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REDEEMABLE CONVERTIBLE PREFERRED STOCK ESCROWED PROCEEDS AND STOCKHOLDERS EQUITY | 9 Months Ended
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Mar. 31, 2024
REDEEMABLE CONVERTIBLE PREFERRED STOCK ESCROWED PROCEEDS AND STOCKHOLDERS EQUITY |
REDEEMABLE CONVERTIBLE PREFERRED STOCK, ESCROWED PROCEEDS, AND STOCKHOLDERS' EQUITY | (14) REDEEMABLE CONVERTIBLE PREFERRED STOCK, ESCROWED PROCEEDS, AND STOCKHOLDERS’ EQUITY (DEFICIENCY) Series B and C Redeemable Convertible Preferred Stock – On May 11, 2022, Palatin entered into a securities purchase agreement with institutional investors, and on May 12, 2022, Palatin issued and sold 8,100,000 shares of Series B Redeemable Convertible Preferred Stock (“Series B Preferred Stock”) and 900,000 shares of Series C Redeemable Convertible Preferred Stock (“Series C Preferred Stock”). Each share of Series B Preferred Stock and Series C Preferred Stock had a purchase price of $1.67. The investors in the Series B Preferred Stock and Series C Preferred Stock also received warrants to purchase up to 66,666 shares of common stock at an exercise price of $12.50 per share, which expire 48 months following issuance. Total gross proceeds from the offering, before expenses, was $15,000,000 which was deposited in an escrow account. The escrowed proceeds were presented as a deduction to the Series B Preferred Stock and Series C Preferred Stock on the Company’s consolidated balance sheet. In November 2022, the investors provided the Company with Notices of Redemption, electing to have the Series B Preferred Stock and Series C Preferred Stock redeemed in cash. Accordingly, the Company and investors directed the escrow agent for the escrow account to release $15,750,000 to the investors, comprising the total gross proceeds from the offering of $15,000,000 and a fee of $750,000. Given that the fee and other costs were not refundable to the Company as of June 30, 2022, regardless of the election selected by the investors, the $750,000 fee, the fair value of the warrants ($234,443), and other costs of $150,995 were recorded as expenses within selling, general and administrative expenses during the year ended June 30, 2022. The Company called a meeting of stockholders on June 24, 2022, to seek approval of, among other things, an amendment to its certificate of incorporation authorizing a reverse stock split. Except as otherwise required by law, holders of the Series B Preferred Stock and Series C Preferred Stock were entitled to vote only on the reverse stock split and any adjournment of the meeting relating to the reverse stock split. The Company’s common stock, outstanding Series A Convertible Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock voted as a single class on an as-if converted basis. The holders of Series B Preferred Stock had votes equal to the number of shares of common stock into which the Series B Preferred Stock is convertible. The holders of Series C Preferred Stock were entitled to 20,000 votes per share of common stock into which the Series C Preferred Stock is convertible but could only vote in the same proportion as the shares of common stock, Series A Convertible Preferred Stock, and Series B Preferred Stock were voted on the reverse stock split or any adjournment of the stockholder meeting relating thereto. The holders of the Series B Preferred Stock agreed to vote in favor of the reverse stock split, which was approved and ultimately became effective on August 30, 2022. Series A Convertible Preferred Stock – As of March 31, 2024, 4,030 shares of Series A Convertible Preferred Stock were outstanding. Each share of Series A Convertible Preferred Stock is convertible at any time, at the option of the holder, into the number of shares of common stock equal to $100 divided by the Series A Conversion Price. As of March 31, 2024, the Series A Conversion Price was $75.45, and each share of Series A Convertible Preferred Stock is convertible into approximately 1.33 shares of common stock. The Series A Conversion Price is subject to adjustment, under certain circumstances, upon the sale or issuance of common stock for consideration per share less than either (i) the Series A Conversion Price in effect on the date of such sale or issuance, or (ii) the market price of the common stock as of the date of such sale or issuance. The Series A Conversion Price is also subject to adjustment upon the occurrence of a merger, reorganization, consolidation, reclassification, stock dividend or stock split which will result in an increase or decrease in the number of shares of common stock outstanding. Shares of Series A Convertible Preferred Stock have a preference in liquidation, including certain merger transactions, of $100 per share, or $403,000 in the aggregate as of March 31, 2024. Additionally, the Company may not pay a dividend or make any distribution to holders of any class of stock unless the Company first pays a special dividend or distribution of $100 per share to holders of the Series A Convertible Preferred Stock. Financing Transactions – On January 29, 2024, the Company entered into a securities purchase agreement (the “January 2024 Purchase Agreement”) to sell in a registered direct offering (the “January 2024 RD Offering”), an aggregate of 1,831,503 shares of common stock, of the Company. Pursuant to the January 2024 Purchase Agreement, the Company issued to the investors in the January 2024 RD Offering unregistered warrants (the “January 2024 Private Warrants”) to purchase up to 1,831,503 shares of the Company’s common stock (the “January 2024 Private Warrant Shares”) in a concurrent private placement (the “Private Offering” and together with the January 2024 RD Offering, the “January 2024 Offering”). The shares of common stock and accompanying January 2024 Private Warrants were offered at a combined offering price of $5.46. The January 2024 Private Warrants are exercisable on the six-month anniversary of the issuance date for a period of four years from the issuance date, at an exercise price equal to $5.46 per January 2024 Private Warrant Share. The January 2024 Private Warrants are exercisable for cash, or, solely during any period when a registration statement for the issuance or resale of the January 2024 Private Warrant Shares issuable upon exercise of the January 2024 Private Warrants to or by the holder of such January 2024 Private Warrants is not in effect, on a cashless basis. The Company paid the placement agent a cash fee equal to 7.0% of the aggregate gross proceeds of the January 2024 Offering and for certain expenses and legal fees in connection with the January 2024 Offering. In addition, the Company also issued to the placement agent or its designees warrants (the “2024 Placement Agent Warrants”) to purchase up to 91,575 shares of the Company’s common stock (the “January 2024 Placement Agent Warrant Shares”) as part of the compensation payable to the placement agent. The January 2024 Placement Agent Warrants have substantially the same terms as the January 2024 Private Warrants, except that the January 2024 Placement Agent Warrants have an exercise price of $6.825 per share. On March 14, 2024 the Company filed a registration statement on Form S-1 to register the January 2024 Private Warrants and the January 2024 Placement Agent Warrants, which registration statement was declared effective on March 28, 2024 and a prospectus was filed on the same date. The gross proceeds from the January 2024 Offering totaled $10,000,006, with net proceeds from the January 2024 Offering, after deducting the placement agent fees and offering expenses, amounting to $9,224,056. The Company intends to use the net proceeds received from the January 2024 Offering for general working capital purposes. On October 20, 2023, the Company entered into a securities purchase agreement (the “October 2023 Purchase Agreement”) with a certain institutional investor, to sell in a registered direct offering (the “October 2023 RD Offering”), an aggregate of (i) 1,325,000 shares of common stock (the “October 2023 Shares”), of the Company and (ii) pre-funded warrants (the “October 2023 Pre-Funded Warrants”) to purchase up to 1,033,491 shares of the Company’s common stock (the “October 2023 Pre-Funded Warrant Shares”). Pursuant to the October 2023 Purchase Agreement the Company also issued unregistered warrants (the “October 2023 Private Warrants”) to purchase up to 2,358,491 shares of the Company’s common stock (the “October 2023 Private Warrant Shares”) in a concurrent private placement (the “October 2023 Private Offering” and together with the October 2023 RD Offering, the “October 2023 Offering”). The October 2023 Shares and accompanying October 2023 Private Warrants were offered at a combined offering price of $2.12. The October 2023 Pre-Funded Warrants and accompanying October 2023 Private Warrants were offered at a combined offering price of $2.1199. The October 2023 Offering closed on October 24, 2023. The October 2023 Private Warrants are exercisable on the six-month anniversary of issuance for a period of five and one-half years from the issuance date, at an exercise price equal to $2.12 per October 2023 Private Warrant Share. The October 2023 Private Warrants will be exercisable for cash, or, solely during any period when a registration statement for the issuance or resale of the October 2023 Private Warrant Shares issuable upon exercise of the October 2023 Private Warrants to or by the holder of such October 2023 Private Warrants is not in effect, on a cashless basis. The October 2023 Pre-Funded Warrants had an exercise price of $0.0001 per October 2023 Pre-Funded Warrant Share, were exercisable upon issuance, and during the three months ended December 31, 2023, the institutional investor exercised the outstanding October 2023 Pre-Funded Warrants to purchase 1,033,491 shares of the Company’s common stock. The net proceeds from the October 2023 Offering, after deducting the placement agent fees and offering expenses, were $4,573,948. On October 31, 2022, the Company entered into a securities purchase agreement with a certain institutional investor to sell, in a registered direct offering (the “October 2022 RD Offering”), an aggregate of (i) 1,020,000 shares of the Company’s common stock, (ii) prefunded warrants (the “October 2022 Pre-Funded Warrants”) to purchase up to 798,182 shares of the Company’s common stock, and (iii) common stock warrants (the “October 2022 Common Warrants”) to purchase up to 1,818,182 shares of the Company’s common stock. Each share of common stock was offered with one accompanying October 2022 Common Warrant with a combined offering price of $5.50. Each October 2022 Pre-Funded Warrant was offered with one accompanying October 2022 Common Warrant with a combined offering price of $5.4999. The Offering was completed on November 2, 2022. The October 2022 Common Warrants have an exercise price of $5.83 per share, are exercisable beginning six months after the date of issuance and will expire five and one-half years from the date of issuance. The October 2022 Pre-Funded Warrants had an exercise price of $0.0001 per share, were exercisable upon issuance, and have been all exercised in full. The October 2022 Common Warrants will be exercisable for cash, or, solely during any period when a registration statement for the issuance or resale of the shares of common stock issuable upon exercise of the October 2022 Common Warrants to or by the holder of such October 2022 Common Warrants is not in effect, on a cashless basis. During the year ended June 30, 2023, the institutional investor exercised the outstanding October 2022 Pre-Funded Warrants to purchase 798,182 shares of the Company’s common stock. The proceeds from the October 2022 Offering, after deducting the placement agent fees and expenses and other estimated offering expenses, were $9,109,117. The private warrants and common warrants related to the October 2022 and October 2023 financings met the definition of a derivative instrument under ASC Subtopic 815-40 and were reported as liabilities as of June 30, 2023 since the warrants did not meet the criteria for equity classification. The Company recorded the warrants at fair value on its balance sheet with changes in the fair value of the warrants recorded as a non-cash charge or gain in the consolidated statements of operations. The placement agent warrants were issued to non-employees in exchange for services related to the offering are accounting for in accordance ASC 718 which requires the fair value of the warrants to be recognized as an offering expense. The placement agent warrants contain certain contingent cash settlement features that are not probable of occurring and not within the control of Company, therefore the placement agent warrants are classified out of permanent equity. On January 24, 2024, the Company and warrant holders amended the terms of warrants related to the October 2022 and October 2023 financings. As a result, all liability classified warrants were reclassified to additional paid-in capital. On April 12, 2023, the Company entered into a new equity distribution agreement (the “2023 Equity Distribution Agreement”) with Canaccord Genuity LLC (“Canaccord”), pursuant to which the Company may, from time to time, sell shares of the Company’s common stock at market prices by methods deemed to be an “at-the-market offering” as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. The 2023 Equity Distribution Agreement and related prospectus is limited to sales of up to an aggregate maximum $50.0 million of shares of the Company’s common stock. The Company pays Canaccord 3.0% of the gross proceeds as a commission. Proceeds raised under the 2023 Equity Distribution Agreement are as follows:
|  | Three Months Ended March 31, 2024 |  |  | Nine Months Ended March 31, 2024 |  |  | Cumulative from inception |
|  | Shares |  |  | Proceeds |  |  | Shares |  |  | Proceeds |  |  | Shares |  |  | Proceeds |
Gross proceeds |  |  | - |  |  | $ | - |  |  |  | 217,027 |  |  | $ | 547,803 |  |  |  | 721,061 |  |  | $ | 1,744,542 |
Fees |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (16,434 | ) |  |  | - |  |  |  | (52,336 | )
Expenses |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (126,800 | )
Net proceeds |  |  | - |  |  | $ | - |  |  |  | 217,027 |  |  | $ | 531,369 |  |  |  | 721,061 |  |  | $ | 1,565,406 |
As of March 31, 2024, the Company had outstanding warrants for shares of common stock as follows:
|  | Shares of Common |  |  | Exercise Price per |  |  | Latest Expiration |
Description |  | Stock |  |  | Share |  |  | Date |
May 2022 Warrants |  |  | 66,666 |  |  | $ | 12.50 |  |  | May 11, 2026 |
October 2022 Private Warrants |  |  | 1,818,182 |  |  | $ | 5.83 |  |  | May 2, 2028 |
October 2022 Placement Agent Warrants |  |  | 90,909 |  |  | $ | 6.88 |  |  | October 31, 2027 |
October 2023 Private Warrants |  |  | 2,358,491 |  |  | $ | 2.12 |  |  | October 29, 2028 |
October 2023 Placement Agent Warrants |  |  | 117,925 |  |  | $ | 2.65 |  |  | October 29, 2028 |
January 2024 Private Warrants |  |  | 1,831,503 |  |  | $ | 5.46 |  |  | February 1, 2028 |
January 2024 Placement Agent Warrants |  |  | 91,575 |  |  | $ | 6.83 |  |  | February 1, 2028 |
The fair value of the warrants was determined using the Black-Scholes option-pricing model and are classified as a Level 2 financial instrument. The key assumptions used to determine the fair value was the term of the warrants, the risk-free rate and volatility. The weighted average assumptions used in the Black-Scholes model in estimating the fair value of the warrants issued for the period presented were as follows:
|  | June 30, 2023 |
Expected term |  |  | 4.84 |
Volatility |  |  | 82.35 | %
Risk-free rate |  |  | 4.16 | %
Stock Options – For the three and nine months ended March 31, 2024, the Company recorded stock-based compensation related to stock options of $205,176 and $615,716, respectively. For the three and nine months ended March 31, 2023, the Company recorded stock-based compensation related to stock options of $194,245 and $576,786, respectively. A summary of stock option activity is as follows:
|  | Number of Shares |  |  | Weighted Average Exercise Price |  |  | Weighted Average Remaining Term in Years |  |  | Aggregate Intrinsic Value |
Outstanding - June 30, 2023 |  |  | 1,550,600 |  |  | $ | 8.27 |  |  |  | 8.4 |  |  |  |
Granted |  |  | - |  |  |  | - |  |  |  |  |  |  |  |
Forfeited |  |  | - |  |  |  | - |  |  |  |  |  |  |  |
Exercised |  |  | - |  |  |  | - |  |  |  |  |  |  |  |
Expired |  |  | - |  |  |  | - |  |  |  |  |  |  |  |
Outstanding - March 31, 2024 |  |  | 1,550,600 |  |  | $ | 8.27 |  |  |  | 7.6 |  |  | $ | - |
Exercisable at March 31, 2024 |  |  | 561,688 |  |  | $ | 14.18 |  |  |  | 5.8 |  |  | $ | - |
Expected to vest at March 31, 2024 |  |  | 988,912 |  |  | $ | 4.91 |  |  |  | 8.7 |  |  | $ | - |
On December 16, 2022, Carl Spana, President and CEO of the Company, and Stephen T. Wills, CFO, COO and Executive Vice President of the Company, voluntarily contributed stock options previously issued to them to purchase 143,360 and 124,220 shares, respectively, of the Company’s common stock to the 2011 Stock Incentive Plan. The stock options were forfeited and cancelled without payment of any consideration by the Company. Stock options granted to the Company’s executive officers and employees generally vest over a 48-month period, while stock options granted to its non-employee directors vest over a 12-month period. Included in the outstanding options in the table above are 318,813 and 57,999 unvested performance-based stock options granted to executive officers and other employees, respectively, which were granted in June 2020, 2021, 2022 and 2023. Grants in June 2020, 2021, 2022 and 2023 were 87,303, 95,167, 60,566, and 238,838, respectively. The performance-based stock options vest on annual performance criteria through the fiscal years ending June 30, 2027, relating to advancement of MC1r programs, including initiation of clinical trials and licensing of Vyleesi in additional countries or regions. Restricted Stock Units – For the three and nine months ended March 31, 2024, the Company recorded stock-based compensation related to restricted stock units of $185,019 and $555,057, respectively. For the three and nine months ended March 31, 2023, the Company recorded stock-based compensation related to restricted stock units of $202,512 and $612,132, respectively. A summary of restricted stock unit activity is as follows:
Outstanding at June 30, 2023 |  |  | 987,521 |
Granted |  |  | - |
Forfeited |  |  | (2,302 | )
Expired |  |  | (18,000 | )
Vested |  |  | (98,372 | )
Outstanding at March 31, 2024 |  |  | 868,847 |
Included in outstanding restricted stock units in the table above are 279,700 vested shares that have not been issued as of March 31, 2024, due to a provision in the restricted stock unit agreements to delay delivery. Time-based restricted stock units granted to the Company’s executive officers, employees, and non-employee directors generally vest over 48 months, 48 months, and 12 months, respectively. Included in the outstanding restricted stock units in the table above are 217,833 and 37,116 unvested performance-based restricted stock units granted to executive officers and other employees, respectively, which were granted in June 2020, 2021, 2022, and 2023. Grants in June 2020, 2021, 2022, and 2023 were 52,679, 22,343, 40,707, and 152,432 restricted stock units, respectively. The performance-based restricted stock units vest on annual performance criteria through the fiscal years ending June 30, 2026, relating to advancement of MC1r programs, including initiation of clinical trials, and licensing of Vyleesi in additional countries or regions. In connection with the vesting of restricted share units during the nine months ended March 31, 2024, the Company withheld 25,467 shares, with an aggregate value of $56,401, in satisfaction of minimum tax withholding obligations.

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