NOTES TO
CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. | Organization
and Summary of Significant Accounting Policies |
The
Company
We
are a pharmaceutical company developing therapeutics utilizing our proprietary long-term drug delivery platform, ProNeura®,
for the treatment of select chronic diseases for which steady state delivery of a drug has the potential to provide an efficacy and/or
safety benefit. ProNeura consists of a small, solid implant made from a mixture of ethylene-vinyl acetate, or EVA, and a drug substance.
The resulting product is a solid matrix that is designed to be administered subdermally in a brief, outpatient procedure and is removed
in a similar manner at the end of the treatment period.
Our
first product based on our ProNeura technology was Probuphine® (buprenorphine implant), which is approved in the United
States, Canada and the European Union, or EU, for the maintenance treatment of opioid use disorder in clinically stable patients taking
8 mg or less a day of oral buprenorphine. While Probuphine continues to be commercialized in Canada and in the EU (as Sixmo™) by
other companies that have either licensed or acquired the rights from Titan, we discontinued commercialization of the product in the
U.S. during the fourth quarter of 2020 to allow us to focus our limited resources on our product development programs.
In
December 2021, we announced our intention to work with our financial advisor to explore strategic alternatives to enhance stockholder
value, potentially including an acquisition, merger, reverse merger, other business combination, sales of assets, licensing or other
transaction. In June 2022, we implemented a plan to reduce expenses and conserve capital that included a company-wide reduction in salaries
and a scale back of certain operating expenses to enable us to maintain sufficient resources as we pursued potential strategic alternatives.
In July 2022, David Lazar and Activist Investing LLC (collectively, “Activist”) acquired an approximately 25% ownership interest
in Titan and filed a proxy statement for the purpose of nominating six additional directors to our board of directors (the “Board”)
at a special meeting of stockholders held on August 15, 2022 (the “Special Meeting”). The six additional directors were elected
at the Special Meeting and the exploration and evaluation of possible strategic alternatives by the Board has continued following the
Special Meeting. Following the election of the new directors at the Special Meeting, Dr. Marc Rubin was replaced as our Executive Chairman, and David Lazar assumed the role of Chief Executive Officer. In connection with the termination of his employment as Executive Chairman, Dr. Rubin will receive aggregate severance payments of approximately $0.4 million, which are being paid out over a twelve-month period.
Basis
of Presentation
The
accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles
(“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all the information and footnotes required by GAAP for complete financial statement presentation. In the opinion
of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.
Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2022, or any future interim periods.
The
balance sheet as of December 31, 2021 is derived from the audited financial statements at that date, but does not include all the
information and footnotes required by GAAP for complete financial statements. These unaudited condensed financial statements should be
read in conjunction with the audited financial statements and footnotes thereto included in the Titan Pharmaceuticals, Inc. Annual Report
on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission (“SEC”).
The
preparation of condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the amounts reported in the condensed financial statements and accompanying notes. Actual results could differ from those estimates.
The accompanying condensed financial statements have been prepared assuming we will continue as a going concern.
As
of September 30, 2022, we had cash and cash equivalents of approximately $4.5 million, which we believe is sufficient to fund our planned
operations into the first quarter of 2023. We are exploring several financing and strategic alternatives; however, there can be no assurance
that our efforts will be successful. Accordingly, there is substantial doubt about our ability to continue as a going concern.
Discontinued
Operations
In
October 2020, we announced our decision to discontinue selling Probuphine in the U.S. and wind down our commercialization activities,
and to pursue a plan that will enable us to focus on our current, early-stage ProNeura-based product development programs.
The
accompanying condensed financial statements have been recast for all periods presented to reflect the assets, liabilities, revenue and
expenses related to our U.S. commercialization activities as discontinued operations (see Note 7). The accompanying condensed financial
statements are generally presented in conformity with our historical format. We believe this format provides comparability with the previously
filed financial statements.
Going
Concern Assessment
We
assess going concern uncertainty in our financial statements to determine if we have sufficient cash on hand and working capital, including
available borrowings on loans, to operate for a period of at least one year from the date the financial statements are issued, which
is referred to as the “look-forward period” as defined by Accounting Standard Update ASU No. 2014-15. As part of this
assessment, based on conditions that are known and reasonably knowable to us, we will consider various scenarios, forecasts, projections,
estimates and will make certain key assumptions, including the timing and nature of projected cash expenditures or programs, and our
ability to delay or curtail expenditures or programs, if necessary, among other factors. Based on this assessment, as necessary or applicable,
we make certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent
we deem probable those implementations can be achieved and we have the proper authority to execute them within the look-forward period
in accordance with ASU No. 2014-15.
Based
upon the above assessment, we concluded that, at the date of filing the condensed financial statements in this Quarterly Report on Form
10-Q for the three and nine months ended September 30, 2022, we did not have sufficient cash to fund our operations for the next 12 months
without additional funds and, therefore, there is substantial doubt about our ability to continue as a going concern within 12 months
after the date the condensed financial statements were issued. Additionally, we have suffered recurring losses from operations and have
an accumulated deficit that raises substantial doubt about our ability to continue as a going concern. We are exploring several financing
and strategic alternatives; however, there can be no assurance that our efforts will be successful.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make
estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ
from those estimates.
Inventories
Inventories
are recorded at the lower of cost or net realizable value. Cost is based on the first in, first out method. We regularly review inventory
quantities on hand and write down to its net realizable value any inventory that we believe to be impaired. The determination of net
realizable value requires judgment including consideration of many factors, such as estimates of future product demand, product net selling
prices, current and future market conditions and potential product obsolescence, among others. The components of inventories are as follows:
Schedule of components of inventories | |
| | | |
| | |
| |
As of | |
(in thousands) | |
September 30,
2022 | | |
December 31,
2021 | |
Raw materials and supplies | |
$ | 394 | | |
$ | 227 | |
Finished goods | |
| 66 | | |
| 66 | |
Total inventories | |
$ | 460 | | |
$ | 293 | |
The
approximately $66,000 of finished goods inventory at September 30, 2022 included materials held for potential sale.
Revenue
Recognition
We
generate revenue principally from collaborative research and development arrangements, sales or licenses of technology, government grants,
sales of Probuphine materials to holders of the ex-U.S. product rights, and prior to the discontinued operations, the sale of Probuphine
in the U.S. Consideration received for revenue arrangements with multiple components is allocated among the separate performance obligations
based upon their relative estimated standalone selling price.
In
determining the appropriate amount of revenue to be recognized as we fulfill our obligations under our agreements, we perform the following
steps for our revenue recognition: (i) identification of the promised goods or services in the contract; (ii) determination
of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract;
(iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction
price to the performance obligations based on estimated selling prices; and (v) recognition of revenue when (or as) we satisfy each
performance obligation.
Grant
Revenue
We
have contracts with National Institute on Drug Abuse or NIDA, within the U.S. Department of Health and Human Services, or HHS, the Bill
& Melinda Gates Foundation, and other government-sponsored organizations for research and development related activities that provide
for payments for reimbursed costs, which may include overhead and general and administrative costs. We recognize revenue from these contracts
as we perform services under these arrangements when the funding is committed. Associated expenses are recognized when incurred as research
and development expense. Revenues and related expenses are presented gross in the condensed statements of operations.
Net
Product Revenue
Prior
to the discontinuation of our commercialization activities relating to Probuphine in the U.S., we recognized revenue from product sales
when control of the product transfers, generally upon shipment or delivery, to our customers, which include distributors. As customary
in the pharmaceutical industry, our gross product revenue was subject to a variety of deductions in the forms of variable consideration,
such as rebates, chargebacks, returns and discounts, in arriving at reported net product revenue. This variable consideration was estimated
using the most-likely amount method, which is the single most-likely outcome under a contract and was typically at stated contractual
rates. The actual outcome of this variable consideration could materially differ from our estimates. From time to time, we would adjust
our estimates of this variable consideration when trends or significant events indicated that a change in estimate is appropriate to
reflect the actual experience. Additionally, we continued to assess the estimates of our variable consideration as we continued to accumulate
additional historical data.
Returns
– Consistent with the provisions of ASC 606, we estimated returns at the inception of each transaction, based on multiple considerations,
including historical sales, historical experience of actual customer returns, levels of inventory in our distribution channel, expiration
dates of purchased products and significant market changes which could impact future expected returns to the extent that we would not
reverse any receivables, revenues, or contract assets already recognized under the agreement. During the year ended December 31, 2019,
we entered into agreements with large national specialty pharmacies with a distribution channel different from that of our existing customers
and, therefore, the related reserves had unique considerations. We continued to evaluate the activities with these specialty pharmacies
and updated the related reserves accordingly.
Rebates –
Our provision for rebates was estimated based on our customers’ contracted rebate programs and our historical experience of rebates
paid.
Discounts –
The provision was estimated based upon invoice billings, utilizing historical customer payment experience.
Performance
Obligations
A
performance obligation is a promise in a contract to transfer a distinct good or service to the customer. Our performance obligations
include commercialization license rights, development services and services associated with the regulatory approval process.
We
have optional additional items in contracts, which are accounted for as separate contracts when the customer elects such options. Arrangements
that include a promise for future commercial product supply and optional research and development services at the customer’s discretion
are generally considered as options. We assess if these options provide a material right to the customer and, if so, such material rights
are accounted for as separate performance obligations. If we are entitled to additional payments when the customer exercises these options,
any additional payments are recorded in revenue when the customer obtains control of the goods or services.
Transaction
Price
We
have both fixed and variable consideration. Non-refundable upfront payments are considered fixed, while milestone payments are identified
as variable consideration when determining the transaction price. Funding of research and development activities is considered variable
until such costs are reimbursed at which point, they are considered fixed. We allocate the total transaction price to each performance
obligation based on the relative estimated standalone selling prices of the promised goods or services for each performance obligation.
At
the inception of each arrangement that includes milestone payments, we evaluate whether the milestones are considered probable of being
achieved and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that
a significant revenue reversal would not occur, the value of the associated milestone is included in the transaction price. Milestone
payments that are not within our control, such as approvals from regulators, are not considered probable of being achieved until those
approvals are received.
For
arrangements that include sales-based royalties or earn-out payments, including milestone payments based on the level of sales, and the
license or purchase agreement is deemed to be the predominant item to which the royalties or earn-out payments relate, we recognize revenue
at the later of (a) when the related sales occur, or (b) when the performance obligation to which some or all of the royalty
or earn-out payment has been allocated has been satisfied (or partially satisfied).
Allocation
of Consideration
As
part of the accounting for these arrangements, we must develop assumptions that require judgment to determine the stand-alone selling
price of each performance obligation identified in the contract. Estimated selling prices for license rights are calculated using
the residual approach. For all other performance obligations, we use a cost-plus margin approach.
Timing
of Recognition
Significant
management judgment is required to determine the level of effort required under an arrangement and the period over which we expect to
complete our performance obligations under an arrangement. We estimate the performance period or measure of progress at the inception
of the arrangement and re-evaluate it each reporting period. This re-evaluation may shorten or lengthen the period over which revenue
is recognized. Changes to these estimates are recorded on a cumulative catch-up basis. If we cannot reasonably estimate when our performance
obligations either are completed or become inconsequential, then revenue recognition is deferred until we can reasonably make such estimates.
Revenue is then recognized over the remaining estimated period of performance using the cumulative catch-up method. Revenue
is recognized for licenses or sales of functional intellectual property at the point in time the customer can use and benefit from the
license. For performance obligations that are services, revenue is recognized over time proportionate to the costs that we have incurred
to perform the services using the cost-to-cost input method.
Contract
Assets and Liabilities
The
following table presents the activity related to our accounts receivable for the nine months ended September 30, 2022.
Schedule of activity related to our accounts receivable | |
| | |
| |
September 30, | |
| |
2022 | |
(In thousands) | |
| | |
Balance at January 1, 2022 | |
$ | 112 | |
Additions | |
| 436 | |
Deductions | |
| (499 | ) |
Balance at September 30, 2022 | |
$ | 49 | |
Research
and Development Costs and Related Accrual
Research
and development expenses include internal and external costs. Internal costs include salaries and employment related expenses, facility
costs, administrative expenses and allocations of corporate costs. External expenses consist of costs associated with outsourced contract
research organization (“CRO”) activities, sponsored research studies, product registration, and investigator sponsored trials.
Significant judgments and estimates must be made and used in determining the accrued balance in any accounting period. Actual results
could differ from those estimates under different assumptions. Revisions are charged to expense in the period in which the facts that
give rise to the revision become known.
Leases
We
determine whether the arrangement is or contains a lease at inception. Operating lease right-of-use assets and lease liabilities are
recognized at the present value of the future lease payments at commencement date. The interest rate implicit in lease contracts is typically
not readily determinable, and therefore, we utilize our incremental borrowing rate, which is the rate incurred to borrow on a collateralized
basis over a similar term an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use
asset may be required for items such as initial direct costs paid or incentives received.
Lease
expense is recognized over the expected term on a straight-line basis. Operating leases are recognized on our condensed balance sheets
as right-of-use assets, operating lease liabilities current and operating lease liabilities non-current.
The
following table presents the minimum lease payments of our operating lease:
Schedule of minimum operating lease payments | |
| | |
2022 | |
$ | 32 | |
2023 | |
| 130 | |
2024 | |
| 66 | |
Total minimum lease payments (base rent) | |
| 228 | |
Less: imputed interest | |
| (12 | ) |
Total operating lease liabilities | |
$ | 216 | |
Recent
Accounting Pronouncements
Accounting
Standards Not Yet Adopted
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses, which requires
an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience,
current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking
information to better inform their credit loss estimates. The amendments in this ASU are effective beginning on January 1, 2023. We are
currently assessing the impact of the adoption of Topic 326 on our condensed financial statements and disclosures.
In
March 2020, the FASB issued ASU 2020-04, Reference Rate Reform, which provides companies with optional guidance, including expedients
and exceptions for applying GAAP to contracts and other transactions affected by reference rate reform, such as the London Interbank
Offered Rate, or LIBOR. This new standard was effective upon issuance and generally can be applied to applicable contract modifications
through December 31, 2022. We are evaluating the effects that the adoption of this guidance will have on our condensed financial statements
and disclosures.
In
August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,
which simplifies the accounting for convertible instruments. ASU 2020-06 eliminates certain models that require separate accounting for
embedded conversion features, in certain cases. Additionally, among other changes, the guidance eliminates certain of the conditions
for equity classification for contracts in an entity’s own equity. The guidance also requires entities to use the if converted
method for all convertible instruments in the diluted earnings per share calculation and include the effect of share settlement for instruments
that may be settled in cash or shares, except for certain liability-classified share-based payment awards. This guidance is effective
beginning after December 15, 2023 and must be applied using either a modified or full retrospective approach. Early adoption is permitted.
We are currently evaluating the impact this guidance will have on our condensed financial statements and related disclosures.
In
November 2021, the FASB issued FASB issued ASU 2021-10, Disclosures by Business Entities about Government Assistance. The ASU codifies
new requirements to disclose information about the nature of certain government assistance received, the accounting policy used to account
for the transactions, the location in the financial statements where such transactions were recorded and significant terms and conditions
associated with such transactions. The guidance is effective for annual periods beginning after December 15, 2021. The adoption of ASU
No. 2021-10 did not have a material impact to our condensed financial statements and related disclosures.
Subsequent
Events
We
have evaluated events that have occurred after September 30, 2022 and through the date that our condensed financial statements are issued.
Fair
Value Measurements
Financial
instruments, including receivables, accounts payable and accrued liabilities are carried at cost, and their fair values are approximated
due to the short-term nature of these instruments. Our investments in money market funds are classified within Level 1 of the fair value
hierarchy.
At
September 30, 2022 and December 31, 2021, the fair value of our investments in money market funds were approximately $4.1 million and
$5.7 million, respectively, which are included within our cash and cash equivalents in our condensed balance sheets.
The
following table summarizes option activity:
Schedule of our option activity | |
| | | |
| | | |
| | | |
| | |
| |
| | |
| | |
Weighted | | |
| |
| |
| | |
Weighted | | |
Average | | |
| |
| |
| | |
Average | | |
Remaining | | |
Aggregate | |
| |
| | |
Exercise | | |
Option | | |
Intrinsic | |
| |
Options (in | | |
Price per | | |
Term | | |
Value | |
| |
thousands) | | |
share | | |
(in years) | | |
(in thousands) | |
Outstanding at December 31, 2021 | |
| 682 | | |
$ | 12.53 | | |
| 8.98 | | |
$ | — | |
Granted | |
| 310 | | |
| 1.18 | | |
| | | |
| | |
Forfeited or expired | |
| (53 | ) | |
| 18.01 | | |
| | | |
| | |
Outstanding at September 30, 2022 | |
| 939 | | |
$ | 8.48 | | |
| 8.57 | | |
$ | — | |
Exercisable at September 30, 2022 | |
| 939 | | |
$ | 8.48 | | |
| 8.57 | | |
$ | — | |
On
August 2, 2022, our Board of Directors, or Board, modified the outstanding options to purchase common stock under our 2015 Omnibus Equity
Incentive Plan, or 2015 Plan, to allow for the acceleration of vesting of all unvested 2015 Plan options in the event of a change in
control through the election of a majority of new members to our Board.
On
August 15, 2022, the Special Meeting was held at the request of Activist, to increase the size of our Board from five members to eleven
members and elect Activist’s slate of six nominees to serve as directors in addition to the existing five Board members. As a result
of the change of control, all unvested options granted under the 2015 Plan prior to August 15, 2022, immediately became vested. We recognized
approximately $0.5 million of stock-based compensation during the three months ended September 30, 2022.
During
the three-month period ended September 30, 2022, our Board granted 125,000 options to purchase common stock at $1.52 per share and 900,000
options to purchase common stock at $1.31 per share which are subject to shareholder approval of an amendment to increase the number
of shares reserved for issuance under our 2015 Plan. The options vest monthly over a 12-month period from the grant dates. As the shares
underlying these options have not been approved by our stockholders, they have been excluded from the table above as of September 30,
2022.
The
following table summarizes the stock-based compensation expense recorded for awards under our stock option plans (in thousands):
Schedule of the stock-based compensation expense | |
| | | |
| | | |
| | | |
| | |
| |
Three Months Ended | | |
Nine Months Ended | |
(in thousands) | |
September 30, | | |
September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Research and development | |
$ | 306 | | |
$ | 325 | | |
$ | 553 | | |
$ | 659 | |
Selling, general and administrative | |
| 217 | | |
| 330 | | |
| 414 | | |
| 691 | |
Total stock-based compensation | |
$ | 523 | | |
$ | 655 | | |
$ | 967 | | |
$ | 1,350 | |
We
use the Black-Scholes-Merton option-pricing model with the following assumptions to estimate the fair value of our stock options:
Schedule of assumptions to estimate the fair value of options | |
| | | |
| | | |
| | | |
| | |
| |
Three Months Ended | | |
Nine Months Ended | |
| |
September 30, | | |
September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Weighted-average risk-free interest rate | |
| — | % | |
| — | % | |
| 1.91 | % | |
| 0.5 | % |
Expected dividend payments | |
| — | | |
| — | | |
| — | | |
| — | |
Expected holding period (years) 1 | |
| — | | |
| — | | |
| 5.3 | | |
| 5.5 | |
Weighted-average volatility factor 2 | |
| — | | |
| — | | |
| 1.16 | | |
| 1.14 | |
Estimated forfeiture rates for options granted 3 | |
| — | % | |
| — | % | |
| 5.6 | % | |
| 30 | % |
(1) |
Expected
holding period is based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based
awards, vesting schedules and the expectations of future employee behavior. |
(2) |
Weighted average volatility
is based on the historical volatility of our common stock. |
(3) |
Estimated forfeiture
rates are based on historical data. |
As
of September 30, 2022, there was approximately $1.1 million of total unrecognized compensation expense related to non-vested stock options
subject to shareholder approval. This expense is expected to be recognized over a weighted-average period of approximately 1.0 year.
The
table below presents common shares underlying stock options and warrants that are excluded from the calculation of the weighted average
number of common shares outstanding used for the calculation of diluted net loss per common share. These are excluded from the calculation
due to their anti-dilutive effect:
Schedule of antidilutive securities excluded from computation of net loss per common share | |
| | | |
| | | |
| | | |
| | |
| |
Three Months Ended | | |
Nine Months Ended | |
| |
September 30, | | |
September 30, | |
(in thousands) | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Weighted-average anti-dilutive common shares resulting from options | |
| 932 | | |
| 692 | | |
| 975 | | |
| 596 | |
Weighted-average anti-dilutive common shares resulting from warrants | |
| 4,933 | | |
| 2,949 | | |
| 5,586 | | |
| 1,651 | |
| |
| 5,865 | | |
| 3,641 | | |
| 6,561 | | |
| 2,247 | |
4. | JT
Pharmaceuticals Asset Purchase Agreement |
In
October 2020, we entered into an Asset Purchase Agreement, or JT Agreement, with JT Pharmaceuticals, Inc., or JT Pharma, to acquire JT
Pharma’s kappa opioid agonist peptide, TP-2021 (formerly JT-09) for use in combination with our ProNeura long-term, continuous
drug delivery technology, for the treatment of chronic pruritus and other medical conditions. Under the terms of the JT Agreement, JT
Pharma received a $15,000 closing payment and is entitled to receive future milestone payments, payable in cash or in stock, based on
the achievement of certain developmental and regulatory milestones, and single-digit percentage earn-out payments on net sales of the
product if successfully developed and approved for commercialization. In January 2022, we entered into an agreement with JT Pharma to
clarify certain provisions of the JT Agreement pursuant to which we agreed that the proof-of-concept milestone provided for in the JT
Agreement was achieved and made a payment of $100,000 and issued 51,021 shares of our common stock to JT Pharma. The related expense
was included in research and development expenses in our condensed statements of operations.
5. | Commitments
and Contingencies |
Lease
Commitments
We
lease our office facility under an operating lease that expires in June 2024. Rent expense associated with this lease was approximately
$32,000 and $96,000 for the three and nine months ended September 30, 2022, respectively.
Legal
Proceedings
A
legal proceeding has been initiated by a former employee alleging wrongful termination, retaliation, infliction of emotional distress,
negligent supervision, hiring and retention and slander. An independent investigation into this individual’s allegations of whistleblower
retaliation, while still an employee, was conducted utilizing an outside investigator and concluded that such allegations were not substantiated.
We intend to vigorously defend the lawsuit (which we have compelled into arbitration); however, in light of our cash position, there
can be no assurance that the defense and/or settlement of this matter will not have a material adverse impact on our business.
Our
common stock outstanding as of September 30, 2022 and December 31, 2021 was 14,629,217 shares and 9,914,158 shares, respectively.
Amendment
to Bylaws
In
July 2022, the Board amended our Bylaws to effect certain enhancements to the ability of stockholders to call for a special meeting of
stockholders and make changes to the composition of the Board. This included (i) reducing the holdings required for stockholders to call
a special meeting of stockholders from a majority to twenty-five percent (25%); (ii) enabling increases in the size of the Board to be
effectuated by stockholders or directors at any annual or special meeting or by stockholder action by written consent in lieu of a meeting;
(iii) provide that Board vacancies and newly created directorships resulting from action taken by the stockholders at a meeting or by
written consent in lieu thereof shall be filled initially by the stockholders.
Activist
Investing, LLC
In
July 2022, we received a letter from Activist requesting that our Board call the Special Meeting in accordance with Article II, Section
5 of the Company’s Bylaws, as amended.in order for stockholders to consider and vote upon the following two proposals:
● | An
increase in the size of the Board by six (6) members from five (5) members to eleven (11)
members in total; and |
| |
● | The
election of Activist’s six nominees to serve as directors to fill the vacancies
left by the foregoing increase. |
In
accordance with Activist’s request, the Board set the record date for the Special Meeting as July 22, 2022 and the Special Meeting
was held on August 15, 2022 resulting in the approval of the increase in the size of the Board and the election of the six nominees.
February
2022 Offerings
In
February 2022, we completed a registered direct offering with an accredited investor pursuant to which we issued an aggregate of 1,100,000
shares of our common stock and 2,274,242 pre-funded warrants to purchase shares of our common stock, with an exercise price of $0.001
per share. In a concurrent private placement, we sold unregistered pre-funded warrants to purchase an aggregate of 1,289,796 shares of
common stock with an exercise price of $0.001 per share and issued unregistered five year and six month warrants to purchase an aggregate
of 4,664,038 shares of common stock with an exercise price of $1.14. The net cash proceeds from these offerings were approximately $5.0
million after deduction of underwriting fees and other offering expenses.
Warrant
Exercises
In
March 2022, we received approximately $1,000 from the exercise of 974,242 pre-funded warrants issued in the February 2022 registered
direct offering.
In
April 2022, we received approximately $1,300 from the exercise of 1,300,000 pre-funded warrants issued in the February 2022 registered
direct offering.
In
May 2022, we received approximately $1,290 from the exercise of 1,289,796 pre-funded warrants issued in the February 2022 private placement.
JT
Pharma Milestone
In
January 2022, we entered into an agreement with JT Pharma to clarify certain provisions of the JT Agreement pursuant to which we agreed
that the proof-of-concept milestone provided for in the JT Agreement was achieved and made a payment of $100,000 and issued 51,021 shares
of our common stock to JT Pharma.
Restricted
Shares
In
August, 2021, we agreed to issue 50,000 shares of our common stock pursuant to a restricted stock agreement with Maxim Partners, LLC
in connection with the entry into an amendment to our existing advisory agreement. The shares vested monthly over 12 months. We recorded
approximately $18,000 and $71,000 of stock-based compensation expense during the three and nine months ended September 30, 2022, respectively.
The
following table summarizes restricted stock activity:
Summary of restricted stock activity | |
| | |
| |
September 30,
2022 | |
Outstanding at December 31, 2021 | |
| 50,000 | |
Issued | |
| — | |
Forfeited or expired | |
| — | |
Outstanding at September 30, 2022 | |
| 50,000 | |
Annual
Meeting of Stockholders
In
January 2021, our stockholders approved an amendment to the 2015 Omnibus Equity Incentive plan to increase the number of authorized shares
to 1,000,000 shares.
January
2021 Offering
In
January 2021, we completed an offering with several accredited institutional investors pursuant to which we issued 2,725,000 shares of
our common stock in a registered direct offering and warrants to purchase 2,725,000 shares of our common stock with an exercise price
of $3.55 per share in a concurrent private placement. The warrants were classified as equity, were exercisable immediately and will expire
in July 2026. The net cash proceeds from this offering were approximately $8.8 million after deduction of underwriting fees and other
offering expenses.
7. | Discontinued
Operations |
The
following table presents information related to assets and liabilities reported as discontinued operations in our condensed balance sheets:
Schedule of assets and liabilities reported as discontinued operations in our condensed balance sheets | |
| | | |
| | |
| |
September 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
(In thousands) | |
| | | |
| | |
Prepaid expenses and other current assets | |
| 14 | | |
| 12 | |
Discontinued operations – current assets | |
$ | 14 | | |
$ | 12 | |
| |
| | | |
| | |
Accounts payable | |
$ | 581 | | |
$ | 782 | |
Other accrued liabilities | |
| 289 | | |
| 362 | |
Discontinued operations – current liabilities | |
$ | 870 | | |
$ | 1,144 | |
| 8. | Related
Party Transactions |
During the three months
ended September 30, 2022, we made payments related to legal fees of approximately $50,000 to a law firm operated by one of our Board
members.