Quarterly report pursuant to Section 13 or 15(d)

SHAREHOLDERS' EQUITY

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SHAREHOLDERS' EQUITY
9 Months Ended
Mar. 31, 2022
SHAREHOLDERS' EQUITY  
SHAREHOLDERS' EQUITY

NOTE 6 — SHAREHOLDERS’ EQUITY

Changes in Shareholders’ Equity for the Three Months Ended March 31, 2022 and 2021

The following table presents changes in shareholders’ equity for the three months ended March 31, 2022 and 2021 (in thousands):

Additional

Total

Common Stock

Paid-in

Accumulated

Shareholders'

    

Shares

    

Amount

    

Capital

    

Deficit

    

Equity

Three Months Ended March 31, 2022:

Balances, December 31, 2021

 

15,556

$

16

$

250,816

$

(188,567)

$

62,265

Share-based compensation

850

850

Net loss

 

 

 

 

(11,208)

 

(11,208)

Balances, March 31, 2022

15,556

$

16

$

251,666

$

(199,775)

$

51,907

Three Months Ended March 31, 2021:

Balances, December 31, 2020

8,352

$

8

$

193,831

$

(157,953)

$

35,886

Share-based compensation

530

530

Reclassification of derivative liability for authorized share deficiency

(3,591)

(3,591)

Fair value of warrants issued to consultants for services

2

2

Net loss

(3,695)

(3,695)

Balances, March 31, 2021

 

8,352

$

8

$

190,772

$

(161,648)

$

29,132

For changes in shareholders’ equity for the nine months ended March 31, 2022 and 2021, please refer to the unaudited condensed consolidated statements of shareholders’ equity.

Underwritten Public Offering

On October 12, 2021, the Company entered into an underwriting agreement with Oppenheimer & Co., Inc., as representative of the underwriters listed therein (the “2021 Underwriters”) for the planned issuance and sale of equity securities in an underwritten public offering (the “2021 Underwritten Offering”). On October 15, 2021, closing occurred for the Underwritten Offering resulting in the issuance of (i) 6,030,847 shares of common stock at $6.50 per share for gross proceeds of $39.2 million, and (ii) 1,661,461 pre-funded

warrants to purchase 1,661,461 shares of common stock at an issuance price of $6.49 per warrant (the “2021 PFWs”) for gross proceeds of $10.8 million. The aggregate gross proceeds from the Underwritten Offering amounted to $50.0 million, excluding the Underwriters’ Option discussed below, and before deductions for underwriting discounts and commissions of 6.0% of the gross proceeds and other offering costs of approximately $0.3 million. After deducting total offering costs of $3.3 million, the net proceeds of the Underwritten Offering amounted to approximately $46.7 million.

The Company granted the 2021 Underwriters a 30-day option to purchase up to an additional 1,153,845 shares of its common stock in the 2021 Underwritten Offering at a public offering price of $6.50 per share, less underwriting discounts and commissions (the “Underwriters’ Option”). In November 2021, the Underwriters’ Option was partially exercised for 116,266 shares resulting in gross proceeds of approximately $0.8 million.

2021 Pre-Funded Warrants

The 2021 PFWs have an exercise price of $0.01 per share, which is subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock. Each 2021 PFW is exercisable at any time and from time to time after issuance with no stated expiration date. In the event of certain corporate transactions, the holders of the 2021 PFWs will be entitled to receive, upon exercise of the 2021 PFWs, the kind and amount of securities, cash or other property that the holders would have received had they exercised the 2021 PFWs immediately prior to such transaction. The 2021 PFWs do not entitle the holders thereof to any voting rights or any of the other rights or privileges to which holders of Common Stock are entitled.

The gross proceeds of $10.8 million received from issuance of the 2021 PFWs was recorded as a component of shareholders’ equity within additional paid-in capital. In accordance with the terms of the warrant agreement, holders of the outstanding warrants are not entitled to exercise any portion of the Pre-Funded Warrant if, upon exercise of such portion of the warrant, the holder’s aggregate ownership of the Company’s common stock or the combined voting power beneficially owned by such holder would exceed a designated percentage elected by the holder ranging from 4.99% to 19.99%, after giving effect to the exercise (the “Maximum Ownership Percentage”). Upon at least 61 days’ prior notice to the Company, any warrant holder may elect to increase or decrease the Maximum Ownership Percentage to any other percentage not to exceed 19.99%. As of March 31, 2022, no shares underlying the 2021 PFWs have been exercised.

2021 Registered Direct Offering

Concurrently with the Underwritten Offering, Handok, Inc. (the “Purchaser”), an entity affiliated with a member of the Board of Directors, entered into a subscription agreement for a registered direct offering (the “2021 RDO”) pursuant to which the Company agreed to sell to the Purchaser an aggregate of 769,231 shares of its common stock at a purchase price of $6.50 per share. The closing for the 2021 RDO occurred on October 27, 2021, whereby the Company received gross proceeds of $5.0 million.

Equity Distribution Agreement

In December 2020, the Company and Oppenheimer & Co. Inc. (the “Agent”) entered into an Equity Distribution Agreement (the “EDA”) that provides for an “at the market offering” for the sale of up to $50.0 million in shares of the Company’s common stock (the “Placement Shares”) through the Agent. The Agent was acting as sales agent and was required to use commercially reasonable efforts to sell all of the Placement Shares requested to be sold by the Company, consistent with the Agent’s normal trading and sales practices, on mutually agreed terms between the Agent and the Company. The EDA was scheduled to terminate when all of the Placement Shares had been sold, or earlier upon the election of either the Company or the Agent. As discussed in Note 13, the Company provide the Agent with notice of termination of the EDA in May 2022 and no further shares will be issued under this agreement.

Under the terms of the EDA, the Company agreed to pay the Agent a commission equal to 3.0% of the gross sales price of the Placement Shares plus certain expenses incurred by the Agent in connection with the offering. For the nine months ended March 31, 2022, the Company sold 138,388 shares of its common stock pursuant to the EDA for net proceeds of approximately $1.5 million.

LPC Purchase Agreement

In August 2021, the Company entered into a purchase agreement (the “Purchase Agreement”) and a registration rights agreement (the “RRA”) with Lincoln Park Capital Fund, LLC (“LPC”), which provides that the Company may sell to LPC up to an aggregate of $20.0 million shares (the “Purchase Shares”) of its common stock. The Company concurrently filed a prospectus supplement with the SEC to register the shares issuable under the Purchase Agreement. The aggregate number of shares that the Company could sell to LPC under the Purchase Agreement was 1,669,620 shares of common stock, subject to certain exceptions set forth in the Purchase Agreement.

LPC’s initial purchase consisted of 95,708 Purchase Shares at a purchase price of approximately $10.45 per share for a total purchase price of $1.0 million. Concurrently, the Company issued 33,799 shares of common stock to LPC as an initial fee for its commitment to purchase shares of common stock under the Purchase Agreement. Subject to the terms of the Purchase Agreement, the Company had the right, in its sole discretion, to present LPC with a purchase notice (a “Regular Purchase Notice”), directing LPC to purchase up to 25,000 Purchase Shares (a “Regular Purchase”). LPC’s committed obligation under any single Regular Purchase generally could not exceed $2.0 million. The Purchase Agreement provided for a purchase price per share for each Regular Purchase (the “Purchase Price”) equal to the lesser of (i) the lowest sale price of the common stock on the Nasdaq Capital Market (“NCM”) on the purchase date of such shares; and (ii) the average of the three lowest closing sale prices for the common stock traded on the NCM during the ten consecutive business days ending on the business day immediately preceding the purchase date of such shares.

On September 17, 2021, the Company submitted a Regular Purchase Notice, resulting in the sale of 20,000 Purchase Shares to LPC for net proceeds of approximately $0.2 million. As discussed in Note 13, the Company provided LPC with notice of termination of the Purchase Agreement in May 2022 and no further shares are issuable under this agreement.

Pursuant to the RRA, the Company agreed to use its reasonable best efforts to maintain effectiveness of the registration statement and the related prospectus supplement within prescribed deadlines set forth in the RRA. In addition, the Company is required to use its reasonable best efforts to secure and maintain its listing of the Purchase Shares on the NCM. LPC has no obligation to purchase shares under the Purchase Agreement unless the Company complies with the terms of the RRA.

Derivative Liability for Authorized Share Deficiency

 

On February 17, 2021, the Company filed a certificate of correction (the “Charter Revision”) with the Secretary of State of Delaware. The Charter Revision changed the number of authorized shares of Common Stock from 500,000,000 shares to 10,000,000 on February 17, 2021. Upon filing the Charter Revision, the Company had approximately 8,352,000 shares of common stock issued and outstanding, plus approximately 2,428,000 shares were required to be reserved for issuance pursuant to the Company’s stock option plans and outstanding warrant agreements. Since the Charter Revision reduced authorized shares to 10,000,000 shares, a deficiency of approximately 780,000 shares existed as of February 17, 2021. As a result of this deficiency, it was not possible to issue up to an aggregate of 780,000 shares of common stock under outstanding stock options and warrants as of February 17, 2021. Therefore, the Company could have been required to settle in cash for the fair value of the 780,000 shares subject to this deficiency, which required liability classification for these instruments beginning on February 17, 2021.

 

The Company made an accounting policy election to select the stock options and warrant agreements with the earliest issuance dates to compute the estimated fair value of the financial instruments associated with the authorized share deficiency. These stock options and warrants were generally those with the highest exercise prices that were least likely to be exercised. The fair value of such stock options and warrants was accounted for as a derivative liability that amounted to $3.6 million as of February 17, 2021. As a result of the expiration of stock options for approximately 40,000 shares in March 2021, the authorized share deficiency was reduced to approximately 740,000 as of March 31, 2021. Primarily due to the reduction in the market price of the Company’s common stock, the fair value of stock options and warrants for an aggregate of 740,000 shares amounted to $1.8 million as of March 31, 2021. Presented

below is a summary of the derivative liability associated with stock options and warrants as of February 17, 2021 and March 31, 2021 (in thousands, except per share amounts):

February 17, 2021

March 31, 2021

Stock

Stock

Options

Warrants

Total

Options

Warrants

Total

Number of shares

253

527

780

213

527

740

Weighted average fair value per share

$

6.46

$

3.71

$

4.60

$

4.03

$

1.80

$

2.44

Fair value of derivative liability

$

1,638

$

1,953

$

3,591

$

858

$

949

$

1,807

Due to the reduction in fair value of the derivative liability from February 17, 2021 to March 31, 2021, the Company recognized a non-cash gain of approximately $1.8 million in the accompanying unaudited condensed consolidated statements of operations for the three and nine months ended March 31, 2021. In order to determine the fair value of the stock options and warrants set forth above, the Company used the BSM option-pricing model with the following weighted-average assumptions for the valuations performed as of February 17, 2021 and March 31, 2021:

February 17, 2021

March 31, 2021

Stock

Stock

Options

Warrants

Total

Options

Warrants

Total

Market price of Common Stock

$

11.99

$

11.99

$

11.99

$

7.06

$

7.06

$

7.06

Exercise price

$

84.19

$

63.88

$

70.48

$

70.48

$

63.84

$

65.75

Risk-free interest rate

0.6

%

0.1

%

0.3

%

1.0

%

0.2

%

0.4

%

Dividend rate

0.0

%

0.0

%

0.0

%

0.0

%

0.0

%

0.0

%

Remaining contractual term (years)

4.6

1.5

2.5

5.3

1.4

2.5

Historical volatility

112.6

%

123.5

%

119.9

%

118.4

%

112.0

%

113.9

%

On May 26, 2021, the Company’s shareholders approved an increase in authorized shares of common stock from 10.0 million shares to 40.0 million shares. As a result, the authorized share deficiency was eliminated, and the related stock options and warrants were no longer accounted for a derivative liability after May 26, 2021 and were reclassified to equity.