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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED March 31, 2022 

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ______________ TO ____________.

Commission file number 033-80623

Achieve Life Sciences, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

 

95-4343413

(State or Other Jurisdiction of

 

(I.R.S. Employer

Incorporation or Organization)

 

Identification Number)

1040 West Georgia Street, Suite 1030, Vancouver, British Columbia, Canada V6E 4H1

(Address of Principal Executive Offices)

(604) 210-2217

(Registrant’s telephone number, including area code)

 

    Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol

Name of exchange on which registered

 

Common Stock, par value $0.001 per share

ACHV

The NASDAQ Capital Market

 

 

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.    Yes     No  

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).   Yes     No  

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.

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company  

 

 

 

 

Emerging growth company  

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     No  

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 9,681,855 shares of the registrant’s Common Stock, $0.001 par value per share, outstanding.

 


 

Achieve Life Sciences, Inc.

Index to Form 10-Q

 

 

Page
Number

 

 

Part I.   Financial Information

3

 

 

 

Item 1

Consolidated Financial Statements (unaudited)

3

 

 

 

 

Consolidated Balance Sheets as of March 31, 2022 (unaudited) and December 31, 2021

3

 

 

 

 

Consolidated Statements of Loss and Comprehensive Loss (unaudited) for the three months ended March 31, 2022 and March 31, 2021

4

 

 

 

 

Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2022 and March 31, 2021

5

 

 

 

 

Consolidated Statements of Stockholders’ Equity (unaudited) for the three months ended March 31, 2022 and March 31, 2021

6

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

 

 

 

 

 

 

Item 4.

Controls and Procedures

27

 

 

Part II.   Other Information

28

 

 

 

Item 1A.

Risk Factors

29

 

 

 

Item 6.

Exhibits

58

 

 

Items 2, 3 and 4 are not applicable and therefore have been omitted.

 

 

 

Signatures

59

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) 

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents [note 5]

 

$

36,337

 

 

$

43,022

 

Grant receivable

 

 

 

 

 

153

 

Prepaid expenses and other assets

 

 

1,355

 

 

 

1,419

 

Total current assets

 

 

37,692

 

 

 

44,594

 

Right-of-use assets [note 8]

 

 

49

 

 

 

64

 

Other assets and restricted cash [note 5]

 

 

253

 

 

 

183

 

License agreement [note 3 and 4]

 

 

1,586

 

 

 

1,641

 

Goodwill [note 4]

 

 

1,034

 

 

 

1,034

 

Total assets

 

$

40,614

 

 

$

47,516

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

418

 

 

$

841

 

Accrued liabilities other

 

 

648

 

 

 

348

 

Accrued clinical liabilities

 

 

2,222

 

 

 

1,352

 

Accrued compensation

 

 

663

 

 

 

1,940

 

Current portion of long-term obligations [note 8]

 

 

59

 

 

 

69

 

Total current liabilities

 

 

4,010

 

 

 

4,550

 

Convertible debt [note 6]

 

 

15,171

 

 

 

14,920

 

Long-term obligations [note 8]

 

 

 

 

 

4

 

Total liabilities

 

 

19,181

 

 

 

19,474

 

Commitments and contingencies [note 8]

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Series A convertible preferred stock, $0.001 par value, 9,158 shares designated, zero

issued and outstanding at March 31, 2022 and zero issued and outstanding at December 31, 2021

 

 

 

 

 

 

Series B convertible preferred stock, $0.001 par value, 6,256 shares designated, zero

issued and outstanding at March 31, 2022 and zero issued and outstanding at December 31, 2021

 

 

 

 

 

 

Common stock, $0.001 par value, 150,000,000 shares authorized, 9,473,577 issued and outstanding at March 31, 2022 and 9,453,542 issued and outstanding at December 31, 2021

 

 

79

 

 

 

79

 

Additional paid-in capital

 

 

122,509

 

 

 

121,545

 

Accumulated deficit

 

 

(101,159

)

 

 

(93,586

)

Accumulated other comprehensive income

 

 

4

 

 

 

4

 

Total stockholders' equity

 

 

21,433

 

 

 

28,042

 

Total liabilities and stockholders' equity

 

$

40,614

 

 

$

47,516

 

Subsequent events [note 9]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

3


Achieve Life Sciences, Inc.

Consolidated Statements of Loss and Comprehensive Loss

(Unaudited)

(In thousands, except per share and share amounts)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

EXPENSES

 

 

 

 

 

 

 

 

Research and development

 

 

4,388

 

 

 

5,642

 

General and administrative

 

 

2,838

 

 

 

2,342

 

Total operating expenses

 

 

7,226

 

 

 

7,984

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

Interest income

 

 

4

 

 

 

8

 

Interest expense [note 6]

 

 

(357

)

 

 

 

Other income (expense)

 

 

6

 

 

 

(23

)

Total other (expense)

 

 

(347

)

 

 

(15

)

Net loss and comprehensive loss

 

$

(7,573

)

 

$

(7,999

)

Basic and diluted net loss per common share [note 7[d]]

 

$

(0.80

)

 

$

(1.30

)

Weighted average shares used in computation of basic and diluted net loss per common share [note 7[d]]

 

 

9,458,745

 

 

 

6,131,821

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4


 

Achieve Life Sciences, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Operating Activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(7,573

)

 

$

(7,999

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization [note 3]

 

 

60

 

 

 

64

 

Stock-based compensation [note 7[c], note 7[d], note 7[e] and note 7[f]]

 

 

823

 

 

 

542

 

Shares issued as settlement with trade vendor

 

 

26

 

 

 

23

 

Accrued interest on SVB convertible debt [note 6]

 

 

271

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Grant receivable

 

 

153

 

 

 

 

Prepaid expenses and other assets

 

 

(10

)

 

 

318

 

Accounts payable

 

 

(423

)

 

 

253

 

Accrued liabilities other

 

 

300

 

 

 

(373

)

Accrued clinical liabilities

 

 

870

 

 

 

1,677

 

Accrued compensation

 

 

(1,277

)

 

 

(952

)

Lease obligation [note 8]

 

 

1

 

 

 

(5

)

Net cash used in operating activities

 

 

(6,779

)

 

 

(6,452

)

Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from exercise of warrants

 

 

24

 

 

 

236

 

Proceeds from ATM, net of issuance costs

 

 

91

 

 

 

 

Financing costs relating to convertible debt with SVB [note 6]

 

 

(20

)

 

 

 

Net cash provided by financing activities

 

 

95

 

 

 

236

 

Effect of exchange rate changes on cash

 

 

(1

)

 

 

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(6,685

)

 

 

(6,216

)

Cash, cash equivalents and restricted cash at beginning of the period

 

 

43,072

 

 

 

35,903

 

Cash, cash equivalents and restricted cash at end of the period

 

$

36,387

 

 

$

29,687

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Achieve Life Sciences, Inc.

 

5


 

Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total,

 

 

 

Common Stock

 

 

Preferred Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance, December 31, 2021

 

 

9,453,542

 

 

$

79

 

 

 

 

 

$

 

 

$

121,545

 

 

$

4

 

 

$

(93,586

)

 

$

28,042

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

823

 

 

 

 

 

 

 

 

 

823

 

Shares issued on exercise of warrants

 

 

3,709

 

 

 

 

 

 

 

 

 

 

 

 

24

 

 

 

 

 

 

 

 

 

24

 

Shares issued from purchase agreement with Virtu

 

 

12,742

 

 

 

 

 

 

 

 

 

 

 

 

91

 

 

 

 

 

 

 

 

 

91

 

Shares issued as settlement with trade vendor

 

 

3,584

 

 

 

 

 

 

 

 

 

 

 

 

26

 

 

 

 

 

 

 

 

 

26

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,573

)

 

 

(7,573

)

Balance, March 31, 2022

 

 

9,473,577

 

 

$

79

 

 

 

 

 

$

 

 

$

122,509

 

 

$

4

 

 

$

(101,159

)

 

$

21,433

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total,

 

 

 

Common Stock

 

 

Preferred Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance, December 31, 2020

 

 

6,111,735

 

 

$

76

 

 

 

 

 

$

 

 

$

97,640

 

 

$

4

 

 

$

(60,434

)

 

$

37,286

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

542

 

 

 

 

 

 

 

 

 

542

 

Shares issued on exercise of warrants

 

 

35,217

 

 

 

 

 

 

 

 

 

 

 

 

236

 

 

 

 

 

 

 

 

 

236

 

Shares issued as settlement with trade vendor

 

 

2,965

 

 

 

 

 

 

 

 

 

 

 

 

23

 

 

 

 

 

 

 

 

 

23

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,999

)

 

 

(7,999

)

Balance, March 31, 2021

 

 

6,149,917

 

 

$

76

 

 

 

 

 

$

 

 

$

98,441

 

 

$

4

 

 

$

(68,433

)

 

$

30,088

 

 

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 $101.2 million through March 31, 2022. At March 31, 2022, we had cash and cash equivalents of $36.3 million and a positive working capital balance of $33.7 million. For the three months ended March 31, 2022, we incurred a net loss of $7.6 million and net cash used in operating activities was $6.8 million. We have historically financed our operations through equity and debt financings. While we believe that we will be able to settle our commitments and liabilities in the normal course of business as they fall due during the next 12 months, as a development-stage company with no current sources of revenue, we are dependent on our ability to raise funds (through public or private securities offerings, debt financings, government funding or grants, or other sources, which may include licensing, collaborations or other strategic transactions or arrangements) to support the ongoing advancement of our clinical trials and corporate activities.

 

 

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 $3.1 million with an estimated useful life of 14 years.

The components of intangible assets were as follows:

 

7


 

 

 

March 31, 2022

 

 

December 31, 2021

 

 

 

Gross Carrying

 

 

Accumulated

 

 

Net Carrying

 

 

Gross Carrying

 

 

Accumulated

 

 

Net Carrying

 

 

 

Value

 

 

Amortization

 

 

Value

 

 

Value

 

 

Amortization

 

 

Value

 

License Agreements

 

$

3,117

 

 

$

(1,531

)

 

$

1,586

 

 

$

3,117

 

 

$

(1,476

)

 

$

1,641

 

 

For the three months ended March 31, 2022, and 2021 we recorded license agreement amortization expense of $0.1 million. The following table outlines the estimated future amortization expense related to intangible assets held as of March 31, 2022:

 

Year Ending December 31,

 

 

 

 

2022

 

 

167

 

2023

 

 

223

 

2024

 

 

223

 

Thereafter

 

 

973

 

Total

 

$

1,586

 

 

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 no indicators of impairment identified as of March 31, 2022.

 

 

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 $3.2 million, in the aggregate, tied to a financing milestone and to specific clinical development and commercialization milestones resulting from activities covered by the University of Bristol License Agreement. Additionally, if we successfully commercialize any product candidates subject to the University of Bristol License Agreement, we are responsible 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.

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 $37,500 upon the execution of the amended University of Bristol License Agreement, and additional amounts of up to $1.7 million, in the aggregate, tied to a financing milestone and to specific clinical development and commercialization milestones resulting from activities covered by the amended University of Bristol License Agreement, in addition to amounts under the original University of Bristol License Agreement of up to $3.2 million in the aggregate, tied to specific financing, development and commercialization milestones. Additionally, if we successfully commercialize any product candidate subject to the amended University of Bristol License Agreement or to the original University of Bristol License Agreement, we will be responsible, as

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 $125,000 pursuant to the University of Bristol License Agreement.

 

 

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:

 

Level 1 – Quoted prices in active markets for identical securities.

 

Level 2 – Other significant inputs that are observable through corroboration with market data (including quoted prices in active markets for similar securities).

 

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 one year.

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

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market securities (cash equivalents)

 

 

34,163

 

 

 

 

 

 

 

 

 

34,163

 

Restricted cash

 

 

50

 

 

 

 

 

 

 

 

 

50

 

Total assets

 

$

34,213

 

 

$

 

 

$

 

 

$

34,213

 

 

Cash equivalents consist of the following (in thousands):

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

March 31, 2022

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Money market securities

 

$

34,163

 

 

$

 

 

$

 

 

$

34,163

 

Total cash equivalents

 

$

34,163

 

 

$

 

 

$

 

 

$

34,163

 

Money market securities (restricted cash)

 

 

50

 

 

 

 

 

 

 

 

 

50

 

Total restricted cash

 

$

50

 

 

$

 

 

$

 

 

$

50

 

 

9


 

We only invest in A (or equivalent) rated securities. All securities included in cash and cash equivalents had maturities of 90 days or less at the time of purchase.

 

 

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). The aggregate fair value of the principal amount of the convertible debt is a Level 2 fair value measurement.

 

 

 

March 31, 2022

 

 

December 31, 2021

 

 

 

Principal

 

 

Carrying

 

 

Fair

 

 

Principal

 

 

Carrying

 

 

Fair

 

 

 

Amount

 

 

Value

 

 

Value

 

 

Amount

 

 

Value

 

 

Value

 

December 2021 Convertible Debt

 

$

15,000

 

 

$

15,171

 

 

$

15,547

 

 

$

15,000

 

 

$

14,920

 

 

$

15,204

 

 

 

6. CONVERTIBLE DEBT

 

On December 22, 2021, the Company entered into a $25.0 million contingent convertible debt agreement, or Debt Agreement, with Silicon Valley Bank, or SVB, and SVB Innovation Credit Fund VIII, L.P., or, together with SVB, the Lenders. As part of the contingent convertible debt agreement, the Lenders funded $15.0 million in the form of convertible indebtedness, or Convertible Debt, at closing. On April 26, 2022, we entered into (i) a loan and security agreement, or Loan Agreement, with Silicon Valley Bank, or SVB, pursuant to which SVB provided a commitment to extend term loans having an aggregate original principal amount of up to $10 million and and (ii) a first amendmentto the Debt Agreement dated December 22, 2021 by and among us, SVB in its capacity as administrative agent and lender, and SVB Innovation Credit Fund VIII, L.P., as lender, or amendment (Note 9—Subsequent Events).

 

Under the terms of the agreement, the Convertible Debt matures December 22, 2023 and may be extended to December 22, 2024 upon our written request and SVB’s approval on or prior to December 22, 2023. The Convertible Debt will accrue interest at the aggregate of (a) a floating rate per annum equal to the greater of (i) 2.25% and (ii) the prime rate minus 1.0%, which interest is payable in cash monthly in arrears, and (b) 7.0% per annum, which interest shall compound monthly.

 

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 $9.34 per share, subject to customary anti-dilution adjustments. Additionally, all outstanding Convertible Debt, including accrued and unpaid interest, will mandatorily convert into shares of our common stock, at the conversion price, on such date, if any, when the closing price per share of our common stock has been equal to or greater than $24.00 for 30 consecutive trading days prior to such date.

 

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:

 

 

i.

125% of the principal amount of the Convertible Debt including accrued paid-in-kind interest, or PIK, if the Call Right is exercised on or before the 18-month anniversary of the date of the Debt Agreement; and

 

ii.

150% of the principal amount of the Convertible Debt including accrued PIK, if the Call Right is exercised after the 18-month anniversary of the date of the Debt Agreement,

 

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:

 

10


 

 

Three Months Ended

 

 

Year Ended

 

 

March 31,

 

 

December 31,

 

 

2022

 

 

2021

 

Convertible Debt Information

 

 

 

 

 

 

 

Principal

$

15,000

 

 

$

15,000

 

Transaction Costs

 

(117

)

 

 

(109

)

Accrued paid-in-kind interest

 

288

 

 

 

29

 

 

 

15,171

 

 

 

14,920

 

 

 

7. COMMON STOCK

[a]

Authorized

150,000,000 authorized common shares, par value of $0.001, and 5,000,000 preferred shares, par value of $0.001

[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 3,285,714 shares of our common stock, including 428,571 shares subject to the underwriter’s option to purchase additional shares, or the May Shares. The May Shares were sold at the public offering price of $7.00 per share.

The underwritten public offering raised total gross proceeds of approximately $23.0 million and after deducting approximately $1.7 million in underwriting discounts and commissions and offering expenses, we received net proceeds of approximately $21.3 million. The underwriting discounts and commissions and offering expenses have been charged against the gross proceeds.

 

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 $25 million.

 

During the three months ended March 31, 2022, we offered and sold 12,742 shares of our common stock pursuant to the ATM. These aggregate sales resulted in gross proceeds to us of approximately $0.1 million. As of March 31, 2022, shares of our common stock having an aggregate value of approximately $24.9 million remained available for sale under the ATM.

Equity Award Issuances and Settlements

During the three months ended March 31, 2022 and 2021, we did not issue any shares of common stock to satisfy stock option exercises and we did not issue any shares of common stock to satisfy restricted stock unit settlements.

11


[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, 993,777 shares of common stock for issuance upon exercise of stock options and settlement of restricted stock units by employees, directors, officers and consultants of ours, of which 696,555 were reserved for options currently outstanding, 279,500 for restricted stock units currently outstanding, and 17,722 were available for future equity grants.

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 three to four years for options issued to employees and consultants, and over one to three years for members of our Board. The expiry date for each option is set by our Board with a maximum expiry date of ten years from the date of grant. In addition, the 2018 Plan allows for accelerated vesting of outstanding equity awards in the event of a change in control. The terms for accelerated vesting, in the event of a change in control, is determined at our discretion and defined under the employment agreements for our officers and certain of our employees.

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 ten years from the date of grant. For the three months ended March 31, 2022, we granted 35,000 inducement stock options to new employees. As of March 31, 2022, 80,000 stock options granted as new employee inducement grants were outstanding.

 

2017 Equity Incentive Plan

As of March 31, 2022, we had reserved, pursuant to the 2017 Equity Incentive Plan, or the 2017 Plan, 13,156 shares of common stock for issuance upon exercise of stock options, currently outstanding, by employees, directors and officers of ours. Upon the effectiveness of our 2018 Plan, we ceased granting equity awards under our 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 three to four years for options issued to employees and consultants, and over one to three years for members of our Board. The expiry date for each option was set by our Board with a maximum expiry date of ten years from the date of grant. In addition, the 2017 Plan allows for accelerated vesting of outstanding equity awards in the event of a change in control. The terms for accelerated vesting, in the event of a change in control, is determined at our discretion and defined under the employment agreements for our officers and certain of our employees.

2010 Performance Incentive Plan

As of March 31, 2022, we had reserved, pursuant to the 2010 Performance Incentive Plan, or the 2010 Plan, 229 shares of common stock for issuance upon exercise of stock options and settlement of restricted stock units by employees, directors, officers and consultants of ours, of which 229 were reserved for options currently outstanding and zero were reserved for restricted stock units currently outstanding.

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 three to four years for options issued to employees and consultants, and over one to three years for members of our Board. The expiry date for each option is set by our Board with a maximum expiry date of ten years from the date of grant. In addition, the 2010 Plan allows for accelerated vesting of outstanding equity awards in the event of a change in control. The terms for accelerated vesting, in the event of a change in control, is determined at our discretion and defined under the employment agreements for our officers and certain of our employees.

12


Stock Option Summary

We grant stock options that vest over time in accordance with terms as determined by our Board, which are typically four years for employee and consultant grants and one to three years for Board option grants. We also grant stock option awards that vest in conjunction with certain performance conditions to executive officers, employees and consultants. At each reporting date, we are required to evaluate whether achievement of the performance conditions is probable. Compensation expense is recorded over the appropriate service period based upon our assessment of accomplishing each performance condition. The expiry date for each option is set by our Board, which is typically seven to ten years. The exercise price of the options is determined by our Board.

Stock option transactions and the number of stock options outstanding are summarized below:

 

 

 

Number of

 

 

Weighted

 

 

 

Optioned

 

 

Average

 

 

 

Common

 

 

Exercise

 

 

 

Shares

 

 

Price

 

Balance,  December 31, 2021

 

 

522,090

 

 

$

26.11

 

Granted

 

 

267,850

 

 

 

8.05

 

Balance,  March 31, 2022

 

 

789,940

 

 

$

19.98

 

 

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:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Risk-free interest rates

 

 

1.49

%

 

 

0.59

%

Expected dividend yield

 

 

0

%

 

 

0

%

Expected life

 

 

5.80

 

 

 

6.01

 

Expected volatility

 

 

123.35

%

 

 

109.87

%

 

 

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):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022