NOTE 8 — SHAREHOLDERS’ EQUITY

Changes in Authorized Capital Stock

On June 16, 2022, the Company’s shareholders approved an increase of authorized shares from 40.0 million shares to 100.0 million shares of common stock. Accordingly, as of June 30, 2023 and 2022, the Company was authorized to issue 100.0 million shares of common stock and 0.4 million shares of preferred stock.

May 2022 Registered Direct Offering

On May 1, 2022, the Company entered into (i) an underwriting agreement with Jefferies LLC, as representative of the underwriters listed therein, relating to the issuance and sale of equity securities in an underwritten registered direct offering (the “2022 RDO”), and (ii) a placement agency agreement with Jefferies LLC, that provided for a private placement of equity securities (the “2022 Private Placement”). The 2022 RDO resulted in the issuance of (i) approximately 18.0 million shares of the Company’s common stock, at a public offering price of $3.80 per share, (ii) Class A pre-funded warrants (the “Class A PFWs”) to purchase up to approximately 2.0 million shares of common stock at a public offering price of $3.799 per Class A PFW and (iii) Class B PFWs to purchase up to 10.9 million shares of common stock at a public offering price of $3.799 per Class B PFW. The gross amount of the 2022 RDO was $117.6 million, before deducting an aggregate of $7.1 million incurred for underwriting discounts and approximately $0.4 million for professional fees and other offering expenses payable by the Company. The 2022 RDO closed on May 4, 2022 and the Company received net proceeds of approximately $110.5 million. In connection with the 2022 RDO, certain of the Company’s officers and directors agreed not to sell or otherwise dispose of any common stock held by them through July 30, 2022.

2022 Private Placement

Pursuant to the 2022 Private Placement, the Company entered into a securities purchase agreement (“SPA”) on May 4, 2022 with Handok, Inc. (“Handok”), an entity affiliated with a member of the Board of Directors, and certain of Handok’s affiliates (collectively, the “Purchasers”). Contingent upon satisfaction of certain closing conditions set forth in the SPA, the Company agreed to sell to the Purchasers 3.2 million shares of common stock at a price of $3.80 per share. In July 2022 the Company entered into amended SPAs for the 2022 Private Placement resulting in gross proceeds of approximately $12.3 million in exchange for approximately 3.2 million shares of common stock. The Company incurred

approximately $0.8 million for underwriting commissions and other offering costs resulting in net proceeds of $11.6 million.

2022 Pre-Funded Warrants

The offering price of $3.799 per share for the Class A PFWs and the Class B PFWs (collectively, the “2022 PFWs”) is equal to the public offering price for the shares of common stock issued in the 2022 RDO less the $0.001 per share price that is required to be paid to the Company upon exercise of the 2022 PFWs. The exercise price of the 2022 PFWs 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, and also upon any distributions for no consideration of assets to the Company's shareholders. In the event of certain corporate transactions, the holders of the 2022 PFWs will be entitled to receive, upon exercise of the 2022 PFWs, the kind and amount of securities, cash or other property that the holders would have received had they exercised the 2022 PFWs immediately prior to such transaction. The 2022 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.

Each Class A PFW is exercisable upon issuance. The Class B PFWs became exercisable for shares of common stock upon receipt of shareholder approval for an increase in the number of authorized shares of common stock as discussed below under the caption Required Shareholder Approval. As of June 30, 2023, none of the 2022 PFWs have been exercised.

Required Shareholder Approval

The closing of the 2022 RDO resulted in the issuance of approximately 18.0 million shares of common stock and Class A PFWs exercisable for approximately 2.0 million shares. After these issuances, the Company had utilized the entire 40.0 million of authorized shares of common stock that were available under its corporate charter, consisting of issued shares and shares of common stock reserved for issuance under stock option plans and outstanding warrants. Accordingly, the Company did not have a sufficient number of shares of common stock available to permit exercise of any of the Class B PFWs. Accordingly, the Class B PFWs were only exercisable for shares of common stock to the extent that shareholders subsequently approved an increase in the number of authorized shares (the “Shareholder Approval”), which the Company was required to use its best efforts to obtain at an annual meeting of shareholders to be held by June 30, 2022. As noted under the caption Changes in Authorized Capital Stock the Company obtained shareholder approval for an increase of authorized shares on June 16, 2022. As of June 30, 2023, the 10.9 million Class B PFWs issued were fully exercisable and no shares underlying the Class B PFWs had been exercised.

Upon closing of the 2022 RDO on May 4, 2022, the Company accounted for the gross proceeds of $41.6 million received from the issuance of the Class B PFWs as a derivative liability. As a result of subsequent reductions in the fair value of this derivative liability, the Company recognized a gain of $6.6 million through June 16, 2022 when Shareholder Approval was obtained. Upon receipt of Shareholder Approval for the increase in authorized shares to 100.0 million shares, the Company reclassified the related Class B PFW derivative liability of $35.0 million to shareholders’ equity.  

Registration Rights Agreement

In connection with the offer of the Class B PFWs, the Company entered into registration rights agreements with the purchasers. As required by the registration rights agreements, the Company filed a registration statement in June 2022 that was declared effective on July 1, 2022 to register the shares issuable upon exercise of the Class B PFWs. If the Company fails to comply with the registration rights agreement, it will be obligated to pay 2.0% of the purchase price of the Class B PFWs for an aggregate of approximately $0.8 million as liquidated damages. If liquidated damage payments are required in the future, they will be charged to expense in the period incurred.

2021 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 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 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 2021 PFWs 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%. Through June 30, 2023, no shares underlying the 2021 PFWs have been exercised.

2021 Registered Direct Offering

Concurrently with the Underwritten Offering, Handok entered into a subscription agreement for a registered direct offering (the “2021 RDO”) pursuant to which the Company agreed to sell Handok 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.

Termination of EDA and Purchase Agreement

The Company entered an Equity Distribution Agreement (“EDA”) with Oppenheimer & Co. Inc. (“Oppenheimer”) in December 2020 and a purchase agreement (“Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”) in August 2021. The Company sold 138,388 shares of its common stock pursuant to the EDA for net proceeds of approximately $1.5 million. From August 2021 through September 2021, LPC purchased 115,708 shares of common stock for gross proceeds of approximately $1.2 million. Concurrently, the Company issued 33,799 shares of common stock to LPC as an initial fee for its commitment to purchase shares under the Purchase Agreement. In May 2022, the Company provided notices to Oppenheimer and LPC whereby the EDA and the Purchase Agreement were terminated. As a result of these termination notices, no further equity securities are issuable under either agreement.