Under the terms of the ATM Agreement, we are to pay Craig-Hallum a placement fee of 3.5% of the gross sales price of shares of common stock sold, unless Craig-Hallum acts as principal, in which case we may sell the shares to Craig-Hallum as principal at a price we agree upon with Craig-Hallum. We are obligated to reimburse Craig-Hallum for certain expenses incurred in connection with the ATM Agreement, and we have provided Craig-Hallum with customary indemnification and contribution rights with respect to certain liabilities, including liabilities under the Securities Act and the Securities Exchange Act of 1934.
The offering of shares of common stock pursuant to the ATM Agreement will terminate upon the earliest of (a) the sale of all of the shares registered for purposes of the offering pursuant to the ATM Agreement, (b) our mutual written agreement with Craig-Hallum, (c) written notice from Craig-Hallum, in its sole discretion, to us, and (d) five business days’ prior written notice from us, in our sole discretion, to Craig-Hallum.
Except as set forth below, there have been no material changes to the risk factors described in the sectionsections captioned “Item 1A. Risk Factors”“Risk Factors,” in Part 1 ofour 2021 Form 10-K and updated in our Quarterly Report on Form 10-Q for the quarterly periodquarter ended March 31, 2021,2022, as filed with the SEC on May 5, 2021, as amended and supplemented by the information in the section captioned “Item 8.01. Other Events—Risk Factors” in our Current Report on Form 8-K filed with the SEC on July 19, 2021.2022. In addition to the other information set forth in this report, you should carefully consider the factors discussed in the sections captioned “Item 1A. Risk“Risk Factors” in Part 1 of our 2021 Form 10‑K and Quarterly Report on Form 10‑Q10-Q for the quarterly periodquarter ended March 31, 2021 and “Item 8.01. Other Events—Risk Factors” in our Current Report on Form 8-K filed with the SEC on July 19, 2021,2022, which factors could materially affect our business, financial condition, or future results. Moreover, you should interpret many of the risks identified in those sectionsour 2021 Form 10-K and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 as being heightened as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic.COVID-19. The risks described in those sectionsour 2021 Form 10-K, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 and in this report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may have a material adverse effect on our business, financial condition, and/or operating results.
Risks Related to Our Business and Our Industry
Our near term success is highly dependent on the success of the our DPP platform, and we cannot be certain that we will succeed in developing one or more of those systems or that, if we do, they will attain market acceptance or be successfully commercialized in the United States or elsewhere.
We do not currently have an Emergency Use Authorization, or EUA, from the U.S. Food and Drug Administration, or FDA, for any of the COVID-19 Diagnostic Test Systems or for our DPP Respiratory Panel. We also do not have a CLIA waiver from the FDA for our DPP HIV-Syphilis test system. Market and regulatory requirements continue to change at a rapid pace. There can be no assurance that, if we make a submission of any future EUA or CLIA waiver application, we will meet the requirements of the prioritization guidance in effect at the time of the submission or otherwise be successful in obtaining either (1) an EUA that would permit us to offer and sell the DPP SARS-CoV-2 Antigen test system or DPP Respiratory Panel in the United States or (2) a CLIA waiver for our DPP HIV-Syphilis test.
Even if we are able to obtain any such EUA or CLIA waiver, our product may not gain broad market acceptance among physicians, healthcare payers, patients, and the medical community. We cannot guarantee market acceptance of our product, and have somewhat limited information on which to estimate our anticipated level of sales. Our products will require healthcare providers and doctors to accept and adopt our technology. Our industry is susceptible to rapid technological developments and there can be no assurance that we will be able to match any new technological advances. Acceptance and use of any products we market will depend upon a number of factors including:
perceptions by members of the health care community, including physicians, about the safety and effectiveness of our products;
limitation on use or warnings required by the FDA or other global regulators in our product labeling;
the cost of our products relative to competing products;
convenience and ease of administration;
potential advantages of alternative diagnostic and treatment methods;
availability of reimbursement for our products from government or other healthcare payers;
effectiveness of marketing and distribution efforts by us and our licensees and distributors, if any; and
the ability of our diagnostic solutions to address different variants.
In addition, with respect to any EUA we obtain, the FDA may revoke an EUA where it is determined that the underlying health emergency no longer exists or warrants such authorization, even if we obtain an EUA, we cannot predict how long such EUA would remain in place. Such revocation could materially adversely impact our business in a variety of ways, including if the relevant product is not yet approved by the FDA under a traditional approval pathway and if we have invested in the supply chain to provide any of our products under an EUA, and would require us to obtain a 510(k) or other marketing authorization from the FDA. If the FDA revokes a previously issued EUA prior to us having received regulatory approval to commercialize our DPP SARS-CoV-2 Antigen test system or DPP Respiratory Panel through a traditional approval pathway, we would be required to cease our commercialization efforts in the United States, which would substantially and negatively impact our business.
The failure of these products to find market acceptance would substantially harm our business and would adversely affect our revenue. If the DPP SARS-CoV-2 Antigen test system, DPP Respiratory Panel or DPP HIV-Syphilis test are not as successfully commercialized as expected, we may not be able to generate sufficient revenue to become profitable. Any failure of one of these products to be successfully commercialized in the United States may have a material adverse effect on our business, operating result financial condition and cash flows, and could result in a substantial decline in the price of our common stock. In addition, the production and widely administered use of efficacious vaccines for COVID-19 may reduce the demand for diagnostic tests and, as a result, the COVID-19 diagnostic testing market may not develop or substantially grow. Our future success is substantially dependent on the manner in which the market for diagnostic testing develops and grows. If the market develops in a manner that does not facilitate demand for our products, or fails to develop or grow in the manner in which we expect or at all, our business, financial condition, results of operations and cash flows may be negatively affected.
Clinical trials necessary to support a future test kit submission will be expensive and may require the enrollment of large numbers of subjects, and suitable subjects may be difficult to identify and recruit. Delays or failures in our clinical trials will prevent us from commercializing any modified or new test kits and will adversely affect our business, operating results and prospects.
Risks Related to Our Products
Industry adoption of alternative technology to our COVID-19 Diagnostic Test Systems could negatively impact our ability to compete successfully.
Customers or the industry as a whole could adopt alternative technologies for testing, including molecular point of care testing, which could result in lower demand for our antigen test. Various advances in the treatment and monitoring of patients could cause lower demand for the COVID-19 Diagnostic Test Systems, including our revised DPP SARS CoV 2 Antigen System or for antigen testing for COVID-19 as a whole.
Risks Related to Regulations
If we do not comply with FDA or other regulatory requirements, we may be required to suspend production or sale of our products or institute a recall, which could result in higher costs and a loss of revenues.
Regulations of the FDA and other federal, state and foreign regulatory agencies have significant effects on many aspects of our operations and the operations of our suppliers and distributors, including packaging, labeling, manufacturing, adverse event reporting, recalls, distribution, storage, advertising, promotion and record keeping. We are subject to routine inspection by the FDA and other agencies to determine compliance with FDA regulatory requirements, including QSRs, in the United States and other applicable regulations worldwide, including ISO standards. We believe that our facilities and procedures are in material compliance with the FDA requirements and ISO standards, but the regulations may be unclear and are subject to change, and we cannot be sure that the FDA or other regulators will agree with our compliance with these requirements. The FDA and foreign regulatory agencies may require post marketing testing and surveillance to monitor the performance of approved or cleared products or impose conditions on any product clearances or approvals that could restrict the distribution or commercial applications of those products. Regulatory agencies may impose restrictions on our or our distributors’ advertising and promotional activities or preclude these activities altogether if a noncompliance is believed to exist. In addition, the subsequent discovery of previously unknown problems with a product may result in restrictions on the product or additional regulatory actions, including withdrawal of the product from the market.
Our inability to comply with the applicable requirements of the FDA can result in, among other things, 483 notices, warning letters, administrative or judicially imposed sanctions such as injunctions, recall or seizure of products, civil penalties, withdrawal of product registrations, total or partial suspension of production, refusal to grant premarket clearance for devices, a determination that a device is not approvable, marketing clearances or approvals, or criminal prosecution. For example, in February 2020, we initially received a “not approvable” letter from the FDA with respect to our premarket approval submission on our DPP HIV Syphilis multiplex test for commercial use in the United States, in June 2020 we received notice from the FDA that the EUA for the DPP COVID-19 IgM/IgG System had been revoked, and in January 2021 we received notice from the FDA that it was declining to review the DPP SARS CoV 2 Antigen System based on its updated prioritization guidance, under which review of the system was not a priority. The ability of our suppliers to supply critical components or materials and of our distributors to sell our products could also be adversely affected if their operations are determined to be out of compliance. Such actions by the FDA and other regulatory bodies could adversely affect our revenues, costs and results of operations.
We must frequently make judgment decisions with respect to compliance with applicable laws and regulations. If regulators subsequently disagree with how we have sought to comply with these regulations, we could be subjected to substantial civil and criminal penalties, as well as product recall, seizure or injunction with respect to the sale of our products. Our reputation could be substantially impaired if we are assessed any civil and criminal penalties and limit our ability to manufacture and market our products which could have a material adverse effect on our business.
Financial, Economic and Financing Risks
Because of our liquidity limitations, we have concluded there is a substantial doubt about our ability to continue as a going concern and we may require additional capital to fund our operations, which capital may not be available to us on acceptable terms or at all.
As described under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Substantial Doubt as to Operations─Going Concern Status”Considerations” and “—“─Liquidity and Capital Resources—General” and in note 2(a) to the Accompanying Financial Statements,Resources,” management has determined we could not be certain that our plans and initiatives to increase our total revenues and improve our liquidity position would be effectively implemented within one year after the filing date of this report, when the Accompanying Financial Statementsaccompanying financial statements are being issued. Without giving effect to the prospect of raising additional capital pursuant to our at-the-market offerings under the ATM Agreement, increasing product revenue in the near future or executing other mitigating plans, many of which are beyond our control, it is unlikely that we will be able to generate sufficient cash flows to meet our required financial obligations, including our debt service and other obligations due to third parties. The existence of these conditions raises substantial doubt about our ability to continue as a going concern for the twelve-month period following the filing date of this report, when the Accompanying Financial Statementsaccompanying financial statements are being issued.
Our diagnostic test products require ongoing funding to continue our current development and operational plans, and we have a history of net losses. We intend to continue to expend substantial resources in the short term in connection with the July Purchase Orders (see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Events—July Purchase Orders”), but we may encounter challenges in fulfilling our obligations, and therefore receiving revenue, under those purchase orders. See “—Because of our liquidity and operational limitations, including the availability of staffing and supply chain resources that are necessary but outside of our control, we will not be able to timely fulfill all of the requirements of the July Purchase Order from Bio‑Manguinhos and it is difficult to reliably estimate the extent to which we will be able to timely meet those requirements” below. We will also incur costs associated with research and development activity, corporate administration, business development, debt service, marketing and selling of our products, and litigation. In addition, other unanticipated costs may arise.
As of SeptemberJune 30, 2021, we had outstanding indebtedness2022, our loan balance, net of $20.0unamortized discounts and debt issuance costs, of $19.1 million under the Credit Agreement. We may face further liquidity challenges if we are unable to meet obligations set forth in the Credit Agreement, including a financial covenant requiring that we achieve specified minimum total revenue amounts measured as of the end of each quarter. A breach of the minimum total revenue covenant or any other covenant in the Credit Agreement would result in a default under the Credit Agreement, which could enable the Lender to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. We cannot assure you that, in such an event, we would have sufficient assets to pay amounts due under the Credit Agreement. See “—The failure to comply with the terms of our Credit Agreement and Guaranty could result in a default under its terms and, if uncured, could result in action against our pledged assets and dilution of our stockholders” below.
As a result, we may need to raise capital in one or more debt and/or equity offerings to fund our operations and obligations.obligations, including under the ATM Agreement. There can be no assurance, however, that we will be successful in raising the necessary capital or that any such offering will be available to us on terms acceptable to us, or at all. If we are unable to raise additional capital that may be needed on terms in sufficient amounts or on terms acceptable to us, it could have a material adverse effect on our company. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue our deliveries under our outstanding customer purchase orders or the development or commercialization of one or more of our products or one or more of our other research and development initiatives. The outbreakeffects of the COVID-19 pandemic hashave significantly disrupted world financial markets and negatively impacted U.S. market conditions, and they may reduce opportunities for us to seek out additional funding. A decline in the market price of our common stock, whether or not coupled with the suspension of trading of our common stock on the Nasdaq Capital Market, could make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate, or at all. Moreover, on April 5, 2022, we received a deficiency letter from the Listing Qualifications Department of The Nasdaq Stock Market notifying us that, because the bid price for shares of our common stock had closed below the $1.00 per share minimum Bid Price Requirement for thirty consecutive business days, our common stock may be subject to delisting by as early as October 3, 2022 if we have been unable to regain compliance with the Bid Price Requirements or to qualify for an additional period to regain compliance by such date, all as described in more detail in the Current Report on Form 8-K we filed with the SEC on April 7, 2022. There can be no assurance that we will be able to regain compliance with the Bid Price Requirement. Our inability to regain compliance with the Bid Price Requirement would, and the existence of the pending deficiency letter could, materially impair our ability to raise capital.
Continuing doubt about our ability to continue as a going concern may materially and adversely affect the price of our common stock, and it may be more difficult for us to obtain financing. Any uncertainty about our ability to continue as a going concern may also adversely affect our relationships with current and future employees, suppliers, vendors, customers, grantors, creditors, regulators and investors, who may become concerned about our ability to meet our ongoing financial obligations. There is risk that, among other things:
third parties lose confidence in our ability to continue to operate in the ordinary course, which could impact our ability to execute on our business strategy;
it may become more difficult for us to attract, retain or replace employees;
employees could be distracted from performance of their duties;
we could lose some or a significant portion of our liquidity, either due to stricter credit terms from vendors, or, in the event we undertake a Chapter 11 proceeding and conclude that we need to procure debtor-in-possession financing, an inability to obtain any needed debtor-in-possession financing or to provide adequate protection to certain secured lenders to permit us to access some or all of our cash; and
our vendors and service providers could seek to renegotiate the terms of our arrangements, terminate their relationships with us or require financial assurances from us.
The Accompanying Financial Statementsaccompanying financial statements have been prepared assuming we will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date of this report. As such, the Accompanying Financial Statementsaccompanying financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amounts, or the amount and classification of liabilities that may result should we be unable to continue as a going concern.
BecauseAdditionally, we are currently subject to the Baby Shelf Rule and the amount of funds we can raise through primary public offerings of securities in any 12-month period using our liquidity and operational limitations, including the availability of staffing and supply chain resources that are necessary but outside of our control, we will not be ableregistration statement on Form S-3 is limited to timely fulfill allone-third of the requirementsaggregate market value of the July Purchase Order from Bio‑Manguinhosvoting and it is difficult to reliably estimate the extent to which wenon-voting common equity held by non-affiliates. We will be able to timely meet those requirements.
limited by the Baby Shelf Rule until such time, if any, as our public float exceeds $75 million.
In July 2021 we receivedOur failure to meet the July Purchase Orders, which we had been pursuingminimum bid price for an extended period of time. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Events—July Purchase Orders” above. Our delivery of the full number of tests covered by each of the July Purchase Orders may be affected by limitations of our supply chain, staffing and liquidity, including matters that are outside our control. We have established internal plans designed to maximize the number of tests we can deliver timely, or at all, pursuant to the July Purchase Orders, and we expect to continue to revise those plans as we obtain new information. The number of uncertainties related to third parties — including the availability of required personnel, raw materials and other resources — currently preclude us, however, from reliably estimating the extent to which we will be able to fulfill the July Purchase Orders on time and at an acceptable cost, or at all. Our ability to generate revenue from the July Purchase Orders, and the margins we can realize from that revenue, will dependcontinued listing on the availability and cost of human, material and other resources required to build and deliver tests in accordance with the July Purchase Orders.
In anticipation of receipt of significant purchase orders in 2021, during the first half of 2021 we continued to invest in automating our test manufacturing processes, all of which are now based in the United States, by, among other actions, validating and implementing automated lines to expand our manufacturing capabilities. We did not know, however, the number or mix of tests for which purchase orders might be received, and we now need to configure our automated manufacturing lines for the most efficient use feasible, subject to numerous staffing and other constraints, in producing DPP SARS-CoV-2 Antigen tests and HIV 1/2 STAT-PAK Assays contemplated by the July Purchase Orders. The number of tests to be delivered pursuant to the July Purchase Orders significantly exceeds the capacity of our automated manufacturing lines. We have neither the time nor the resources to increase our automated manufacturing capacity meaningfully during the delivery periods contemplated by the July Purchase Orders.
We therefore are relying upon manual assembly processes to produce a significant portion of the tests deliverable under the July Purchase Orders and other customer orders, which require that we successfully recruit, hire and train a significant number of personnel for employment at our Long Island, New York facilities. Identifying, hiring and retaining assembly line, formulations, production, warehouse, quality control and other personnel for our Long Island facilities at acceptable compensation levels has been challenging in the past, and those circumstances have been exacerbated by the continuing effects of the COVID-19 pandemic, which may discourage potential employees from returning to a physical worksite at compensation levels that are acceptable to us, or at all. Upon receiving the July Purchase Orders, we launched a broad campaign to recruit and retain manufacturing and other personnel and, more recently, we temporarily increased pay for manufacturing personnel. Our recruiting efforts have not, however, proven sufficient to overcome the tight labor market that has been impacting many U.S. companies, including employers on Long Island, and we have not been able to hire the number of manufacturing personnel required to meet our internal plans for delivery of all of the tests contemplated by the July Purchase Orders. Our continued inability to identify and hire sufficient numbers of manufacturing personnel, and to manage turnover of currently existing and newly hired personnel, would continue to materially limitNasdaq Capital Market could adversely affect our ability to deliver tests underpublicly or privately sell equity securities and the July Purchase Orders.
Our delivery of tests covered by the July Purchase Orders has also been negatively affected by limitations on raw materials, components and other supplies. We must obtain additional supplies in order to manufacture tests to meet the requirements of the July Purchase Orders. Some supplies require significant ordering lead time, and some are currently obtained from a sole supplier or a limited group of suppliers. With some of these suppliers, we do not have long term agreements and instead purchase materials, components and other supplies through a purchase order process. The COVID-19 pandemic has disrupted nearly every aspect of the global supply chain, including the manufacturing or delivery of some of the key supplies used in our tests. Many suppliers are experiencing shortages of required personnel as the result of the tight labor market and underlying raw material commodities. Some suppliers have been unable to deliver supplies in the quantity we need or at all. As a result, these suppliers may stop supplying us components and materials, limit the allocation of supply and equipment to us due to increased industry demand, or significantly increase their prices at any time with little or no advance notice. Because of the foregoing limitations, as exacerbated by the quantities and timing of supplies required to timely fulfill the July Purchase Orders, we have been required to seek to identify new sources of supplies to replace or augment our past sources, which has proven difficult to do in a reasonable time period and on commercially reasonable terms, if at all. Moreover, scarcity has caused increases in the cost of some supplies. Our inability to timely obtain required supplies has had an adverse effect on our ability to timely fulfill the July Purchase Orders as well as on our total revenues, cost of sales, related margin and cash flow.
Because of the foregoing factors and considerations, we expect our ability to manufacture tests covered by the July Purchase Order from Bio-Manguinhos will continue to be limited through at least the end of 2021, which is the existing schedule for delivering tests under the order. We therefore will be unable to timely deliver a significant number of the tests required by the July Purchase Order from Bio-Manguinhos, which will impair our ability to achieve desired profit margins and generate cash flow from the order. We currently anticipate that at least $11.5 million of the July Purchase Order from Bio-Manguinhos will not be fulfilled by December 31, 2021, the end of the shipment schedule under the order. Our inability to timely meet the requirements of the July Purchase Order from Bio-Manguinhos could harm our relationship with Bio-Manguinhos and impair our reputation with other customers within the industry, which, in turn, could have a material adverse effect on our business. Moreover, in the event we do not timely deliver tests under such July Purchase Order, Bio-Manguinhos could choose to purchase products from our competitors with whom Bio-Manguinhos already has existing business relationships, which competitors may have greater technical, financial and other resources than we have.
Becauseliquidity of our liquidity and operational limitations, we may be required to prioritize fulfillment of customer orders, including the July Purchase Orders, which could harm our relationships with customers and our reputation and thereby negatively impact our business and operating results.
Our liquidity and operational limitations described under “—Because of our liquidity and operational limitations, including the availability of staffing and supply chain resources that are necessary but outside of our control, we will not be able to timely fulfill all of the requirements of the July Purchase Order from Bio‑Manguinhos and it is difficult to reliably estimate the extent to which we will be able to timely meet those requirements” above are limiting our ability to timely fulfill not only the July Purchase Orders but also other purchase orders for a range of our products. Our inability to timely meet the requirements of the July Purchase Orders or any other purchase orders could harm our relationships with our customers and impair our reputation within the industry, which, in turn, could have a material adverse effect on our business. To the extent we therefore are required to prioritize purchase orders, or are perceived by customers as prioritizing purchase orders, could further damage our customer relationships and our reputation. As a result, customers, including Bio-Manguinhos and Partnership for Supply Chain Management, could become dissatisfied and cease purchasing our products and instead choose to purchase products from our competitors, which may have greater technical, financial and other resources than we have, which would adversely affect our business, financial condition, results of operations and prospects.
Our ability to receive the amount of grants remaining under our existing contracts with BARDA is limited by operational factors as well as regulatory and other factors outside our control, and we cannot assure you that we will be able to receive all, or a significant portion, of those remaining amounts before the contracts expire.common stock
Through the date of filing of this report, we had recognized government grant income totaling $10.7 million, which was awarded under a contract we entered into with BARDA on December 2, 2020. A total of up to $12.7 million of awards are available from BARDA under that contract to assist us in (a) developing, and requesting an EUA from the FDA for, the DPP Respiratory Panel and (b) performing the clinical trials for and submitting the DPP SARS‑CoV‑2 Antigen test system to the FDA for 510(k) clearance. Unless extended by BARDA in its sole discretion, all of the remaining $2.2 million of awards remaining under the contract as of the date of this report will expire unless earned by December 2, 2021. The completion of milestones to earn a portion of the remaining awards are outside our control, and we cannot assure you that we will succeed in earning all or any significant portion of the remaining awards by December 2, 2021. Any such inability to earn a significant portion of potential grant receipts would adversely affect our business, financial condition, results of operations and prospects.
The failure to comply with the terms of the Credit Agreement could result in a default under its terms and, if uncured, could result in action against our pledged assets and dilution of our stockholders.
On September 3, 2019, we and certain of our subsidiaries, as guarantors, entered into the Credit Agreement, under whichApril 5, 2022, we received a $20,000,000 senior secured term loan credit facilitydeficiency letter from the Listing Qualifications Department of The Nasdaq Stock Market notifying it that, was drawn in full on September 4, 2019. The Credit Agreement is secured by a first priority, perfected lien on substantially all of our property and assets, including our equity interests in our subsidiaries. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Sources of Funds—Credit Agreement.”
The Credit Agreement also contains financial covenants requiring that we (a) maintain aggregate unrestricted cash of not less than $3,000,000 at all times, which must be held in one or more accounts subject tobecause the first priority perfected security interests of the Lender under the Credit Agreement, and (b) achieve specified minimum total revenue requirementsbid price for the twelve months preceding each quarter end. The minimum total revenue amounts over the next year increase from $40.3 million for the twelve months ending December 31, 2021 to $45.6 million for the twelve months ending September 30, 2022 (see note 7 to the Accompanying Financial Statements). These minimum revenue requirements were developed for purposes of the Credit Agreement and do not reflect the internal estimates and plans used by our management and board of directors to establish operational goals for managing our business. The minimum revenue requirements for the twelve months ending December 31, 2021 do not, for example, take into account the challenges we are facing during the last five months of 2021 in ramping up production, including hiring personnel and obtaining commitments from our supply chain as described above in “—Because of our liquidity and operational limitations, including the availability of staffing and supply chain resources that are necessary but outside of our control, we will not be able to timely fulfill all of the requirements of the July Purchase Orders and it is difficult to reliably estimate the extent to which we will be able to timely meet those requirements.”
In addition, the Credit Agreement contains covenants that restrict our ability to finance future operations or capital needs or to engage in other business activities. The Credit Agreement restricts the ability of our company and the restricted subsidiaries to:
incur, assume or guarantee additional Indebtedness (as defined in the Credit Agreement);
repurchase capital stock;
make other restricted payments, including paying dividends and making investments;
sell or otherwise dispose of assets, including capital stock of subsidiaries;
enter into agreements that restrict dividends from subsidiaries;
enter into mergers or consolidations; and
enter into transactions with affiliates.
A breach of the minimum total revenue covenant or any other covenant in the Credit Agreement would result in a default under the Credit Agreement. Upon an event of default under the Credit Agreement, the Lender could elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. In such an event, there can be no assurance that we would have sufficient liquidity to fund payment of the amounts that would be due under the Credit Agreement or that, if such liquidity were not available, we would be successful in raising additional capital on acceptable terms, or at all, or in completing any other endeavor to continue to be financially viable and continue as a going concern. Our inability to raise additional capital on acceptable terms in the near future, whether for purposes of funding payments required under the Credit Agreement or providing additional liquidity needed for our operations, could have a material adverse effect on our business, prospects, results of operations, liquidity and financial condition.
You may experience future dilution as a result of future equity offerings, exercises of outstanding options and vesting of options and restricted and performance stock units.
On July 19, 2021, we entered into the ATM Agreement, pursuant to which we may sell from time to time, at our option, up to an aggregate of $60,000,000 of shares of common stock through Craig-Hallum, as sales agent. As of the filing date of this report, we have issued and sold pursuant to the ATM Agreement a total of 9,709,328 shares of common stock at a volume-weighted average price of $4.2011 per share for gross proceeds of $40.8 million and net proceeds, after giving effect to placement fees and other transaction costs, of $38.8 million. For additional information about the at-the-market offerings pursuant to the ATM Agreement, see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Events—At-the-Market Offerings of Common Stock” in Part I of this report.
In order to raise additional capital, we may seek to offer pursuant to the ATM Agreement additional shares of common stock for up to $19.2 million in gross proceeds and we may in the future offer additional shares of our common stock or other securities convertible into or exchangeablehad closed below the $1.00 per share minimum Bid Price Requirement for thirty consecutive business days, our common stock.stock may be subject to delisting by as early as October 3, 2022 if we are unable to regain compliance with the Bid Price Requirements or to qualify for an additional period to regain compliance by such date, all as described in more detail in the Current Report on Form 8-K filed with the SEC on April 7, 2022. The closing price of our common stock was $1.08 on August 4, 2022, which was the second day since February 18, 2022 that such closing price was equal to or greater than $1.00. If our closing bid price remains at or above $1.00 for ten consecutive business days we will regain compliance with the Bid Price Requirement. There can be no assurance that we will be able to sellregain compliance with the Bid Price Requirement. Our inability to regain compliance with the Bid Price Requirement would, and the existence of the pending deficiency letter could, materially impair its ability to raise capital. Moreover, if we were unable to regain compliance with the Bid Price Requirement, our common stock would likely then trade only in the over-the-counter market and the market liquidity of our common stock could be adversely affected and their market price could decrease. If our common stock were to trade on the over-the-counter market, selling our common stock could be more difficult because smaller quantities of shares would likely be bought and sold, transactions could be delayed, and we could face significant material adverse consequences, including: a limited availability of market quotations for our securities; reduced liquidity with respect to our securities; a determination that our shares are a “penny stock,” which will require brokers trading in our securities to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our securities; a reduced amount of news and analyst coverage; and a decreased ability to issue additional sharessecurities or obtain additional financing in at-the-market offerings made pursuantthe future. These factors could result in lower prices and larger spreads in the bid and ask prices for our common stock and would substantially impair our ability to raise additional funds (under the ATM Agreement or otherwise) and could result in a loss of institutional investor interest and fewer development opportunities for us.
