10-Q
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Table of Contents

 

 

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, 2023

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 No. 001-35890

 

Tempest Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

45-1472564

(State or Other Jurisdiction of

(I.R.S. Employer

Incorporation or Organization)

Identification No.)

2000 Sierra Point Parkway, Suite 400

 

Brisbane, California

94005

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s telephone number, including area code: (415) 798-8589

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

 

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

 

Title of each class

Trading

Name of each exchange

 

 

Symbol(s)

on which registered

 

Common Stock, $0.001 par value

 

TPST

 

The Nasdaq Stock Market LLC

 

 

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 Act). Yes ☐ No

The number of shares of Registrant’s Common Stock, $0.001 par value per share, outstanding as of May 4, 2023 was 11,586,406.

 


Table of Contents

 

INDEX TO FORM 10-Q

 

 

 

Page

Special Note Regarding Forward-Looking Statements

3

 

PART I — FINANCIAL INFORMATION

5

Item 1.

Financial Statements (unaudited):

5

 

Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022

5

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and 2022

6

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2023 and 2022

7

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022

8

 

Notes to Condensed Consolidated Financial Statements

9

Item 2.

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

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24

Item 4.

Controls and Procedures

24

 

 

 

 

PART II — OTHER INFORMATION

26

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

75

Item 3.

Defaults Upon Senior Securities

75

Item 4.

Mine Safety Disclosures

75

Item 5.

Other Information

75

Item 6.

Exhibits

76

Signatures

 

 

 

2


Table of Contents

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements (including within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”)) about us and our industry that involve substantial risks and uncertainties. These statements may discuss goals, intentions and expectations as to future plans, trends, events, results of operations or financial condition, or otherwise, based on current beliefs of our management, as well as assumptions made by, and information currently available to, our management. Forward-looking statements generally include statements that are predictive in nature and depend upon or refer to future events or conditions, and include words such as “may,” “will,” “should,” “would,” “could”, “expect,” “anticipate,” “plan,” “likely,” “believe,” “estimate,” “intend,” and other similar expressions. Statements that are not historical facts are forward-looking statements. Forward-looking statements are based on current beliefs and assumptions that are subject to risks and uncertainties and are not guarantees of future performance. Actual results could differ materially from those contained in any forward-looking statement as a result of various factors, including, without limitation: our strategies, prospects, plans, expectations or objectives for future operations; the progress, scope or timing of the development of our product candidates; the benefits that may be derived from any future products or the commercial or market opportunity with respect to any of our future products; our ability to protect our intellectual property rights; our anticipated operations, financial position, ability to raise capital to fund operations, revenues, costs or expenses; statements regarding future economic conditions or performance; statements of belief and any statement of assumptions underlying any of the foregoing. These risks and uncertainties include, but are not limited to, the risks included in this Quarterly Report on Form 10-Q under Part II, Item 1A, “Risk Factors.” Other sections of this Quarterly Report on Form 10-Q, as well as our other disclosures and filings, include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-looking statements.

Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this document. You should read this document with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we do not undertake any obligation to update or revise any forward-looking statements contained in this report, whether as a result of new information, future events or otherwise.

Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

our expected future growth and our ability to manage such growth;
our ability to develop, obtain regulatory approval for and commercialize TPST-1495 and TPST-1120 and our future product candidates;
our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
the size and growth potential of the markets for our product candidates, and our ability to serve those markets;
the development, regulatory approval, efficacy and commercialization of competing products;
our ability to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our product candidates;
our ability to retain regulatory approval for our product candidates or future product candidates in the United States and in any foreign countries in which we make seek to do business;
our ability to retain and hire our board of directors, senior management, or operational personnel;
our expectation regarding the period during which we will qualify as a smaller reporting company under the federal securities laws;
our ability to develop and maintain our corporate infrastructure, including our ability to design and maintain an effective system of internal controls;
our ability to remain in compliance with our obligations under our term loan with Oxford Finance LLC, or to obtain a waiver from Oxford for any failure to comply with the covenants contained in such term loan agreement;

3


Table of Contents

 

general economic, political, and market conditions and overall fluctuations in the financial markets in the United States and abroad, including as a result of bank failures, public health crises or geopolitical tensions; and
our expectations regarding our ability to obtain, maintain and enforce intellectual property protection for our products and technology, as well as our ability to operate our business without infringing, misappropriating or otherwise violating the intellectual property rights of others.

You should read this Quarterly Report on Form 10-Q as well as the documents that we reference in, and have filed as exhibits to, this report with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

Unless the context suggests otherwise, references in this Quarterly Report on Form 10-Q to “Tempest,” “the Company,” “we,” “us,” and “our” refer to Tempest Therapeutics, Inc. and, where appropriate, its subsidiaries.

4


Table of Contents

 

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

TEMPEST THERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2023
(Unaudited)

 

 

December 31, 2022

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

22,925

 

 

$

31,230

 

Insurance recovery of legal settlement

 

 

450

 

 

 

450

 

Prepaid expenses and other current assets

 

 

1,298

 

 

 

1,270

 

Total current assets

 

 

24,673

 

 

 

32,950

 

Property and equipment — net

 

 

1,008

 

 

 

1,060

 

Operating lease right-of-use assets

 

 

11,219

 

 

 

11,650

 

Other noncurrent assets

 

 

429

 

 

 

429

 

Total assets

 

$

37,329

 

 

$

46,089

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,157

 

 

$

1,108

 

Accrued legal settlement

 

 

450

 

 

 

450

 

Accrued expenses

 

 

2,538

 

 

 

2,961

 

Current loan payable (net of discount and issuance costs of $58 and nil, respectively)

 

 

1,481

 

 

 

 

Current operating lease liabilities

 

 

1,325

 

 

 

1,413

 

Accrued compensation

 

 

456

 

 

 

1,248

 

Interest payable

 

 

104

 

 

 

97

 

Total current liabilities

 

 

7,511

 

 

 

7,277

 

Loan payable (net of discount and issuance costs of $351 and $454, respectively)

 

 

8,935

 

 

 

10,371

 

Operating lease liabilities, less current portion

 

 

9,918

 

 

 

10,330

 

Total liabilities

 

 

26,364

 

 

 

27,978

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.001 par value; 100,000,000 shares authorized; 10,561,700 and 10,518,539 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

 

 

11

 

 

 

11

 

Additional paid-in capital

 

 

154,362

 

 

 

153,872

 

Accumulated deficit

 

 

(143,408

)

 

 

(135,772

)

Total stockholders’ equity

 

 

10,965

 

 

 

18,111

 

Total liabilities and stockholders’ equity

 

$

37,329

 

 

$

46,089

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements

5


Table of Contents

 

TEMPEST THERAPEUTICS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except share and per share amounts)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

$

4,678

 

 

$

5,109

 

General and administrative

 

 

2,903

 

 

 

3,052

 

Loss from operations

 

 

(7,581

)

 

 

(8,161

)

Other income (expense), net:

 

 

 

 

 

 

Interest expense

 

 

(344

)

 

 

(333

)

Interest income and other income (expense), net

 

 

289

 

 

 

3

 

Total other income (expense), net

 

 

(55

)

 

 

(330

)

Provision for income taxes

 

 

 

 

 

 

Net loss

 

$

(7,636

)

 

$

(8,491

)

Net loss per share of common stock and pre-funded warrants, basic and diluted

 

$

(0.55

)

 

$

(1.18

)

Weighted-average shares of common stock and pre-funded warrants outstanding,
   basic and diluted

 

 

13,763,173

 

 

 

7,167,255

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements

6


Table of Contents

 

TEMPEST THERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(in thousands, except share amounts)

 

Three Months Ended March 31, 2023

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Deficit

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Accumulated

 

 

Equity (Deficit)

 

BALANCE — December 31, 2022

 

 

10,518,539

 

 

$

11

 

 

$

153,872

 

 

$

(135,772

)

 

$

18,111

 

Issuance of common stock for cash

 

 

43,161

 

 

 

 

 

 

44

 

 

 

 

 

 

44

 

Share-based compensation

 

 

 

 

 

 

 

 

446

 

 

 

 

 

 

446

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(7,636

)

 

 

(7,636

)

BALANCE — March 31, 2023

 

 

10,561,700

 

 

$

11

 

 

$

154,362

 

 

$

(143,408

)

 

$

10,965

 

 

 

Three Months Ended March 31, 2022

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Deficit

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Accumulated

 

 

Equity (Deficit)

 

BALANCE — December 31, 2021

 

 

6,910,324

 

 

$

7

 

 

$

136,173

 

 

$

(100,063

)

 

$

36,117

 

Issuance of common stock for cash, net of issuance
   cost of $
44

 

 

262,770

 

 

 

 

 

 

1,403

 

 

 

 

 

 

1,403

 

Share-based compensation

 

 

 

 

 

 

 

 

328

 

 

 

 

 

 

328

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(8,491

)

 

 

(8,491

)

BALANCE — March 31, 2022

 

 

7,173,094

 

 

$

7

 

 

$

137,904

 

 

$

(108,554

)

 

$

29,357

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.

7


Table of Contents

 

TEMPEST THERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

 

For the Three Months
Ended March 31,

 

 

 

2023

 

 

2022

 

Operating activities:

 

 

 

 

 

 

Net loss

 

$

(7,636

)

 

$

(8,491

)

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

 

 

 

 

 

 

Depreciation expense

 

 

125

 

 

 

108

 

Stock-based compensation expense

 

 

446

 

 

 

328

 

Non-cash lease expense

 

 

432

 

 

 

311

 

Non-cash interest and other expense, net

 

 

53

 

 

 

64

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

(28

)

 

 

178

 

Accounts payable

 

 

12

 

 

 

(323

)

Accrued expenses and other liabilities

 

 

(1,214

)

 

 

1,063

 

Interest payable

 

 

7

 

 

 

2

 

Operating lease liabilities

 

 

(500

)

 

 

(347

)

Cash used in operating activities

 

 

(8,303

)

 

 

(7,107

)

Investing activities:

 

 

 

 

 

 

Purchase of property and equipment

 

 

(46

)

 

 

(3

)

Cash used in investing activities

 

 

(46

)

 

 

(3

)

Financing activities:

 

 

 

 

 

 

Proceeds from the issuance of common stock, net of issuance costs

 

 

44

 

 

 

1,403

 

Cash provided by financing activities

 

 

44

 

 

 

1,403

 

Net decrease in cash and cash equivalents

 

 

(8,305

)

 

 

(5,707

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

31,598

 

 

 

51,829

 

Cash, cash equivalents and restricted cash at end of period

 

$

23,293

 

 

$

46,122

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

292

 

 

$

268

 

Cash paid for income taxes

 

$

24

 

 

$

 

Non-cash investing activities: Property and equipment in accounts payable

 

$

 

 

$

16

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements

8


Table of Contents

 

TEMPEST THERAPEUTICS, INC.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

(Amounts are in thousands, except share and per share data)

1. ORGANIZATION AND DESCRIPTION OF THE BUSINESS

Description of Business

 

Tempest Therapeutics, Inc. (“Tempest” or the “Company”) is a clinical-stage oncology company advancing small molecules that combine both tumor-targeted and immune-mediated mechanisms with the potential to treat a wide range of tumors. The Company’s two novel clinical programs are TPST-1120 and TPST-1495, antagonists of PPARα and EP2/EP4, respectively. Both programs are advancing through clinical trials designed to study the agents as monotherapies and in combination with other approved agents. Tempest is also developing an orally available inhibitor of TREX-1, a target that controls activation of the cGAS/STING pathway. Tempest is headquartered in Brisbane, California.

 

Liquidity and Management Plans

 

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has incurred operating losses since inception. As of March 31, 2023, we had cash and cash equivalents of $22.9 million. The Company has not yet generated product sales and as a result has experienced operating losses since inception. The Company expects to incur additional losses in the future to conduct research and development and will need to raise additional capital to continue operations. We intend to raise the needed capital through the issuance of additional debt or equity, including in connection with potential merger opportunities, or through business development activities. Our ability to continue as a going concern is dependent upon our ability to successfully accomplish these plans and secure sources of financing and ultimately attain profitable operations. If we are unable to obtain adequate capital, we could be forced to cease operations. Management believes that its existing cash and cash equivalents will be sufficient to fund the Company’s cash requirements for at least 12 months following the issuance of these financial statements.

On April 29, 2022, the Company completed a private investment in public equity (“PIPE”) financing from the sale of 3,149,912 shares of its common stock at a price per share of $2.36 and, and in lieu of shares of common stock, pre-funded warrants to purchase up to 3,206,020 shares of its common stock at a price per pre-funded warrant of $2.359 to EcoR1 Capital, LLC and Versant Venture Capital (the “PIPE Investors”). Net proceeds from the PIPE financings totaled approximately $14.5 million, after deducting offering expenses. The Company entered into a registration rights agreement (the “Registration Rights Agreement”) with the PIPE Investors pursuant to which the Company filed a registration statement with the SEC registering the resale of the 3,149,912 shares common stock and the 3,206,020 shares of common stock underlying the pre-funded warrants issued in the PIPE financing.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant Accounting Policies -- The Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 22, 2023. There have been no material changes to the significant accounting policies during the period ended March 31, 2023.

Basis of Presentation—The unaudited interim Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted. These unaudited interim Condensed Consolidated Financial Statements should be read in conjunction with the Company’s audited consolidated financial statements and notes included in the company’s Annual Report on Form 10-K for the year ended December 31, 2022.

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The Company has prepared the accompanying Condensed Consolidated Financial Statements on the same basis as the audited financial statements, and the unaudited interim financial statements include, in the Company’s opinion, all adjustments, consisting only of normal recurring adjustments that the Company considers necessary for a fair presentation of its financial position and results of operations for these periods.

Use of Estimates—The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to research and development accruals, recoverability of long-lived assets, right-of-use assets, lease obligations, stock-based compensation and income taxes uncertainties and valuation allowances. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates.

3. FAIR VALUE MEASUREMENTS

The following tables present the Company’s fair value hierarchy for assets measured at fair value on a recurring basis:

 

 

 

As of March 31, 2023

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash and cash equivalents

 

$

22,925

 

 

$

 

 

$

 

 

$

22,925

 

Total

 

$

22,925

 

 

$

 

 

$

 

 

$

22,925

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2022

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash and cash equivalents

 

$

31,230

 

 

$

 

 

$

 

 

$

31,230

 

Total

 

$

31,230

 

 

$

 

 

$

 

 

$

31,230

 

 

4. BALANCE SHEET COMPONENTS

Prepaid expenses and other current assets consist of the following:

 

 

 

March 31,
2023

 

 

December 31,
2022

 

Prepaid expenses

 

$

594

 

 

$

703

 

Prepaid research and development costs

 

 

285

 

 

 

304

 

Other current assets

 

 

419

 

 

 

263

 

Total

 

$

1,298

 

 

$

1,270

 

 

Property and equipment, net, consists of the following:

 

 

 

March 31,
2023

 

 

December 31,
2022

 

Computer equipment and software

 

$

168

 

 

$

168

 

Furniture and fixtures

 

 

328

 

 

 

310

 

Lab equipment

 

 

1,077

 

 

 

1,061

 

Leasehold improvements

 

 

922

 

 

 

882

 

Property and equipment

 

 

2,495

 

 

 

2,421

 

Less accumulated depreciation

 

 

(1,487

)

 

 

(1,361

)

Property and equipment—net

 

$

1,008

 

 

$

1,060

 

 

Depreciation expense for the three months ended March 31, 2023 and 2022 were $125 and $108, respectively.

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Accrued liabilities consist of the following:

 

 

 

March 31,
2023

 

 

December 31,
2022

 

Accrued other liabilities

 

$

1,134

 

 

$

756

 

Accrued clinical trial liability

 

 

1,404

 

 

 

2,205

 

Total

 

$

2,538

 

 

$

2,961

 

 

5. COMMITMENTS AND CONTINGENCIES

Facilities Lease Agreements—In February 2019, the Company entered into a 5-year office lease agreement for a 9,780 square feet facility in South San Francisco, California. The original lease term expires on February 29, 2024. In June 2022, the lease was amended to terminate early on January 31, 2023. The amendment was not accounted for as a separate contract and the lease liability and the right-of-use asset were remeasured on the lease modification date.

 

On March 29, 2021, TempestTx, Inc. (“Private Tempest”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Millendo Therapeutics, Inc. (“Millendo”). On June 25, 2021, Private Tempest completed the merger with Millendo and as a result of the merger, the Company assumed Millendo’s noncancelable operating leases for office space which have remaining lease terms of approximately 1.1 years. In February 2019 and October 2018, Millendo entered into two noncancellable operating leases for office space in Ann Arbor, Michigan (“Ann Arbor Leases”), one that Millendo took possession of in April 2019 and the other that Millendo took possession of in July 2019, respectively. The Ann Arbor Leases expire in June 2024 and March 2024.

 

In January 2022, the Company entered into a new 8-year office lease agreement for a 20,116 square feet facility in Brisbane, California ("Brisbane Lease"). The lease commenced in December 2022.

As of March 31, 2023 and December 31, 2022, the balance of the operating lease right of use assets were $11,219 and $11,650, respectively, and the related operating lease liability were $11,243 and $11,744, respectively, as shown in the accompanying consolidated balance sheets.

 

Rent expense was $710 and $359 for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, future minimum lease payments under the Brisbane Lease and Ann Arbor Leases were as follows:

 

 

 

 

 

Year Ending

 

Total Commitment

 

2023 (excluding three months ended March 31, 2023)

 

$

1,912

 

2024

 

 

2,100

 

2025

 

 

1,861

 

2026

 

 

1,926

 

2027

 

 

1,994

 

2028 and beyond

 

 

6,410

 

Total minimum lease payments

 

 

16,203

 

Less: imputed interest

 

 

(4,960

)

Present value of operating lease obligations

 

 

11,243

 

Less: current portion

 

 

(1,325

)

Noncurrent operating lease obligations

 

$

9,918

 

 

Related to this Brisbane Lease agreement, the Company entered into a letter of credit with a bank to deposit $368 in a separate account that is classified as restricted cash to serve as security rent deposit. This amount is included in other noncurrent assets in the accompanying Consolidated Balance Sheets as of March 31, 2023.

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Guarantees and Indemnifications—In the normal course of business, the Company enters into agreements that contain a variety of representations and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. As of March 31, 2023 and 2022, the Company does not have any material indemnification claims that were probable or reasonably possible and consequently has not recorded related liabilities.

Legal Proceedings—Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. As a result of the merger with Millendo, the Company is party to various litigation matters given Millendo’s role as successor to OvaScience, Inc. (“OvaScience”). OvaScience merged with Millendo in 2018. Prior to the merger with Millendo, OvaScience was sued in three matters that are disclosed below.

 

On November 9, 2016, a purported shareholder derivative action was filed in Massachusetts State court (Cima v. Dipp) against OvaScience and certain former officers and directors of OvaScience and OvaScience alleging breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement and waste of corporate assets for purported actions related to OvaScience’s January 2015 follow-on public offering. As of September 12, 2022, the parties have reached an agreement in principle and have executed a term sheet in connection with a settlement. On September 13, 2022, the parties filed a joint motion to stay the case pending settlement. On September 15, 2022, the court issued a 90-day nisi order. On December 14, 2022, the court extended that order for 60 days to February 20, 2023. On February 17, 2023, the court extended the order until March 22, 2023 and set a court appearance for March 23, 2023. On March 23, 2023, the court granted preliminary approval of the settlement and set a final fairness hearing for June 12, 2023. Any final settlement is subject to Court approval.

On March 24, 2017, a purported shareholder class action lawsuit was filed in Massachusetts Federal court (Dahhan v. OvaScience, Inc.) against OvaScience and certain former officers of OvaScience alleging violations of Sections 10(b) and 20(a) of the Exchange Act (the “Dahhan Action”). On March 4, 2022, the parties filed a motion to preliminarily approve a settlement of the action. The settlement amount of $15 million was funded entirely by insurance. All defendants expressly deny liability. On April 1, 2022, the Court preliminarily approved the settlement. On December 20, 2022, the Court entered final approval of the settlement and dismissed the Dahhan Action with prejudice. The settlement included a release of all claims against the defendants thus no liability related to this matter was recorded in our Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022, respectively.

 

On July 27, 2017, a purported shareholder derivative complaint was filed in Massachusetts Federal court (Chiu v. Dipp) against OvaScience and certain former officers and directors of OvaScience alleging breach of fiduciary duties, unjust enrichment and violations of Section 14(a) of the Exchange Act. related to OvaScience’s January 2015 follow-on public offering and other public statements concerning OvaScience’s AUGMENT treatment. Following the Court’s dismissal of an amended complaint, the parties agreed that plaintiffs could file a second amended complaint and that the case would be stayed pending the resolution of the Dahhan Action. In May 2018, the court entered an order staying this case pending the resolution of the Dahhan Action. As of September 12, 2022, the parties have reached an agreement in principle and have executed a term sheet in connection with the settlement. On February 14, 2023, the parties informed the court that, subject to court approval, they had reached an agreement to settle Chiu v. Dipp as well as Cima v. Dipp. The parties requested a 90-day stay in order to present the settlement to the state court in Cima v. Dipp first. On February 16, 2023, the Court granted the 90-day stay. On May 2, 2023 the Court extended the stay through July 12, 2023. Upon final approval of the Cima settlement, the Company expects that a motion to dismiss Chiu v. Dipp will also be filed.

6. LOAN PAYABLE

On January 15, 2021, the Company entered into a loan agreement with Oxford Finance LLC (the "Lender") to borrow a term loan amount of $35,000 to be funded in three tranches. Tranche A of $15,000 was wired to the Company on January 15, 2021. Tranche B of $10,000 expired on March 31, 2022. Tranche C of $10,000 is available at the Lender’s option.

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On December 23, 2022, the Company entered into a First Amendment to the loan agreement. The amendment modified the agreement as follows: (i) each of the Company and Millendo Therapeutics US, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Millendo”), were joined as co-borrowers under the Loan Agreement; (ii) the interest-only repayment period was extended through December 31, 2023 (which interest-only period may be further extended through June 30, 2024 under certain circumstances); and (iii) a security interest in all of the assets of the Company, TempestTx and Millendo, including any intellectual property, was granted to the Lender. In addition, the Lender permitted a one-time prepayment in the amount of $5.0 million, which the Company paid on December 23, 2022.

Following the amendment to the loan agreement, the term loan matures on August 1, 2025 and has an annual floating interest rate of 7.15% which is an Index Rate plus 7.10%. Index Rate is the greater of (i) 1-Month CME Term SOFR or (ii) 0.05%. Monthly principal payments of $513 will begin on January 1, 2024. Related to this borrowing, the Company recorded loan discounts totaling $898 and paid $95 of debt issuance costs. These amounts would be amortized as additional interest expense over the life of the loan. As of March 31, 2023, the balance of the loan payable (net of debt issuance costs) was $10.4 million. The carrying value of the loan approximates fair value (Level 2).

For the three months ended March 31, 2023 and 2022, total interest expense was $344 and $333, respectively.

7. STOCKHOLDERS' EQUITY

Common Stock

As of March 31, 2023 and December 31, 2022, the Company was authorized to issue 100,000,000 shares of common stock and 5,000,000 shares of preferred stock, each with a par value of $0.001 per share. Of the common stock shares authorized, 10,561,700 and 10,518,539 were issued and outstanding at March 31, 2023 and December 31, 2022, respectively. There were no shares subject to repurchase due to remaining vesting requirements. Common stockholders are entitled to dividends as declared by the Board of Directors, subject to rights of holders of all classes of stock outstanding having priority rights as to dividends. There was no preferred stock issued nor outstanding as of March 31, 2023 and December 31, 2022.

Common stockholders are entitled to dividends as declared by the Board of Directors, subject to rights of holders of all classes of stock outstanding having priority rights as to dividends. There have been no dividends declared to date. The holders of each share of common stock are entitled to one vote. Except for effecting or validating certain specific actions intended to protect the preferred stockholders, the holders of common stock vote together with preferred stockholders and have the right to elect one member of the Company’s Board of Directors.

ATM Program

On July 23, 2021, the Company entered into a sales agreement with Jefferies LLC, pursuant to which the Company may sell, from time to time, up to an aggregate sales price of $100,000,000 of its common stock through Jefferies LLC (the "ATM Program"). Our ability to sell securities under the ATM program will be limited until we are no longer subject to the SEC’s “baby shelf” limitations.

Pre-Funded Warrants

In April 2022, the Company completed a PIPE financing, which included the issuance of pre-funded warrants to purchase up to 3,206,020 shares of its common stock at a price per pre-funded warrant of $2.359 to the PIPE Investors. The pre-funded warrants provide that the holder will not have the right to exercise any portion of its warrants if such holder, together with its affiliates, would beneficially own in excess of 9.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to such exercise (the “Beneficial Ownership Limitation”); provided, however, that the holder may increase or decrease the Beneficial Ownership Limitation by giving 61 days’ notice to the Company, but not to any percentage in excess of 19.99%.

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8. STOCK-BASED COMPENSATION

Equity Plans

In 2011, Private Tempest adopted the 2011 Equity Incentive Plan (the “2011 Plan), and in 2017, Private Tempest adopted the 2017 Equity Incentive Plan (the “2017 Plan”), and together with the 2011 Plan, the “Tempest Prior Plans.” The Tempest Prior Plans have been terminated and no additional grants may be made under either plan. All stock awards granted under the Tempest Prior Plans will remain subject to the terms of the applicable prior plan. As a result of the merger with Millendo, the Tempest Prior Plans were assumed by the Company.

The Board of Millendo adopted the 2019 Equity Incentive Plan (the “2019 Plan”) on April 29, 2019, subject to approval by the Company’s stockholders, and became effective with such stockholder approval on June 11, 2019. On June 17, 2022, the Company’s stockholders approved the Amended and Restated 2019 Equity Incentive Plan (the “A&R 2019 Plan”), which amended and restated the 2019 Plan and will be a successor to, and replacement of, the 2019 Plan. The number of shares of the Company's common stock reserved for issuance under the A&R 2019 Plan will automatically increase on January 1st of each year, for a period of 10 years, from January 1, 2020 continuing through January 1, 2029, by 4% of the total number of shares of the Company's common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by the Board of Directors. On January 1, 2023, the common stock reserved for issuance was increased by 420,742 shares. As of March 31, 2023, a total of 629,388 shares are available for future grant under the A&R 2019 Plan.

The A&R 2019 Plan allows the Company to grant stock awards to employees, directors and consultants of the Company, including incentive stock options (“ISOs”), nonqualified stock options (“NSOs”), stock appreciation rights, restricted stock awards, restricted stock unit awards and other stock awards.

The Company measures employee and non-employee stock-based awards at grant date fair value and records compensation expense on a straight-line basis over the vesting period of the award.

Employee Stock Ownership Plan

The Board of Millendo adopted the 2019 Employee Stock Purchase Plan on April 29, 2019, which became effective upon stockholder approval on June 11, 2019. On June 17, 2022, the Company’s stockholders approved the Amended and Restated 2019 Employee Stock Purchase Plan (the “2019 ESPP”). The 2019 ESPP enables employees to purchase shares of the Company's common stock through offerings of rights to purchase the Company's common stock to all eligible employees.

The 2019 ESPP provides that the number of shares of common stock reserved for issuance under the 2019 ESPP will automatically increase on January 1, 2023 and continuing through (and including) January 1, 2029, by the lesser of 1.5% of the total number of shares of Common Stock outstanding on December 31st of the preceding calendar year, (ii) 500,000 shares of Common Stock, or (iii) such lesser number of shares of Common Stock as determined by the Board of Directors (which may be zero). On January 1, 2023, the common stock reserved for issuance was increased by 157,778 shares.

As of March 31, 2023, 253,097 shares of common stock remained available for future issuance under the 2019 ESPP. During the three months ended March 31, 2023, 41,778 shares of common stock had been issued under the 2019 ESPP.

Stock Options

Options to purchase the Company’s common stock may be granted at a price not less than the fair market value in the case of both NSOs and ISOs, except for an options holder who owns more than 10% of the voting power of all classes of stock of the Company, in which case the exercise price shall be no less than 110% of the fair market value per share on the grant date. Stock options granted under the Plans generally vest over four years and expire no later than ten (10) years from the date of grant. Vested options can be exercised at any time.

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Prior to the merger with Millendo, the grant date fair market value of the shares of common stock underlying stock options has historically been determined by the Company’s Board of Directors. Up until the merger, there had been no public market for the Company’s common stock, and therefore the Board of Directors exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair market value, which included valuations performed by an independent third-party, important developments in the Company’s operations, sales of convertible preferred stock, actual operating results, financial performance, the conditions in the life sciences industry, the economy in general, the stock price performance and volatility of comparable public companies, and the lack of liquidity of the Company’s common stock.

The following shows the stock option activities for the three months ended March 31, 2023 and 2022:

 

 

 

Total
Options
Outstanding

 

 

Weighted-Average
Exercise
Price

 

Balance—December 31, 2022

 

 

1,553,041

 

 

$

6.66

 

Granted

 

 

623,550

 

 

 

1.23

 

Exercised

 

 

 

 

 

 

Cancelled and forfeited

 

 

(29,180

)

 

 

3.59

 

Balance—March 31, 2023

 

 

2,147,411

 

 

$

5.13

 

 

 

 

 

 

 

 

Balance—December 31, 2021

 

 

790,637

 

 

$

32.82

 

Granted

 

 

303,125

 

 

 

5.26

 

Exercised

 

 

 

 

 

 

Cancelled and forfeited

 

 

(17,202

)

 

 

7.49

 

Balance—March 31, 2022

 

 

1,076,560

 

 

 

25.75

 

 

The following table summarizes information about stock options outstanding at March 31, 2023:

 

 

 

Shares

 

 

Weighted
Average
Remaining
Contractual
Life (In Years)

 

 

Weighted
Average
Exercise Price

 

 

Aggregate
Intrinsic Value

 

Options outstanding

 

 

2,147,411

 

 

 

8.73

 

 

$

5.13

 

 

$

676

 

Vested and expected to vest

 

 

2,147,411

 

 

 

8.73

 

 

$

5.13

 

 

$

676

 

Exercisable

 

 

558,724

 

 

 

7.47

 

 

$

8.39

 

 

$

28

 

During the three months ended March 31, 2023 and 2022, the Company granted employees and non-employees stock options to purchase 623,550 and 303,125 shares of common stock with a weighted-average grant date fair value of $1.03 and $4.37 per share, respectively. As of March 31, 2023 and 2022, total unrecognized compensation costs related to unvested employee stock options were $4,140 and $3,992, respectively. These costs are expected to be recognized over a weighted-average period of approximately 2.5 years and 3.2 years, respectively.

The Company estimated the fair value of stock options using the Black-Scholes option pricing valuation model. The fair value of employee stock options is being amortized on the straight-line basis over the requisite service period of the awards. The fair value of employee stock options was estimated using the following assumptions for the three months ended March 31, 2023 and 2022:

 

 

 

2023

 

 

2022

 

Expected term (in years)

 

6

 

 

6

 

Expected volatility

 

 

109

%

 

 

68

%

Risk-free interest rate

 

 

3.9