumulated deficit

 

(257,671)

 

(214,744)

Total stockholders’ equity (deficit)

 

(47,180)

 

(10,611)

Total liabilities and stockholders’ equity (deficit)

$

11,889

$

22,746

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

3

Seelos Therapeutics, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Loss

For the Three Months and Six Months Ended June 30, 2023 and 2022

(In thousands, except share and per share data)

(Unaudited)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2023

    

2022

    

2023

    

2022

Revenue

Grant revenue

$

336

$

$

1,144

$

Total revenue

336

1,144

Operating expense

Research and development

8,509

18,356

14,177

28,365

General and administrative

 

2,780

 

2,883

 

6,852

 

6,884

Total operating expense

 

11,289

 

21,239

 

21,029

 

35,249

Loss from operations

 

(10,953)

 

(21,239)

 

(19,885)

 

(35,249)

Other income (expense)

 

 

 

 

Interest income

 

83

 

19

 

150

 

45

Interest expense

 

(7)

 

(5)

 

(14)

 

(12)

Change in fair value of convertible notes

 

(616)

 

(96)

 

(550)

 

(340)

Loss on extinguishment of debt

(5,507)

(5,520)

Loss on issuance of common stock and warrants

(4,301)

Change in fair value of warrant liabilities

 

(12,496)

 

49

 

(12,807)

 

283

Total other income (expense)

 

(18,543)

 

(33)

 

(23,042)

 

(24)

Net loss and comprehensive loss

$

(29,496)

$

(21,272)

$

(42,927)

$

(35,273)

Net loss per share basic and diluted

$

(0.22)

$

(0.20)

$

(0.35)

$

(0.33)

Weighted-average common shares outstanding basic and diluted

 

131,915,899

 

106,068,795

 

122,271,771

 

105,800,773

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

4

Seelos Therapeutics, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

For the Three Months Ended June 30, 2023 and 2022

(In thousands, except share data)

(Unaudited)

Additional

Total

Common Stock

Paid-In

Accumulated

Stockholders’

    

(Shares)

    

(Amount)

    

Capital

    

Deficit

    

Equity

Balance as of March 31, 2023

    

121,811,097

    

$

122

    

$

207,395

    

$

(228,175)

    

$

(20,658)

Stock-based compensation expense

 

 

 

988

 

 

988

Issuance of common stock for convertible note amendment

 

1,000,000

 

1

 

1,009

 

 

1,010

Issuance of common stock for payment of convertible notes and interest

 

1,377,139

 

1

 

975

 

 

976

Net loss

 

 

 

 

(29,496)

 

(29,496)

Balance as of June 30, 2023

124,188,236

$

124

$

210,367

$

(257,671)

$

(47,180)

Additional

Total

Common Stock

Paid-In

Accumulated

Stockholders'

    

(Shares)

    

(Amount)

    

Capital

    

Deficit

    

Equity

Balance as of March 31, 2022

 

105,590,773

$

105

$

200,743

$

(155,211)

$

45,637

Stock-based compensation expense

 

 

 

961

 

 

961

Issuance of common stock for prepaid services

 

100,000

 

 

60

 

 

60

Issuance of common stock for license acquired

 

500,000

 

1

 

840

 

 

841

Net loss

 

 

 

 

(21,272)

 

(21,272)

Balance as of June 30, 2022

 

106,190,773

$

106

$

202,604

$

(176,483)

$

26,227

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

5

Seelos Therapeutics, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

For the Six Months Ended June 30, 2023 and 2022

(In thousands, except share data)

(Unaudited)

Additional

Total

Common Stock

Paid-In

Accumulated

Stockholders’

    

(Shares)

    

(Amount)

    

Capital

    

Deficit

    

Equity

Balance as of December 31, 2022

 

107,168,256

$

107

$

204,026

$

(214,744)

$

(10,611)

Stock-based compensation expense

 

 

 

2,050

 

 

2,050

Issuance of common stock for prepaid services

 

250,000

 

 

190

 

 

190

Repurchase and retirement of common stock

 

(1,000,000)

 

(1)

 

1

 

 

Issuance of common stock, net of issuance costs

 

12,059,298

 

12

 

 

 

12

Issuance of common stock, convertible note amendment consideration

 

1,000,000

 

1

 

1,009

 

 

1,010

Issuance of common stock for payment of convertible notes payable

 

4,543,269

 

5

 

2,962

 

 

2,967

Issuance of common stock in at-the-market offering, net of issuance costs

75,768

68

68

Issuance of common stock, ESPP

 

91,645

 

 

61

 

 

61

Net loss

 

 

 

 

(42,927)

 

(42,927)

Balance as of June 30, 2023

124,188,236

$

124

$

210,367

$

(257,671)

$

(47,180)

Additional

Total

Common Stock

Paid-In

Accumulated

Stockholders'

    

(Shares)

    

(Amount)

    

Capital

    

Deficit

    

Equity

Balance as of December 31, 2021

 

105,500,445

$

105

$

198,428

$

(141,210)

$

57,323

Stock-based compensation expense

 

 

 

3,193

 

 

3,193

Issuance of common stock, options exercised

 

6,250

 

 

8

 

 

8

Issuance of common stock for prepaid services

 

100,000

 

 

60

 

 

60

Issuance of common stock for license acquired

 

500,000

 

1

 

840

 

 

841

Issuance of common stock, ESPP

 

84,078

 

 

75

 

 

75

Net loss

 

 

 

 

(35,273)

 

(35,273)

Balance as of June 30, 2022

 

106,190,773

$

106

$

202,604

$

(176,483)

$

26,227

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

6

Seelos Therapeutics, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2023 and 2022

(In thousands)

(Unaudited)

Six Months Ended June 30, 

    

2023

    

2022

Cash flows from operating activities

Net loss

$

(42,927)

$

(35,273)

Adjustments to reconcile net loss to net cash used in operating activities

 

  

 

  

Stock-based compensation expense

 

2,050

 

3,193

Change in fair value of warrant liability

 

12,807

 

(283)

Change in fair value of convertible notes payable

550

340

Research and development expense - license amendment

841

Loss on issuance of common stock and warrants

 

4,301

 

Amortization of right-of-use asset

 

28

 

Net loss on extinguishment of debt

5,520

Changes in operating assets and liabilities

 

 

Grant receivable

 

(431)

 

Prepaid expenses and other current assets

 

1,761

 

(6,363)

Accounts payable

 

2,811

 

613

Accrued expenses

 

(1,695)

 

(134)

Derivative liability

 

 

(1,174)

Lease liability

 

(27)

 

Licenses payable

(1,000)

800

Net cash used in operating activities

 

(16,252)

 

(37,440)

Cash flows (used in) provided by financing activities

 

  

 

  

Payment on convertible notes

(3,598)

Proceeds from issuance of common stock and warrants

11,226

Proceeds from issuance of common stock in at-the-market offering

68

Payment for repurchase of common stock

(1,195)

Payment of deferred offering costs

(126)

Proceeds from exercise of options

 

 

8

Proceeds from sales of common stock under ESPP

 

61

 

75

Net cash (used in) provided by financing activities

 

6,562

 

(43)

Net (decrease) increase in cash

 

(9,690)

 

(37,483)

Cash, beginning of period

 

15,533

 

78,734

Cash, end of period

$

5,843

$

41,251

Supplemental disclosure of cash flow information:

 

  

 

  

Cash paid for interest

$

271

$

9

Cash paid for income taxes

$

$

Non-cash investing and financing activities:

 

  

 

  

Fair value of warrants issued

$

15,515

$

Fair value of warrants issued for modification of convertible debt

$

3,247

$

Increase of debt principal for modification of convertible debt

$

1,250

$

Issuance of common stock for license payable

$

$

840

Deferred offering costs, accrued but not paid

$

$

127

Issunce of common stock for modification of convertible debt

$

1,010

$

Issuance of common stock for pincipal payments on convertible notes

$

2,669

$

Issuance of common stock for interest payments on convertible notes

$

298

$

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

7

Seelos Therapeutics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.Organization and Description of Business

Seelos Therapeutics, Inc. (together with its subsidiaries, the “Company”) is a clinical-stage biopharmaceutical company focused on achieving efficient development of products that address significant unmet needs in Central Nervous System (“CNS”) disorders and other rare disorders. The Company’s lead programs are SLS-002 for the potential treatment of acute suicidal ideation and behavior in patients with major depressive disorder (“ASIB in MDD”) and SLS-005 for the potential treatment of Amyotrophic Lateral Sclerosis (“ALS”) and Spinocerebellar Ataxia (“SCA”). SLS-005 for the potential treatment of Sanfilippo Syndrome currently requires additional natural history data, which is being considered. Additionally, the Company is developing several preclinical programs, most of which have well-defined mechanisms of action, including: SLS-004, SLS-006 and SLS-007 for the potential treatment of Parkinson’s Disease (“PD”). On March 29, 2023, the Company announced that it plans to focus the majority of its resources on the ongoing registration directed study of SLS-002 for ASIB in MDD and the fully enrolled Phase II/III study of SLS-005 in ALS. The Company further announced that it has temporarily paused additional enrollment of patients in the SLS-005-302 study in SCA. Patients already enrolled will continue in the study and data will continue to be collected in order to make decisions for resuming enrollment in the future. The Company also announced that it is pausing all non-essential preclinical work.

2.Liquidity and Going Concern

The accompanying condensed consolidated unaudited financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to its ability to continue as a going concern.

The Company has generated limited revenues, has incurred operating losses since inception, and expects to continue to incur significant operating losses for the foreseeable future and may never become profitable. As of June 30, 2023, the Company had $5.8 million in cash and an accumulated deficit of $257.7 million. The Company has historically funded its operations through the issuance of convertible notes (see Note 9), the sale of common stock (see Note 6) and exercises of warrants (see Note 10).

On March 10, 2023, the Company entered into a Securities Purchase Agreement (the “2023 Securities Purchase Agreement”) with a life sciences-focused investment fund (the “Investor”), pursuant to which, on March 14, 2023, the Company issued and sold an aggregate of 12,059,298 shares of common stock, pre-funded warrants exercisable for an aggregate of 9,340,702 shares of common stock and accompanying common warrants exercisable for an aggregate of 26,750,000 shares of common stock in a registered direct offering (the “Registered Direct Offering”), resulting in total net proceeds of $10.4 million, after deducting financial advisor fees and other offering expenses (see Note 6). On May 19, 2023, the Company entered into Amendment No. 1 to the 2023 Securities Purchase Agreement (the “2023 Purchase Agreement Amendment”), pursuant to which the Investor agreed to, among other things, waive certain restrictions on issuing and registering shares of common stock contained within the 2023 Securities Purchase Agreement to permit the Company to make the May Through September Payments (as defined below) in a combination of cash and shares of common stock as contemplated in the 2021 Note Amendment (as defined below). In consideration for entering into the 2023 Purchase Agreement Amendment, on May 19, 2023, the Company issued to the Investor warrants to purchase up to an aggregate of 4,000,000 shares of common stock. The fair value of these warrants upon issuance was $3.2 million and such amount is included within loss on extinguishment of debt on the condensed consolidated statement of operations.

On May 12, 2022, the Company entered into an Open Market Sale AgreementSM (the “Sale Agreement”) with Jefferies LLC, as sales agent (the “Agent”), pursuant to which the Company may offer and sell shares of its common stock from time to time through the Agent (the “Offering”). The Company also filed a prospectus supplement, dated May 12, 2022, with the Securities and Exchange Commission (the “SEC”) in connection with the Offering (the “Prospectus Supplement”) under the Company’s existing shelf Registration Statement on Form S-3, as amended (File No. 333-251356), which became effective on December 23, 2020 (the “Registration Statement”). Pursuant to the Prospectus Supplement, the Company may offer and sell shares having an aggregate offering price of up to $50.0 million. Under the terms of the Sale Agreement, the Agent is entitled to a commission at a fixed rate of 3.0% of the gross proceeds from each sale of shares under the Sale Agreement. The Company also reimburses the Agent for certain expenses incurred in connection with the Sale Agreement and agreed to provide indemnification and contribution to the Agent with respect to certain liabilities, including liabilities under the Securities Act of 1933, as amended, and the Securities Exchange Act of

8

1934, as amended. During the six months ended June 30, 2023, the Company sold an aggregate of 75,768 shares under the Sale Agreement, receiving net proceeds of $68,000. The Company currently intends to use any net proceeds from the Offering for general corporate purposes and to advance the development of its product candidates. However, the Company agreed in the 2023 Securities Purchase Agreement that it would not, subject to certain exceptions (including in relation to the satisfaction of the May Through September Payments), effect or enter into an agreement to effect any issuance of shares of common stock or common stock equivalents involving a variable rate transaction, which includes the Sale Agreement, until the earlier of: (a) such time as no investor holds any warrants issued in the Registered Direct Offering, and (b) the three year anniversary (or, in the case of an at-the-market offering, the one year anniversary) of the earlier of: (i) the date of public announcement by the Company of the full readout of the Phase II data with respect to SLS-002 in acute suicidal ideation and behavior in patients with major depressive disorder, and (ii) the date on which the VWAP (as defined in the warrants issued in the Registered Direct Offering) of the Company’s common stock is at or above $2.00 (subject to adjustment for reverse and forward share splits, recapitalizations and similar transactions following the date hereof) for three consecutive trading days (the trading day following the earlier of (i) and (ii), the “Trigger Date”).

On November 21, 2022, the Company received a written notice from Nasdaq indicating that, for the last thirty consecutive business days, the bid price for its common stock had closed below the minimum $1.00 per share requirement for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (“Rule 5550(a)(2)”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company was provided an initial period of 180 calendar days, or until May 22, 2023, to regain compliance. On May 23, 2023, Nasdaq provided a notice to the Company that the Company has not regained compliance with Rule 5550(a)(2) and was not eligible for a second 180 calendar day compliance period as the Company does not comply with the minimum $5,000,000 stockholder’s equity requirement for initial listing on the Nasdaq Capital Market. The Company timely submitted a hearing request before the Nasdaq Hearings Panel, and also provided the Nasdaq Hearings Panel with a plan to regain compliance, which plan included a commitment and intent to conduct a reverse stock split of the Company’s common stock to regain compliance with Rule 5550(a)(2) (the “Compliance Plan”). On June 26, 2023, the Company received a letter from Nasdaq granting the Company a temporary exception until October 31, 2023 to regain compliance with Rule 5550(a)(2) by evidencing a closing bid price of $1.00 or more per share for a minimum of ten consecutive trading sessions. On July 24, 2023, the Company received a letter from Nasdaq notifying the Company that it regained compliance with Rule 5550(a)(2), as required by the Nasdaq Hearings Panel and the Compliance Plan. This letter further noted that the Nasdaq Hearings Panel determined to continue the listing of the Company’s common stock.

Pursuant to the Registration Statement, the Company may offer from time to time any combination of debt securities, common and preferred stock and warrants. As of June 30, 2023, the Company had approximately $67.2 million available under the Registration Statement (inclusive of the $49.5 million that remained allocated to sales of shares pursuant to the Sale Agreement as of such date). The Company also has the ability to raise funds through other means, such as through the filing of a registration statement on Form S-1 or in private placements. The rules and regulations of the SEC or any other regulatory agencies may restrict the Company’s ability to conduct certain types of financing activities or may affect the timing of and amounts it can raise by undertaking such activities.

The Company evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year beyond the filing of this Quarterly Report on Form 10-Q. Based on such evaluation and the Company’s current plans (including the ongoing clinical programs for SLS-002, SLS-005, and other product candidates), which are subject to change, management believes that the Company’s existing cash and cash equivalents as of June 30, 2023 are not sufficient to satisfy its operating cash needs and that there is substantial doubt about its ability to continue as a going concern for the year after the filing of this Quarterly Report on Form 10-Q.

The Company’s future liquidity and capital funding requirements will depend on numerous factors, including:

its ability to raise additional funds to finance its operations;
its ability to maintain compliance with the listing requirements of the Nasdaq Capital Market;
the outcome, costs and timing of clinical trial results for the Company’s current or future product candidates;
potential litigation expenses;
the emergence and effect of competing or complementary products or product candidates;
its ability to maintain, expand and defend the scope of its intellectual property portfolio, including the amount and timing of any payments the Company may be required to make, or that it may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;
its ability to retain its current employees and the need and ability to hire additional management and scientific and medical personnel;

9

the terms and timing of any collaborative, licensing or other arrangements that it has or may establish;
the trading price of its common stock; and
its ability to increase the number of authorized shares as may be required to facilitate future financing events.

The Company may raise substantial additional funds, and if it does so, it may do so through one or more of the following: issuance of additional debt or equity and/or the completion of a licensing or other commercial transaction for one or more of the Company’s product candidates. If the Company is unable to maintain sufficient financial resources, its business, financial condition and results of operations will be materially and adversely affected. This could affect future development and business activities and potential future clinical studies and/or other future ventures. Failure to obtain additional equity or debt financing will have a material, adverse impact on the Company’s business operations. There can be no assurance that the Company will be able to obtain the needed financing on acceptable terms or at all. Additionally, equity or convertible debt financings will likely have a dilutive effect on the holdings of the Company’s existing stockholders.

3.Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto as of and for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K (the “Annual Report”) filed with the SEC on March 10, 2023. The accompanying financial statements have been prepared by the Company in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. In the opinion of management, the accompanying unaudited condensed consolidated financial statements for the periods presented reflect all adjustments, consisting of only normal, recurring adjustments, necessary to fairly state the Company’s financial position, results of operations and cash flows. The December 31, 2022 condensed consolidated balance sheet was derived from audited financial statements, but it does not include all U.S. GAAP disclosures. The unaudited condensed consolidated financial statements for the interim periods are not necessarily indicative of results for the full year. The preparation of these unaudited condensed consolidated financial statements requires the Company to make estimates and judgments that affect the amounts reported in the financial statements and the accompanying notes. The Company’s actual results may differ from these estimates under different assumptions or conditions.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. The most significant estimates in the Company’s financial statements relate to the valuation of warrants, valuation of convertible notes payable, and the valuation of stock options. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

Fair Value Measurements

The Company follows the accounting guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), for its fair value measurements of financial assets and liabilities measured at fair value on a recurring basis. Under this accounting guidance, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

10

The accounting guidance requires fair value measurements be classified and disclosed in one of the following three categories:

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Observable inputs other than Level 1 prices, for similar assets or liabilities that are directly or indirectly observable in the marketplace.

Level 3: Unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Fair Value Option

As permitted under FASB ASC Topic 825, Financial Instruments (“ASC 825”), the Company elected the fair value option to account for its November 2021 and December 2021 convertible notes (collectively, the “2021 Convertible Notes”). In accordance with ASC 825, the Company records these convertible notes at fair value with changes in fair value recorded in the Condensed Consolidated Statement of Operations and Comprehensive Loss. As a result of applying the fair value option, direct costs and fees related to the convertible notes were expensed as incurred and were not deferred.

Stock-based Compensation

The Company expenses stock-based compensation to employees, non-employees and board members over the requisite service period based on the estimated grant-date fair value of the awards and forfeitures rates. The Company accounts for forfeitures as they occur. Stock-based awards with graded-vesting schedules are recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model, and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. All stock-based compensation costs are recorded in general and administrative or research and development costs in the statements of operations based upon the underlying individual’s role at the Company.

Performance share awards are initially valued based on the Company’s closing stock price on the date of grant. The number of performance share awards that vest will be determined based on the achievement of specified performance milestones by the end of the performance period. Compensation expense for performance awards is recognized over the service period and will vary based on remeasurement during the performance period. If achievement of the performance milestone is not probable of achievement during the performance period, compensation expense is reversed.

Income (Loss) Per Common Share

Basic loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during each period. Diluted loss per share includes the effect, if any, from the potential exercise or conversion of securities, such as convertible debt, warrants, performance-based restricted stock unit awards and stock options that would result in the issuance of incremental shares of common stock. In computing the basic and diluted net loss per share applicable to common stockholders, the weighted average number of shares remains the same for both calculations due to the fact that when a net loss exists, dilutive shares are not included in the calculation as the impact is anti-dilutive.

11

The following potentially dilutive securities outstanding for the three and six months ended June 30, 2023 and 2022 have been excluded from the computation of diluted weighted average shares outstanding, as they would be anti-dilutive (in thousands):

Three and Six Months

Ended June 30, 

    

2023

    

2022

Outstanding stock options

15,341

10,300

Outstanding warrants

 

42,515

 

2,545

Convertible debt

 

2,630

 

3,704

 

60,486

 

16,549

Amounts in the table reflect the common stock equivalents of the noted instruments.

Recent Accounting Pronouncements

In August 2020, the FASB issued Accounting Standards Update (“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”). This standard simplifies the accounting for convertible debt instruments by removing the separation models for convertible debt with a cash conversion feature, as well as convertible instruments with a beneficial conversion feature. As a result, entities will account for a convertible debt instrument wholly as debt, unless certain other conditions are met. The elimination of these models will reduce non-cash interest expense for entities that have issued a convertible instrument that was within the scope of those models before the adoption of ASU 2020-06. Additionally, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and precludes the use of the treasury stock method for certain debt instruments. The provisions of ASU 2020-06 are applicable for the Company beginning after January 1, 2024, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020, and an entity should adopt the provisions at the beginning of its annual fiscal year. The Company has decided to early adopt the provisions of ASU 2020-06 as of January 1, 2023, and the Company does not expect the adoption of ASU 2020-06 to have an impact on its consolidated financial statements and related disclosures.

In June 2022, the FASB issued ASU No. 2022-03: ASC Subtopic 820 - Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”). ASU 2022-03 amends ASC 820 to clarify that a contractual sales restriction is not considered in measuring an equity security at fair value and to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value. ASU 2022-03 applies to both holders and issuers of equity and equity-linked securities measured at fair value. The amendments in ASU 2022-03 are effective for the Company for fiscal years beginning after December 15, 2023, and the interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The Company is evaluating the impact of this pronouncement on its consolidated financial statements and related disclosures.

4.Fair Value Measurement

The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values. There were no transfers between fair value measurement levels during the three and six months ended June 30, 2023.

12

The Company’s financial assets and liabilities measured at fair value at June 30, 2023 and December 31, 2022 are as follows (in thousands):

Fair Value Measurements

as of June 30, 2023

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Total

Assets:

Cash

$

5,843

$

$

$

5,843

Liabilities:

 

  

 

  

 

  

 

Convertible notes payable, at fair value

$

$

$

15,297

$

15,297

Warrant liabilities, at fair value

 

 

 

31,700

 

31,700

$

$

$

46,997

$

46,997

Fair Value Measurements

as of December 31, 2022

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Total

Assets:

Cash

$

15,533

$

$

$

15,533

Liabilities:

 

  

 

  

 

  

 

  

Convertible notes payable, at fair value

$

$

$

20,049

$

20,049

Warrant liabilities, at fair value

 

 

 

132

 

132

$

$

$

20,181

$

20,181

The fair value of the Company’s money market funds is based on quoted active market prices for the funds and is determined using the market approach.

The Company measures the 2021 Convertible Notes and warrant liabilities at fair value based on significant inputs not observable in the market, which causes them to be classified as a Level 3 measurement within the fair value hierarchy. These valuations use assumptions and estimates the Company believes would be made by a market participant in making the same valuation. The Company assesses these assumptions and estimates on an on-going basis as additional data impacting the assumptions and estimates are obtained. Changes in the fair value of the convertible notes payable and warrant liabilities related to updated assumptions and estimates are recognized within the Condensed Consolidated Statements of Operations and Comprehensive Loss.

The fair value of the 2021 Convertible Notes and warrant liabilities may change significantly as additional data is obtained, impacting the Company’s assumptions regarding probabilities of outcomes used to estimate the fair value of the liabilities. The estimates of fair value may not be indicative of the amounts that could be realized in a current market exchange. Accordingly, the use of different market assumptions and/or different valuation techniques may have a material effect on the estimated fair value amounts, and such changes could materially impact the Company’s results of operations in future periods.

2021 Convertible Notes

The 2021 Convertible Notes are valued using a Monte Carlo simulation model. The following assumptions were used in determining the fair value of the 2021 Convertible Notes as of June 30, 2023 and December 31, 2022:

    

June 30, 2023

    

December 31, 2022

 

Risk-free interest rate

 

5.22

%  

4.24

%

Volatility

 

90

%  

105

%

Dividend yield

 

%  

%

Contractual term (years)

 

1.4

 

1.9

Stock price

$

1.20

$

0.68

13

Warrant Liabilities

The common stock warrant liabilities are recorded at fair value using the Black-Scholes option pricing model.

The following assumptions were used in determining the fair value of the warrant liabilities valued using the Black-Scholes option pricing model as of June 30, 2023 and December 31, 2022:

    

June 30, 2023

    

December 31, 2022

 

Risk-free interest rate

 

4.10% - 5.46

%  

4.71

%

Volatility

 

96.6% - 106.0

%  

91.90

%

Dividend yield

 

%  

%

Expected term (years)

 

0.57 - 5.39

 

1.07

Weighted-average fair value

$

0.91 - 1.03

$

0.44

The following table is a reconciliation for the common stock warrant liabilities and convertible notes measured at fair value using Level 3 unobservable inputs (in thousands):

Convertible notes,

    

Warrant liabilities

    

Derivative liability

    

at fair value

Balance as of December 31, 2021

$

424

$

1,174

$

18,920

Settlement of derivative liability

 

 

(1,174)

 

Principal payment of convertible notes, at fair value

(1,888)

Issuance of derivative liability

Change in fair value measurement of derivative liability

 

 

 

Change in fair value measurement of convertible notes

 

 

 

3,017

Change in fair value measurement of warrant liability

 

(292)

 

 

Balance as of December 31, 2022

$

132

$

$

20,049

Principal payment of convertible notes, at fair value

 

 

 

(6,009)

Interest payment of convertible notes, at fair value

 

 

 

(556)

Issuance of convertible note

1,250

Loss on extinguishment of debt

13

Change in fair value measurement of convertible notes

550

Fair value of warrants issued

18,761

Change in fair value measurement of warrant liability

 

12,807

 

 

Balance as of June 30, 2023

$

31,700

$

$

15,297

For the three and six months ended June 30, 2023 and the year ended December 31, 2022, the changes in fair value of the convertible notes and warrant liability primarily resulted from the volatility of the Company’s common stock and the change in risk-free interest rates.

5.Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets are comprised of the following (in thousands):

    

June 30, 

December 31, 

    

2023

    

2022

Prepaid insurance

$

448

$

104

Prepaid clinical costs

 

4,972

 

6,837

Other

 

151

 

200

Prepaid expenses and other current assets

$

5,571

$

7,141

14

6.Common Stock Offerings

2023 Registered Direct Offering

On March 10, 2023, the Company entered into the 2023 Securities Purchase Agreement, pursuant to which the Company issued and sold an aggregate of 12,059,298 shares of common stock, pre-funded warrants exercisable for an aggregate of 9,340,702 shares of common stock (the “March 2023 Pre-Funded Warrants”) and accompanying common stock warrants exercisable for an aggregate of 26,750,000 shares of common stock (“March 2023 Common Warrants” and together with the March 2023 Pre-Funded Warrants, the “March 2023 Warrants”) in the Registered Direct Offering, resulting in total net proceeds of $10.4 million, after deducting financial advisor fees and other offering expenses. The securities were offered by the Company pursuant to the Company’s shelf registration statement on Form S-3 filed with the SEC on December 15, 2020, as amended on December 22, 2020 and declared effective by the SEC on December 23, 2020.

The March 2023 Pre-Funded Warrants were exercisable immediately upon issuance and have an exercise price of $0.001 per share of common stock. The March 2023 Common Warrants have an exercise price of $0.60 per share of common stock, will be exercisable beginning on September 11, 2023 and will expire on September 10, 2028.

The combined purchase price for one share and one accompanying March 2023 Common Warrant to purchase 1.25 shares of common stock in the Registered Direct Offering was $0.525 and the combined purchase price for one March 2023 Pre-Funded Warrant and one accompanying March 2023 Common Warrant to purchase 1.25 shares of common stock in the Registered Direct Offering was $0.524. The closing of the Registered Direct Offering occurred on March 14, 2023.

On May 19, 2023, the Company entered into the 2023 Purchase Agreement Amendment pursuant to which the Investor agreed to, among other things, waive certain restrictions on issuing and registering shares of common stock contained within the 2023 Securities Purchase Agreement to permit the Company to make the May Through September Payments (as defined below) in a combination of cash and shares of common stock as contemplated in the 2021 Note Amendment (as defined below). In consideration for entering into the 2023 Purchase Agreement Amendment, on May 19, 2023, the Company issued to the Investor warrants to purchase up to an aggregate of 4,000,000 shares of common stock. The fair value of these warrants upon issuance was $3.2 million and such amount is included within loss on extinguishment of debt on the condensed consolidated statement of operations.

7.License Agreements

Specific information pertaining to each of the Company’s significant license agreements is discussed in its audited financial statements included in the Annual Reports on Form 10-K for the years ended December 31, 2022 and 2021, including their nature and purpose, the significant rights and obligations of the parties, and specific accounting policy elections. The following represents updates for the three and six months ended June 30, 2023, if applicable, to the Company’s significant license agreements:

Acquisition of Assets from Phoenixus AG f/k/a Vyera Pharmaceuticals, AG and Turing Pharmaceuticals AG (“Vyera”)

On April 8, 2022, Seelos Corporation (“STI”), a wholly-owned subsidiary of the Company, and Vyera, entered into an amendment (the “Amendment”) to the Asset Purchase Agreement by and between STI and Vyera, dated March 6, 2018 (as amended by a first amendment thereto entered into on May 18, 2018, a second amendment thereto entered into on December 31, 2018, a third amendment thereto entered into on October 15, 2019 and a fourth amendment thereto entered into on February 15, 2021, the “Vyera Purchase Agreement”). Pursuant to the Vyera Purchase Agreement, STI acquired the assets and liabilities of Vyera related to a product candidate currently referred to as SLS-002 (intranasal ketamine) (the “Vyera Assets”) and agreed, among other things, to make certain development and commercialization milestone payments and royalty payments related to the Vyera Assets (the “Milestone and Royalty Payment Obligations”) and further agreed that in the event that the Company sold, directly or indirectly, all or substantially all of the Vyera Assets to a third party, then the Company would pay Vyera an amount equal to 4% of the net proceeds actually received by the Company as an upfront payment in such sale (the “Change of Control Payment Obligation”).

Pursuant to the Vyera Purchase Agreement, as amended by the Amendment, STI agreed to (i) make a cash payment to Vyera in the aggregate amount of $4.0 million on or before April 8, 2022 (the “Cash Payment”); (ii) issue to Vyera on or before April 11, 2022, 500,000 shares of the Company’s common stock (the “Initial Shares”); (iii) issue to Vyera on or before July 11, 2022, an additional 500,000 shares of the Company’s common stock (as adjusted for stock splits, stock dividends, combinations, recapitalizations and the like) (the “July 2022 Shares”); and (iv) issue to Vyera on or before January 11, 2023, an additional number of shares of the Company’s common stock equal to $1.0 million divided by the volume weighted average closing price of the Company’s

15

common stock for the ten consecutive trading days ending on the fifth trading day prior to the applicable date of issuance of the shares of the Company’s common stock (the “January 2023 Shares”, and together with the Cash Payment, the Initial Shares and the July 2022 Shares, the “Final Payments”). In consideration for the Final Payments, all of STI’s contingent payment obligations under the Vyera Purchase Agreement, including the Milestone and Royalty Payment Obligations and the Change of Control Payment Obligation, as well as all commercialization covenants of STI under the Vyera Purchase Agreement, will terminate in full upon the date that all of the Final Payments have been made.

On December 22, 2022, the Company entered into a Share Repurchase Agreement (the “Repurchase Agreement”) with Vyera, pursuant to which the Company agreed to repurchase the Initial Shares and the July 2022 Shares previously issued to Vyera for an aggregate purchase price of $1.2 million in January 2023.

The Company paid the $4.0 million Cash Payment and issued the Initial Shares to Vyera in April 2022. The Company issued the July 2022 Shares to Vyera in July 2022, and subsequently agreed to repurchase the Initial Shares and the July 2022 Shares in January 2023 pursuant to the Repurchase Agreement on December 22, 2022. The Company recognized $5.8 million in research and development expense during the three months ended June 30, 2022 related to the Amendment, which consisted of the initial cash payment of $4.0 million and $0.8 million for the Initial Shares and the July 2022 Shares, which were measured at their grant-date fair value. The Company also recognized a liability of $1.0 million related to the January 2023 Shares within accrued licenses payable. The Company recognized a liability of $1.2 million related to the Repurchase Agreement, as well as $0.5 million in research and development expense for the premium paid for the repurchased shares.

On January 3, 2023, the Company paid $1.2 million in cash to Vyera under the Repurchase Agreement to repurchase the Initial Shares and the July 2022 Shares.

On January 10, 2023, STI entered into Amendment No. 6 to the Vyera Purchase Agreement (“Amendment No. 6”) with Vyera, pursuant to which, STI agreed to make two cash payments to Vyera of $500,000 each on January 31, 2023 and February 28, 2023, in lieu of issuing the January 2023 Shares to Vyera. The Company paid the $500,000 cash payments on each of January 31, 2023 and February 28, 2023 in satisfaction of all Final Payments under the Vyera Purchase Agreement.

Acquisition of License from Stuart Weg, MD

On August 29, 2019, the Company entered into an amended and restated exclusive license agreement with Stuart Weg, M.D. (the “Weg License Agreement”), pursuant to which the Company was granted an exclusive worldwide license to certain intellectual property and regulatory materials related to SLS-002. Under the terms of the Weg License Agreement, the Company paid an upfront license fee of $75,000 upon execution of the agreement. The Company agreed to pay additional consideration to Dr. Weg as follows: (i) $0.1 million on January 2, 2020, (ii) $0.125 million on January 2, 2021, and (iii) in the event the FDA has not approved a New Drug Application for a product containing ketamine in any dosage on or before December 31, 2021, $0.2 million on January 2, 2022. The Company paid the required $0.1 million on January 2, 2020, $0.125 million on January 2, 2021 and $0.2 million on January 2, 2022.

The remaining potential regulatory and commercial milestones are not yet considered probable, and no other milestone payments have been accrued at June 30, 2023.

8.Accrued Expenses

Accrued expenses are comprised of the following (in thousands):

    

June 30, 

December 31, 

    

2023

    

2022

Professional fees

$

106

$

278

Personnel related

 

763

 

1,288

Outside research and development services

 

4,432

 

5,627

Insurance

286

Other

 

2

 

89

Accrued expenses, net

$

5,589

$

7,282

16

9.Debt

Convertible Notes

November 2021 and December 2021 Convertible Notes and Private Placement

On November 23, 2021, the Company entered into a Securities Purchase Agreement (the “2021 Lind Securities Purchase Agreement”) with Lind Global Asset Management V, LLC (“Lind V”) pursuant to which, among other things, on November 23, 2021 (the “Closing Date”), the Company issued and sold to Lind V, in a private placement transaction (the “Private Placement”), in exchange for the payment by Lind V of $20.0 million, (i) a convertible promissory note (as amended from time to time, the “2021 Note”) in an aggregate principal amount of $22.0 million (the “Principal Amount”), which will bear no interest until the first anniversary of the issuance of the 2021 Note and will thereafter bear interest at a rate of 5% per annum, and mature on November 23, 2024 (the “Maturity Date”), and (ii) 534,759 shares of Company common stock.

Commencing August 23, 2022, and from time to time and before the Maturity Date, Lind V has the option to convert any portion of the then-outstanding Principal Amount of the 2021 Note into shares of common stock at a price per share of $6.00, subject to adjustment for stock splits, reverse stock splits, stock dividends and similar transactions (the “Conversion Price”). Commencing August 23, 2022, the Company has the right to prepay, in whole or in part (exercisable by the Company at any time or from time to time prior to the Maturity Date), up to the full remaining Principal Amount of the 2021 Note with no penalty; however, if the Company exercises such prepayment right, Lind V will have the option to convert up to thirty-three and one-third percent (33 1/3)% of the amount that the Company elects to prepay at the Conversion Price. However, pursuant to the 2023 Securities Purchase Agreement, the Company agreed that, until the Trigger Date, except for the May Through September Payments (as defined below) made by the Company to Lind V under the 2021 Note, all other payments under the 2021 Note will be made in cash.

Subject to certain exceptions, the Company will be required to direct proceeds from any subsequent debt financings (including subordinated debt, convertible debt or mandatorily redeemable preferred stock but other than purchase money debt or capital lease obligations or other indebtedness incurred in the ordinary course of business) to repay the 2021 Notes, unless waived by Lind V in advance.

Beginning on November 23, 2022, the 2021 Note amortizes in twenty-four monthly installments equal to the quotient of (i) the then-outstanding Principal Amount of the 2021 Note, divided by (ii) the number of months remaining until the Maturity Date. All amortization payments shall be payable, at the Company’s sole option, in cash, shares of common stock or a combination of both. In addition, commencing on the last business day of the first month following November 23, 2022, the Company will pay, on a monthly basis, all interest that has accrued and remains unpaid on the then-outstanding Principal Amount of the 2021 Note. Any portion of an amortization payment or interest payment that is paid in shares of common stock shall be priced at 90% of the average of the five lowest daily volume weighted average prices of the common stock during the 20 trading days prior to the date of issuance of the shares. If, after the first amortization payment, the Company elects to make any amortization payments in cash, the Company shall pay a 5% premium on each cash payment. However, pursuant to the 2023 Securities Purchase Agreement, the Company agreed that, until the Trigger Date, except for the May Through September Payments made by the Company to Lind V under the 2021 Note, all other payments under the 2021 Note will be made in cash. In conjunction with the 2021 Lind Securities Purchase Agreement and the 2021 Note, on the Closing Date, the Company and Lind V entered into a security agreement, which provides Lind V with a first priority lien on the Company’s assets and properties. During the six months ended June 30, 2023, the Company issued 4,543,269 shares to Lind V to satisfy interest and principal payments due under the 2021 Note.

On May 19, 2023, the Company entered into Amendment No. 3 (the “2021 Note Amendment”) to the 2021 Note, pursuant to which the Company and Lind V agreed, among other things, that: (A) effective as of May 19, 2023, the outstanding Principal Amount was increased by $1,250,000 to $17,750,000 and the fair value of $1.3 million is included within loss on extinguishment of debt on the condensed consolidated statement of operations; (B) the Company shall not be required to maintain any minimum balance of cash or cash equivalents with one or more financial institutions prior to September 15, 2023, and that it shall thereafter be required to maintain an aggregate minimum balance equal to 50% of the then outstanding principal amount under the 2021 Note or more in cash or cash equivalents with one or more financial institutions; (C) effective as of September 15, 2023, upon an Event of Default (as defined in the 2021 Note), Lind V shall have the right to convert the then outstanding principal amount of the 2021 Note into shares of common stock at the lower of (x) the then-current conversion price (which is currently $6.00 per share, subject to adjustment in certain circumstances as described in the 2021 Note) and (y) 85% of the average of the five lowest daily volume weighted average price of the common stock during the 20 trading days prior to the delivery by Lind V of a notice of conversion; (D) all payments of accrued

17

interest and monthly payments of the outstanding principal amount payable by the Company for the months of May, June, July, August and September 2023 (collectively, the “May Through September Payments”) shall be paid by the Company to Lind V in a combination of cash and shares of common stock (with such combination determined at the Company’s option), and the number of shares to be issued calculated as previously provided in the 2021 Note (determined by dividing the principal amount plus interest (if any) being paid in shares by 90% of the average of the five lowest daily volume weighted average price of common stock during the 20 trading days prior to each respective payment date); provided that no less than $600,000 of the monthly principal payments for the months of May, June, July, August and September 2023 shall be paid in cash, with the remainder paid in shares of common stock. As consideration for entering into the 2021 Note Amendment, on May 19, 2023, the Company issued to Lind V 1,000,000 shares of restricted common stock. The 2021 Note Amendment represents a modification accounted for as an extinguishment of the debt resulting in a remeasurement event of the 2021 Note in accordance with ASC 825-10. As a result of the modification, the Company recognized a gain or loss on extinguishment of the debt, recorded as a component of the change in fair value of convertible notes on the condensed consolidated statements of operations. The Company will continue to account for the 2021 Note using the fair value election. The fair value of these shares of restricted common stock upon issuance was $1.0 million and such amount is included in loss on extinguishment of debt on the condensed consolidated statement of operations.

On December 2, 2021, the Company entered into two separate securities purchase agreements with certain accredited investors on substantially the same terms as the 2021 Lind Securities Purchase Agreement, pursuant to which the Company sold, in private placement transactions, in exchange for the payment by the accredited investors of an aggregate of $201,534, (i) convertible promissory notes in an aggregate principal amount of $221,688, which did not bear interest and mature on December 2, 2024 (the “December 2021 Notes”), and (ii) an aggregate of 5,388 shares of its common stock. These notes had substantially the same terms as the 2021 Note. On February 22, 2023, the December 2021 Notes were repaid in full and the Company recognized a loss on extinguishment of debt of $13,000 during the six months ended June 30, 2023.

During the year ended December 31, 2021, the Company received aggregate gross proceeds of $20.2 million from the convertible note offerings. The Company elected to account for these notes under the fair value option. At time of issuance, the Company recorded a liability of $19.2 million, which was determined to be the fair value at time of issuance. As of December 31, 2022 and 2021, the Company recognized a total convertible note liability of $20.0 million and $18.9 million, respectively. During the year ended December 31, 2022 and 2021, the Company recognized $3.0 million loss and $0.2 million gain, respectively, on changes in fair value of convertible notes. During each of the three and six months ended June 30, 2023, the Company recognized losses of $0.6 million on changes in fair values of convertible notes. During the three and six months ended June 30, 2022, the Company recognized losses of $0.1 million and $0.3 million, respectively on changes in fair value of convertible notes. During each of the three and six months ended June 30, 2023, the Company recognized losses of $5.5 million on loss on extinguishment of debt on the condensed consolidated statement of operations.

During the six months ended June 30, 2023, the Company made principal payments of $5.7 million (consisting of $2.7 million of common stock and $3.0 million of cash) and interest payments of $0.5 million (consisting of $0.3 million of common stock and $0.2 million of cash), respectively, on the convertible notes. During the year ended December 31, 2022, the Company made principal and interest payments of $1.9 million of cash on the convertible notes. As of December 31, 2022 and June 30, 2023, the Company recognized a total convertible note liability of $20.1 million and $15.8 million, respectively.

The 2021 Note contains certain restrictive covenants and event of default provisions, including a covenant requiring the Company to maintain an aggregate minimum balance equal to 50% of the then outstanding principal amount under the 2021 Note or more in cash and cash equivalents commencing on September 15, 2023. As of June 30, 2023, the outstanding principal amount of the 2021 Note was $15.8 million. Based on the Company’s current operating plan and its cash balance as of June 30, 2023, the Company does not expect be able to maintain the minimum cash balance required to satisfy the minimum cash covenant if it does not raise additional financing by September 15, 2023. If the Company is unable to cure such default within fifteen days from its occurrence or otherwise obtain a waiver from Lind V or amend the terms of the 2021 Note, the Company would trigger a default under the 2021 Note. If the Company is not able to comply or regain compliance with any of the covenants in, or otherwise trigger a default under, the 2021 Note, Lind V could declare the 2021 Note immediately due and payable, which would require the Company to pay 120% of the outstanding principal amount of the 2021 Note and would have a material adverse effect on its liquidity, financial condition, operating results, business and prospects, and could cause the price of the Company’s common stock to decline. In addition, since the borrowings under the 2021 Note are secured by a first priority lien on our assets, Lind V would be able to foreclose on the Company’s assets if it does not cure any default or pay any amounts due and payable under the 2021 Note. In addition, effective as of September 15, 2023, upon an Event of Default (as defined in the 2021 Note), Lind V shall have the right to convert the then outstanding principal amount of the 2021 Note into shares of the Company’s common stock at the lower of (x) the then-current conversion price (which is currently $6.00

18

per share, subject to adjustment in certain circumstances as described in the 2021 Note) and (y) 85% of the average of the five lowest daily volume weighted average price of the Company’s common stock during the 20 trading days prior to the delivery by Lind V of a notice of conversion.

10.Stockholders’ Equity

Preferred Stock

The Company is authorized to issue 10,000,000 shares of preferred stock, par value $0.001. No shares of preferred stock were outstanding as of June 30, 2023 or December 31, 2022.

Common Stock

The Company has authorized