UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM ______________ TO ____________.
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Securities registered pursuant to Section 12(b) of the Act: |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of May 12, 2022, there were
Achieve Life Sciences, Inc.
Index to Form 10-Q
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Item 1 |
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Consolidated Balance Sheets as of March 31, 2022 (unaudited) and December 31, 2021 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 4. |
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Item 1A. |
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Item 6. |
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Items 2, 3 and 4 are not applicable and therefore have been omitted. |
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2
PART I. FINANCIAL INFORMATION
Item 1. |
Consolidated Financial Statements |
Achieve Life Sciences, Inc.
Consolidated Balance Sheets
(Unaudited)
(In thousands, except per share and share amounts)
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March 31, |
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December 31, |
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2022 |
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2021 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents [note 5] |
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$ |
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$ |
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Grant receivable |
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— |
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Prepaid expenses and other assets |
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Total current assets |
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Right-of-use assets [note 8] |
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Other assets and restricted cash [note 5] |
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License agreement [note 3 and 4] |
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Goodwill [note 4] |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued liabilities other |
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Accrued clinical liabilities |
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Accrued compensation |
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Current portion of long-term obligations [note 8] |
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Total current liabilities |
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Convertible debt [note 6] |
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Long-term obligations [note 8] |
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— |
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Total liabilities |
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Commitments and contingencies [note 8] |
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Stockholders' equity: |
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Series A convertible preferred stock, $ issued and outstanding at March 31, 2022 and |
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Series B convertible preferred stock, $ issued and outstanding at March 31, 2022 and |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Accumulated other comprehensive income |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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Subsequent events [note 9] |
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See accompanying notes.
3
Achieve Life Sciences, Inc.
Consolidated Statements of Loss and Comprehensive Loss
(Unaudited)
(In thousands, except per share and share amounts)
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Three Months Ended |
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March 31, |
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2022 |
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2021 |
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EXPENSES |
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Research and development |
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General and administrative |
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Total operating expenses |
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OTHER INCOME (EXPENSE) |
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Interest income |
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Interest expense [note 6] |
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— |
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Other income (expense) |
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( |
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Total other (expense) |
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( |
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Net loss and comprehensive loss |
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$ |
( |
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$ |
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Basic and diluted net loss per common share [note 7[d]] |
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$ |
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Weighted average shares used in computation of basic and diluted net loss per common share [note 7[d]] |
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See accompanying notes.
4
Achieve Life Sciences, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
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Three Months Ended |
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March 31, |
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2022 |
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2021 |
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Operating Activities: |
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Net loss |
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$ |
( |
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$ |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization [note 3] |
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Stock-based compensation [note 7[c], note 7[d], note 7[e] and note 7[f]] |
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Shares issued as settlement with trade vendor |
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Accrued interest on SVB convertible debt [note 6] |
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— |
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Changes in operating assets and liabilities: |
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Grant receivable |
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— |
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Prepaid expenses and other assets |
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( |
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Accounts payable |
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( |
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Accrued liabilities other |
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Accrued clinical liabilities |
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Accrued compensation |
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Lease obligation [note 8] |
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Net cash used in operating activities |
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Financing Activities: |
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Proceeds from exercise of warrants |
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Proceeds from ATM, net of issuance costs |
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— |
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Financing costs relating to convertible debt with SVB [note 6] |
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( |
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— |
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Net cash provided by financing activities |
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Effect of exchange rate changes on cash |
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( |
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— |
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Net decrease in cash, cash equivalents and restricted cash |
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( |
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( |
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Cash, cash equivalents and restricted cash at beginning of the period |
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Cash, cash equivalents and restricted cash at end of the period |
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$ |
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$ |
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See accompanying notes.
Achieve Life Sciences, Inc.
5
Consolidated Statements of Stockholders’ Equity
(Unaudited)
(In thousands, except share amounts)
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Accumulated |
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Additional |
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Other |
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Total, |
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Common Stock |
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Preferred Stock |
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Paid-in |
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Comprehensive |
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Accumulated |
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Stockholders’ |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Income (Loss) |
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Deficit |
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Equity |
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Balance, December 31, 2021 |
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$ |
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— |
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$ |
— |
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$ |
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$ |
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$ |
( |
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$ |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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Shares issued on exercise of warrants |
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— |
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— |
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— |
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— |
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— |
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Shares issued from purchase agreement with Virtu |
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— |
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— |
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— |
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— |
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— |
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Shares issued as settlement with trade vendor |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Balance, March 31, 2022 |
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$ |
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— |
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$ |
— |
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$ |
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$ |
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$ |
( |
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$ |
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Accumulated |
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Additional |
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Other |
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Total, |
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Common Stock |
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Preferred Stock |
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Paid-in |
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Comprehensive |
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Accumulated |
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Stockholders’ |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Income (Loss) |
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Deficit |
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Equity |
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Balance, December 31, 2020 |
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$ |
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— |
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$ |
— |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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Shares issued on exercise of warrants |
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— |
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— |
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— |
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— |
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— |
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Shares issued as settlement with trade vendor |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Balance, March 31, 2021 |
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$ |
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— |
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$ |
— |
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$ |
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$ |
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$ |
( |
) |
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$ |
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See accompanying notes.
6
Achieve Life Sciences, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND LIQUIDITY RISK
Achieve Life Sciences, Inc. (referred to as “Achieve,” “we,” “us,” or “our”) is a clinical-stage pharmaceutical company committed to the global development and commercialization of cytisinicline for smoking cessation. We were incorporated in the state of Delaware, and operate out of Vancouver, British Columbia and Seattle, Washington.
The unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required to be presented for complete financial statements. The accompanying unaudited consolidated financial statements reflect all adjustments (consisting only of normal recurring items) which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The accompanying consolidated Balance Sheet at December 31, 2021 has been derived from the audited consolidated financial statements included in our Annual Report on Form 10-K for the year then ended. The unaudited consolidated financial statements and related disclosures have been prepared with the assumption that users of the interim financial information have read or have access to the audited consolidated financial statements for the preceding fiscal year. Accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2021 and filed with the U.S. Securities and Exchange Commission, or the SEC, on March 10, 2022.
The consolidated financial statements include the accounts of Achieve and our wholly owned subsidiaries, Achieve Life Sciences Technologies Inc., Achieve Life Science, Inc., Extab Corporation, and Achieve Pharma UK Limited. All intercompany balances and transactions have been eliminated.
Liquidity
We have historically experienced recurring losses from operations and have incurred an accumulated deficit of $
2. ACCOUNTING POLICIES
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. We have discussed those estimates that we believe are critical and require the use of complex judgment in their application in our audited financial statements for the year ended December 31, 2021 in our Annual Report on Form 10-K filed with the SEC, on March 10, 2022. Since December 31, 2021, there have been no material changes to our critical accounting policies or the methodologies or assumptions we apply under them.
3. INTANGIBLES
All of our intangible assets are subject to amortization and are amortized using the straight-line method over their estimated useful life.
We acquired license and supply agreements in relation to cytisinicline upon the acquisition of Extab Corporation, or Extab, on May 18, 2015. The agreements were determined to have a fair value of $
The components of intangible assets were as follows:
7
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March 31, 2022 |
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December 31, 2021 |
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Gross Carrying |
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Accumulated |
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Net Carrying |
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Gross Carrying |
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Accumulated |
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Net Carrying |
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Value |
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Amortization |
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Value |
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Value |
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Amortization |
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Value |
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License Agreements |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
( |
) |
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$ |
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For the three months ended March 31, 2022, and 2021 we recorded license agreement amortization expense of $
Year Ending December 31, |
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2022 |
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2023 |
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2024 |
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Thereafter |
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Total |
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$ |
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We evaluate the carrying amount of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful life or that indicate the asset may be impaired. We conducted an analysis of potential impairment indicators for long lived assets, including the license and supply agreements for the active pharmaceutical ingredient cytisinicline, and concluded that there were
4. LICENSE AGREEMENTS
Sopharma License and Supply Agreements
We are party to a license agreement, or the Sopharma License Agreement, and a supply agreement, or the Sopharma Supply Agreement, with Sopharma, AD, or Sopharma. Pursuant to the Sopharma License Agreement, we were granted access to all available manufacturing, efficacy and safety data related to cytisinicline, as well as a granted patent in several European countries related to new oral dosage forms of cytisinicline providing enhanced stability. Additional rights granted under the Sopharma License Agreement include the exclusive use of, and the right to sublicense, certain cytisinicline trademarks in all territories described in the Sopharma License Agreement. Under the Sopharma License Agreement, we agreed to pay a nonrefundable license fee. In addition, we agreed to make certain royalty payments equal to a mid-single digit percentage of all net sales of cytisinicline products in our territory during the term of the Sopharma License Agreement, including those sold by a third party pursuant to any sublicense which may be granted by us. To date, any amounts paid to Sopharma pursuant to the Sopharma License Agreement have been immaterial.
University of Bristol License Agreement
In July 2016, we entered into a license agreement with the University of Bristol, or the University of Bristol License Agreement. Under the University of Bristol License Agreement, we received exclusive and nonexclusive licenses from the University of Bristol to certain patent and technology rights resulting from research activities into cytisinicline and its derivatives, including a number of patent applications related to novel approaches to cytisinicline binding at the nicotinic receptor level.
In consideration of rights granted by the University of Bristol, we paid a nominal license fee and agreed to pay amounts of up to $
On January 22, 2018, we and the University of Bristol entered into an amendment to the University of Bristol License Agreement. Pursuant to the amended University of Bristol License Agreement, we received exclusive rights for all human medicinal uses of cytisinicline across all therapeutic categories from the University of Bristol from research activities into cytisinicline and its derivatives. In consideration of rights granted by the amended University of Bristol License Agreement, we agreed to pay an initial amount of $
8
provided in the original University of Bristol License Agreement, for royalty payments in the low-single digits and payments up to a percentage in the mid-teens of any sublicense income, subject to specified exceptions, based upon net sales of such licensed products. Up to March 31, 2022, we had paid the University of Bristol $
5. FAIR VALUE MEASUREMENTS
Assets and liabilities recorded at fair value in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. For certain of our financial instruments including amounts receivable and accounts payable the carrying values approximate fair value due to their short-term nature.
ASC 820 “Fair Value Measurements and Disclosures” specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In accordance with ASC 820, these inputs are summarized in the three broad levels listed below:
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Level 1 – Quoted prices in active markets for identical securities. |
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Level 2 – Other significant inputs that are observable through corroboration with market data (including quoted prices in active markets for similar securities). |
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Level 3 – Significant unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability. |
As quoted prices in active markets are not readily available for certain financial instruments, we obtain estimates for the fair value of financial instruments through third-party pricing service providers.
In determining the appropriate levels, we performed a detailed analysis of the assets and liabilities that are subject to ASC 820.
We invest our excess cash in accordance with investment guidelines that limit the credit exposure to any one financial institution other than securities issued by the U.S. Government. These securities are not collateralized and mature within
A description of the valuation techniques applied to our financial instruments measured at fair value on a recurring basis follows.
Financial Instruments
Money Market Securities
Money market securities are classified within Level 1 of the fair value hierarchy and are valued based on quoted prices in active markets for identical securities.
The following table presents information about our assets that are measured at fair value on a recurring basis, and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value (in thousands):
March 31, 2022 |
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Level 1 |
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Level 2 |
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Level 3 |
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Total |
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Assets |
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Money market securities (cash equivalents) |
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— |
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— |
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Restricted cash |
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— |
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— |
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Total assets |
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$ |
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$ |
— |
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$ |
— |
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$ |
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Cash equivalents consist of the following (in thousands):
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Gross |
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Gross |
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Amortized |
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Unrealized |
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Unrealized |
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Estimated |
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March 31, 2022 |
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Cost |
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Gains |
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Losses |
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Fair Value |
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Money market securities |
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$ |
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$ |
— |
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$ |
— |
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$ |
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Total cash equivalents |
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$ |
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$ |
— |
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$ |
— |
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$ |
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Money market securities (restricted cash) |
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— |
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— |
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Total restricted cash |
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$ |
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$ |
— |
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$ |
— |
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$ |
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We only invest in A (or equivalent) rated securities. All securities included in cash and cash equivalents had maturities of
Fair Value of Long-Term Debt
December 2021 Convertible Debt
The principal amount, carrying value and related estimated fair value of our convertible debt reported in the consolidated balance sheets as of March 31, 2022 and December 31, 2021 was as follows (in thousands).
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March 31, 2022 |
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December 31, 2021 |
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Principal |
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Carrying |
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Fair |
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Principal |
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Carrying |
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Fair |
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Amount |
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Value |
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Value |
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Amount |
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Value |
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Value |
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December 2021 Convertible Debt |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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6. CONVERTIBLE DEBT
On December 22, 2021, the Company entered into a $
Under the terms of the agreement, the Convertible Debt matures
Subject to certain terms and conditions, the Lenders may convert all or any part of the outstanding Convertible Debt and accrued and unpaid interest at any time prior to maturity into shares of our common stock at a conversion price equal to Subject to certain terms and conditions, the Lenders may convert all or any part of the outstanding Convertible Debt and accrued and unpaid interest at any time prior to maturity into shares of our common stock at a conversion price equal to $
We have the right, or Call Right, at any time to repay and retire all (but not less than all) of the outstanding Convertible Debt and accrued and unpaid interest, if any, prior to its conversion by payment of a premium determined based on the date of such repayment equal to:
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ii. |
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in either case together with all accrued and unpaid interest on the principal balance of the Convertible Debt. If the Call Right is exercised by us, the Lenders will retain certain lookback rights in the event we enter into an agreement to be acquired in the 12 months following the exercise of the Call Right. We agreed to grant the Lenders a security interest in virtually all of our assets, including our patents and other intellectual property as security for our obligations under the Debt Agreement.
Under ASU 2020-06, the embedded conversion feature was not required to be bifurcated and recognized separately, as a result the convertible debt including the conversion feature has been recognized as a single unit of debt. The debt issuance costs have been recognized against the single unit of debt and will be amortized into interest expense over the term of the loan.
As of March 31, 2022, the Convertible Debt balance was comprised of the following:
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Three Months Ended |
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Year Ended |
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March 31, |
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December 31, |
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2022 |
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2021 |
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Convertible Debt Information |
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Principal |
$ |
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$ |
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Transaction Costs |
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( |
) |
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( |
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Accrued paid-in-kind interest |
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7. COMMON STOCK
[a] |
Authorized |
[b] |
Issued and outstanding shares |
May 2021 Public Offering
On May 27, 2021, we completed an underwritten public offering of our securities, pursuant to which we sold an aggregate of
The underwritten public offering raised total gross proceeds of approximately $
At-the-Market Sales Agreement
On December 21, 2021, we entered into an At-the-Market Offering Sales Agreement, or ATM, with Virtu Americas, LLC, as sales agent, pursuant to which we may sell shares of common stock with an aggregate offering price of up to $
During the three months ended March 31, 2022, we offered and sold
Equity Award Issuances and Settlements
During the three months ended March 31, 2022 and 2021, we did
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[c] |
Stock options |
2018 Equity Incentive Plan
As of March 31, 2022, we had reserved, pursuant to the 2018 Equity Incentive Plan, or the 2018 Plan,
Under the 2018 Plan, we may grant options to purchase common shares or restricted stock units to our employees, directors, officers and consultants. The exercise price of the options is determined by our board of directors, or Board, but will be at least equal to the fair value of the shares of common stock at the grant date. The options vest in accordance with terms as determined by our Board, typically over
New Employee Inducement Grants
We grant stock options as a material inducement to new employees for entering into employment agreements with us in accordance with Nasdaq Listing Rule 5635(c)(4). The stock options approved under the inducement grants are issued pursuant to a stock option agreement on terms substantially similar to those described in our 2018 Plan. The exercise price of the options is determined by our board of directors but will be at least equal to the fair value of the common shares at the grant date. The options vest in accordance with terms as determined by our board of directors. The expiry date for each option is set by our board of directors with a maximum expiry date of
2017 Equity Incentive Plan
As of March 31, 2022, we had reserved, pursuant to the 2017 Equity Incentive Plan, or the 2017 Plan,
Under the 2017 Plan, we granted options to purchase shares of common stock or restricted stock units to our employees, directors, officers and consultants. The exercise price of the options was determined by our board of directors but was at least equal to the fair value of the shares of common stock at the grant date. The options vest in accordance with terms as determined by our Board, typically over
2010 Performance Incentive Plan
As of March 31, 2022, we had reserved, pursuant to the 2010 Performance Incentive Plan, or the 2010 Plan,
Under the 2010 Plan we granted options to purchase shares of common stock and restricted stock units to our employees, directors, officers and consultants. The exercise price of the options was determined by our board of directors and was at least equal to the fair value of the shares of common stock at the grant date. The options vest in accordance with terms as determined by our Board, typically over
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Stock Option Summary
We grant stock options that vest over time in accordance with terms as determined by our Board, which are typically
Stock option transactions and the number of stock options outstanding are summarized below:
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Number of |
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Weighted |
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Optioned |
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Average |
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Common |
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Exercise |
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Shares |
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Price |
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Balance, December 31, 2021 |
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$ |
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Granted |
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Balance, March 31, 2022 |
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$ |
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The fair value of each stock award for employees and directors is estimated on the grant date and for consultants at each reporting period, using the Black-Scholes option-pricing model based on the weighted-average assumptions noted in the following table:
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Three Months Ended |
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March 31, |
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2022 |
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2021 |
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Risk-free interest rates |
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% |
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% |
Expected dividend yield |
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% |
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% |
Expected life |
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Expected volatility |
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% |
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% |
The expected life was calculated based on the simplified method as permitted by the SEC’s Staff Accounting Bulletin 110, Share-Based Payment. We consider the use of the simplified method appropriate because of the lack of sufficient historical exercise data following the Arrangement. The computation of expected volatility was based on the historical volatility of comparable companies from a representative peer group selected based on industry and market capitalization. The risk-free interest rate is based on a U.S. Treasury instrument whose term is consistent with the expected life of the stock options. In addition to the assumptions above, as required under ASC 718, management made an estimate of expected forfeitures and is recognizing compensation costs only for those equity awards expected to vest. Forfeiture rates are estimated using historical actual forfeiture rates. These rates are adjusted on a quarterly basis and any change in compensation expense is recognized in the period of the change. We have never paid or declared cash dividends on our common stock and do not expect to pay cash dividends in the foreseeable future.
The results for the periods set forth below included share-based compensation expense for stock options, restricted stock units and employee share purchase plan compensation expenses in the following expense categories of the consolidated statements of loss (in thousands):
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Three Months Ended |
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March 31, |
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2022 |
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