What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-11-13 compared with 2020-08-13 · 724 added, 777 removed, 926 unchanged (62% of the section changed)

Financial Statements

BALANCE SHEETS

thousands, except shares and per share data)

September 30,

receivable trade, net

receivable-other

current assets

Accounts receivable trade, net

Accounts receivable-other

Prepaid expenses

Total current assets

Right to use asset-operating leases

Property and equipment, net

LIABILITIES AND STOCKHOLDERS’

to use asset-operating leases

and equipment, net

AND STOCKHOLDERS’

current liabilities

Short-term debt

Accounts payable

Accrued expenses

Total current liabilities

Long-term debt, net

Operating lease liability

Total liabilities

Commitments and contingencies (See note 12)

lease liability

and contingencies (See note 12)

Stockholders’

Common stock, $0.001 par value, 100,000,000 shares authorized,

3,398,832 and 1,414,671 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

Additional paid-in capital

Accumulated deficit

Total stockholders’

Total liabilities and stockholders’

stock, $0.001 par value, 100,000,000 shares authorized, 3,398,832 and 1,414,671 shares issued and outstanding at September

30, 2020 and December 31, 2019, respectively

paid-in capital

stockholders’

liabilities and stockholders’

accompanying notes to financial statements.

2 unchanged sentences

For the Three Months

For the Six Months

Ended June 30,

Cost of sales

For the Nine Months

and development

general and administrative

operating expenses

Research and development

Selling, general and administrative

Total operating expenses

Net operating loss

Other income (expense):

Interest income

Interest expense

operating loss

income (expense):

income (expense)

other income (expense)

Total other income (expense)

Net loss and comprehensive loss

Deemed dividend-warrant price protection-revaluation adjustment

Net loss attributable to common shareholders

Weighted average common shares outstanding - basic and fully diluted

Net loss per common share - basic and fully diluted

loss and comprehensive loss

dividend-warrant price protection-revaluation adjustment

loss attributable to common shareholders

average common shares outstanding - basic and fully diluted

loss per common share - basic and fully diluted

accompanying notes to financial statements.

STATEMENT OF CHANGES IN STOCKHOLDERS’

STATEMENTS OF CHANGES IN STOCKHOLDERS’

EQUITY (DEFICIT)

thousands, except shares and per share data)

For The Three Months Ended June 30, 2019 and 2020

The Three Months Ended September 30, 2019 and 2020

Stockholders’

Equity (Deficit)

March 31, 2019

Issuance of common stock

Stock-based compensation

Issuance of common stock

upon exercise of warrants

of common stock upon exercise of stock options

for employee withholding taxes related to share-based awards

Net loss for the

three months ended June 30, 2019

June 30, 2019

March 31, 2020

Issuance of common stock

Stock-based compensation

Issuance of common stock,

sold for cash, net

Net loss for the

three months ended June 30, 2020

of common stock, sold for cash, net

of common stock for services

of common stock upon exercise of warrants

for employee withholding taxes related to share-based awards

for the three months ended June 30, 2019

September 30, 2019

June 30, 2020

Six Months Ended June 30, 2019 and 2020

expenses for June share offering

for the three months ended June 30, 2020

September 30, 2020

The Nine Months Ended September 30, 2019 and 2020

December 31, 2018

Issuance of common stock

Stock-based compensation

Issuance of common stock

upon exercise of warrants

of common stock, sold for cash, net

of common stock for services

of common stock upon exercise of warrants

of common stock upon exercise of stock options

for employee withholding taxes related to share-based awards

Net loss for the

six months ended June 30, 2019

June 30, 2019

for the six months ended June 30, 2019

September 30, 2019

December 31, 2019

Issuance of common stock

Stock-based compensation

Issuance of common stock

upon exercise of warrants

Issuance of common stock,

sold for cash, net

Warrant antidilution price

protection adjustment

of common stock for services

of common stock upon exercise of warrants

of common stock, sold for cash, net

antidilution price protection adjustment

of common stock for fractional shares-20-1 reverse split

Net loss for the

six months ended June 30, 2020

June 30, 2020

for the six months ended June 30, 2020

September 30, 2020

accompanying notes to financial statements.

STATEMENTS OF CASH FLOWS

For the Six Months

CASH FLOWS FROM OPERATING ACTIVITIES

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

Depreciation and amortization

Stock-based compensation

(Gain) loss on sale of equipment

Loss on change in fair value of derivative

(Increase) decrease in current assets:

Accounts receivable - trade

Accounts receivable - other

Prepaid expenses

Increase (decrease) in current liabilities:

Accounts payable

Accrued expenses

Deferred rent

Net cash used in operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

Cash received on sale of property and equipment

Purchase of property and equipment

Net cash provided by (used in) investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from the issuance of common stock, net

Proceeds from the issuance of notes payable

Repayments of notes payable

Repayments of finance lease obligations

Proceeds from the exercise of warrants

Payment of employee withholding taxes relating to share-based awards

Net cash provided by financing activities

NET CHANGE IN CASH

CASH AT BEGINNING OF PERIOD

CASH AT END OF PERIOD

SUPPLEMENTAL INFORMATION:

Interest paid

Income taxes paid

NON-CASH INVESTING AND FINANCING ACTIVITIES:

Forgiveness of accrual in warrant exercise

Deemed dividend

Common stock issued on accrued bonus

For the Nine Months

FLOWS FROM OPERATING ACTIVITIES

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

and amortization

loss on sale of equipment

decrease in current assets:

receivable - trade

receivable - other

(decrease) in current liabilities:

cash used in operating activities

FLOWS FROM INVESTING ACTIVITIES

received on sale of property and equipment

of property and equipment

cash used in investing activities

FLOWS FROM FINANCING ACTIVITIES

from the issuance of common stock, net

from the issuance of notes payable

of notes payable

of finance lease obligations

from the exercise of warrants

of employee withholding taxes relating to share-based awards

cash provided by financing activities

CHANGE IN CASH

AT BEGINNING OF PERIOD

AT END OF PERIOD

INVESTING AND FINANCING ACTIVITIES:

of accrual in warrant exercise

stock issued on accrued bonus

accompanying notes to financial statements.

10 unchanged sentences

Our corporate headquarters is in Phoenix, Arizona.

We have developed and are seeking to commercialize a global,

proprietary technology for managing animal pest populations, initially rat populations, through fertility control.

Although there are myriad tools available to control rat populations,

most rely on some form of lethal method to achieve effectiveness.

We have developed and are commercializing a global, proprietary

technology for managing animal pest populations, initially rat populations, through fertility control.

there are myriad tools available to control rat populations, most rely on some form of lethal method to achieve effectiveness.

Each of these solutions is inherently limited by rat species’

resilience and survival mechanisms as well as their extraordinary rate of reproduction.

ContraPest®, our initial product,

is unique in the pest control industry in attacking the reproductive systems of both male and female rats, which our field data

shows will result in a sustained reduction of the rat population.

resilience and survival mechanisms as well as their extraordinary

rate of reproduction.

ContraPest®, our initial product, is unique in the pest control industry in attacking the reproductive

systems of both male and female rats, which our field data shows will result in a sustained reduction of the rat population.

have plagued humanity throughout history.

9 unchanged sentences

The pest management industry and Pest Management Professionals

(PMPs) are being asked for new solutions that are both effective and less toxic.

Our goal is to provide customers with not only

a solution to combat their most difficult rat problems, but also offer a non-lethal option to serve customers that are looking

to decrease or remove the amount of rodenticide used in their pest control programs.

is a liquid bait containing the active ingredients 4-vinylcyclohexene diepoxide (VCD) and triptolide.

ContraPest limits reproduction

of male and female rats beginning with the first breeding cycle following consumption.

ContraPest is being marketed for use in

controlling Norway and roof rat populations.

began the registration process with the United States Environmental Protection Agency (EPA) for ContraPest on August 23, 2015.

On August 2, 2016, the EPA granted an unconditional registration for ContraPest as a Restricted Use Product (RUP), due to the

need for applicator expertise for deployment.

(“PMPs”) are being asked for new solutions that are both effective and less toxic.

Our goal is to provide customers

with not only a solution to combat their most difficult rat problems, but also offer a non-lethal option to serve customers that

are looking to decrease or remove the amount of rodenticide used in their pest control programs.

is a liquid bait containing the active ingredients 4-vinylcyclohexene diepoxide (“VCD”) and triptolide.

limits reproduction of male and female rats beginning with the first breeding cycle following consumption.

ContraPest is being

marketed for use in controlling Norway and roof rat populations.

began the registration process with the United States Environmental Protection Agency (the “EPA”) for ContraPest on

August 23, 2015.

On August 2, 2016, the EPA granted an unconditional registration for ContraPest as a Restricted Use Product (“RUP”),

due to the need for applicator expertise for deployment.

On October 18, 2018, the EPA approved the removal of the RUP designation.

ContraPest is the first and only non-lethal, fertility control product approved by the EPA for the management of rodent populations.

We believe ContraPest is the first and only non-lethal, fertility control product approved by the EPA for the management of rodent

addition to the EPA registration of ContraPest in the United States, ContraPest must obtain registration from the various state

5 unchanged sentences

begins to generate sufficient revenue, regulatory approvals for additional jurisdictions beyond the United States.

cases, our EPA and state registrations require completion of testing and certifications even though we received approval for the

product or its labelling.

cases, our EPA and state registrations require completion of testing and certifications even though we have received approval

for the product or its labelling.

We continue to seek to comply with these requirements.

1 unchanged sentence

fertility control options for additional species.

TO CONDENSED FINANCIAL STATEMENTS

thousands, except share and per share data)

1 - Organization and Description of Business –

February 4, 2020, we amended our amended and restated certificate of incorporation to effect a 1-for-20 reverse split of our issued

5 unchanged sentences

financial statements have been retrospectively adjusted.

financial statements as of June 30, 2020 and 2019 have been prepared under the assumption that we will continue as a going concern.

Our independent registered public accounting firm included in its opinion for the years ended December 31, 2019 and 2018 an explanatory

paragraph referring to our net loss from operations and net capital deficiency and expressing substantial doubt in our ability

to continue as a going concern without additional capital becoming available.

If we encounter continued issues or delays in the

commercialization of ContraPest, our prior losses and expected future losses could have an adverse effect on our financial condition

and negatively impact our ability to fund continued operations, obtain additional financing in the future and continue as a going

There are no assurances that such financing, if necessary, will be available to us at all or will be available in sufficient

amounts or on reasonable terms.

Our financial statements do not include any adjustments that may result from the outcome of this

If we are unable to generate additional funds in the future through additional financings, sales of our products,

licensing fees, royalty payments or from other sources or transactions, we will exhaust our resources and will be unable to continue

TO CONDENSED FINANCIAL STATEMENTS

thousands, except share and per share data)

1 - Organization and Description of Business –

financial statements as of September 30, 2020 and 2019 have been prepared under the assumption that we will continue as a going

Our independent registered public accounting firm included in its opinion for the years ended December 31, 2019 and 2018

an explanatory paragraph referring to our net loss from operations and net capital deficiency and expressing substantial doubt

in our ability to continue as a going concern without additional capital becoming available.

If we encounter continued issues

or delays in the commercialization of ContraPest, our prior losses and expected future losses could have an adverse effect on

our financial condition and negatively impact our ability to fund continued operations, obtain additional financing in the future

and continue as a going concern.

There are no assurances that such financing, if necessary, will be available to us at all or

will be available in sufficient amounts or on reasonable terms.

Our financial statements do not include any adjustments that may

result from the outcome of this uncertainty.

If we are unable to generate additional funds in the future through additional financings,

sales of our products, licensing fees, royalty payments or from other sources or transactions, we will exhaust our resources and

will be unable to continue operations.

for Additional Capital

7 unchanged sentences

securities, including convertible preferred stock, common stock and warrants to purchase common stock.

See “Description

of Capital Stock”

elsewhere in this filing for a description of our public equity sales.

have also raised capital through debt financing, consisting primarily of convertible notes and government loan programs;

and, to a lesser extent,

payments received in connection with product sales, research grants and licensing fees.

June 30, 2020, we had received net proceeds of $73.2 million from our sales of common stock, preferred stock and warrant exercises

See Note 10 for a description

of our public equity sales.

have also raised capital through debt financing, consisting primarily of convertible notes and government loan programs, and,

to a lesser extent, payments received in connection with product sales, research grants and licensing fees.

September 30, 2020, we received net proceeds of $73.2 million from our sales of common stock, preferred stock and warrant exercises

and issuance of convertible and other promissory notes, an aggregate of $1.7 million from licensing fees and an aggregate of $0.8

million in net product sales.

As of June 30, 2020, we had an accumulated deficit of $100.0 million and cash and cash equivalents

As of September 30, 2020, we had an accumulated deficit of $102.2 million and cash and cash equivalents

of $2.7 million.

Our ultimate success depends upon the outcome of a combination

of factors, including:

(i) successful commercialization of ContraPest and maintaining and obtaining regulatory approvals of our

products and product candidates;

(ii) market acceptance, commercial viability and profitability of ContraPest and other products;

(iii) the ability to market our products and establish an effective sales force and marketing infrastructure to generate significant

ultimate success depends upon the outcome of a combination of factors, including:

(i) successful commercialization of ContraPest

and maintaining and obtaining regulatory approvals of our products and product candidates;

(ii) market acceptance, commercial

viability and profitability of ContraPest and other products;

(iii) the ability to market our products and establish an effective

sales force and marketing infrastructure to generate significant revenue;

(iv) the success of our research and development activities;

(v) our ability to retain and attract key personnel to develop,

operate and grow our business;

and (vi) our ability to meet our working capital needs.

(v) our ability to retain and attract key personnel to develop, operate and grow our business;

and (vi) our ability to meet our

working capital needs.

will need additional funding in order to continue to fund our operations, achieve profitability and become cash flow positive,

2 unchanged sentences

terms, we may need to delay, limit or terminate commercialization and development efforts or discontinue operations.

TO CONDENSED FINANCIAL STATEMENTS

thousands, except share and per share data)

1 - Organization and Description of Business –

of Presentation

8 unchanged sentences

opinion, the unaudited condensed financial statements include all material adjustments, all of which are of a normal and recurring

nature, necessary to present fairly the Company’s financial position as of June 30, 2020, the Company’s operating

results for the three and six months ended June 30, 2020 and 2019, and the Company’s cash flows for the six months ended

June 30, 2020 and 2019.

The accompanying financial information as of December 31, 2019 is derived from audited financial statements.

nature, necessary to present fairly the Company’s financial position as of September 30, 2020, the Company’s operating

results for the three and nine months ended September 30, 2020 and 2019, and the Company’s cash flows for the nine months

ended September 30, 2020 and 2019.

The accompanying financial information as of December 31, 2019 is derived from audited financial

Interim results are not necessarily indicative of results for a full year.

The information included in this Quarterly Report on

Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K, as amended by Form 10-K/A, for the

year ended December 31, 2019, filed with the SEC on March 17, 2020 and April 21, 2020, respectively.

All amounts shown in these

financial statements and accompanying notes are in thousands, except percentages and per share and share amounts.

The information included in this Quarterly

Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K, as amended by Form 10-K/A,

for the year ended December 31, 2019, filed with the SEC on March 17, 2020 and April 21, 2020, respectively.

All amounts shown

in these financial statements and accompanying notes are in thousands, except percentages and per share and share amounts.

TO CONDENSED FINANCIAL STATEMENTS

thousands, except share and per share data)

2 - Summary of Significant Accounting Policies

The preparation of financial statements in conformity with

GAAP requires management to make estimates and assumptions that affect the reported amounts and classification of assets

and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts

of revenues and expenses during the reporting period.

The significant estimates in the Company’s financial statements include

the valuation of preferred stock, if issued, common stock and related warrants, and other stock-based awards.

Actual results could

differ from such estimates.

preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect

the reported amounts and classification of assets and liabilities, disclosure of contingent assets and liabilities at the date

of the financial statements and reported amounts of revenues and expenses during the reporting period.

The significant estimates

in the Company’s financial statements include the valuation of preferred stock, if issued, common stock and related warrants,

and other stock-based awards.

Actual results could differ from such estimates.

Reclassifications

9 unchanged sentences

The allowance for doubtful

trade receivables was $123 at June 30, 2020 and December 31, 2019.

trade receivables was $123 at September 30, 2020 and December 31, 2019.

Receivable-Other

receivable-other at June 30, 2020 was $0.

Accounts receivable-other at December 31, 2019 consisted primarily of receivables related

to insurance reimbursements due the Company.

receivable-other at September 30, 2020 was $0.

Accounts receivable-other at December 31, 2019 of $123 consisted primarily of receivables

related to insurance reimbursements due the Company.

are stated at the lower of cost or market value, using the first-in, first-out convention.

2 unchanged sentences

Raw materials are stocked to reduce the risk of impact on manufacturing for potential supply

interruptions due to COVID-19 or long lead times on certain ingredients.

interruptions due to the COVID-19 pandemic or long lead times on certain ingredients.

of inventory are:

Raw materials

Work in progress

Finished goods

Total inventory

Reserve for obsolete

Total net inventory

September 30,

net inventory

expenses consist primarily of payments made for director and officer insurance, director compensation, rent, legal and inventory

purchase deposits and seminar fees to be expensed in the current year.

NOTES TO CONDENSED FINANCIAL STATEMENTS

1 unchanged sentence

2 - Summary of Significant Accounting Policies –

expenses consist primarily of payments made for director and officer insurance, director compensation, rent, legal and inventory

purchase deposits and seminar fees to be expensed in the current year.

and Equipment

16 unchanged sentences

The Company has not recorded an impairment of long-lived assets since its inception.

January 1, 2018, the Company adopted ASC 606 —

Revenue from Contracts with Customers (“ASC 606”) .

Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to

perform pilot studies by applying the following steps:

(1) identify the contract with a customer;

(2) identify the performance

obligations in the contract;

January 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) 606 —

Revenue from Contracts

with Customers (“ASC 606”) .

Under ASC 606, the Company recognizes revenue from the commercial sales of

products, licensing agreements and contracts to perform pilot studies by applying the following steps:

(1) identify the contract

with a customer;

(2) identify the performance obligations in the contract;

(3) determine the transaction price;

(4) allocate the transaction price to each performance obligation

in the contract;

and (5) recognize revenue when each performance obligation is satisfied.

(4) allocate the

transaction price to each performance obligation in the contract;

and (5) recognize revenue when each performance obligation is

Company recognizes revenue when product is shipped at a fixed selling price on payment terms of 30 to 120 days from invoicing.

8 unchanged sentences

scientific trials and field studies, regulatory compliance costs, and manufacturing costs associated with process improvement.

Also, included in research and development expenses is an allocation of facilities related costs, including depreciation of research

and development equipment.

Research and development expenses include an allocation of facilities related costs, including depreciation of research and development

based awards, consisting of restricted stock units and stock options expected to be settled in shares of the Company’s common

9 unchanged sentences

2 - Summary of Significant Accounting Policies –

stock-based compensation expense recorded for the three and six months ended June 30, 2020 and 2019, is as

Three Months Ended

Six Months Ended

Research and development

General and administrative

Total stock-based compensation expense

stock-based compensation expense recorded for the three and nine months ended September 30, 2020 and 2019, is as follows:

September 30,

and development

and administrative

stock-based compensation expense

Note 11 for additional discussion on stock-based compensation.

19 unchanged sentences

There are no uncertain

tax positions as of June 30, 2020 or December 31, 2019 and as such, no interest or penalties were recorded in income tax expense.

tax positions as of September 30, 2020 or December 31, 2019 and as such, no interest or penalties were recorded in income tax

Comprehensive

11 unchanged sentences

are considered to be potentially dilutive securities but have been excluded from the calculation of diluted loss per share attributable

to common stockholders because their effect would be anti-dilutive given the net loss reported for the three and six months ended

June 30, 2020 and 2019.

Therefore, basic and diluted loss per share attributable to common stockholders are the same for each

period presented.

to common stockholders because their effect would be anti-dilutive given the net loss reported for the three and nine months ended

September 30, 2020 and 2019.

Therefore, basic and diluted loss per share attributable to common stockholders are the same for

each period presented.

NOTES TO CONDENSED FINANCIAL STATEMENTS

3 unchanged sentences

loss per share attributable to common stockholders (in common stock equivalent shares):

Common stock purchase warrants

Restricted stock unit

Common stock options

stock purchase warrants

stock options

of New Accounting Standards :

8 unchanged sentences

Targeted Improvements , and as a result, has not restated

its condensed consolidated financial statements for prior periods presented.

The Company has elected the practical expedients

upon transition to retain the lease classification and initial direct costs for any leases that existed prior to adoption.

Company has also not reassessed whether any contracts entered into prior to adoption are leases.

The Company applied the new guidance

to all operating leases within the scope of the standard that were in effect on January 1, 2019, or entered into after, the adoption

Comparative information for prior periods has not been restated and continues to be reported under the accounting

standards in effect for those periods.

The adoption did not have a material impact on the Company’s consolidated

statement of comprehensive income (loss).

However, the new standard established $87 of liabilities and corresponding

right-of-use assets of $87 on the Company’s consolidated balance sheet for leases, primarily related to operating leases

on rented office properties, that existed as of the January 1, 2019, adoption date.

June 30, 2020, the balance in Right to Use Asset-Long Term and Lease Liability-Long Term was $573 and ($577) respectively and

at December 31, 2019, the balance in Right to Use Asset-Long Term and Lease Liability-Long Term was $699 and ($694) respectively.

its condensed financial statements for prior periods presented.

The Company has elected the practical expedients upon transition

to retain the lease classification and initial direct costs for any leases that existed prior to adoption.

The Company has also

not reassessed whether any contracts entered into prior to adoption are leases.

The Company applied the new guidance to all operating

leases within the scope of the standard that were in effect on January 1, 2019, or entered into after, the adoption date.

information for prior periods has not been restated and continues to be reported under the accounting standards in effect for

those periods.

The adoption did not have a material impact on the Company’s condensed statement of comprehensive

income (loss).

However, the new standard established $87 of liabilities and corresponding right-of-use assets of $87

on the Company’s condensed balance sheet for leases, primarily related to operating leases on rented office properties,

that existed as of the January 1, 2019, adoption date.

September 30, 2020, the balance in Right to Use Asset-Long Term and Lease Liability-Long Term was $726 and ($731) respectively

and at December 31, 2019, the balance in Right to Use Asset-Long Term and Lease Liability-Long Term was $699 and ($694) respectively.

Company’s leases primarily relate to operating leases of rented office properties.

11 unchanged sentences

liability represents the present value of the lease payments under the lease.

TO CONDENSED FINANCIAL STATEMENTS

thousands, except share and per share data)

2 - Summary of Significant Accounting Policies –

right-of-use lease asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus

9 unchanged sentences

reasonably certain that the Company will exercise that option.

TO CONDENSED FINANCIAL STATEMENTS

thousands, except share and per share data)

2 - Summary of Significant Accounting Policies –

borrowing rate –

6 unchanged sentences

12 months or less.

Company reports right-of-use lease assets within non-current assets in its consolidated balance sheet.

reports the lease liabilities within long-term liabilities in its consolidated balance sheet.

Company reports right-of-use lease assets within non-current assets in its condensed balance sheet.

The Company reports

the lease liabilities within long-term liabilities in its condensed balance sheet.

Note 12 - Commitments and Contingencies, for future minimum lease payments and maturities.

23 unchanged sentences

15, 2020, with early adoption permitted.

The Company is currently evaluating the impact of this standard on its consolidated financial

The Company is currently evaluating the impact of this standard on its condensed financial

statements and related disclosures.

than the items noted above, there have been no new accounting pronouncements not yet effective or adopted in the current year

that we believe have a significant impact, or potential significant impact, to our unaudited condensed consolidated interim financial

TO CONDENSED FINANCIAL STATEMENTS

thousands, except share and per share data)

that we believe have a significant impact, or potential significant impact, to our unaudited condensed interim financial statements.

3 - Fair Value Measurements

Company issued common stock warrants to purchase shares of common stock in June of 2015 (see Note 11 —

Stock-based Compensation

Company issued common stock warrants to purchase shares of common stock in June of 2015 (see Note 11 - Stock-based Compensation

for more details) that contain a cash settlement provision resulting in a common stock warrant liability that is revalued at the

13 unchanged sentences

for the inputs to valuation techniques is briefly summarized as follows:

TO CONDENSED FINANCIAL STATEMENTS

thousands, except share and per share data)

3 - Fair Value Measurements –

1 —Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

9 unchanged sentences

and liabilities measured at fair value are based on one or more of the following three valuation techniques:

Prices and other relevant information generated by market transactions involving identical or comparable assets

or liabilities.

Amount that would be required to replace the service capacity of an asset (replacement cost).

Techniques to convert future amounts to a single present amount based upon market expectations, including present

value techniques, option-pricing and excess earnings models.

Market approach:

Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

Cost approach:

that would be required to replace the service capacity of an asset (replacement cost).

Income approach:

Techniques to convert future amounts to a single present amount based upon market expectations, including present value techniques,

option-pricing and excess earnings models.

Company’s common stock warrant liabilities are classified as Level 3 because there is limited activity or less transparency

around the inputs to valuation.

TO CONDENSED FINANCIAL STATEMENTS

thousands, except share and per share data)

3 - Fair Value Measurements –

Measured at Fair Value on a Recurring Basis

1 unchanged sentence

level within the fair value hierarchy (in thousands):

June 30, 2020

Financial Liabilities:

Common stock warrant liability

December 31, 2019

Financial Assets:

Money market funds

Corporate fixed income debt securities

Financial Liabilities:

Common stock warrant liability

stock warrant liability

fixed income debt securities

stock warrant liability

TO CONDENSED FINANCIAL STATEMENTS

thousands, except share and per share data)

3 - Fair Value Measurements –

Instruments Not Carried at Fair Value

7 unchanged sentences

is limited due to the number of companies comprising the Company’s customer base, however the Company did identify a potentially

uncollectable account and at June 30, 2020 and December 31, 2019 maintained a reserve for this receivable balance of $123.

Company does not require collateral or other securities to support its accounts receivable.

TO CONDENSED FINANCIAL STATEMENTS

thousands, except share and per share data)

uncollectable account and at September 30, 2020 and December 31, 2019 maintained a reserve for this receivable balance of $123.

The Company does not require collateral or other securities to support its accounts receivable.

5 - Prepaid Expenses

expenses consist of the following:

Director compensation

Director, officer and other insurance

Legal retainer

Marketing programs and conferences

Professional services retainer

Equipment service deposits

Engineering, software licenses and other

Total prepaid expenses

officer and other insurance

programs and conferences

services retainer

service deposits

software licenses and other

prepaid expenses

6 - Property and Equipment

and equipment, net consist of the following:

Research and development equipment

Office and computer equipment

Furniture and fixtures

Leasehold improvements

Less accumulated depreciation and amortization

of lease term or estimated useful life

the three and six months ended June 30, 2020, the Company received net proceeds of $4 and $40 in the sale of research and development

equipment and office and computer equipment, respectively, resulting in gains on the sale of these assets of $3 and $18 for the

three and six months ended June 30, 2020, respectively.

and amortization expense was approximately $71 and $102 for the three months ended June 30, 2020 and 2019, respectively, and $148

and $213 for the six months ended June 30, 2020 and 2019, respectively.

and development equipment

and computer equipment (1)

accumulated depreciation and amortization

Shorter of lease

term or estimated useful life

In the three and

nine months ended September 30, 2020, the Company received net proceeds of $0 and $44 in the sale of research and development

equipment and office and computer equipment, respectively, resulting in gains on the sale of these assets of $0 and $18 for

the three and nine months ended September 30, 2020, respectively.

and amortization expense was approximately $71 and $101 for the three months ended September 30, 2020 and 2019, respectively,

and $219 and $314 for the nine months ended September 30, 2020 and 2019, respectively.

TO CONDENSED FINANCIAL STATEMENTS

thousands, except share and per share data)

7 - Accrued Expenses

expenses consist of the following:

Compensation and related benefits

September 30,

Compensation and related

Accrued Litigation

2 unchanged sentences

Total accrued expenses

TO CONDENSED FINANCIAL STATEMENTS

thousands, except share and per share data)

8 - Borrowings

summary of the Company’s borrowings, including finance lease obligations, is as follows:

September 30,

portion of long-term debt

short-term debt

lease obligations

promissory notes

current portion of long-term debt

Total short-term debt

long-term debt

Finance lease obligations

Other promissory notes

current portion of long-term debt

Total long-term debt

Lease Obligations

lease obligations at June 30, 2020 are for computer and lab equipment leased through GreatAmerica Financial Services and ENGS

Commercial Finance Co.

lease obligations at September 30, 2020 are for computer and lab equipment leased through GreatAmerica Financial Services and

ENGS Commercial Finance Co.

These finance leases expire at various dates through April 2022 and carry interest rates ranging from

11.4% to 18.3%.

Promissory Notes

14 unchanged sentences

No assurance is provided that the Company will obtain forgiveness of the loan in whole or in part.

the event the PPP loan is not forgiven in whole or in part, repayments begin six months from the date of funding.

to amendments to the CARES Act, as long as the Company submits its application for loan forgiveness within ten months after the

expiration of the applicable covered period, the Company will not be required to make any payments until the forgiveness amount

is remitted to the lender by the SBA.

In the event the PPP loan is not forgiven in whole or in part, the lender is responsible

for notifying the Company of the date on which the Company’s first repayment is due.

TO CONDENSED FINANCIAL STATEMENTS

1 unchanged sentence

9 - Common Stock Warrants and Common Stock Warrant Liability

table summarizes the common stock warrant activity as of June 30, 2020 as follows:

2016 and prior

Various-2020/2021

November 21, 2017

Common Stock Offering Warrants

November 21, 2022

November 21, 2017

Dealer Manager Warrants

November 21, 2022

June 20, 2018

Warrant Reissue

December 20, 2023

August 13, 2018

Rights Offering Warrants

July 25, 2023

August 13, 2018

Dealer Manager Warrants

August 13, 2023

July 16, 2019

Dealer Manager Warrants

July 11, 2024

January 28, 2020

Registered Direct Offering

July 28, 2025

January 28, 2020

Dealer Manager Warrants

July 28, 2025

March 6, 2020

Registered Direct Offering

table summarizes the common stock warrant activity as of September 30, 2020 as follows:

September 30,

March 6, 2020

Dealer Manager Warrants

March 4, 2025

April 21, 2020

Dealer Manager Warrants

April 21, 2025

April 24, 2020

Registered Direct Offering

April 24, 2025

to antidilution price adjustment protection contained within these warrants, the initial exercise price of these warrants was

$30.00 per share, which adjusted downward to $29.40 on July 24, 2018, the record date of the Right’s Offering, downward

to $19.00 per share on August 13, 2018, the date of the Rights Offering, downward to $7.13 per share on January 28, 2020, the

date of a Registered Direct Offering and downward to $2.1122 per share on March 6, 2020, the date of a Registered Direct Offering.

Various-2020/2021

Stock Offering Warrants

Manager Warrants

Offering Warrants

Manager Warrants

Direct Offering

Manager Warrants

Direct Offering

Manager Warrants

Direct Offering

Pursuant to antidilution

price adjustment protection contained within these warrants, the initial exercise price of these warrants was $30.00 per share,

which adjusted downward to $29.40 on July 24, 2018, the record date of the Rights Offering, downward to $19.00 per share on

August 13, 2018, the date of the Rights Offering, downward to $7.13 per share on January 28, 2020, the date of a Registered

Direct Offering and downward to $2.1122 per share on March 6, 2020, the date of a Registered Direct Offering.

TO CONDENSED FINANCIAL STATEMENTS

1 unchanged sentence

9 - Common Stock Warrants and Common Stock Warrant Liability –

of June 30, 2020, we had 2,504,597 shares of common stock issuable upon exercise of outstanding common stock warrants, at a weighted-average

exercise price of $6.18 per share.

of September 30, 2020, we had 2,504,597 shares of common stock issuable upon exercise of outstanding common stock warrants, at

a weighted-average exercise price of $6.18 per share.

November 21, 2017, the Company issued a total of 232,875 detachable common stock warrants issued with the second public offering

31 unchanged sentences

dividend yield of 0% and risk-free interest rate of 0.68%.

TO CONDENSED FINANCIAL STATEMENTS

thousands, except share and per share data)

9 - Common Stock Warrants and Common Stock Warrant Liability –

June 20, 2018, the Company entered into an agreement with a holder of 56,696 of the November 2017 warrants to exercise its original

30 unchanged sentences

risk-free interest rate of 2.77%.

TO CONDENSED FINANCIAL STATEMENTS

thousands, except share and per share data)

9 - Common Stock Warrants and Common Stock Warrant Liability –

Stock Warrant Issued to Underwriter of Common Stock Offering

36 unchanged sentences

filed on January 28, 2020, and our Form 8-K filed on March 6, 2020.

TO CONDENSED FINANCIAL STATEMENTS

thousands, except share and per share data)

9 - Common Stock Warrants and Common Stock Warrant Liability –

The warrants issued in January 2020 to purchase 177,500 shares

of common stock have an exercise price of $9.00 per share, are exercisable after July 28, 2020 and will expire July 28, 2025.

The Company estimated the fair value of the common stock warrants, exercisable at $9.00 per share, to be $813 using a Black Scholes

model based on the following significant inputs:

warrants issued in January 2020 to purchase 177,500 shares of common stock have an exercise price of $9.00 per share, are exercisable

after July 28, 2020 and will expire July 28, 2025.

The Company estimated the fair value of the common stock warrants, exercisable

at $9.00 per share, to be $813 using a Black Scholes model based on the following significant inputs:

common stock price of $7.90;

comparable company volatility of 73.8%;

term 5 years;

remaining term 5 years;

dividend yield of 0% and risk-free interest rate of 1.53%.

The warrants issued in March 2020 to purchase 176,372 shares

of common stock have an exercise price of $2.88 per share, are immediately exercisable and will expire September 8, 2025.

estimated the fair value of the common stock warrants, exercisable at $2.88 per share, to be $242 using a Black Scholes model based

on the following significant inputs:

warrants issued in March 2020 to purchase 176,372 shares of common stock have an exercise price of $2.88 per share, are immediately

exercisable and will expire September 8, 2025.

The Company estimated the fair value of the common stock warrants, exercisable

at $2.88 per share, to be $242 using a Black Scholes model based on the following significant inputs:

common stock price of $2.35;

9 unchanged sentences

upon the issuance of any shares of capital stock by reclassification of shares of the common stock.

TO CONDENSED FINANCIAL STATEMENTS

thousands, except share and per share data)

9 - Common Stock Warrants and Common Stock Warrant Liability –

the event that the Company declares or makes any dividend or other distribution of its assets to holders of its common stock,

42 unchanged sentences

an amount in cash equal to the fractional amount multiplied by the exercise price or round up to the next whole share.

TO CONDENSED FINANCIAL STATEMENTS

thousands, except share and per share data)

9 - Common Stock Warrants and Common Stock Warrant Liability –

as otherwise provided in the 2020 Warrants or by virtue of such holder’s ownership of shares of our common stock, the holders

7 unchanged sentences

expire April 24, 2025.

TO CONDENSED FINANCIAL STATEMENTS

thousands, except share and per share data)

9 - Common Stock Warrants and Common Stock Warrant Liability –

Common Stock, Pre-Funded Warrants and Warrants sold in this Public Offering were offered and sold pursuant to a registration statement

5 unchanged sentences

2 to the Registration Statement was declared effective by the SEC on April 21, 2020.

The Company estimated the fair value of the common stock warrants,

exercisable at $3.05 per share, to be $2,402 using a Black Scholes model based on the following significant inputs:

price of $2.40;

Company estimated the fair value of the common stock warrants, exercisable at $3.05 per share, to be $2,402 using a Black Scholes

model based on the following significant inputs:

common stock price of $2.40;

comparable company volatility of 87.9%;

remaining term 5 years;

dividend yield of 0% and risk-free interest rate

term 5 years;

dividend yield of 0% and risk-free interest rate of 0.18%.

Stock Warrants Issued to Placement Agent in 2020 Registered Direct Offerings and Private Placement

8 unchanged sentences

has an exercise price of $3.7563 per share.

The Company estimated the fair value of the common stock warrants

issued in January, with an exercise price of $10.00 per share, to be $58 using a Black Scholes model based on the following significant

Company estimated the fair value of the common stock warrants issued in January, with an exercise price of $10.00 per share, to

be $58 using a Black Scholes model based on the following significant inputs:

common stock price of $7.90;

comparable company volatility of 73.8%;

comparable company

volatility of 73.8%;

remaining term 5 years;

dividend yield of 0% and risk-free

interest rate of 1.53%.

The Company estimated the fair value of the common stock warrants

issued in March, with an exercise price of $3.7563 per share, to be $17 using a Black Scholes model based on the following significant

dividend yield of 0% and risk-free interest rate of 1.53%.

Company estimated the fair value of the common stock warrants issued in March, with an exercise price of $3.7563 per share, to

be $17 using a Black Scholes model based on the following significant inputs:

common stock price of $2.35;

comparable company volatility of 74.8%;

comparable company

volatility of 74.8%;

remaining term 5.5 years;

dividend yield of 0% and

risk-free interest rate of 0.39%.

dividend yield of 0% and risk-free interest rate of 0.39%.

connection with the public offering of 145,586 Class A Units and 1,428,722 Class B Units on April 24, 2020, the Company issued

47 unchanged sentences

value, and 10 million shares of preferred stock, $.001 par value.

Company had 3,398,832 and 1,414,671 shares of common stock issued and outstanding as of June 30, 2020 and December 31, 2019, respectively.

the six months ended June 30, 2020, the Company issued 1,984,161 shares of common stock as follows:

aggregate of 177,500 shares in connection with a registered direct offering generating net proceeds to the Company in January

2020 of approximately $1,200, as further described below;

aggregate of 176,372 shares in connection with a registered direct offering generating net proceeds to the Company in March 2020

of approximately $500, as further described below;

aggregate of 1,574,308 shares in connection with a public offering and exercise of pre-funded warrants issued in connection with

said public offering, generating net proceeds to the Company in April 2020 of approximately $4,334, as further described below;

aggregate of 51,414 shares for the exercise of outstanding warrants in settlement of an outstanding litigation reserve of $238

(see Note 9 —

Company had 3,398,832 and 1,414,671 shares of common stock issued and outstanding as of September 30, 2020 and December 31, 2019,

respectively.

the nine months ended September 30, 2020, the Company issued 1,984,161 shares of common stock as follows:

an aggregate of

177,500 shares in connection with a registered direct offering generating net proceeds to the Company in January 2020 of approximately

$973, as further described below;

an aggregate of

176,372 shares in connection with a registered direct offering generating net proceeds to the Company in March 2020 of approximately

$462, as further described below;

an aggregate of

1,574,308 shares in connection with a public offering and exercise of pre-funded warrants issued in connection with said public

offering, generating net proceeds to the Company in April 2020 of approximately $4,306, as further described below;

an aggregate of

51,414 shares for the exercise of outstanding warrants in settlement of an outstanding litigation reserve of $238 (see Note

9 - Common Stock Warrants and Common Stock Warrant Liability for further details);

aggregate of 4,543 shares for service as a result of the vesting of restricted stock units;

aggregate of 24 shares for true up of shares as a result of the 1-for-20 reverse stock split effected in February 2020.

an aggregate of

4,543 shares for service as a result of the vesting of restricted stock units;

an aggregate of

24 shares for true up of shares as a result of the 1-for-20 reverse stock split effected in February 2020.

Offerings and Registered Direct Offerings

7 unchanged sentences

certain fees due to the placement agent and other estimated transaction expenses.

TO CONDENSED FINANCIAL STATEMENTS

thousands, except share and per share data)

10 - Stockholders’

Deficit –

in connection with the public offering noted above, the Company issued warrants to purchase 1,574,308 shares of common stock to

3 unchanged sentences

March 6, 2020, the Company closed a registered direct offering of an aggregate of 176,372 shares of our common Stock at a purchase

price of $3.005 per share for aggregate net proceeds of approximately $500, before deducting fees payable to the placement agent

and other estimated offering expenses payable by us.

price of $3.005 per share for aggregate net proceeds of approximately $462, after deducting certain fees due to the placement

agent and other estimated transaction expenses.

In addition, we also issued warrants exercisable for an aggregate of up to 176,372

shares of our common stock with an exercise price of $2.88 per share.

In addition, in connection with the offering, we

issued the placement agent five-year warrants to purchase up to 13,228 shares of our common Stock at an exercise price of $3.7563

In addition, in connection with the offering, we issued

the placement agent five-year warrants to purchase up to 13,228 shares of our common Stock at an exercise price of $3.7563 per

January 28, 2020, the Company closed a registered direct offering of an aggregate of 177,500 shares of our common stock at a purchase

price of $8.00 per share for aggregate net proceeds of approximately $1,200, before deducting fees payable to the placement agent

and other estimated offering expenses payable by us.

In addition, in a concurrent private placement, we also issued and sold warrants

exercisable for an aggregate of up to 177,500 shares of our common stock with an exercise price of $9.00 per share.

In connection

with the offering, we issued the placement agent five-year warrants to purchase up to 13,312 shares of our common stock at an

exercise price of $10.00 per share.

TO CONDENSED FINANCIAL STATEMENTS

thousands, except share and per share data)

price of $8.00 per share for aggregate net proceeds of approximately $973, after deducting certain fees due to the placement agent

and other estimated transaction expenses.

In addition, in a concurrent private placement, we also issued and sold warrants exercisable

for an aggregate of up to 177,500 shares of our common stock with an exercise price of $9.00 per share.

In connection with the

offering, we issued the placement agent five-year warrants to purchase up to 13,312 shares of our common stock at an exercise

price of $10.00 per share.

11 - Stock-based Compensation

1 unchanged sentence

the Company’s 2015 Equity Incentive Plan (the “2015 Plan”).

As of June 30, 2020, the 2018 Plan authorizes the

issuance of 50,000 shares of our common stock.

In addition, up to 122,279 shares of our common stock reserved for issuance under

the 2015 Plan became available for issuance under the 2018 Plan to the extent such shares were available for issuance under the

2015 Plan as of June 12, 2018 or cease to be subject to awards outstanding under the 2015 Plan, such as by expiration, cancellation,

As of September 30, 2020, the 2018 Plan authorizes

the issuance of 50,000 shares of our common stock.

In addition, up to 122,279 shares of our common stock reserved for issuance

under the 2015 Plan became available for issuance under the 2018 Plan to the extent such shares were available for issuance under

the 2015 Plan as of June 12, 2018 or cease to be subject to awards outstanding under the 2015 Plan, such as by expiration, cancellation,

or forfeiture of such awards.

6 unchanged sentences

provide for accelerated vesting upon a change in control.

of June 30, 2020, the Company had 6,757 shares of common stock available for issuance under the 2018 Plan.

Subsequently, on July

8, 2020, the Company’s stockholders approved an amendment to the 2018 Plan to increase the number of shares of common stock

available for issuance under the 2018 Plan by 800,000 shares.

of September 30, 2020, the Company had 500,813 shares of common stock available for issuance under the 2018 Plan.

On July 8, 2020,

the Company’s stockholders approved an amendment to the 2018 Plan to increase the number of shares of common stock available

for issuance under the 2018 Plan by 800,000 shares.

Company measures the fair value of stock options with service-based and performance-based vesting criteria to employees, directors

4 unchanged sentences

yield for the Company’s stock.

TO CONDENSED FINANCIAL STATEMENTS

thousands, except share and per share data)

11 - Stock-based Compensation –

weighted-average assumptions used in the Black-Scholes option-pricing model used to calculate the fair value of options granted

during the six months ended June 30, 2020 were as follows:

during the nine months ended September 30, 2020 were as follows:

Expected volatility

2 unchanged sentences

Risk-free interest rate

weighted average grant date fair value of options granted during the six months ended June 30, 2020 was $1.65 per share, as per

the table below.

TO CONDENSED FINANCIAL STATEMENTS

thousands, except share and per share data)

11 - Stock-based Compensation –

weighted average grant date fair value of options granted during the nine months ended September 30, 2020 was $1.94 per share,

as per the table below.

to the Company’s limited operating history and lack of company-specific historical or implied volatility, the expected volatility

14 unchanged sentences

following table summarizes the stock option activity, for both equity plans, for the periods indicated as follows:

Outstanding at December 31, 2019

Outstanding at June 30, 2020

Exercisable at June 30, 2020

aggregate intrinsic value in the table was calculated based on the difference between the estimated fair market value of the

Company’s stock and the exercise price of the underlying options.

The estimated stock values used in the calculation

were $2.00 and $11.00 per share for the six months ended June 30, 2020 and the year ended December 31, 2019, respectively.

following table summarizes restricted stock unit activity for the six months ended June 30, 2020:

Weighted Average

at December 31, 2019

at September 30, 2020

The aggregate intrinsic

value in the table was calculated based on the difference between the estimated fair market value of the Company’s stock

and the exercise price of the underlying options.

The estimated stock values used in the calculation were $1.88 and $11.00

per share for the nine months ended September 30, 2020 and the year ended December 31, 2019, respectively.

following table summarizes restricted stock unit activity for the nine months ended September 30, 2020:

Grant-Date Fair

Value Per Unit

Outstanding as of December 31, 2019

Outstanding as of June 30, 2020

as of December 31, 2019

as of September 30, 2020

TO CONDENSED FINANCIAL STATEMENTS

2 unchanged sentences

stock-based compensation expense was recorded as follows:

Three Months Ended

Six Months Ended

Research and development

General and administrative

Total stock-based compensation expense

September 30,

and development

and administrative

stock-based compensation expense

allocation between research and development and selling, general and administrative expense was based on the department and services

performed by the employee or non-employee.

June 30, 2020, the total compensation cost related to restricted stock units and unvested options not yet recognized was $719,

September 30, 2020, the total compensation cost related to restricted stock units and unvested options not yet recognized was

$979, which will be recognized over a weighted average period of 34 months, assuming the employees and non-employee s complete

6 unchanged sentences

Company is obligated under finance leases for certain research and computer equipment that expire on various dates through April

At June 30, 2020, the gross amount of office and computer equipment, and research equipment and the related accumulated

amortization recorded under the finance leases was $478 and $313, respectively.

February 2012, the Company entered into an operating lease for its then corporate headquarters in Flagstaff, Arizona.

was originally due to expire in January 2015.

In December 2013, the Company amended its lease to expand into the remaining area

in the building and extended the term to December 31, 2019.

In February 2014, the Company further amended the lease to expand

into an adjacent building.

The lease requires escalating rental payments over the lease term.

Minimum rental payments under the

operating lease are recognized on a straight-line basis over the term of the lease and accordingly, the Company records the difference

between the cash rent payments and the recognition of rent expense as a deferred rent liability.

The lease is guaranteed by the

former President of the Company.

In December 2019, we extended the current lease for only our manufacturing facilities located

in Flagstaff, Arizona, occupying a total of 7,632 square feet of space.

The lease for our manufacturing facilities expires in

December 2020.

The Company has been seeking alternate manufacturing and warehousing

space in anticipation of the December 2020 Flagstaff, Arizona lease expiration and, on June 22, 2020, the Company entered into

a lease in Phoenix, Arizona for approximately 5,103 square feet of office/warehouse space.

The lease will commence on August 1,

At September 30, 2020, the gross amount of office, computer and research equipment, and the related accumulated amortization

recorded under the finance leases was $478 and $334, respectively.

February 2012, the Company entered into an operating lease for its then corporate headquarters in Flagstaff, Arizona with an expiration

in January 2015.

In December 2013 and February 2014, the Company amended its lease to extend the term to December 31, 2019 and

expand into the remaining area in the building and an adjacent building.

In December 2019, we extended the current lease for only

our manufacturing facilities located in Flagstaff, Arizona, occupying a total of 7,632 square feet of space, with an expiration

in December 2020.

The lease is guaranteed by the former President of the Company.

anticipation of the December 2020 Flagstaff, Arizona lease expiration, on June 22, 2020, the Company entered into an operating

lease for approximately 5,103 square feet of warehouse/manufacturing space in Phoenix, Arizona.

The lease commenced on August

1, 2020 and expires on November 30, 2024.

TO CONDENSED FINANCIAL STATEMENTS

thousands, except share and per share data)

12 - Commitments and Contingencies –

The lease required escalating rental payments over the lease term and minimum rental

payments under the operating lease are being recognized on a straight-line basis over the term of the lease.

Under guidance promulgated

under ASU No.

2016-02, Leases the Company recorded a right-of-use lease asset and a lease liability on its balance

sheet in the amount of $209.

December 1, 2019, we entered into a lease for our corporate headquarters in Phoenix, Arizona where we lease and occupy approximately

1 unchanged sentence

This lease expires in November 2024.

We believe that our existing facilities are adequate and meet

our current needs for business, manufacturing and research.

expense was $132 and $127 for the six months ended June 30, 2020 and 2019, respectively.

The future minimum lease payments under

non-cancellable operating lease and future minimum finance lease payments as of June 30, 2020 are follows:

TO CONDENSED FINANCIAL STATEMENTS

thousands, except share and per share data)

12 - Commitments and Contingencies –

believe that our existing facilities are adequate and meet our current needs for business, manufacturing and research.

expense was $202 and $187 for the nine months ended September 30, 2020 and 2019, respectively.

The future minimum lease payments

under non-cancellable operating lease and future minimum finance lease payments as of September 30, 2020 are follows:

Years Ending December 31,

1 unchanged sentence

amounts representing interest (ranging from 11.43% to 18.32%)

Present value of minimum lease payments

value of minimum lease payments

current installments under finance lease obligations

Total long-term portion

long-term portion

13 - Subsequent Events

Warrant Inducement

October 23, 2020, the Company entered into an inducement letter agreement (the “Letter Agreement”) with an existing

accredited investor to exercise certain outstanding warrants to purchase up to an aggregate of 1,700,680 shares of the Company’s

common stock at a reduced exercise price per share of $1.725 (the “Original Warrants”) for aggregate net proceeds

of approximately $2.93 million, before deducting fees payable to the placement agent and other estimated offering expenses payable

by the Company.

In consideration for the immediate exercise of the Original Warrants for cash, the Company issued a new unregistered

warrant to the exercising Holder to purchase up to an aggregate of 1,700,680 shares of common stock at an exercise price of $1.725

Through November 11, 2020, 700,680 of the exercised warrants had been converted to shares.

The remaining 1,000,000

shares will be issued as requested.

In addition, in connection with the offering, the Company issued the placement agent five-and-a-half year warrants

to purchase up to 85,034 shares of the Company’s common stock at an exercise price of $2.156 per share.

Also in connection

with the offering, the exercise price of the Company’s outstanding detachable common stock warrants, originally issued November

21, 2017, was adjusted downward to $1.3659 per share.

travel and other restrictions that began in March 2020 in response to the COVID-19 global pandemic have resulted in a significant

5 unchanged sentences

other social distancing initiatives continue to severely limit our ability to communicate with current and potential commercial

COVID-19 is also placing a significant burden on federal, state and local governments, which may impede or delay our

ability to sell our products to them.

To facilitate the relocation of manufacturing and warehousing

operations from Flagstaff, Arizona to Phoenix, Arizona, on June 22, 2020, the Company entered into a lease in Phoenix, Arizona

for approximately 5,103 square feet of office/warehouse space.

The lease will commence on August 1, 2020 and expires on November

30, 2024 with an initial base rent of $4 per month and operating expenses of $1 per month.

The COVID-19 pandemic is also placing a significant budgetary burden on federal, state and local governments, which

may impede or delay their ability to purchase our products.

Management’s

7 unchanged sentences

following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction

with our condensed consolidated financial statements and related notes.

with our condensed financial statements and related notes.

Forward-Looking

statements and information contained in this Management’s Discussion and Analysis of Financial Condition and Results of

Operations, notes to our condensed consolidated financial statements and elsewhere in this report are not historical facts but

are forward- looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities

Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

In some cases,

readers can identify forward- looking statements by terms such as “may,”

Operations, notes to our condensed financial statements and elsewhere in this report are not historical facts but are forward-

looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”),

and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

In some cases, readers can

identify forward- looking statements by terms such as “may,”

“will,”

10 unchanged sentences

“continue,”

or the negative of these

terms or other comparable terminology, which when used are meant to signify the statement as forward-looking.

These forward-looking

statements include, but are not limited to:

impacts and implications of the COVID-19 pandemic;

commercialization and promotion strategy and plans, including key elements to our business strategy, how we commercialize,

our sales approach, our hiring and retention strategy;

our areas and markets of focus, our pricing strategy, our strategic

relationships and which geographic markets we target;

seeking, obtaining or maintaining regulatory approvals for our product candidates;

expectations regarding the potential market size for our products and how the market may develop;

estimates or expectations related to our revenue, cash flow, expenses, capital requirements and need for additional

ability, and the time require, to improve our cost structure and gross margins, and limit our cash burn;

plans for our business, including for research and development;

ability to enter into strategic arrangements and to achieve the expected results from such arrangements;

initiation, timing, progress and results of field studies and other studies and trials and our research and development

financial performance, including our ability to fund operations;

and projections relating to our projects, competitors and our industry;

risks and uncertainties, including those described or incorporated by reference under the caption “Risk Factors”

in our 2019 Annual Report.

or the negative of these terms or other comparable terminology,

which when used are meant to signify the statement as forward-looking.

These forward-looking statements include, but are not limited

The impacts and

implications of the COVID-19 pandemic;

Our commercialization

and promotion strategy and plans, including key elements to our business strategy, how we commercialize, our sales approach,

our hiring and retention strategy;

our areas and markets of focus, our pricing strategy, our strategic relationships and which

geographic markets we target;

Our seeking, obtaining

or maintaining regulatory approvals for our product candidates;

Our expectations

regarding the potential market size for our products and how the market may develop;

Our estimates or

expectations related to our revenue, cash flow, expenses, capital requirements and need for additional financing;

Our ability, and

the time required, to improve our cost structure and gross margins, and limit our cash burn;

Our plans for our business, including for research

and development;

Our ability to enter

into strategic arrangements and to achieve the expected results from such arrangements;

The initiation,

timing, progress and results of field studies and other studies and trials and our research and development programs;

Our financial performance, including our ability

to fund operations;

Developments and

projections relating to our projects, competitors and our industry.

forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and situations

that are difficult to predict and that may cause our own, or our industry’s actual results, to be materially different

from the future results that are expressed or implied by these statements.

Accordingly, actual results may differ materially from

those anticipated or expressed in such statements as a result of a variety of factors, including those discussed in Item 1A of

Part II of our Annual Report on Form 10-K, as amended by Form 10-K/A, for the year ended December 31, 2019, filed with the SEC

on March 17, 2020 and April 21, 2020, respectively, (collectively, the “2019 Annual Report”), and Item 1A of Part

II of this Form 10-Q, in each case entitled “Risk Factors,”

and those contained from time to time in our other filings

with the Securities and Exchange Commission.

Readers are cautioned not to place undue reliance on the forward-looking statements,

which speak only as of the date made.

that are difficult to predict and that may cause our own, or our industry’s, actual results to be materially different from

the future results that are expressed or implied by these statements.

Accordingly, actual results may differ materially from those

anticipated or expressed in such statements as a result of a variety of factors, including those discussed in Item 1A of Part

II of our Annual Report on Form 10-K, as amended by Form 10-K/A, for the year ended December 31, 2019, filed with the SEC on March

17, 2020 and April 21, 2020, respectively, (collectively, the “2019 Annual Report”), and Item 1A of Part II of this

Form 10-Q, in each case entitled “Risk Factors,”

and those contained from time to time in our other filings with the

Securities and Exchange Commission.

Readers are cautioned not to place undue reliance on the forward-looking statements, which

speak only as of the date made.

Except as required by law, we undertake no obligation to update any forward-looking statement,

11 unchanged sentences

received in connection with product sales, research grants and licensing fees.

June 30, 2020, we had received net proceeds of $73.2 million from our sales of common stock, preferred stock and warrant exercises

and issuance of convertible and other promissory notes, an aggregate of $1.7 million from licensing fees and an aggregate of $0.7

million in net product sales.

At June 30, 2020, we had an accumulated deficit of $100.0 million and cash and cash equivalents

of $4.7 million.

September 30, 2020, we had received net proceeds of $73.2 million from our sales of common stock, preferred stock and warrant

exercises and issuance of convertible and other promissory notes, an aggregate of $1.7 million from licensing fees and an aggregate

of $0.8 million in net product sales.

At September 30, 2020, we had an accumulated deficit of $102.2 million and cash and cash

equivalents of $2.7 million.

have incurred significant operating losses every year since our inception.

Our net losses were $1.9 million and $6.3 million for

the three months and six months ended June 30, 2020, respectively, and $2.3 million and $4.7 million for the three months and

six months ended June 30, 2019, respectively.

We expect to continue to incur significant expenses and generate operating losses

for at least the next 12 months.

the three months and nine months ended September 30, 2020, respectively, and $2.6 million and $7.2 million for the three months

and nine months ended September 30, 2019, respectively.

We expect to continue to incur significant expenses and generate operating

losses for at least the next 12 months.

have historically utilized, and intend to continue to utilize, various forms of stock-based awards in order to hire, retain and

7 unchanged sentences

Specifically, our stock-based compensation expense was $162,000 and $453,000 for the three

and six months ended June 30, 2020, which represented 8.5% and 7.3%, respectively, of our total operating expenses for those periods

and $219,000 and $471,000 for the three and six months ended June 30, 2019, respectively, which represented 9.5% and 10.1%, respectively,

of our total operating expenses for those periods.

and nine months ended September 30, 2020, which represented 8.3% and 7.6%, respectively, of our total operating expenses for those

periods and $204,000 and $675,000 for the three and nine months ended September 30, 2019, respectively, which represented 7.8%

and 9.3%, respectively, of our total operating expenses for those periods.

will need additional funding in order to continue to fund our operations and achieve profitability and become cash flow positive

2 unchanged sentences

terms, we may need to delay, limit or terminate commercialization and development efforts or discontinue operations.

the effects of the COVID-19 pandemic did not have a significant impact on revenue during the three and six months ended June 30,

the effects of the COVID-19 pandemic did not have a significant impact on revenue during the three and nine months ended September

30, 2020, the travel and other restrictions that started in March resulted in a significant slowdown in our proof of concept field

6 unchanged sentences

necessity and we were and have been able to maintain our manufacturing with cautionary, best practices put in place.

we have concerns over distributor, pest control operator and individual consumer spending as restrictive measures related to the

pandemic continue.

Stay at home orders across the world have impeded our ability to communicate with current and prospective customers,

potentially reducing sales until the orders are lifted.

In addition, federal, state and municipal budgets are under severe strain

as a result of the pandemic.

we have concerns about distributor, pest control operator and individual consumer spending as restrictive measures related to

the pandemic continue.

Stay at home orders across the world have impeded our ability to communicate with current and prospective

customers, potentially reducing sales until the orders are lifted.

In addition, federal, state and municipal budgets are under

severe strain as a result of the pandemic.

This may delay or impede their ability to make near term purchases of our products.

While we have

stocked certain long lead time inventory raw material ingredients, any prolonged impact on the suppliers we rely on for the purchase

of these items by the COVID-19 pandemic could impact future manufacturing operations.

While we have stocked certain long lead time inventory raw material ingredients, any prolonged impact on the suppliers we rely

on for the purchase of these items by the COVID-19 pandemic could impact future manufacturing operations.

of our Results of Operations

4 unchanged sentences

our other product candidates, which costs include:

related expenses, including salaries, related benefits, travel and stock-based compensation expense for employees engaged

in research and development functions;

incurred in connection with the development of our product candidates;

depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance

and supplies.

Employee related

expenses, including salaries, related benefits, travel and stock-based compensation expense for employees engaged in research

and development functions;

Expenses incurred

in connection with the development of our product candidates;

Facilities, depreciation

and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and supplies.

expense research and development costs as incurred.

35 unchanged sentences

to realize a benefit from these tax attributes.

At June 30, 2020, the Company has federal and state net operating loss carryforwards

At September 30, 2020, the Company has federal and state net operating loss carryforwards

of approximately $61.3 million and $50.0 million, respectively, not considering any potential IRC Section 382 annual limitation

17 unchanged sentences

the Company’s net operating losses could be limited.

of the Three and Six Months Ended June 30, 2020 and 2019

following table summarizes our results of operations for the three and six months ended June 30, 2020 and 2019:

of the Three and Nine Months Ended September 30, 2020 and 2019

following table summarizes our results of operations for the three and nine months ended September 30, 2020 and 2019:

For the Three Months

For the Six Months

Ended June 30,

Cost of sales

For the Nine Months

and development

general and administrative

operating expenses

Research and development

Selling, general and administrative

Total operating expenses

Net operating loss

Other income (expense):

Interest income

Interest expense

operating loss

income (expense):

income (expense)

other income (expense)

Total other income (expense)

Net loss and comprehensive loss

Deemed dividend-warrant price protection-revaluation adjustment

Net loss attributable to common shareholders

Weighted average common shares outstanding - basic and fully diluted

Net loss per common share - basic and fully diluted

Months Ended June 30, 2020 compared to Three Months Ended June 30, 2019:

sales were $71,000 for the three months ended June 30, 2020 and $24,000 for the same period in 2019.

Sales increased $47,000 due,

in part, to our implementation of an internet sales capability, augmenting our existing pull through sales strategy, where demand

from the consumer market encourages, or pulls, resellers and pest management professionals to offer our products, as well as billings

of $17,700 for customer product implementation services.

loss and comprehensive loss

dividend-warrant price protection-revaluation adjustment

loss attributable to common shareholders

average common shares outstanding - basic and fully diluted

loss per common share - basic and fully diluted

Months Ended September 30, 2020 compared to Three Months Ended September 30, 2019:

sales were $77,000 for the three months ended September 30, 2020 and $36,000 for the same period in 2019.

Sales increased $41,000

due, in part, to our implementation of an internet sales capability, augmenting our existing pull through sales strategy, where

demand from the consumer market encourages, or pulls, resellers and pest management professionals to offer our products, as well

as billings of $12,200 for customer product implementation services.

These initiatives have shown initial promise.

However, we believe the

benefit has been offset by reduced sales, reflecting reduced spending by customers due to COVID-19.

of sales was $43,000 or 60.6% of net sales for the three months ended June 30, 2020, compared to $21,000 or 87.5% of net sales

for the three months ended June 30, 2019.

The increase in cost of goods sold of $22,000 in 2020 is primarily due to higher sales

The decrease in cost of sales as a percentage of net sales was due to reduced scrap expense and continued process improvement

and efficiencies.

We anticipate cost of goods sold as a percentage of sales will improve in the future due to manufacturing efficiencies

as a result of scale-up activities.

profit for the three months ended June 30, 2020 was $28,000 or 39.4% of net sales, compared to a gross profit of $3,000 or 12.5%

of net sales, for the same period in 2019.

The increase in gross profit was a direct result of decreased scrap related to scale-up

activities as well as continued process improvement and efficiencies.

believe the benefit has been offset by reduced sales, reflecting continued reduced spending by customers due to the COVID-19 pandemic.

of sales was $41,000 or 53.3% of net sales for the three months ended September 30, 2020, compared to $25,000 or 69.4% of net

sales for the three months ended September 30, 2019.

The increase in cost of goods sold of $16,000 in 2020 is primarily due to

higher sales volume.

The decrease in cost of sales as a percentage of net sales was due to reduced scrap expense and continued

process improvement and efficiencies.

We anticipate cost of goods sold as a percentage of sales will improve in the future due

to manufacturing efficiencies as a result of scale-up activities.

profit for the three months ended September 30, 2020 was $36,000 or 46.7% of net sales, compared to a gross profit of $11,000

or 30.6% of net sales, for the same period in 2019.

The increase in gross profit was a direct result of decreased scrap related

to scale-up activities as well as continued process improvement and efficiencies.

and Development Expenses

Three Months Ended

(in thousands)

Direct research and development expenses:

Personnel related (including stock-based compensation)

September 30,

research and development expenses:

related (including stock-based compensation)

Facility-related

Total research and development expenses

Research and development expenses were

$226,000 for the three months ended June 30, 2020, compared to $463,000 for the same period in 2019.

The $237,000 decrease in research

and development expenses was primarily due to a decrease of $163,000 in personnel-related costs, including stock-based compensation

expense, due to the classification of certain field support employees to sales and marketing and option grants fully vesting resulting

in lower expense.

With more focus on the commercialization of ContraPest, it was determined that these certain field support employees

previously classified as research and development are now refocused on sales and marketing efforts.

research and development expenses

and development expenses were $380,000 for the three months ended September 30, 2020, compared to $432,000 for the same period

The $52,000 decrease in research and development expenses was primarily due to a decrease of $15,000 in personnel-related

costs, including stock-based compensation expense, due to the classification of certain field support employees to sales and marketing.

With more focus on the commercialization of ContraPest, it was determined that these certain field support employees previously

classified as research and development are now refocused on sales and marketing efforts.

Facility-related

expense decreased $6,000 due primarily to the cancellation of a facility lease of 1,954 square feet of research and development

space in Flagstaff, Arizona at December 31, 2019.

The decrease in other research and development expenses of

$68,000 was primarily due to a reclass of other expenses related to certain field support employees to sales and marketing as

described above.

expenses decreased $14,000 due primarily to the cancellation of a facility lease of 1,954 square feet of research and development

space in Flagstaff, Arizona at December 31, 2019 and reduced allocation of facility expenses to research and development with

the renewal of only a portion of the Flagstaff facilities in December 2019, offset by rent expense at the new manufacturing facility

in Phoenix, Arizona, as discussed in Note 12 - Commitments and Contingencies.

decrease in other research and development expenses of $23,000 was primarily due to a reclass of other expenses related to certain

field support employees to sales and marketing as described above.

also continue to develop our supply chain, particularly identifying and improving our sourcing of key ingredients for our product

General and Administrative Expenses

general and administrative expenses were approximately $1.4 million for the three months ended June 30, 2020, as compared to approximately

$1.8 million for the three months ended June 30, 2019.

The decrease of $400,000 in selling, general and administrative expenses

was primarily due to a decrease of $275,000 in net salary costs, a decrease of $91,000 in travel expenses, a $53,000 decrease

in professional service fees and $17,000 in office supplies and dues and subscription expenses, offset by an increase in expenses

related to restricted use field projects.

The decrease in net salary costs of $275,000 was due primarily to a decrease in stock

compensation expenses as well as the impact of temporary salary reductions by management to control expenses during the COVID-19

The decrease in professional services expenses was primarily due to reduced legal expenses and reduced Board of Director

compensation expense as a result of voluntary reductions in compensation due to the COVID-19 pandemic.

Legal expenses for the

three months ended June 30, 2019 included expenses related to a litigation settlement that were not incurred in 2020.

in travel expenses was a direct result of COVID-19 travel restrictions put in place in March 2020.

Likewise, the pandemic restricted

access to facilities resulting in reduced office supplies and subscriptions.

general and administrative expenses were approximately $1.6 million for the three months ended September 30, 2020, as compared

to approximately $2.2 million for the three months ended September 30, 2019.

The decrease of $600,000 in selling, general and

administrative expenses was primarily due to a decrease of $378,000 in net salary costs, a decrease of $126,000 in travel expenses,

a $179,000 decrease in professional service fees and $67,000 decrease in marketing expenses, offset by increases in expenses related

to restricted use field projects.

The decrease in net salary costs of $378,000 was due primarily to a decrease in stock compensation

expenses as well as the impact of temporary salary reductions implemented in the second quarter of 2020 by management to control

expenses during the COVID-19 pandemic.

The decrease in professional services expenses was primarily due to reduced legal expenses

as the result of a legal expenses related to a litigation settlement in the third quarter of 2019 that were not incurred in 2020.

The decrease in travel expenses was a direct result of COVID-19 travel restrictions put in place in March 2020.

Likewise, the

pandemic restricted access to trade shows and other marketing activities in the three months ended September 30, 2020, resulting

in lower marketing expenses than the same period in 2019.

Income/Expense, Net

recorded interest expense, net of $7,000 for the three months ended June 30, 2020, as compared to interest expense, net of $0

recorded interest expense, net of $7,000 for the three months ended September 30, 2020, as compared to interest expense, net of

$9 for the same period in 2019.

The $7,000 increase in interest expense, net for the period was a result of decreased interest income

as a result of significantly lower interest rates, offset by higher average daily cash balances.

The $2,000 decrease in interest expense, net for the period was a result of decreased interest

expense on certain notes payable and finance leases that expired in the first nine months of 2020.

Income (Expense)

income, net, for the three months ended June 30, 2020, was $3,000, virtually unchanged compared to $2,000 of other income for

the same period in 2019.

The slight increase was due to increased gains on sale of fixed assets in the three months ended June

Months Ended June 30, 2020 compared to Six Months Ended June 30, 2019:

Net sales were $108,000 for the six months ended June 30, 2020

compared to $43,000 for the same period in 2019.

Sales were $65,000 higher, in part due to our implementation of an internet sales

capability, augmenting our existing pull through sales strategy, where demand from the consumer market encourages, or pulls, resellers

and pest management professionals to offer our products, as well as due to billings of $17,700 for customer product implementation

income, net, was $0 for the three months ended September 30, 2020 and the same period ended September 30, 2019.

Months Ended September 30, 2020 compared to Nine Months Ended September 30, 2019:

sales were $185,000 for the nine months ended September 30, 2020 compared to $79,000 for the same period in 2019.

Sales were $106,000

higher, in part due to our implementation of an internet sales capability, augmenting our existing pull through sales strategy,

where demand from the consumer market encourages, or pulls, resellers and pest management professionals to offer our products,

as well as due to billings of $29,900 for customer product implementation services.

This strategy has shown initial promise.

However, we believe the benefit of this strategy has been offset by reduced

sales, reflecting reduced spending by customers due to COVID-19.

of sales was $65,000 or 60.2% of net sales for the six months ended June 30, 2020, compared to $33,000 or 76.7% of net sales for

the six months ended June 30, 2019.

The increase in cost of goods sold of $22,000 in 2020 is primarily due to higher sales volume.

The decrease in cost of sales as a % of net sales was due to reduced scrap expense and continued process improvement and efficiencies.

We anticipate cost of goods sold as a percentage of sales will improve for the foreseeable future due to manufacturing efficiencies

as a result of the scale up activities.

profit for the six months ended June 30, 2020 was $43,000 or 39.8% of net sales, compared to a gross profit of $10,000 or 23.3%

we believe the benefit of this strategy has been offset by reduced sales, reflecting continued reduced spending by customers due

to the COVID-19 pandemic.

of sales was $106,000 or 57.3% of net sales for the nine months ended September 30, 2020, compared to $58,000 or 73.4% of net

sales for the nine months ended September 30, 2019.

The increase in cost of goods sold of $48,000 in 2020 is primarily due to

higher sales volume.

The decrease in cost of sales as a % of net sales was due to reduced scrap expense and continued process

improvement and efficiencies.

We anticipate cost of goods sold as a percentage of sales will improve for the foreseeable future

due to manufacturing efficiencies as a result of the scale up activities.

profit for the nine months ended September 30, 2020 was $79,000 or 42.7% of net sales, compared to a gross profit of $21,000 or

26.6% of net sales, for the same period in 2019.

The increase in gross profit was a direct result of decreased scrap related to scale-up

activities as well as continued process improvement and efficiencies noted above.

The increase in gross profit was a direct result of decreased scrap related to

scale-up activities as well as continued process improvement and efficiencies noted above.

and Development Expenses

Six Months Ended

(in thousands)

Direct research and development expenses:

Personnel related (including stock-based compensation)

September 30,

research and development expenses:

related (including stock-based compensation)

Facility-related

Total research and development expenses

Research and development expenses were $522,000 for the six

months ended June 30, 2020, compared to $927,000 for the six months ended June 39, 2019.

The $405,000 decrease in research and

development expenses was primarily due to a decrease of $241,000 in personnel-related costs, including stock-based compensation

expense, due to the reclassification of certain field support employees to sales and marketing, decreased facility related expenses

of $45,000 and decreased other research and development expenses of $119,000.

research and development expenses

and development expenses were $902,000 for the nine months ended September 30, 2020, compared to $1,359,000 for the nine months

ended September 30, 2019.

The $457,000 decrease in research and development expenses was primarily due to a decrease of $247,000

in personnel-related costs, including stock-based compensation expense, due to the reclassification of certain field support employees

to sales and marketing, decreased facility related expenses of $62,000 and decreased other research and development expenses of

more focus on commercialization of ContraPest, it was determined that these certain field support employees previously classified

1 unchanged sentence

Facility-related

expense decreased $45,000 during the six months ended June 30, 2020 over the same period in 2019 due primarily to the cancellation

of a facility lease of 1,954 square feet of research and development space in Flagstaff, Arizona at December 31, 2019

The decrease in other research and development expenses of

$119,000 was primarily due to a reclass of other expenses related to certain field support employees to sales and marketing as

described above.

expense decreased $62,000 during the nine months ended September 30, 2020 over the same period in 2019 due primarily to the cancellation

of a facility lease of 1,954 square feet of research and development space in Flagstaff, Arizona at December 31, 2019 and reduced

allocation of facility expenses to research and development with the renewal of only a portion of the Flagstaff facilities in

December 2019, offset by rent expense at the new manufacturing facility in Phoenix, Arizona, as discussed in Note 12 - Commitments

and Contingencies.

decrease in other research and development expenses of $148,000 was primarily due to a reclassification of other expenses related

to certain field support employees to sales and marketing as described above, reduced travel expenses and reduced depreciation

due to the sale of certain fixed assets and certain assets fully depreciating during the nine months ended September 30, 2020.

also continue to develop our supply chain, particularly identifying and improving our sourcing of key ingredients for our product

General and Administrative Expenses

general and administrative expenses were approximately $3.5 million for the six months ended June 30, 2020, as compared to approximately

$3.7 million for the six months ended June 30, 2019.

The decrease of $200,000 in selling, general and administrative expenses

was primarily due to lower salaries and wages of $386,000, including stock compensation expenses and reduced travel related expenses

of $123,000 offset by increased professional service expenses of $90,000, increased shareholder relations expenses of $55,000,

increased insurance expense of $50,000 and increased facilities expense of $42,000.

general and administrative expenses were approximately $5.0 million for the nine months ended September 30, 2020, as compared

to approximately $5.9 million for the nine months ended September 30, 2019.

The decrease of $900,000 in selling, general and administrative

expenses was primarily due to lower salaries and wages of $775,000, including stock compensation expenses and reduced travel related

expenses of $149,000.

salaries and wages were lower due primarily to a decrease in stock compensation expenses related to option grants fully vesting

2 unchanged sentences

support employees to sales and marketing, as noted above.

The decrease in travel expenses for the six months ended June 30, 2020,

The decrease in travel expenses for the nine months ended September

30, 2020, as compared to the same period in 2019, was a direct result of COVID-19 travel restrictions put in place in March 2020

increase in $90,000 professional services in the six months ended June 30, 2020 as compared to the six months ended June 30, 2019,

was a result of increased legal expenses related to a litigation settlement and the 1-for-20 reverse stock split in March 2020,

offset by lower Board of Director compensation expense as a result of voluntary reductions in compensation to control costs during

the COVID-19 pandemic.

relations expenses increased $55,000 primarily due to expenses and costs associated with the 1-for-20 reverse stock split effected

in the first quarter of 2020, noted above.

Insurance costs for the six months ended June 30, 2020 were $50,000 higher than the

same period in 2019 due to higher premiums for director’s and officer’s liability coverage as well as certain key

employee policies in 2020.

Facilities expenses for the six months ended June 30, 2020 were $42,000 higher than the same period

in 2019 due to the allocation of rent expense for corporate headquarters in Phoenix to selling and marketing.

that continued into the three months ended September 30, 2020.

Income/Expense, Net

recorded interest expense of $13,000, net, for the six months ended June 30, 2020, as compared to interest income, net of $2,000

for the same period in 2019.

The $15,000 decrease in interest income, net, was a result of decreased interest income as a result

of significantly lower interest rates, offset by higher average daily cash balances and reduced interest expense as a result of

finance leases and promissory notes that expired during the six months ended June 30, 2020.

recorded interest expense, net, of $20,000, for the nine months ended September 30, 2020, as compared to interest income, net

of $11,000 for the same period in 2019.

The $31,000 decrease in interest income, net, was a result of decreased interest income

as a result of significantly lower interest rates, offset by higher average daily cash balances and reduced interest expense as

a result of finance leases and promissory notes that expired during the nine months ended September 30, 2020.

Income (Expense)

recorded $18,000 of other income, net, for the six months ended June 30, 2020, compared to $3,000 of other expense, net, for the

same period in 2019.

The $21,000 net increase in other income was primarily due to gains on the sale of certain fixed assets during

the six months ended June 30, 2020 and decreased, year-over-year fair market value adjustment of our derivative warrant in the

recorded $18,000 of other income, net, for the nine months ended September 30, 2020, compared to $3,000 of other expense, net,

for the same period in 2019.

The $21,000 net increase in other income was primarily due to gains on the sale of certain fixed

assets during the nine months ended September 30, 2020 and decreased, year-over-year fair market value adjustment of our derivative

warrant in the same period.

and Capital Resources

8 unchanged sentences

sales, research grants and licensing fees.

June 30, 2020, we had received net proceeds of $73.2 million from our sales of common stock, preferred stock and warrant exercises

September 30, 2020, we received net proceeds of $73.2 million from our sales of common stock, preferred stock and warrant exercises

and issuance of convertible and other promissory notes, and an aggregate of $1.7 million from licensing fees and an aggregate

of $0.8 million from product sales.

At June 30, 2020, we had an accumulated deficit of $100.0 million and cash and cash equivalents

At September 30, 2020, we had an accumulated deficit of $102.2 million and cash and cash equivalents

of $2.7 million.

discussed in Note 8, Borrowings, of our Notes to Condensed Financial Statements, the Company also received cash proceeds of $645,700

as it relates to the Paycheck Protection Program (or “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act

(the “CARES Act”).

We are using the proceeds from the PPP Loan to retain employees, maintain payroll and make lease,

interest and utility payments.

discussed in Note 8 - Borrowings, of our Notes to Condensed Financial Statements, on April 15, 2020, the Company also received

cash proceeds of $645,700 from the Paycheck Protection Program (or “PPP”) of the Coronavirus Aid, Relief, and Economic

Security Act.

We are using the proceeds from the PPP Loan to retain employees, maintain payroll and make lease, interest and utility

addition, as described in Note 13 - Subsequent Events, we entered into a private warrant inducement transaction on October 23,

2020, which resulted in gross proceeds to the Company of approximately $2.93 million, before deducting fees payable to the placement

agent and other estimated offering expenses payable by us.

ultimate success depends upon the outcome of a combination of factors, including:

20 unchanged sentences

particular, we expect to incur substantial and increased expenses as we:

to maximize market acceptance for, and generate sales of, our products;

the infrastructure for the sales, marketing and distribution of ContraPest and any other product candidates for which we may

receive regulatory approval;

the development of ContraPest and our other product candidates, including engaging in any necessary field studies;

additional regulatory approvals for ContraPest and our other product candidates;

up manufacturing processes and quantities to meet future demand of ContraPest and any other product candidates for which we

receive regulatory approval;

product development of ContraPest and advance our research and development activities and advance the research and development

programs for other product candidates;

expand and protect our intellectual property portfolio;

operational, financial and management information systems and personnel, including personnel to support our product development

and commercialization efforts and operations as a public company.

are also increasing our expenses to expand regulatory approvals for ContraPest, with an effort to make the product more user friendly

and available for use in an increased number of applications.

Work to maximize

market acceptance for, and generate sales of, our products;

Manage the infrastructure

for the sales, marketing and distribution of ContraPest and any other product candidates for which we may receive regulatory

Continue the development

of ContraPest and our other product candidates, including engaging in any necessary field studies;

Seek additional regulatory approvals for ContraPest

and our other product candidates;

Scale up manufacturing

processes and quantities to meet future demand of ContraPest and any other product candidates for which we receive regulatory

Continue product

development of ContraPest and advance our research and development activities and advance the research and development programs

for other product candidates;

Maintain, expand

and protect our intellectual property portfolio;

Add operational,

financial and management information systems and personnel, including personnel to support our product development and commercialization

efforts and operations as a public company.

We are also increasing

our expenses to expand regulatory approvals for ContraPest, with an effort to make the product more user friendly and available

for use in an increased number of applications.

believe we will need additional financing to fund these continuing and additional expenses.

following table summarizes our sources and uses of cash for each of the periods presented:

Six Months Ended

Cash used in operating activities

Cash provided by (used in) investing activities

Cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

the six months ended June 30, 2020, operating activities used $3.5 million of cash, primarily resulting from our net loss of $3.9

million and by changes in our operating assets and liabilities of $48,000, offset by non-cash charges of $421,000, consisting

September 30,

used in operating activities

used in investing activities

provided by financing activities

increase (decrease) in cash and cash equivalents

the nine months ended September 30, 2020, operating activities used $5.5 million of cash, primarily resulting from our net loss

of $5.9 million and by changes in our operating assets and liabilities of $285,000, offset by non-cash charges of $654,000, consisting

primarily of stock-based compensation, depreciation and amortization.

1 unchanged sentence

development activities and our selling, general and administrative expenses, as we generated limited product revenue during the

Net cash used by changes in our operating assets and liabilities for the six months ended June 30, 2020, consisted primarily

of a net decrease in accrued expenses and accounts payable of $181,000 and an increase in prepaid expenses of $27,000 offset by

a decrease in inventory of $45,000, a decrease in receivables of $104,000 and a decrease in other assets of $11,000.

the six months ended June 30, 2019, operating activities used $3.9 million of cash, primarily resulting from our net loss of $4.7

million offset by changes in our operating assets and liabilities of $59,000 and by non-cash charges of $687,000, consisting primarily

of stock-based compensation, depreciation and amortization.

Our net loss was primarily attributable to research and development

activities and our selling, general and administrative expenses, as we generated limited product revenue during the period.

cash provided by changes in our operating assets and liabilities for the six months ended June 30, 2019 consisted primarily of

a net increase in accrued expenses and accounts payable of $135,000, a decrease in prepaid expenses of $13,000 and a decrease

in deposits of $4,000 offset by an increase in inventory of $70,000, an increase in receivables of $17,000 and a decrease in deferred

rent of $6,000.

the six months ended June 30, 2020, net cash provided by investing activities was $44,000 due to the sale of property and equipment.

the six months ended June 30, 2019, we used $47,000 in net cash related to investing activities due to purchases of property and

the six months ended June 30, 2020, net cash provided by financing activities was $6.3 million as a result of $5.7 million in

net proceeds from the issuance of common stock and net proceeds of $646,000 from the issuance of a note pursuant to the Paycheck

Net cash used by changes in our operating assets and liabilities for the nine months ended September 30, 2020, consisted

primarily of a net decrease in accrued expenses and accounts payable of $460,000 and an increase in prepaid expenses of $24,000

offset by a decrease in inventory of $78,000, a decrease in receivables of $119,000 and a decrease in other assets of $2,000.

the nine months ended September 30, 2019, operating activities used $6.1 million of cash, primarily resulting from our net loss

of $7.2 million offset by changes in our operating assets and liabilities of $154,000 and by non-cash charges of $992,000, consisting

primarily of stock-based compensation, depreciation and amortization.

Our net loss was primarily attributable to research and

development activities and our selling, general and administrative expenses, as we generated limited product revenue during the

Net cash provided by changes in our operating assets and liabilities for the nine months ended September 30, 2019, consisted

primarily of a net increase in accrued expenses and accounts payable of $164,000, a decrease in prepaid expenses of $38,000 and

a decrease in deposits of $3,000 offset by an increase in inventory of $24,000, an increase in receivables of $16,000 and a decrease

in deferred rent of $11,000.

the nine months ended September 30, 2020, net cash used in investing activities was $4,000 due to the sale of property and equipment

of $44,000, offset by purchases of property, plant and equipment and construction in progress of $40,000.

the nine months ended September 30, 2019, we used $64,000 in net cash related to investing activities due to purchases of property

and equipment.

the nine months ended September 30, 2020, net cash provided by financing activities was $6.3 million as a result of $5.7 million

in net proceeds from the issuance of common stock and net proceeds of $646,000 from the issuance of a note pursuant to the Paycheck

Protection Program, offset by $44,000 of repayments related to notes payable and $62,000 in repayments of finance lease obligations.

the six months ended June 30, 2019, net cash provided by financing activities was $1.6 million as a result of proceeds from the

exercise of warrants of $1.8 million offset by payments of $112,000 related to notes payable, $38,000 in payments of capital lease

obligations and $24,000 of payments for employee withholding taxes related to share-based awards.

the nine months ended September 30, 2019, net cash provided by financing activities was $5.2 million as a result of $3.6 million

in net proceeds from the issuance of common stock and net proceeds of $1.8 million from the exercise of warrants, offset by payments

of $184,000 related to notes payable and $55,000 of payments for employee withholding taxes related to share-based awards.

Sheet Arrangements

13 unchanged sentences

estimates used in the preparation of our financial statements.

January 1, 2018, the Company adopted ASC 606 —

Revenue from Contracts with Customers (“ASC 606”) .

Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to

perform pilot studies by applying the following steps:

(1) identify the contract with a customer;

(2) identify the performance

obligations in the contract;

January 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) 606 —

Revenue from Contracts

with Customers (“ASC 606”) .

Under ASC 606, the Company recognizes revenue from the commercial sales of

products, licensing agreements and contracts to perform pilot studies by applying the following steps:

(1) identify the contract

with a customer;

(2) identify the performance obligations in the contract;

(3) determine the transaction price;

(4) allocate the transaction price to each performance obligation

in the contract;

and (5) recognize revenue when each performance obligation is satisfied.

For the comparative periods, revenue

has not been adjusted and continues to be reported under ASC 605 —

Revenue Recognition (“ASC 605”) .

(4) allocate the

transaction price to each performance obligation in the contract;

and (5) recognize revenue when each performance obligation is

For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 —

Recognition (“ASC 605”) .

Under ASC 605, revenue is recognized when the following criteria are met:

1 unchanged sentence

(2) the performance of service has been rendered to a customer or delivery has occurred;

(3) the amount of the fee to be paid

by a customer is fixed and determinable;

and (4) the collectability of the fee is reasonably assured.

The performance obligations

identified by the Company under Accounting Standards Codification (“ASC”) Topic 606, Revenue From Contracts With Customers,

are straightforward and similar to the unit of account and performance obligation determination under ASC Topic 605, Revenue

Recognition .

(3) the amount of the fee to be paid by a customer is fixed and determinable;

and (4) the collectability of the fee is reasonably

The performance obligations identified by the Company under ASC 606 are straightforward and similar to the unit of account

and performance obligation determination under ASC Topic 605, Revenue Recognition .

recognize compensation costs related to stock options granted to employees based on the estimated fair value of the awards on

5 unchanged sentences

of the respective award.

recorded stock-based compensation expense of approximately $140,000 and $291,000 for the three and six months ended June 30, 2020,

respectively, and $219,000 and $471,000 for the three and six months ended June 30, 2019, respectively.

We expect to continue

to grant stock options and other equity-based awards in the future and continue to recognize stock-based compensation expense

in future periods.

recorded stock-based compensation expense of approximately $162,000 and $453,000 for the three and nine months ended September

30, 2020, respectively, and $204,000 and $675,000 for the three and nine months ended September 30, 2019, respectively.

to continue to grant stock options and other equity-based awards in the future and continue to recognize stock-based compensation

expense in future periods.

Black-Scholes option-pricing model requires the use of highly subjective and complex assumptions, which determine the fair value

3 unchanged sentences

Our assumptions are as follows:

Expected term .

The expected term represents the period that the stock-based awards are expected to be outstanding.

Our historical

share option exercise experience does not provide a reasonable basis upon which to estimate an expected term because of a

lack of sufficient data.

Therefore, we estimate the expected term by using the simplified method, which calculates the expected

term as the average of the time-to-vesting and the contractual life of the options.

Expected volatility is derived from the average historical volatilities of publicly traded companies within

our industry that we consider to be comparable to our business over a period approximately equal to the expected term.

intend to continue to consistently apply this process using the same or similar public companies unless circumstances change

such that the identified companies are no longer similar to us, in which case, more suitable companies whose share prices

are publicly available would be utilized in the calculation.

interest rate .

Our historical share option

exercise experience does not provide a reasonable basis upon which to estimate an expected term because of a lack of sufficient

Therefore, we estimate the expected term by using the simplified method, which calculates the expected term as the average

of the time-to-vesting and the contractual life of the options.

Expected volatility .

Expected volatility is derived from the average historical volatilities of publicly traded companies within our industry that

we consider to be comparable to our business over a period approximately equal to the expected term.

We intend to continue

to consistently apply this process using the same or similar public companies unless circumstances change such that the identified

companies are no longer similar to us, in which case, more suitable companies whose share prices are publicly available would

be utilized in the calculation.

Risk-free interest

The risk-free interest rate is based on the U.S.

Treasury yield in effect at the time of grant for zero

Treasury yield in effect at the time of grant for zero coupon U.S.

Treasury notes with maturities approximately equal to the expected term.

The expected dividend is assumed to be zero as we have never paid dividends and have no current plans to pay

any dividends on our common stock.

forfeitures .

We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation

expense only for those awards that are expected to vest.

To the extent actual forfeitures differ from the estimates, the difference

will be recorded as a cumulative adjustment in the period that the estimates are revised.

Expected dividend .

The expected dividend is assumed to be zero as we have never paid dividends and have no current plans to pay any dividends

on our common stock.

Expected forfeitures .

use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those

awards that are expected to vest.

To the extent actual forfeitures differ from the estimates, the difference will be recorded

as a cumulative adjustment in the period that the estimates are revised.

Factors, Assumptions and Methodologies Used in Determining Fair Value of Our Common Stock

15 unchanged sentences

loss for all stock-based compensation arrangements is as follows:

Three Months Ended

Six Months Ended

Research and development

General and administrative

Total stock-based compensation expense

intrinsic value of stock options outstanding as of June 30, 2020 was $0.

September 30,

and development

and administrative

stock-based compensation expense

intrinsic value of stock options outstanding as of September 30, 2020 was $0.

Growth Company Status

9 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements