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Stockholders' Equity
 12 Months Ended
Dec. 31, 2022
Stockholders' Equity  
Stockholders' Equity

7. Stockholders’ Equity

Common Stock

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The voting, dividend, and liquidation rights of the holders of the common stock are subject to and qualified by the rights, powers, and preferences of the holders of the preferred stock when outstanding. The holders of the common stock are entitled to one vote for each share of common stock held at all meetings of stockholders. Common stockholders are entitled to receive dividends at the sole discretion of the board of directors of the Company. There have been no dividends declared on common stock to date as of December 31, 2022. In the event of any liquidation, dissolution, or winding-up of the Company, the holders of common stock shall be entitled to share in the remaining assets of the Company available for distribution post preferential distributions made to holders of the Company’s preferred stock.

Preferred Stock

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The rights of the Series A Preferred Stock and Series B Preferred Stock (as defined further below), collectively, the “Preferred Stock”, while outstanding were as follows:

Dividends. Holders of the Preferred Stock were entitled to receive dividends on shares of the Preferred Stock equal (on an as-if-converted-to­ common-stock basis) to the amount paid on shares of the common stock.

Voting Rights. The Preferred Stock had no voting rights. However, as long as any shares of Preferred Stock were outstanding, the Company could not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Preferred Stock or amend its Certificate of Designation, (b) amend other charter documents in any manner that could have adversely affected any rights of the holders, (c) increase the number of authorized shares of Preferred Stock, or (d) enter into any agreement with respect to any of the foregoing.  In addition, the Series A Preferred Stock could have voted on any matter that authorized, created and/or issued any funded indebtedness (other than indebtedness already incurred);  sold or transferred, other than in the ordinary course of its business, mortgaged, assigned, pledged, leased, granted a security interest in, or encumbered any of the Company’s assets.

Liquidation. The Preferred Stock while outstanding in the event of a liquidation, dissolution or winding-up of the Company, collectively a “Liquidation”, had the following rights:

Series A Preferred Stock: Upon any Liquidation of the Company, whether voluntary or involuntary, after the satisfaction in full of the debts of the Company and the payment of any liquidation preference owed to the holders of shares of capital stock of the Company ranking senior to the Series A Preferred Stock upon liquidation, but before any distribution or payment out of the assets of the Company shall be made to the holders of any junior

securities, including common stock, an amount in cash per share equal to the amount per share in cash payable to the holder if the shares of Series A Preferred Stock were converted immediately prior to the Liquidation into shares of common stock.

Series B Preferred Stock: Upon any Liquidation of the Company, whether voluntary or involuntary, the holders shall be entitled to receive out of the assets, whether capital or surplus, of the Company the same amount that a holder of common stock would receive if the Series B Preferred Stock were fully converted (disregarding for such purposes any conversion limitations hereunder) to common stock which amounts shall be paid pari passu with all holders of common stock.

Conversion.

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Series A Preferred Stock:

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●Automatic Conversion. On the first Trading Day after the Company obtains the stockholder approval, all outstanding shares of the Series A Preferred Stock would, without any further action by holders and whether or not any certificates representing such shares are surrendered to the Company or the Transfer Agent, automatically be converted into such number of shares of common stock as determined by dividing the stated value of $10,000 per share by the conversion price then in effect (the “Automatic Conversion”). The conversion price upon an Automatic Conversion for the Series A Preferred Stock was equal to $3.00 per share.

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●Special Cash Payout Provisions: Unless and until stockholder approval was obtained, the holder did not have the right to acquire shares of common stock issuable upon conversion of the Series A Preferred Stock, and the Company was not required to issue shares of common stock issuable upon conversion of the Series A Preferred Stock in excess of the Share Cap as defined (the "Conversion Restriction"). Notwithstanding the foregoing, if the Automatic Conversion had not occurred by the nine (9)-month anniversary of the original issuance date, the holder would have been entitled to submit a request to the Company for the conversion of all, but not less than all, of holder's shares of Series A Preferred Stock that were subject to the Conversion Restriction that would have exceeded the Share Cap; provided, that, in lieu of the Conversion Shares that would have otherwise been deliverable upon conversion but for the Conversion Restriction, the Company would have instead delivered to such holder for each share of common stock that would have been so otherwise delivered an amount of cash equal to the volume weighted average price (“VWAP”) per share of common stock on the trading day immediately preceding the date such request is made. If the Company failed to make any required cash payment by the required deadline on any share of Series A Preferred Stock, then the holder thereof would have been entitled to receive cumulative cash dividends on each such share at a rate per annum of 5.00% on the stated value ( "Default Cash Dividends''). Default Cash Dividends, if any, would have accumulated on a daily basis.

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Series B Preferred Stock

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●Conversions at Option of Holder. Each share of Series B Preferred Stock was convertible, at any time at the option of the holder thereof, into that number of shares of common stock (subject to certain limitations) determined by dividing the stated value of $3.00 per share by the conversion price in effect. The conversion price for the Series B Preferred Stock was equal $3.00 per share.

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Fundamental Transaction. If, at any time while shares of the Preferred Stock were outstanding, the Company, directly or indirectly, in one or more related transactions effected any merger or consolidation of the Company, the holder of the Preferred Stock would have had the right to receive, for each conversion share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction as defined, the number of shares of common stock of the successor or acquiring Company or of the Company, if it is the surviving Company, and any additional consideration (the "Alternate Consideration'') receivable as a result of such Fundamental Transaction by a holder of the number of shares of the common stock for which shares of the Preferred Stock would have been

convertible immediately prior to such Fundamental Transaction. If holders of the common stock were given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the holder of the Preferred Stock would have been given the same choice as to the Alternate Consideration it would have received upon any conversion of shares of the Preferred Stock following such Fundamental Transaction.

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2022 Private Placement and Public Offering

On September 14, 2022, the Company entered into a Securities Purchase Agreement with Dong-A (the “Dong-A Securities Purchase Agreement”). Pursuant to the Dong-A Securities Purchase Agreement, Dong-A agreed to purchase from the Company shares of its Series A Preferred Stock and warrants to purchase shares of its common stock, equivalent to those to be issued in the Qualified Financing (as hereafter defined), (collectively, the “Dong-A Financing”) concurrent with and contingent upon a qualified financing resulting in gross proceeds of at least $15 million exclusive of the Dong-A Financing (the “Qualified Financing”).

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On November 8, 2022, the Company closed on an underwritten public offering (the “2022 Public Offering”) of units with gross proceeds of approximately $17.3 million. The underwritten public offering was comprised of (1) 3,147,003 Class A Units, priced at a public offering price of $3.00 per Class A Unit, with each Class A Unit consisting of one share of common stock, a Series A Warrant (the “Series A Warrants”) to purchase one share of common stock for a purchase price of $3.00 per share that expires on the one year anniversary following the initial exercise date and a Series B Warrant (the “Series B Warrants”) to purchase one share of common stock, for a purchase price of $3.00 per share that expires on the five year anniversary following the initial exercise date, and (2) 2,602,997 Class B Units, priced at a public offering price of $3.00 per Class B Unit, with each Class B Unit consisting of one share of Series B convertible preferred stock (the “Series B Preferred Stock”), convertible into one share of common stock, one Series A Warrant and one Series B Warrant. The Series A Warrants and the Series B Warrants, (collectively, the “ Public Warrants”) were to only be exercisable upon stockholder approval, and each Warrant was to be exchangeable for one share of common stock for no additional consideration.

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The 2022 Public Offering met the definition of a Qualified Financing as defined by the Dong-A Securities Purchase Agreement; therefore, on November 8, 2022, the license under the Dong-A License Agreement became effective, and the Company issued to Dong-A 2,200 shares of Series A Preferred Stock. In addition, the Company closed on the Dong-A Financing, and issued an additional 1,500 shares of Series A Preferred Stock, 5,000,000 warrants substantially similar to the Series A Warrants and 5,000,000 warrants substantially similar to the Series B Warrants (the “Dong-A Warrants”). The Company received gross proceeds in the amount of $15.0 million in connection with the Dong-A Financing.

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The Series A Preferred Stock was initially classified outside of stockholders’ equity due to a contingent redemption feature if stockholder approval of the Series A Preferred Stock had not been secured within nine months from the date of issuance. Stockholder approval was secured on December 22, 2022, at which time, all of the Series A Preferred Stock was automatically converted into 12,333,333 shares of common stock.

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The Series B Convertible Preferred Stock was classified in permanent equity upon issuance as there were no other provisions precluding equity treatment. As of December 31, 2022, all of the 2,602,997 shares of the Series B Preferred Stock had been converted into 2,602,997 shares of common stock.

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The public Warrants and the Dong-A Warrants (together, the “2022 Warrants”), upon their issuance were not exercisable unless and until stockholder approval was granted as required under Nasdaq rules. The Company accounts for these warrants as a liability at fair value as certain provisions precluded equity accounting treatment for these instruments.

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As the 2022 License Agreement and Dong-A Financing were both contingent and based on the terms of a Qualified Financing, the Company combined these two transactions along with the 2022 Public Offering (collectively, the “2022

Transaction”) when allocating gross consideration and issuance costs. The table below lists the aggregate consideration received by the Company in the 2022 Transaction:

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Consideration received

    

Classification

Dong-A License Agreement

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$

8,210

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Acquired in-process research and development

Dong-A Financing

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15,000

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Cash

2022 Public Offering

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17,250

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Cash

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Total

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$

40,460

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The consideration received was first allocated to the 2022 Warrants at their fair value on the date of issuance. The remainder of the consideration from the 2022 Transaction was allocated to the Series A Preferred Stock and Series B Preferred Stock (collectively the “Preferred Stock”), and to the common stock based on their relative fair values on the date of issuance. Issuance costs in connection with 2022 Transaction in the amount of $3.6 million were allocated to each instrument based on the amount of consideration allocated to each instrument. Issuance costs attributed to the Warrants in the amount of $2.2 million were recorded as financing expense in the accompanying consolidated statements of operations and comprehensive loss. The remainder of the issuance costs were recorded in additional paid-in capital.

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The fair value of the Series A Preferred Stock was probability weighted for stockholder approval to convert to common stock. In the approval scenario, the fair value was calculated using the underlying stock price multiplied by the number of common shares to be issued on conversion as adjusted for a 90% probability factor, a volatility rate of 101%, a discount for a lack of marketability of 11%, a risk free rate of 3.7% and a remaining term of 0.1 years. In the non-approval scenario, the fair value was calculated using the underlying share price as adjusted for a 10% probability factor, a volatility rate of 107%, a risk free rate of 4.6% and a remaining term of 0.8 years. A credit risk factor was also used to discount the future value of the Series A Preferred Stock as applicable. The concluded fair value of the Series A Preferred Stock upon issuance was approximately $3,732 per share.

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The fair value of the Series B Preferred Stock was equal to the underlying common stock fair value as the shares were readily convertible at the time of issuance on a one-for-one basis.

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The fair value of the 2022 Warrants was determined using a Monte Carlo simulation. However, due to the cashless exercise provision of the 2022 Warrants rendering the exercise price effectively at zero, the calculated price per share of the Warrants was equal to that of a share of common stock prior to taking into account the probability factor of stockholder approval factor at 90%. The concluded fair value of the 2022 Warrants was $24.3 million in the aggregate on their issuance date.

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October 2021 Registered Direct Offering

 

On October 1, 2021, the Company entered into a Securities Purchase Agreement (the “October 2021 Securities Purchase Agreement”) with several institutional investors for the purchase and sale in a registered direct offering of 4,307,693 shares of the Company’s common stock, at a purchase price of $3.25 per share for gross proceeds of approximately $14.0 million (the “October 2021 Registered Offering”).

 

The October 2021 Securities Purchase Agreement also provides for a concurrent private placement of warrants to purchase the Company’s common stock (the “October 2021 Warrants”) with the purchasers in the October 2021 Registered Offering. The October 2021 Warrants will be exercisable for up to an aggregate of 4,307,693 shares of common stock. The October 2021 Warrants will have an exercise price of $3.75 per share, will be exercisable commencing six months from the issuance date (the “Initial Exercise Date”), and will expire three and one-half years following the Initial Exercise Date. The fair value of the 2021 Warrants was $4.1 million and was based on the Black-Scholes pricing model. Input assumptions used were as follows: a risk-free interest rate of 0.5%; expected volatility of 80.0%; expected life of 3.5 years; expected dividend yield of 0%; and the underlying traded stock price. The relative fair value attributable to the stock and warrants was $9.8 million and $4.2 million, respectively. The 2021 Warrants were classified in stockholders’ equity as the number of shares were fixed and determinable, no cash settlement required and no other provisions precluding equity treatment.

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Issuance costs in connection with the October 2021 Registered Direct Offering were $1.2 million which included cash commissions equal to $1.0 million and legal and other fees of $0.2 million.

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2021 Private Placement

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On January 21, 2021, the Company closed on a Securities Purchase Agreement (the “2021 Purchase Agreement”) with certain institutional and accredited investors, pursuant to which the Company, in a private placement (“2021 Private Placement”), agreed to issue and sell an aggregate of 2,500,000 shares of the Company’s common stock at a purchase price of $4.00 per share, and warrants to purchase an aggregate of 2,500,000 shares of the Company’s common stock (the “2021 Warrants”), resulting in total gross proceeds to the Company of $10.0 million, before deducting placement agent fees and offering expenses. The 2021 Warrants have an initial exercise price of $6.03 per share. The 2021 Warrants are exercisable beginning six months following the date of issuance and will expire five and one-half years following such date. The fair value of the 2021 Warrants was $7.5 million and was based on the Black-Scholes pricing model. Input assumptions used were as follows: a risk-free interest rate of 0.5%; expected volatility of 76.0%; expected life of 5.5 years; expected dividend yield of 0%; and the underlying traded stock price. The relative fair value attributable to the stock and warrants was $6.3 million and $3.7 million, respectively. The 2021 Warrants were classified in stockholders’ equity as the number of shares were fixed and determinable, no cash settlement required and no other provisions precluding equity treatment.

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Issuance costs in connection with the 2021 Private Placement were $0.9 million which included cash commissions equal to $0.7 million and legal and other fees of $0.2 million.

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Warrants

The following warrants were outstanding as of December 31, 2022 and 2021:

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Number of Warrants:

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Warrant Issuance

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December 31, 2022

December 31, 2021

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Exercise Price

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Expiration Date

March 2017

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-

1,315

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$

7,800.00

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March 2022

July 2018

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48

48

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$

5,602.50

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July 2028

April 2020

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1,252

1,252

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$

375.00

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April 2025

January 2021

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83,338

83,338

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$

180.90

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July 2026

October 2021

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143,597

143,597

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$

112.50

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April 2025

November 2022 Series A

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6,768,837

-

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$

0.00

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December 2023

November 2022 Series B

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8,267,170

-

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$

0.00

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December 2027

Total

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15,264,242

229,550

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The warrants outstanding as of December 31, 2022 are all exercisable. In addition, the 2022 Warrants have a cashless exercise provision whereby one warrant can be exchanged for one share of common stock for no additional consideration, which renders the $3.00 per share exercise price to be $0.00. During the year ended December 31, 2022, 3,981,163 Series A Warrants and 2,482,830 Series B Warrants were exchanged for shares of the Company’s common stock.