See accompanying notes to financial statements.
See accompanying notes to financial statements.
See accompanying notes to financial statements.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(Unaudited)
Note 1 - Organization and Description of Business
SenesTech, Inc. (referred to in this report as
“SenesTech,” the “Company,” “we,” “us”, or “our”) was formed in July 2004
and incorporated in the state of Nevada. We subsequently reincorporated in the state of Delaware in November 2015. Our corporate headquarters
is in Phoenix, Arizona. We have developed and are commercializing a proprietary technology for managing animal pest populations, initially
rat populations, through fertility control.
Overview
We have developed and are commercializing a
proprietary technology for managing animal pest populations, initially rat populations, through fertility control. Although there
are myriad tools available to control rat populations, most rely on some form of lethal method to achieve effectiveness. Each of
these solutions is inherently limited by rat species’ resilience and survival mechanisms as well as their extraordinary rate
of reproduction. ContraPest®, our initial product, is unique in the pest control industry in affecting the reproductive systems
of both male and female rats, which our field data shows will result in a sustained reduction of the rat population.
Rats have plagued humanity throughout history.
They pose significant threats to the health and food security of many communities. In addition, rodents cause significant product loss
and damage through consumption and contamination. Rats also cause significant damage to critical infrastructure by burrowing beneath
foundations and gnawing on electrical wiring, insulation, fire proofing systems, electronics and computer equipment.
The most prevalent solution to rat infestations
is the use of increasingly powerful rodenticides. Although these solutions provide short term results, there are growing concerns about
secondary exposure and bioaccumulation of rodenticides in the environment, as well as concerns about rodenticides that have no antidotes.
The pest management industry and Pest Management Professionals (“PMPs”) are being asked by their customers and their communities
for new solutions that are both effective and less toxic. Our goal is to provide customers with not only a highly effective solution
to combat their most difficult rat problems, but also offer a non-lethal option to serve customers that are looking to decrease or remove
the amount of rodenticide used in their pest control programs.
ContraPest is a liquid bait containing the active
ingredients 4-vinylcyclohexene diepoxide (“VCD”) and triptolide, a botanically derived compound. ContraPest limits reproduction
of male and female rats beginning with the first breeding cycle following consumption. ContraPest is currently being marketed for use
in controlling Norway and roof rat populations.
We began the registration process with the United
States Environmental Protection Agency (the “EPA”) for ContraPest on August 23, 2015. On August 2, 2016, the EPA granted
an unconditional registration for ContraPest as a Restricted Use Product (“RUP”), due to the need for applicator expertise
for deployment. On October 18, 2018, the EPA approved the removal of the RUP designation. We believe ContraPest is the first and only
fertility control product designed to be non-lethal, registered with the EPA, for the management of rat populations.
In addition to the EPA registration of ContraPest
in the United States, ContraPest must obtain registration from the various state regulatory agencies prior to selling in each state.
We have received registration for ContraPest in all 50 states and the District of Columbia, 49 of which have approved the removal of
the RUP designation.
In the first quarter of 2022, we received approval
for and began marketing an additional dispenser format for ContraPest, the Elevate® Bait System with ContraPest. This system provides
an additional delivery method particularly appropriate for roof rat populations.
We expect to continue to pursue regulatory approvals
and amendments to the existing U.S. registration for ContraPest, and if ContraPest begins to generate sufficient revenue, regulatory
approvals for additional jurisdictions beyond the United States. In certain cases, our EPA and state registrations require completion
of testing and certifications even though we have received approval for the product or its labelling. We continue to seek to comply with
these requirements.
We also continue to research and develop enhancements
to ContraPest that align with our target verticals and other potential fertility control options for additional species, such as mice.
Our intellectual property portfolio supporting
ContraPest consists of nine international patent filings (in the United States, Europe, Canada, Brazil, Russia, Japan, Mexico, South
Korea, and Australia) addressing the ContraPest compound. Claims directed toward the compound include composition-of-matter involving
a diterpenoid epoxide or salts thereof in combination with an organic diepoxide, use claims for inducing follicle depletion and for reducing
the reproductive capability of a mammalian animal or non-human mammalian population. Issued claims will have a patent term extending
to 2033 or longer based on patent term determinations in each of the filing countries. The novelty of ContraPest extends to its method
of field distribution and has required innovation to perfect the dosing of our product to rodents. We recently filed and received approval
for a U.S. patent application covering our liquid delivery system, which is used in our EVO bait station. The patent will expire in 2038.
We also have an exclusive patent license with
the University of Arizona for background intellectual property that we plan to employ for future product development in the domestic
animal fertility control market. The patent claims in the United States, Australia and New Zealand cover the use of 4-vinylcyclohexene
diepoxide to deplete ovarian follicles in individual mammals and mammal populations. The license agreement, signed in 2005, will terminate
with the last-to-expire patent claims, which have a term extending to 2025.
Recent Developments
Nasdaq Listing Extension
As previously disclosed, on March 2, 2022, we
received a letter from the listing qualifications staff (the “Staff”) of The Nasdaq Stock Market (“Nasdaq”) providing
notification that the bid price for our common stock had closed below $1.00 per share for the previous 30 consecutive business days and
our common stock no longer met the minimum bid price requirement for continued listing under Nasdaq Listing Rule 5550(a)(2) (the “Rule”).
We were provided a period of 180 calendar days, or until August 29, 2022, in which to regain compliance with the Rule.
On August 31, 2022, we received notice from Nasdaq
indicating that, while we have not regained compliance with the Rule, the Staff has determined that we are eligible for an additional
180 calendar day period, or until February 27, 2023, to regain compliance. The Staff’s determination was based on (i) our meeting
the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing
on the Nasdaq Capital Market, with the exception of the bid price requirement, and (ii) our providing written notice to Nasdaq of our
intent to cure the deficiency during this second compliance period by effecting a reverse stock split, if necessary. If at any time during
this second 180-day period the closing bid price of our common stock is at least $1.00 per share for a minimum of 10 consecutive business
days, the Staff will provide written confirmation of compliance. If compliance cannot be demonstrated by February 27, 2023, the Staff
will provide written notification to us that our common stock will be delisted. At that time, we may appeal the Staff’s determination
to a Nasdaq hearings panel. There can be no assurance that we will regain compliance with the Rule or maintain compliance with other
Nasdaq continued listing requirements.
Going Concern
Our financial statements as of September 30,
2022, December 31, 2021 and September 30, 2021 were prepared under the assumption that we would continue as a going concern, the report
of our independent registered public accounting firm that accompanies our financial statements for the years ended December 31, 2021
and December 31, 2020 contains a going concern qualification in which such firm expressed substantial doubt about our ability to continue
as a going concern, based on the financial statements at that time. Specifically, as noted above, we have incurred operating losses since
our inception, and we expect to continue to incur significant expenses and operating losses for the foreseeable future. These prior losses
and expected future losses have had, and will continue to have, an adverse effect on our financial condition. If we encounter continued
issues or delays in the commercialization of ContraPest, our expected future losses could have an adverse effect on our financial condition
and negatively impact our ability to fund continued operations, obtain additional financing in the future and continue as a going concern.
There are no assurances that such financing, if necessary, will be available to us at all or will be available in sufficient amounts
or on reasonable terms. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty.
If we are unable to generate additional funds in the future through additional financings, sales of our products, licensing fees, royalty
payments or from other sources or transactions, we will exhaust our resources and will be unable to continue operations.
Liquidity and Capital Resources
Since our inception, we have sustained significant
operating losses in the course of our research and development and commercialization activities and expect such losses to continue for
the near future. We have generated limited revenue to date from product sales, research grants and licensing fees received under our
former license agreement. We have primarily funded our operations to date through the sale of equity securities, including convertible
preferred stock, common stock and warrants to purchase common stock. See Note 10 for a description of our public equity sales.
We have also raised capital through debt financing,
consisting primarily of convertible notes and government loan programs, and, to a lesser extent, payments received in connection with
product sales, research grants and licensing fees.
Through September 30, 2022, we received net proceeds
of $89.6 million from our sales of common stock, preferred stock and warrant exercises and issuance of convertible and other promissory
notes, an aggregate of $2.0 million from licensing fees and an aggregate of $2.3 million in net product sales. As of September 30, 2022,
we had an accumulated deficit of $120.1 million and cash and cash equivalents of $2.8 million.
Our ultimate success depends upon the outcome
of a combination of factors, including the following: (i) successful commercialization of ContraPest and maintaining and obtaining regulatory
approval of our products and product candidates; (ii) market acceptance, commercial viability and profitability of ContraPest and other
products; (iii) the ability to market our products and establish an effective sales force and marketing infrastructure to generate significant
revenue; (iv) the success of our research and development; (v) the ability to retain and attract key personnel to develop, operate and
grow our business; and (vi) our ability to meet our working capital needs.
Based upon our current operating plan, we expect
that cash and cash equivalents at September 30, 2022, in combination with anticipated revenue and any additional sales of our equity
securities, will be sufficient to fund our current operations for at least the next three to six months. We have evaluated and will continue
to evaluate our operating expenses and will concentrate our resources toward the successful commercialization of ContraPest in the United
States. However, if anticipated revenue targets and margin targets are not achieved or expenses are more than we have budgeted, we may
need to raise additional financing before that time. If we need more financing, including within the next three to six months, and we
are unable to raise necessary capital through the sale of our securities, we may be required to take other measures that could impair
our ability to be successful and operate as a going concern. In any event, we may require additional capital in order to fund our operating
losses and research and development activities before we become profitable and may opportunistically raise capital. We may never achieve
profitability or generate positive cash flows, and unless and until we do, we will continue to need to raise capital through equity or
debt financing. If such equity or debt financing is not available at adequate levels or on acceptable terms, we may need to delay, limit
or terminate commercialization and development efforts or discontinue operations.
Basis of Presentation
Our accompanying unaudited condensed financial
statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for
interim financial reporting. Certain information and footnote disclosures normally included in the annual financial statements prepared
in accordance with the U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant
to such rules and regulations. In our opinion, the unaudited condensed financial statements include all material adjustments, all of
which are of a normal and recurring nature, necessary to present fairly our financial position as of September 30, 2022, our operating
results for the three months and nine months ended September 30, 2022 and 2021, and our cash flows for the nine months ended September
30, 2022 and 2021. The accompanying financial information as of December 31, 2021 is derived from audited financial statements. Interim
results are not necessarily indicative of results for a full year. The information included in this Quarterly Report on Form 10-Q should
be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 29, 2022.
All amounts shown in these financial statements and accompanying notes are in thousands, except percentages and per share and share amounts.
Note 2 - Summary of Significant Accounting Policies
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 and classification of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues
and expenses during the reporting period. The significant estimates in our financial statements include the valuation of preferred stock,
if issued, common stock and related warrants, and other stock-based awards. Actual results could differ from such estimates.
Reclassifications
Certain prior year amounts have been reclassified
to conform to the current period presentation. These reclassifications had no material impact on net earnings, financial position or
cash flows.
Cash and Cash Equivalents
We consider money market fund investments to
be cash equivalents. We had cash equivalents in the form of money market fund investment of $2.1 and $8.8 at September 30, 2022 and December
31, 2021, respectively, included in cash as reported.
Accounts Receivable-Trade
Accounts receivable-trade consist primarily of
receivables from customers. We provide an allowance for doubtful trade receivables equal to the estimated uncollectible amounts. That
estimate is based on historical collection experience, current economic and market conditions and a review of the current status of each
customer’s trade accounts receivable. We had allowance for doubtful trade receivables at September 30, 2022 of $5. We did not have
any allowance for doubtful trade receivables at December 31, 2021.
Inventories
Inventories are stated at the lower of
cost or market value, using the first-in, first-out convention. Inventories consist of raw materials, work in progress and finished goods.
Raw materials are stocked to reduce the risk of impact on manufacturing for potential supply interruptions due to the COVID-19 pandemic,
supply chain issues or long lead times on certain ingredients.
Components
of inventory were:
| |
September 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
Raw materials | |
$ | 842 | | |
$ | 937 | |
Work in progress | |
| 17 | | |
| 5 | |
Finished goods | |
| 112 | | |
| 88 | |
Total inventory | |
| 971 | | |
| 1,030 | |
Less: Reserve for obsolete | |
| (19 | ) | |
| (29 | ) |
Total Net Inventory | |
$ | 952 | | |
$ | 1,001 | |
Prepaid Expenses
Prepaid expenses consist primarily of payments
made for director and officer insurance, director compensation, rent, legal and inventory purchase deposits and seminar/trade show fees
to be expensed in the current year.
Property and Equipment
Property and equipment are stated at
cost less accumulated depreciation. Equipment held under finance leases are stated at the present value of minimum lease payments less
accumulated amortization.
Depreciation on property and equipment is computed
using the straight-line method over the estimated useful lives of the respective assets. The cost of leasehold improvements is amortized
over the life of the improvement or the term of the lease, whichever is shorter. Equipment held under finance leases is amortized over
the shorter of the lease term or estimated useful life of the asset. We incur repair and maintenance costs on our major equipment, which
are expensed as incurred.
Impairment of Long-Lived Assets
Long-lived assets, such as property and equipment,
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
If circumstances require long-lived assets or asset groups to be tested for possible impairment, we compare the undiscounted cash flows
expected to be generated from the use of the asset or asset group to its carrying amount. If the carrying amount of the long-lived asset
or asset group is not recoverable on an undiscounted cash flow basis, an impairment charge is recognized to the extent that the carrying
amount exceeds its fair value. Fair value is determined through various valuation techniques, such as discounted cash flow models and
the use of third-party independent appraisals. We have not recorded an impairment of long-lived assets since inception.
Revenue Recognition
Effective January 1, 2018, we adopted Accounting
Standards Codification (“ASC”) 606 — Revenue from Contracts with Customers (“ASC 606”). Under
ASC 606, we recognize revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying
the following steps: (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 each performance obligation in the contract; and (5) recognize revenue when
each performance obligation is satisfied.
We recognize revenue when product is
shipped at a fixed selling price on payment terms of 30 to 120 days from invoicing. We recognize other revenue earned from pilot studies,
consulting and implementation services upon the performance of specific services under the respective service contract.
We derive revenue primarily from commercial sales
of products, net of discounts and promotions, as well as consulting and implementation services provided in conjunction with our product
deployments.
Deferred revenue represents payments
that have been received in advance of fulfillment of these orders. These product orders are anticipated to be fulfilled in future periods.
Research and Development
Research and development costs are expensed as
incurred. Research and development expenses primarily consist of salaries and benefits for research and development employees, stock-based
compensation, consulting fees, lab supplies, costs incurred related to conducting scientific trials and field studies, regulatory compliance
costs, as well as manufacturing costs associated with process improvement and other research. Research and development expenses include
an allocation of facilities related costs, including depreciation of equipment.
Stock-Based Compensation
Stock-based awards, consisting of stock options
and restricted stock units expected to be settled in shares of our common stock, are recorded as equity awards. The grant date fair value
of these awards is measured using the Black-Scholes option pricing model for stock options and grant date market value for restricted
stock units. We expense the grant date fair value of stock options on a straight-line basis over their respective vesting periods.
The stock-based compensation expense recorded for the three and nine
months ended September 30, 2022 and 2021, was as follows:
| |
Three Months Ended | | |
Nine Months Ended | |
| |
September 30, | | |
September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
| | |
| | |
| | |
| |
Research and development | |
$ | - | | |
$ | 1 | | |
$ | 5 | | |
$ | 2 | |
Selling, general and administrative | |
| 139 | | |
| 213 | | |
| 565 | | |
| 548 | |
| |
| | | |
| | | |
| | | |
| | |
Total stock-based compensation expense | |
$ | 139 | | |
$ | 214 | | |
$ | 570 | | |
$ | 550 | |
See Note 11 for additional discussion on stock-based compensation.
Income Taxes
We account for income taxes under the asset and
liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the
differences between the financial statements and tax bases of assets and liabilities and net operating loss carryforwards using enacted
tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax
assets and liabilities is recognized in the period that includes the enactment date.
We record net deferred tax assets to the extent
we believe these assets will more likely than not be realized. These deferred tax assets are subject to periodic assessments as to recoverability
and if it is determined that it is more likely than not that the benefits will not be realized, valuation allowances are recorded which
would increase the provision for income taxes. In making such determination, we consider all available positive and negative evidence,
including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent
financial operations.
We apply a more-likely-than-not recognition threshold
for all tax uncertainties. Only those benefits that have a greater than fifty percent likelihood of being sustained upon examination
by the taxing authorities are recognized. Based on our evaluation, we have concluded there are no significant uncertain tax positions
requiring recognition in our financial statements.
We recognize interest and/or penalties related
to uncertain tax positions in income tax expense. There are no uncertain tax positions as of September 30, 2022 or December 31, 2021
and, as such, no interest or penalties were recorded in income tax expense.
Comprehensive Loss
Net loss and comprehensive loss were the same
for all periods presented; therefore, a separate statement of comprehensive loss is not included in the accompanying financial statements.
Loss Per Share Attributable to Common Stockholders
Basic loss per share attributable to common stockholders
is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding
during the period. Diluted loss per share attributable to common stockholders is computed by dividing the loss attributable to common
stockholders by the weighted average number of common shares and potentially dilutive securities outstanding for the period determined
using the treasury stock and if-converted methods. For purposes of the computation of diluted loss per share attributable to common stockholders,
common stock purchase warrants, and common stock options are considered to be potentially dilutive securities but have been excluded
from the calculation of diluted loss per share attributable to common stockholders because their effect would be anti-dilutive given
the net loss reported for the three and nine months ended September 30, 2022 and 2021. Therefore, basic and diluted loss per share attributable
to common stockholders are the same for each period presented.
The following table sets forth the outstanding potentially dilutive
securities that have been excluded in the calculation of diluted loss per share attributable to common stockholders (in common stock
equivalent shares):
| |
Nine Months Ended | |
| |
September 30, | |
| |
2022 | | |
2021 | |
Common stock purchase warrants | |
$ | 4,531,447 | | |
$ | 4,547,618 | |
Restrictive stock units | |
| - | | |
| 667 | |
Common stock options | |
| 1,473,320 | | |
| 1,068,736 | |
| |
$ | 6,004,767 | | |
$ | 5,617,021 | |
Accounting Standards Issued but Not Yet Adopted
There have been no new accounting pronouncements
not yet effective or adopted in the current year that we believe have a significant impact, or potential significant impact, to our condensed
consolidated financial statements.
Note 3 - Fair Value Measurements
The carrying amounts of our financial instruments, including accounts
payable and accrued liabilities, approximate fair value due to their short maturities.
The estimated fair value of our notes, not recorded at fair value,
are recorded at cost or amortized cost which was deemed to estimate fair value.
Note 4 - Credit Risk
We are potentially subject to concentrations
of credit risk in our accounts receivable. Credit risk with respect to receivables is limited due to the number of companies comprising
our customer base. At September 30, 2022, we had $5 in potentially uncollectable accounts and recorded a net reserve for uncollectable
accounts in that amount. We did not have any potentially uncollectable accounts at December 31, 2021 and therefore, did not record a
reserve for uncollectable accounts at December 31, 2021. We do not require collateral or other securities to support its accounts receivable.
Note 5 - Prepaid Expenses
Prepaid expenses consisted of the following:
| |
September 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
Director, officer and other insurance | |
$ | 123 | | |
$ | 109 | |
Marketing programs and conferences | |
| 83 | | |
| 66 | |
Patents | |
| 55 | | |
| 41 | |
Inventory deposits | |
| - | | |
| 12 | |
Professional services | |
| 10 | | |
| - | |
Engineering, software licenses and other | |
| 133 | | |
| 2 | |
Total prepaid expenses | |
$ | 404 | | |
$ | 230 | |
Note 6 - Property and Equipment
Property and equipment, net consisted of the following:
| |
Useful | |
September 30, | | |
December 31, | |
| |
Life | |
2022 | | |
2021 | |
Research and development equipment | |
5-7 years | |
$ | 1,558 | | |
$ | 1,425 | |
Office and computer equipment | |
3 years | |
| 804 | | |
| 762 | |
Autos | |
5 years | |
| 54 | | |
| 54 | |
Furniture and fixtures | |
7 years | |
| 41 | | |
| 41 | |
Leasehold improvements | |
* | |
| 117 | | |
| 112 | |
Construction in progress | |
| |
| - | | |
| 45 | |
| |
| |
| 2,574 | | |
| 2,439 | |
Less accumulated depreciation and amortization | |
| |
| (2,252 | ) | |
| (2,105 | ) |
Total | |
| |
$ | 322 | | |
$ | 334 | |
| * | Shorter of lease term or estimated useful life |
Depreciation and amortization expense was approximately
$35 and $78 for the three months ended September 30, 2022 and 2021, respectively, and $148 and $229 for the nine months ended September
30, 2022 and 2021, respectively.
Note 7 - Accrued Expenses
Accrued expenses
consisted of the following:
| |
September 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
Compensation and related benefits | |
$ | 720 | | |
$ | 524 | |
Legal services | |
| 174 | | |
| 17 | |
Recruiting | |
| 37 | | |
| - | |
Product warranty | |
| 37 | | |
| 18 | |
Personal property and franchise tax | |
| 14 | | |
| 5 | |
Other | |
| 5 | | |
| 14 | |
Total accrued expenses | |
$ | 987 | | |
$ | 578 | |
Note 8 – Borrowings
A summary of our borrowings, including finance lease obligations, was as follows:
| |
September 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
Short-term debt: | |
| | |
| |
Finance lease obligations | |
$ | - | | |
$ | 27 | |
Other promissory notes | |
| - | | |
| 5 | |
Total | |
$ | - | | |
$ | 32 | |
Finance Lease Obligations
All finance lease and promissory note obligations,
for manufacturing equipment leased through, were settled in full during the three months ended June 30, 2022.
On June 18, 2021, we received notification from
BMO Harris Bank National Association as the lender in a promissory note pursuant to the Paycheck Protection Program (the “PPP”)
under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), that a loan to us under this program in the
amount of $646 was forgiven in full under the terms of the program. The forgiveness of this note and related interest was recorded as
other income on the Condensed Statements of Operations and Comprehensive Loss for the quarter ended June 30, 2021.
Note 9 - Common Stock Warrants and Common Stock Warrant Liability
The table summarizes the common stock warrant activity as of September
30, 2022 by warrant type:
Issue
Date | |
Warrant
Type | |
Term
Date | |
Exercise
Price | | |
Balance
December 31,
2020 | | |
Issued | | |
Exercised | | |
Expired | | |
Balance
December 31,
2021 | | |
Issued | | |
Exercised | | |
Expired | | |
Balance
September 30,
2022 | |
| |
| |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
November 21, 2017 | |
Common Stock Offering Warrants | |
November 21, 2022 | |
$ | 1.3659 | (1) | |
| 143,501 | | |
| - | | |
| (21,787 | ) | |
| - | | |
| 121,714 | | |
| - | | |
| - | | |
| - | | |
| 121,714 | |
September 20, 2018 | |
Warrant Reissue | |
December 20, 2023 | |
$ | 36.40 | | |
| 56,696 | | |
| - | | |
| - | | |
| - | | |
| 56,696 | | |
| - | | |
| - | | |
| - | | |
| 56,696 | |
August 13, 2018 | |
Rights Offering Warrants | |
July 25, 2023 | |
$ | 23.00 | | |
| 202,943 | | |
| - | | |
| (499 | ) | |
| - | | |
| 202,444 | | |
| - | | |
| - | | |
| - | | |
| 202,444 | |
August 13, 2018 | |
Dealer Manager Warrants | |
August 13, 2023 | |
$ | 34.50 | | |
| 13,393 | | |
| - | | |
| - | | |
| - | | |
| 13,393 | | |
| - | | |
| - | | |
| - | | |
| 13,393 | |
July 16, 2019 | |
Dealer Manager Warrants | |
July 11, 2024 | |
$ | 33.75 | | |
| 8,334 | | |
| - | | |
| - | | |
| - | | |
| 8,334 | | |
| - | | |
| - | | |
| - | | |
| 8,334 | |
January 28, 2020 | |
Registered Direct Offering | |
July 28, 2025 | |
$ | 9.00 | | |
| 177,500 | | |
| - | | |
| - | | |
| - | | |
| 177,500 | | |
| - | | |
| - | | |
| - | | |
| 177,500 | |
January 28, 2020 | |
Dealer Manager Warrants | |
July 28, 2025 | |
$ | 10.00 | | |
| 13,315 | | |
| - | | |
| - | | |
| - | | |
| 13,315 | | |
| - | | |
| - | | |
| - | | |
| 13,315 | |
March 6, 2020 | |
Dealer Manager Warrants | |
March 4, 2025 | |
$ | 3.76 | | |
| 13,228 | | |
| - | | |
| - | | |
| - | | |
| 13,228 | | |
| - | | |
| - | | |
| - | | |
| 13,228 | |
April 21, 2020 | |
Dealer Manager Warrants | |
April 21, 2025 | |
$ | 3.97 | | |
| 118,073 | | |
| - | | |
| - | | |
| - | | |
| 118,073 | | |
| - | | |
| - | | |
| - | | |
| 118,073 | |
April 24, 2020 | |
Registered Direct Offering | |
April 24, 2025 | |
$ | 3.05 | | |
| 50,000 | | |
| - | | |
| - | | |
| - | | |
| 50,000 | | |
| - | | |
| - | | |
| - | | |
| 50,000 | |
October 26, 2020 | |
Private Warrant Inducement | |
April 27, 2026 | |
$ | 1.73 | | |
| 1,700,680 | | |
| - | | |
| (700,680 | ) | |
| - | | |
| 1,000,000 | | |
| - | | |
| - | | |
| - | | |
| 1,000,000 | |
October 26, 2020 | |
Dealer Manager Warrants | |
April 27, 2026 | |
$ | 2.16 | | |
| 85,034 | | |
| - | | |
| - | | |
| - | | |
| 85,034 | | |
| - | | |
| - | | |
| - | | |
| 85,034 | |
February 2, 2021 | |
Private Placement Agreement | |
August 2, 2026 | |
$ | 2.216 | | |
| - | | |
| 2,194,427 | | |
| - | | |
| - | | |
| 2,194,427 | | |
| - | | |
| - | | |
| - | | |
| 2,194,427 | |
February 2, 2021 | |
Dealer Manager Warrants | |
August 2, 2026 | |
$ | 2.848 | | |
| - | | |
| 329,164 | | |
| - | | |
| - | | |
| 329,164 | | |
| - | | |
| - | | |
| - | | |
| 329,164 | |
March 23, 2021 | |
Dealer Manager Warrants | |
March 23, 2026 | |
$ | 2.50 | | |
| - | | |
| 148,125 | | |
| - | | |
| - | | |
| 148,125 | | |
| - | | |
| - | | |
| - | | |
| 148,125 | |
| |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| |
| |
| | | |
| 2,582,697 | | |
| | | |
| | | |
| | | |
| 4,531,447 | | |
| | | |
| | | |
| | | |
| 4,531,447 | |
| (1) | The initial exercise price of these warrants was $30.00 per
share. Pursuant to antidilution price adjustment protection contained within these warrants, the initial exercise price of these warrants
was adjusted downward to $29.40 on July 24, 2018, the record date of the 2018 Rights Offering (defined herein) and downward to $19.00
per share on August 13, 2018. These warrants were further adjusted downward from $19.00 to $7.13 and to $2.1122 on January 28, 2020 and
March 4, 2020, respectively, in connection with separate Registered Direct Offerings. These warrants were further adjusted downward from
$2.1122 to $1.3659 on October 26, 2020 in connection with a Registered Direct Offering. These warrants are subject to further adjustment
pursuant to antidilution price adjustment protection. |
Outstanding Warrants
As of September 30, 2022, we had 4,531,447 shares
of common stock issuable upon exercise of outstanding common stock warrants, at a weighted-average exercise price of $4.00 per share.
On November 21, 2017, we issued a total of 232,875
detachable common stock warrants issued with the second public offering of 293,000 shares of our common stock at $20.00 per share. The
common stock warrant is exercisable until five years from the date of grant. Our common stock and detachable warrants exist independently
as separate securities. As such, we estimated the fair value of the common stock warrants, exercisable at $30.00 per share, to be $661
using a lattice model based on the following significant inputs: common stock price of $20.00; comparable company volatility of 73.8%;
remaining term five years; dividend yield of 0% and risk-free interest rate of 1.87%. The initial exercise price of these warrants was
$30.00 per share, which adjusted downward to $29.40 on July 24, 2018, the record date of the 2018 Rights Offering, and downward to $19.00
per share on August 13, 2018, the date of the 2018 Rights Offering, pursuant to antidilution price adjustment protection contained within
these warrants. The exercise price of the warrants was adjusted downward to $7.13 on January 28, 2020 in connection with a private placement
of common stock. Per guidance of ASC 260 – Earnings Per Share (“ASC260”), we recorded a deemed dividend of $285 on the
143,501 unexercised warrants that contained this antidilution price adjustment protection provision and was calculated as the difference
between the fair value of the warrants immediately prior to downward exercise price adjustment and immediately after the adjustment using
a Black Scholes model based on the following significant inputs: On January 28, 2020, common stock price of $7.90; comparable company
volatility of 73.8%; remaining term 2.82 years; dividend yield of 0% and risk-free interest rate of 1.45%.
The exercise price of the warrants was adjusted
downward to $2.1122 on March 4, 2020 in connection with a private placement of common stock. Per guidance of ASC 260, we recorded a deemed
dividend of $129 on the 143,501 unexercised warrants that contained this antidilution price adjustment protection provision and was calculated
as the difference between the fair value of the warrants immediately prior to downward exercise price adjustment and immediately after
the adjustment using a Black Scholes model based on the following significant inputs: On March 4, 2020, common stock price of $2.88; comparable
company volatility of 74.5%; remaining term 2.71 years; dividend yield of 0% and risk-free interest rate of 0.68%.
The exercise price of the warrants was adjusted
downward to $1.3659 on October 26, 2020 in connection with an inducement offering of common stock. Per guidance of ASC 260, we recorded
a deemed dividend of $22 on the 143,501 unexercised warrants that contained this antidilution price adjustment protection provision and
was calculated as the difference between the fair value of the warrants immediately prior to downward exercise price adjustment and immediately
after the adjustment using a Black Scholes model based on the following significant inputs: On October 26, 2020, common stock price of
$1.47; comparable company volatility of 96.5%; remaining term 2.08 years; dividend yield of 0% and risk-free interest rate of 0.18%.
On June 20, 2018, we entered into an agreement
with a holder of 56,696 of the November 2017 warrants to exercise its original warrant representing 56,696 shares of common stock for
cash at the $30.00 exercise price for gross proceeds of $1.7 million, and we issued to holder a new warrant to purchase 56,696 shares
of common stock at an exercise price of $36.40 per share. The new warrant did not contain the antidilution price adjustment protection
that was contained within the exercised warrants. In June 2018, we recorded stock compensation expense of $1,700 representing the fair
value of the of 56,696 inducement warrants issued. We estimated the fair value of the common stock warrants, exercisable at $36.40 per
share, to be $1,700 using a Black Scholes model based on the following significant inputs: common stock price of $42.20; comparable company
volatility of 72.6%; remaining term five years; dividend yield of 0% and risk-free interest rate of 2.8%. Also, in June 2018, an additional
17,088 of the November 8, 2017 warrants that were in the money at the time of exercise, were exercised for gross proceeds of $513.
On August 13, 2018, in connection with a rights
offering of 267,853 shares of our common stock (the “2018 Rights Offering”), we issued 267,853 warrants to purchase shares
of our common stock at an exercise price of $23.00 per share. We estimated the fair value of the common stock warrants, exercisable at
$23.00 per share, to be $3,600 using a Monte Carlo model based on the following significant inputs: common stock price of $18.80; comparable
company volatility of 159.0%; remaining term five years; dividend yield of 0% and risk-free interest rate of 2.77%.
In connection with the closing of the 2018 Rights
Offering, we issued a warrant to purchase 13,393 shares of common stock to Maxim Partners LLC, an affiliate of the dealer-manager of the
2018 Rights Offering. We estimated the fair value of the common stock warrants, exercisable at $34.50 per share, to be $169 using a using
a Monte Carlo model based on the following significant inputs: common stock price of $18.80; comparable company volatility of 159.0%;
remaining term five years; dividend yield of 0% and risk-free interest rate of 2.77%.
Common Stock Warrant Issued to Underwriter of Common Stock Offering
In July 2019, we issued to H.C. Wainwright &
Co., as placement agent, a warrant to purchase 8,334 shares of common stock at an exercise price of $33.75 per share as consideration
for providing services in connection with a common stock offering in July 2019. The warrant was fully vested and exercisable on the date
of issuance. The common stock warrant is exercisable until five years from the date of grant. We estimated the fair value of the common
stock warrants, exercisable at $33.75 per share, to be $127 using a lattice model based on the following significant inputs: common stock
price of $26.80; comparable company volatility of 133.3%; remaining term five years; dividend yield of 0% and risk-free interest rate
of 2.07%.
Common Stock Warrants Issued in January and March 2020 Private
Placements
In January and March 2020, in separate private
placements concurrent with registered direct offerings (collectively, the “2020 Registered Direct Offerings”) of shares of
our common stock, we also issued warrants to purchase an aggregate of up to 353,872 shares of common stock to certain institutional and
accredited investors that participated in the 2020 Registered Direct Offerings (the “2020 Warrants”). The warrants were issued
in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities
Act”) and Rule 506(b) of Regulation D promulgated thereunder. Terms used but not otherwise defined herein will have the meanings
given them in the warrants, attached as Exhibit 4.1 to our Current Report on Form 8-K filed with the SEC on January 28, 2020 and our Current
Report on Form 8-K filed with the SEC on March 6, 2020.
The warrants issued in January 2020 to purchase
177,500 shares of common stock have an exercise price of $9.00 per share, are exercisable after July 28, 2020 and will expire July 28,
2025. We estimated the fair value of the common stock warrants, exercisable at $9.00 per share, to be $813 using a Black Scholes model
based on the following significant inputs: common stock price of $7.90; comparable company volatility of 73.8%; remaining term five years;
dividend yield of 0% and risk-free interest rate of 1.53%.
The warrants issued in March 2020 to purchase
176,372 shares of common stock have an exercise price of $2.88 per share, are immediately exercisable and will expire September 8, 2025.
We estimated the fair value of the common stock warrants, exercisable at $2.88 per share, to be $242 using a Black Scholes model based
on the following significant inputs: common stock price of $2.35; comparable company volatility of 74.8%; remaining term five and one-half
years; dividend yield of 0% and risk-free interest rate of 0.39%.
For so long as the 2020 Warrants remain outstanding,
the exercise price and number of shares of common stock issuable upon exercise of the warrants are subject to adjustment as follows: (a)
upon payment of a stock dividend or other distribution on a class or series of shares of common stock, not including shares issued under
this warrant; (b) upon subdivision (by stock spilt, stock dividend, recapitalization, or otherwise) or combination (by reverse stock split
or otherwise) of shares of common stock; or (c) upon the issuance of any shares of capital stock by reclassification of shares of the
common stock.
In the event that we declare or make any dividend
or other distribution of our assets to holders of our common stock, each 2020 Warrant holder will be entitled to participate in such distribution
to the same extent that such holder would have participated therein if the holder had held the number of shares of common stock acquirable
upon exercise of the 2020 Warrant.
In the event of a Fundamental Transaction, as
described in the 2020 Warrants and generally including the sale, transfer or other disposition of all or substantially all of our properties
or assets; our consolidation or merger with or into another person or reorganization; a recapitalization, reorganization or reclassification
in which our common stock is converted into other securities, cash or property; or any acquisition of our outstanding common stock that
results in any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding common stock, then
the holders of the 2020 Warrants will be entitled to receive upon exercise of such warrants the kind and amount of securities, cash, assets
or other property that the holders would have received had they exercised the 2020 Warrants immediately prior to such Fundamental Transaction.
Subject to certain limitations, in the event of a Fundamental Transaction the 2020 Warrant holder may at its option require us or any
Successor Entity to purchase such warrant from the holder by paying to the holder an amount of cash equal to the Black Scholes Value of
the remaining unexercised portion of the 2020 Warrant on the date of the consummation of the Fundamental Transaction.
Any time that we grant, issue or sell any securities
pro rata to all of the record holders of our common stock (the “2020 Purchase Right”), each holder of 2020 Warrants will be
entitled to acquire the aggregate amount of securities that the holder could have acquired if the holder had held the number of shares
of common stock acquirable upon exercise of the applicable 2020 Warrant. However, to the extent that an exercise of a 2020 Purchase Right
would exceed the Beneficial Ownership Limitation (defined below), then to such extent the 2020 Purchase Right will be held in abeyance
until such time, if ever, that complete exercise of the 2020 Purchase Right would not exceed the Beneficial Ownership Limitation.
After the Initial Exercisability Date, the 2020
Warrants will be exercisable, at the option of each holder, in whole or in part, by delivering to us a duly executed exercise notice accompanied
by payment in full for the number of shares of our common stock purchased upon such exercise. If, at the time a holder exercises the 2020
Warrant (but not sooner than six months following the date of such warrant), a registration statement registering the issuance of the
shares of common stock underlying the 2020 Warrants under the Securities Act is not then effective or available, nor is any current prospectus
thereto available, and an exemption from registration under the Securities Act is not available for the issuance of such shares, then
in lieu of making the cash payment otherwise contemplated to be made to us upon such exercise in payment of the aggregate exercise price,
the holder may elect instead to receive upon such exercise (either in whole or in part) the number of shares of common stock determined
according to a formula set forth in the 2020 Warrant.
Limitations on Exercise. A holder (together
with its affiliates) may not exercise any portion of the 2020 Warrants to the extent that the holder would own more than 4.99% of the
outstanding common stock after exercise (the “Beneficial Ownership Limitation”), except that upon at least 61 days’
prior notice from the holder to us, the holder may increase the Beneficial Ownership Limitation up to 9.99% of the number of shares of
our common stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance
with the terms of the 2020 Warrants. No fractional shares of common stock will be issued in connection with the exercise of a 2020 Warrant.
In lieu of fractional shares, we will either pay the holder an amount in cash equal to the fractional amount multiplied by the exercise
price or round up to the next whole share.
Except as otherwise provided in the 2020 Warrants
or by virtue of such holder’s ownership of shares of our common stock, the holders of the 2020 Warrants do not have the rights or
privileges of holders of our common stock, including any voting rights, unless and until they exercise such warrants.
Common Stock Warrants Issued in April 2020 Public Offering
On April 24, 2020, in connection with a previously
announced public offering of 145,586 Class A Units and 1,428,722 Class B Units, we issued warrants to purchase 1,574,308 shares of common
stock to the participants in the public offering and have an exercise price of $3.05 per share (the “April 2020 Warrants”).
These warrants are immediately exercisable and will expire April 24, 2025.
The common stock, Pre-Funded Warrants and Warrants
sold in this Public Offering were offered and sold pursuant to a registration statement on Form S-1 (File No. 333-236302) initially filed
with the SEC on February 7, 2020, as amended (“Registration Statement”), which was declared effective by the SEC on February
14, 2020. The Post-Effective Amendment No. 2 to the Registration Statement was declared effective by the SEC on April 21, 2020.
We estimated the fair value of the common stock
warrants, exercisable at $3.05 per share, to be $2,402 using a Black Scholes model based on the following significant inputs: common stock
price of $2.40; comparable company volatility of 87.9%; remaining term five years; dividend yield of 0% and risk-free interest rate of
0.18%.
Common Stock Warrants Issued to Placement Agent in 2020 Registered
Direct Offerings and Private Placement
In connection with the separate private placements
concurrent with registered direct offerings of shares of our common stock in January and March 2020, we issued to H.C. Wainwright &
Co., LLC, as placement agent, a warrant to purchase 13,228 shares of common stock and a warrant to purchase 13,313 shares of common stock.
The warrants were issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and Rule 506(b)
of Regulation D promulgated thereunder. These warrants have substantially similar terms as the 2020 Warrants described above, except that
the placement agent warrant issued in January 2020 has an exercise price of $10.00 per share, and the placement agent warrant issued in
March 2020 has an exercise price of $3.7563 per share.
We estimated the fair value of the common stock
warrants issued in January, with an exercise price of $10.00 per share, to be $58 using a Black Scholes model based on the following significant
inputs: common stock price of $7.90; comparable company volatility of 73.8%; remaining term five years; dividend yield of 0% and risk-free
interest rate of 1.53%.
We estimated the fair value of the common stock
warrants issued in March, with an exercise price of $3.7563 per share, to be $17 using a Black Scholes model based on the following significant
inputs: common stock price of $2.35; comparable company volatility of 74.8%; remaining term five and one-half years; dividend yield of
0% and risk-free interest rate of 0.39%.
In connection with the public offering of 145,586
Class A Units and 1,428,722 Class B Units on April 24, 2020, we issued to H.C. Wainwright & Co., LLC, as placement agent, warrants
to purchase 118,073 shares of common stock. The warrants were issued in reliance on the exemption from registration provided by Section
4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated thereunder. These warrants have substantially similar terms
as the April 2020 Warrants described above, except that the placement agent warrant issued has an exercise price of $3.97 per share.
We estimated the fair value of the common stock
warrants issued in April, with an exercise price of $3.97 per share, to be $167 using a Black Scholes model based on the following significant
inputs: common stock price of $2.40; comparable company volatility of 87.9%; remaining term five and one-half years; dividend yield of
0% and risk-free interest rate of 0.18%.
Common Stock Warrants Issued in October 2020 Private Warrant
Inducement
In October 2020, in connection with an inducement
agreement with an existing accredited investor to exercise 1,700,680 outstanding warrants (“Original Warrants”) to purchase
an equal number of shares of our common stock, we issued new unregistered warrants to purchase up to an aggregate of 1,700,680 shares
of common stock at an exercise price of $1.725 per share. The warrants issued were immediately exercisable with an exercise period of
five and one-half years from the date of issuance. The Original Warrants were issued on March 6, 2020 and on April 24, 2020. Pursuant
to the Letter Agreement, the per share exercise price of the Original Warrants were reduced from $2.88 and $3.05, respectively, to $1.725.
We estimated the fair value of the common stock warrants, exercisable at $1.725 per share, to be $1,806 using a Black Scholes model based
on the following significant inputs: common stock price of $1.47; comparable company volatility of 96.5%; remaining term five and one-half
years; dividend yield of 0% and risk-free interest rate of 0.18%.
Common Stock Warrants Issued to Placement Agent in October 2020
Inducement Offering
In connection with the private warrant inducement
in October 2020 of the Original Warrants, we issued to H.C. Wainwright & Co., LLC, as placement agent, warrants to purchase 85,034
shares of common stock. These warrants have substantially similar terms as the Original Warrants described above, except that the placement
agent warrant issued in October 2020 has an exercise price of $2.156 per share.
We estimated the fair value of these common stock
warrants, with an exercise price of $2.156 per share, to be $86 using a Black Scholes model based on the following significant inputs:
common stock price of $1.47; comparable company volatility of 96.5%; remaining term 5.5 years; dividend yield of 0% and risk-free interest
rate of 0.18%.
Common Stock Warrants Issued in February 2021 Private Placement
Agreement
In February 2021, in connection with a private
placement agreement with certain institutional and accredited investors, we issued common stock warrants to purchase up to an aggregate
of 2,194,427 shares of common stock at an exercise price of $2.216 per share. The warrants were exercisable immediately and have an exercise
period of five and one-half years from the date of issuance. The warrant holder may not exercise any portion of such holder’s warrants
to the extent that the holder, together with its affiliates, would beneficially own more than 4.99% (or, at the election of the holder,
9.99%) of our outstanding shares of common stock immediately after exercise, except that upon at least 61 days’ prior notice from
the holder to us, the holder may increase the beneficial ownership limitation to up to 9.99% of the number of shares of common stock outstanding
immediately after giving effect to the exercise. We estimated the fair value of the common stock warrants, exercisable at $2.216 per share,
to be $3,052 using a Black Scholes model based on the following significant inputs: common stock price of $1.93; comparable company volatility
of 95.6%; remaining term five and one-half years; dividend yield of 0% and risk-free interest rate of 0.18%.
Common Stock Warrants Issued to Placement Agent in February 2021
Private Placement Agreement
In connection with the private placement in February
2021, we issued to H.C. Wainwright & Co., LLC, as placement agent, warrants to purchase up to 329,164 shares of common stock with
an exercise price of $2.8481 per share. The warrants are exercisable immediately and have an exercise period of five and one-half years
from the date of issuance. We estimated the fair value of these common stock warrants, with an exercise price of $2.8481 per share, to
be $435 using a Black Scholes model based on the following significant inputs: common stock price of $1.93; comparable company volatility
of 95.6%; remaining term five and one-half years; dividend yield of 0% and risk-free interest rate of 0.18%.
Common Stock Warrants Issued to Placement Agent in March 2021
Registered Direct Offering
On March 23, 2021, we consummated a registered
direct offering with certain institutional investors and issued an aggregate of 1,975,000 shares of our common stock, par value $0.001
per share at a purchase price of $2.00 per share for gross proceeds to us of approximately $3.95 million, before deducting fees payable
to the placement agent and other estimated offering expenses payable by us. The 1,975,000 shares of common stock sold in the offering
were offered and sold pursuant to a prospectus, dated August 24, 2018, and a prospectus supplement, dated March 22, 2021, in connection
with a takedown from our shelf registration statement on Form S-3 (File No. 333-225712).
In connection with the registered direct offering
in March 2021, we issued to H.C. Wainwright & Co., LLC, as the placement agent, warrants to purchase up to 148,125 shares of common
stock. The placement agent warrants will be exercisable commencing six months following the date of issuance, expire five years following
the date of sale and have an exercise price per share of $2.50 per share. The placement agent warrants, and the shares of common stock
issuable upon exercise thereof, will be issued in reliance on the exemption from registration provided in Section 4(a)(2) under the Securities
Act of 1933, as amended, and Regulation D promulgated thereunder. We estimated the fair value of these common stock warrants, with an
exercise price of $2.50 per share, to be $181 using a Black Scholes model based on the following significant inputs: common stock price
of $1.76; comparable company volatility of 100.8%; remaining term five years; dividend yield of 0% and risk-free interest rate of 0.31%.
Deemed Dividend Adjustment-Warrant Modified Terms Revaluation
On March 3, 2020, we issued an aggregate of 51,414
common shares in a cashless exercise of 56,625 warrants issued in December 2016 and November 2017. Consideration for the exercise of these
warrants was the full settlement of an outstanding litigation reserve of $238.
On October 26, 2020, in connection with the private
warrant inducement with an existing accredited investor to exercise the Original Warrants, we agreed to modify the terms of the Original
Warrants that were originally issued on March 6, 2020 and on April 24, 2020. Pursuant to the agreement, the per share exercise price of
the Original Warrants were reduced from $2.88 and $3.05, respectively, to $1.725.
Per recent proposed guidance of ASC 260, we determined
that this was an exchange of the existing 1,700,680 warrants that were affected and the difference between the fair value of the warrants
immediately prior to modification of terms and immediately after the adjustment was a cost of raising capital and was recorded as a reduction
of equity. The difference between the fair value of the warrants immediately prior to modification of terms and immediately after the
adjustment was calculated as $237, using a Black Scholes model based on the following significant inputs: On October 26, 2020: common
stock price of $1.47; comparable company volatility of 96.5%; remaining term 4.5-4.8 years; dividend yield of 0% and risk-free interest
rate of 0.18.
Note 10 - Stockholders’ Deficit
Capital Stock
We organized under the laws of the state of Nevada on July 27, 2004
and subsequently reincorporated under the laws of the state of Delaware on November 10, 2015. In connection with the reincorporation,
as approved by the stockholders, we changed our authorized capital stock to consist of (i) 100 million shares of common stock, $.001 par
value, and (ii) 2 million shares of preferred stock, $0.001 par value, designated as Series A convertible preferred stock. In December
2015, we amended our Certificate of Incorporation to change our authorized capital stock to provide for 15 million authorized shares of
preferred stock of which 7,515,000 was designated as Series B convertible preferred stock, par value $.001 per share.
Prior to November 10, 2015, our authorized capital
stock consisted of 100 million shares of common stock, $.001 par value, and 10 million shares of preferred stock, $.001 par value.
Common Stock
We had 12,212,950 and 12,207,283 shares of common stock issued and
outstanding as of September 30, 2022 and December 31, 2021, respectively.
During the nine months ended September 30, 2022, we issued 5,667 shares
of common stock as follows:
| ● | an aggregate of 5,000 shares in connection with a restricted
stock grant that was issued and vested on February 25, 2022 for services. |
| ● | an aggregate of 667 shares in connection with a restricted
stock grant that vested on May 4, 2022 for services. |
Preferred Stock
In September 2022, we created out of the authorized
but unissued preferred stock, a new series of preferred stock designated as 20,000 shares of “Series C Preferred Stock.” Each
share of Series C Preferred Stock has a par value of $0.001 per share. We issued a common stock dividend of one one-thousandth of a share
of Series C Preferred Stock for each outstanding share of common stock, resulting in 12,213 shares issued to common stock shareholders
on September 6, 2022.
Series C Preferred Stock will be represented in
book-entry form. Each share will entitle the holder to 1,000,000 votes per share and they are entitled only to vote on the Reverse Stock
Split and the Adjournment Proposal brought before any meeting of stockholders held to vote on the Reverse Stock Split. The preferred stock
shareholders will not be entitled to receive dividends of any kind and these shares are not convertible for any other securities. All
shares will automatically be redeemed by us immediately following the approval of the Reverse Stock Split.
Note 11 - Stock-Based Compensation
On June12, 2018, our stockholders approved the
2018 Equity Incentive Plan (the “2018 Plan”) to replace our 2015 Equity Incentive Plan (the “2015 Plan”). On July
8, 2020, our stockholders approved an amendment to the 2018 Plan to increase the number of shares of common stock available for issuance
under the 2018 Plan by 800,000 shares from 50,000 to 850,000. In addition, up to 122,279 shares of our common stock previously reserved
for issuance under the 2015 Plan are available for issuance under the 2018 Plan to the extent such shares were available for issuance
under the 2015 Plan as of June 12, 2018 or thereafter cease to be subject to awards outstanding under the 2015 Plan, such as by expiration,
cancellation, or forfeiture of such awards.
On June 24, 2021, our stockholders approved an
amendment to the 2018 Plan to increase the number of shares of common stock available for issuance under the 2018 Plan by 3,000,000 shares.
Stock options are generally issued with a per
share exercise price equal to no less than fair market value of our common stock at the date of grant. Options granted under the 2018
Plan generally vest immediately, or ratably over a two- to 36-month period coinciding with their respective service periods. Options under
the 2018 Plan generally have a term of five years. Certain stock option awards provide for accelerated vesting upon a change in control.
As of September 30, 2022, we had 1,213,406 shares of common stock available
for issuance under the Amended 2018 Plan.
Stock Options
We measure the fair value of stock options with
service-based vesting criteria to employees, directors and consultants on the date of grant using the Black-Scholes option pricing model.
The Black-Scholes valuation model requires us to make certain estimates and assumptions, including assumptions related to the expected
price volatility of our stock, the period during which the options will be outstanding, the rate of return on risk-free investments, and
the expected dividend yield for our stock.
The weighted-average assumptions used in the Black-Scholes
option-pricing model used to calculate the fair value of options granted during the nine months ended September 30, 2022 were as follows:
Expected volatility | |
| 90.7 | % |
Expected dividend yield | |
| — | |
Expected term (in years) | |
| 5.0 | |
Risk-free interest rate | |
| 2.99 | % |
The weighted average grant date fair value of options granted during
the nine months ended September 30, 2022 was $0.3014 per share.
Due to our limited operating history and lack
of company-specific historical or implied volatility, the expected volatility assumption was determined based on historical volatilities
from traded options of biotech companies of comparable size and stability, whose share prices are publicly available. The expected term
of options granted to employees is calculated based on the mid-point between the vesting date and the end of the contractual term according
to the simplified method as described in SEC Staff Accounting Bulletin 110 because we do not have sufficient historical exercise data
to provide a reasonable basis upon which to estimate the expected term due to the limited period of time its awards have been outstanding.
For non-employee options, the expected term of options granted is the contractual term of the options. The risk-free interest rate is
determined by reference to the implied yields of U.S. Treasury securities with a remaining term equal to the expected term assumed at
the time of grant. The expected dividend assumption is based on our history and expectation of dividend payouts. We have not paid and
do not intend to pay cash dividends on our common stock.
The following table summarizes the stock option activity, for both
equity plans, for the periods indicated as follows:
| |
| | |
| | |
Weighted | | |
| |
| |
| | |
Weighted | | |
Average | | |
| |
| |
| | |
Average | | |
Remaining | | |
| |
| |
| | |
Exercise | | |
Contractual | | |
Aggregate | |
| |
Number of | | |
Price Per | | |
Term | | |
Intrinsic | |
| |
Options | | |
Share | | |
(years) | | |
Value (1) | |
Outstanding at December 31, 2021 | |
| 1,087,820 | | |
$ | 4.08 | | |
| 3.9 | | |
$ | — | |
Granted | |
| 1,634,195 | | |
$ | 0.42 | | |
| 5.0 | | |
$ | — | |
Exercised | |
| — | | |
$ | — | | |
| — | | |
$ | — | |
Forfeited | |
| (103,287 | ) | |
$ | — | | |
| — | | |
$ | — | |
Expired | |
| — | | |
$ | — | | |
| — | | |
$ | — | |
Outstanding at September 30, 2022 | |
| 2,574,846 | | |
$ | 1.85 | | |
| 2.7 | | |
$ | — | |
Exercisable at September 30, 2022 | |
| 1,015,854 | | |
$ | 3.62 | | |
| 1.7 | | |
$ | — | |
| (1) | The aggregate intrinsic value in the table was calculated based
on the difference between the estimated fair market value of our stock and the exercise price of the underlying options. The estimated
stock values used in the calculation were $0.98 and $0.3510 per share for the year ended December 31, 2021 and the nine months ended
September 30, 2022, respectively. |
Restricted Stock Units
The following table summarizes restricted stock unit activity for the
nine months ended September 30, 2022:
| |
| | |
Weighted | |
| |
| | |
Average | |
| |
| | |
Grant-Date | |
| |
| | |
Fair | |
| |
Number of | | |
Value Per | |
| |
Units | | |
Unit | |
Outstanding as of December 31, 2021 | |
| 667 | | |
$ | 1.80 | |
Granted | |
| 5,000 | | |
$ | 0.76 | |
Vested | |
| (5,667 | ) | |
$ | 0.76 | |
Forfeited | |
| — | | |
$ | — | |
Outstanding as of September 30, 2022 | |
| — | | |
$ | — | |
The stock-based compensation expense was recorded as follows:
| |
Three Months Ended | | |
Nine Months
Ended | |
| |
September
30, | | |
September
30, | |
| |
2022 | | |
2021 | | |
2022
| | |
2021
| |
| |
| | |
| | |
| | |
| |
Research and development | |
$ | - | | |
$ | 1 | | |
$ | 4 | | |
$ | 2 | |
Selling, general and administrative | |
| 139 | | |
| 213 | | |
| 565 | | |
| 548 | |
Total stock-based compensation expense | |
$ | 139 | | |
$ | 214 | | |
$ | 569 | | |
$ | 550 | |
The allocation between research and development
and selling, general and administrative expense was based on the department and services performed by the employee or non-employee.
At September 30, 2022, the total compensation
cost related to unvested options not yet recognized was $502, which will be recognized over a weighted average period of 15 months, assuming
the employees and non-employees complete their service period required for vesting.
Note 12 - Commitments and Contingencies
Legal Proceedings
In July 2020, Kennan E. Kaeder, our former corporate
general counsel (the “Plaintiff”), commenced an action against us in the Superior Court of the State of California, for the
County of San Diego. The complaint alleges, among other things, that we breached the Plaintiff’s employment contract with us, as
well as the implied covenant of good faith and fair dealing, by refusing to issue him the balance of stock options he claims we owe him.
In September 2021, the Plaintiff served us and also named the following individuals as defendants: Loretta Mayer, Cheryl Dyer, Thomas
C. Chesterman, Kim Wolin, Grover Wickersham, Marc Dumont, Bob Ramsey, Matthew Szot, Julia Williams, and Bill Baker. We do not believe
that all of the defendants have yet been served. The Plaintiff alleges that such individuals agreed to knowingly and wrongfully withhold
the stock options owed to him and are knowingly in receipt of stolen property. The Plaintiff seeks compensatory damages in excess of $500,000,
treble damages, and reasonable attorneys’ fees. We do not believe the claims described above have merit and intend to aggressively
defend against these accusations. We do not believe that this litigation is likely to have a material effect on our operations.
In addition to the matter described above, we
may be subject to other legal proceedings and claims arising from contracts or other matters from time to time in the ordinary course
of business. Management is not aware of any other pending or threatened litigation where the ultimate disposition or resolution could
have a material adverse effect on our financial position, results of operations or liquidity.
Lease Commitments
On December 1, 2019, we entered into a lease for
our corporate headquarters in Phoenix, Arizona where we lease and occupy approximately 5,529 square feet of office space. This lease expires
in November 2024.
On August 1, 2020, we entered into a lease for
our manufacturing and research facility in Phoenix, Arizona where we occupy approximately 5,105 square feet of manufacturing and warehouse
space. This lease expires on November 30, 2024.
We believe that our existing facilities are adequate and meet our current
needs for business, manufacturing and research.
Rent expense was $164 and $166 for the nine months
ended September 30, 2022 and 2021, respectively. The future minimum lease payments under non-cancellable operating lease and future minimum
finance lease payments as of September 30, 2022 are follows:
| |
Operating | |
Years Ending December 31, | |
Leases | |
2022 | |
| 49 | |
2023 | |
| 198 | |
2024 | |
| 186 | |
Total minimum lease payments | |
$ | 481 | |
Note 13 - Subsequent Events
Nasdaq Listing Extension
As previously disclosed, on March 2, 2022, we
received a letter from the listing qualifications staff (the “Staff”) of The Nasdaq Stock Market (“Nasdaq”) providing
notification that the bid price for our common stock had closed below $1.00 per share for the previous 30 consecutive business days and
our common stock no longer met the minimum bid price requirement for continued listing under Nasdaq Listing Rule 5550(a)(2) (the “Rule”).
We were provided a period of 180 calendar days, or until August 29, 2022, in which to regain compliance with the Rule.
On August 31, 2022, we received notice from Nasdaq
indicating that, while we have not regained compliance with the Rule, the Staff has determined that we are eligible for an additional
180 calendar day period, or until February 27, 2023, to regain compliance. The Staff’s determination was based on (i) our meeting
the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on
the Nasdaq Capital Market, with the exception of the bid price requirement, and (ii) our providing written notice to Nasdaq of our intent
to cure the deficiency during this second compliance period by effecting a reverse stock split, if necessary. If at any time during this
second 180-day period the closing bid price of our common stock is at least $1.00 per share for a minimum of 10 consecutive business days,
the Staff will provide written confirmation of compliance. If compliance cannot be demonstrated by February 27, 2023, the Staff will provide
written notification to us that our common stock will be delisted. At that time, we may appeal the Staff’s determination to a Nasdaq
hearings panel. There can be no assurance that we will regain compliance with the Rule or maintain compliance with other Nasdaq continued
listing requirements.
Reverse Stock Split
On October 12, 2022, our stockholders approved
a reverse stock split of our common stock, par value $0.001 per share, at a ratio of not less than 1-for-5 and not more than 1-for-20,
with the actual ratio to be determined by our board of directors (the “2022 Reverse Split”). Our board of directors has not
yet chosen the ratio for, nor implemented, the 2022 Reverse Split, but expects to do so prior to the Offering (as hereafter defined).
The number of authorized shares of our common stock will remain unchanged at 100,000,000 shares after the 2022 Reverse Split.
Public Offering
On October 21, 2022, our board of directors approved
a public offering (the “Offering”) of shares of our common stock, par value $0.001 per share, together with Series A warrants
to purchase shares of our common stock (“Series A Warrants”) and Series B warrants to purchase shares of our common stock
(“Series B Warrants” and, together with Series A Warrants, “Series Warrants”) for aggregate gross proceeds of
up to $10 million.
Stock Based Compensation Plan Share Increase
On October 12, 2022, our stockholders approved
an amendment to the 2018 Plan to increase the number of shares of common stock available for issuance under the 2018 Plan by 3,000,000
shares. As of October 12, 2022, we had 4,213,406 shares of common stock available for issuance under the Amended 2018 Plan.
We have evaluated subsequent events from the
balance sheet date through November 11, 2022 the date at which the financial statements were issued, and determined that there were
no additional items that require adjustment to or disclosure in the financial statements.