What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-14 compared with 2022-08-12 · 423 added, 361 removed, 266 unchanged (75% of the section changed)

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial

Condition and Results of Operations –

The following Management’s Discussion and

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on Form 10-Q that are not historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as

amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act.

All statements other than statements

of historical facts contained or incorporated herein by reference in this Quarterly Report on Form 10-Q, including statements regarding

our future operating results, future financial position, business strategy, objectives, goals, plans, prospects, markets, and plans and

objectives for future operations, are forward-looking statements.

In some cases, you can identify forward-looking statements by terms

such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “suggests,”

“targets,” “contemplates,” “projects,” “predicts,” “may,” “might,”

“plan,” “would,” “should,” “could,” “can,” “potential,” “continue,”

“objective,” or the negative of those terms, or similar expressions intended to identify forward-looking statements.

not all forward-looking statements contain these identifying words.

Specific forward-looking statements in this Quarterly Report on Form

10-Q include statements regarding:

our expectation to continue to pursue regulatory approvals and amendments to the existing U.S.

registration for ContraPest to broaden the marketability and use of ContraPest, and if ContraPest begins to generate sufficient revenue, regulatory approvals for additional jurisdictions beyond the United States;

our belief that ContraPest is unique in the pest control industry in attacking the reproductive systems of both male and female rats;

our belief that our field data shows ContraPest will result in a sustained reduction of the rat population;

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

our expectation to continue to incur significant expenses and operating losses for the foreseeable future;

our expectation that cash and cash equivalents at June 30, 2022, in combination with anticipated revenue and any additional sales of our equity securities, will be sufficient to fund our current operations for at least the next six to nine months;

our belief that sales increased in part due to continued focus of our internet sales initiatives, enhanced strategic partnership and collaborations with key distributors and PMPs;

our belief that the increased sales activity from our field sales organization was due in part to the launch of our new Elevate product offering;

our plan to continue to utilize various forms of stock-based compensation awards to attract and retain qualified employees;

our anticipation that stock-based compensation expense will continue to represent a significant portion of our selling, general and administrative expenses for the foreseeable future;

our expectation our expenses to continue or increase in connection with our ongoing activities, particularly as we focus on marketing and sales of ContraPest;

our expectation to continue to grant stock options and other equity-based awards, such as restricted stock units, in the future and to continue to recognize stock-based compensation expense in future periods;

our goal to shift resources to commercialization, significantly reducing our year-over-year burn rate and achieving a 50% or greater margin;

federal, state and municipal budgets may delay or impede their ability to make near term purchases of our products;

our belief that prolonged impact on the suppliers we rely on for the purchase of raw material ingredients by the COVID-19 pandemic could impact future manufacturing operations;

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

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

All statements other than

statements of historical facts contained or incorporated herein by reference in this Quarterly Report on Form 10-Q, including statements

regarding our future operating results, future financial position, business strategy, objectives, goals, plans, prospects, markets, and

plans and objectives for future operations, are forward-looking statements.

In some cases, you can identify forward-looking statements

by terms such as “anticipates,” “believes,” “estimates,” “expects,” “intends,”

“suggests,” “targets,” “contemplates,” “projects,” “predicts,” “may,”

“might,” “plan,” “would,” “should,” “could,” “can,” “potential,”

“continue,” “objective,” or the negative of those terms, or similar expressions intended to identify forward-looking

However, not all forward-looking statements contain these identifying words.

Specific forward-looking statements in this Quarterly

Report on Form 10-Q include statements regarding:

● our expectation to continue to pursue regulatory approvals

and amendments to the existing U.S.

registration for ContraPest to broaden the marketability and use of ContraPest, and if ContraPest

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

● our belief that ContraPest is unique in the pest control

industry in affecting the reproductive systems of both male and female rats;

● our belief that our field data shows ContraPest will result

in a sustained reduction of the rat population;

● our belief that ContraPest is the first and only non-lethal,

fertility control product registered with the EPA for the management of rat populations;

● our expectation to continue to incur significant expenses

and operating losses for the foreseeable future;

● our expectation that cash and cash equivalents at September

30, 2022, in combination with anticipated revenue and any additional sales of our equity securities, will be sufficient to fund our current

operations for at least the next three to six months;

● our belief that sales increased in part due to continued

focus of our internet sales initiatives, enhanced strategic partnership and collaborations with key distributors and PMPs;

● our belief that the increased sales activity from our field

sales organization was due in part to the launch of our new Elevate product offering;

● our plan to continue to utilize various forms of stock-based

compensation awards to attract and retain qualified employees;

● our anticipation that stock-based compensation expense will

continue to represent a significant portion of our selling, general and administrative expenses for the foreseeable future;

● our expectation our expenses to continue or increase in connection

with our ongoing activities, particularly as we focus on marketing and sales of ContraPest;

● our expectation to continue to grant stock options and other

equity-based awards in the future and to continue to recognize stock-based compensation expense in future periods;

● our goal to shift resources to commercialization, significantly

reducing our year-over-year burn rate and achieving a 50% or greater gross margin;

● our belief that our raw materials stock will reduce the risk

of impact on manufacturing for potential supply interruptions due to the COVID-19 pandemic, supply chain issues or long lead times on

certain ingredients.;

● our maintaining and obtaining regulatory approval of our

products and product candidates;

● our successful commercialization of ContraPest;

our ability to obtain market acceptance, commercial viability and profitability of ContraPest and other products;

our ability to market our products and establish an effective sales force and marketing infrastructure to generate significant revenue;

● our ability to obtain market acceptance, commercial viability

and profitability of ContraPest and other products;

● our ability to market our products and establish an effective

sales force and marketing infrastructure to generate significant revenue;

● the success of our research and development activities;

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

● our ability to retain and attract key personnel to develop,

operate and grow our business;

● our ability to meet our working capital needs;

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

our belief that 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;

our belief that we are potentially subject to concentrations of credit risk in our accounts receivable;

our belief that our existing facilities are adequate and meet our current needs for business, manufacturing and research;

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

● our estimates or expectations related to our revenue, cash

flow, expenses, capital requirements and need for additional financing;

● our belief that 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;

● our belief that we are potentially subject to concentrations

of credit risk in our accounts receivable;

● our belief that our existing facilities are adequate and

meet our current needs for business, manufacturing and research;

● 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;

● our ability to enter into strategic partnerships to enable

us to penetrate additional target markets and geographical locations;

● the adequacy of our facilities to meet our current needs;

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

our belief the claims against us do not have merit and our intention to aggressively defend against these accusations;

our belief the litigation against us is not likely to have a material effect on our operations;

our financial performance, including our ability to fund operations;

developments and projections relating to our projects, competitors and our industry, including legislative developments and impacts from those developments.

● our belief the claims against us do not have merit and our

intention to aggressively defend against these accusations;

● our belief the litigation against us is not likely to have

a material effect on our operations;

● our financial performance, including our ability to fund

operations; and

● developments and projections relating to our projects, competitors

and our industry, including legislative developments and impacts from those developments.

These forward-looking statements are not guarantees

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● the successful commercialization of our products;

market acceptance of our products;

regulatory approval and regulation of our products and other factors and risks identified from time to time in our filings with the SEC, including this Quarterly Report on Form 10-Q.

● market acceptance of our products; and

● regulatory approval and regulation of our products and other

factors and risks identified from time to time in our filings with the SEC, including this Quarterly Report on Form 10-Q.

All forward-looking statements included herein

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Since our inception, we have sustained significant

operating losses in the course of our research and development activities and commercialization efforts and expect such losses to continue

for the near future.

We have generated limited revenue to date from product sales, research grants and licensing fees received under a

former license with Neogen.

We have primarily funded our operations to date through the sale of equity securities, including convertible

preferred stock, common stock and warrants to purchase common stock and debt financing, consisting primarily of convertible notes.

Note 10 for a description of our public equity sales.

Through June 30, 2022, we have received net proceeds

operating losses in the course of our research and development and commercialization activities and expect such losses to continue for

the near future.

We have generated limited revenue to date from product sales, research grants and licensing fees received under our former

license agreement.

We have primarily funded our operations to date through the sale of equity securities, including convertible preferred

stock, common stock and warrants to purchase common stock.

See Note 10 for a description of our public equity sales.

Through September 30, 2022, we received net proceeds

of $89.6 million from our sales of common stock, preferred stock and warrant exercises and issuance of convertible and other promissory

notes, an aggregate of $2.0 million from licensing fees and an aggregate of $2.3 million in net product sales.

As of June 30, 2022, we

had an accumulated deficit of $117.4 million and cash and cash equivalents of $5.0 million.

As of September 30, 2022,

we had an accumulated deficit of $120 million and cash and cash equivalents of $2.8 million.

On June 18, 2021, we received notification from

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every year since our inception.

Our net losses were $2.6 million and $1.7 million for the three months ended June 30, 2022 and 2021, respectively,

and $4.9 million and $3.5 million for the six months ended June 30, 2022 and 2021, respectively.

We expect to continue to incur significant

expenses and generate operating losses for at least the next 12 months.

Our net losses were $2.6 million and $2.3 million for the three months ended September 30, 2022 and 2021,

respectively, and $7.5 million and $5.8 million for the nine months ended September 30, 2022 and 2021, respectively.

We expect to continue

to incur significant expenses and generate operating losses for at least the next 6 months.

Our ultimate success depends upon the outcome

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

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

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

operate and grow our business;

(iv) the success of our research and development;

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

grow our business;

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

We will need additional funding in order to continue

to fund our operations and achieve profitability and become cash flow positive and will continue to seek additional financing.

equity or debt financing is not available at adequate levels or on acceptable terms, we may need to delay, limit or terminate commercialization

and development efforts or discontinue operations.

Based upon our current operating plan, we expect

that cash and cash equivalents at September 30, 2022, in combination with anticipated revenue and any additional sales of our equity securities,

will be sufficient to fund our current operations for at least the next three to six months.

We have evaluated and will continue to evaluate

our operating expenses and will concentrate our resources toward the successful commercialization of ContraPest in the United States.

However, if anticipated revenue targets and margin targets are not achieved or expenses are more than we have budgeted, we may need to

raise additional financing before that time.

If we need more financing, including within the next three to six months, and we are unable

to raise necessary capital through the sale of our securities, we may be required to take other measures that could impair our ability

to be successful and operate as a going concern.

In any event, we may require additional capital in order to fund our operating losses

and research and development activities before we become profitable and may opportunistically raise capital.

We may never achieve profitability

or generate positive cash flows, and unless and until we do, we will continue to need to raise capital through equity or debt financing.

If such equity or debt financing is not available at adequate levels or on acceptable terms, we may need to delay, limit or terminate

commercialization and development efforts or discontinue operations.

While the effect and impact of the COVID-19 pandemic

on revenue during the six months ended June 30, 2022 and June 30, 2021 is difficult to measure, the travel and other restrictions that

started in 2020 resulted in a significant slowdown in our proof-of-concept field studies and sales efforts.

We were able to resume field

studies in some important projects mid-year 2020 and have now resumed all projects.

on revenue during the nine months ended September 30, 2022 and September 30, 2021 is difficult to measure, the travel and other restrictions

that started in 2020 resulted in a significant slowdown in our proof-of-concept field studies and sales efforts.

We were able to resume

field studies in some important projects mid-year 2020 and have now resumed all projects.

Components of our Results of Operations

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of costs incurred in connection with the research and development of ContraPest and our other product candidates, which costs include:

employee related expenses, including salaries, related benefits, travel and stock-based compensation expense for employees engaged in research and development functions, including that portion of manufacturing not included in cost of goods sold;

expenses incurred in connection with the development of our product candidates including related regulatory and production expenses;

facilities, depreciation, unbilled customer freight charges 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, including that portion of manufacturing

not included in cost of goods sold;

● expenses incurred in connection with the development of our

product candidates including related regulatory and production expenses;

● facilities, depreciation, unbilled customer freight charges

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

We expense research and development costs as incurred.

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expense will continue to represent a significant portion of our selling, general and administrative expenses for the foreseeable future.

Interest Income

Interest income consists primarily of interest

income earned on cash and cash equivalents.

Interest Expense

Interest expense consists primarily of interest

accrued on our finance lease and note commitments.

Other Income (Expense), Net

Other income (expense), net, consists primarily

of any recognized gains or losses related to the sale of fixed assets.

In 2021, other income also included the reversal of a payroll benefits

accrual from 2019 that was reversed as the liability period had expired.

income consists primarily of interest income earned on cash and cash equivalents.

expense consists primarily of interest accrued on our finance lease and note commitments.

Income (Expense), Net

income (expense), net, consists primarily of any recognized gains or losses related to the sale of fixed assets.

In 2021, other income

also included the reversal of a payroll benefits accrual from 2019 that was reversed as the liability period had expired.

Deferred tax assets and liabilities are determined

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to be realized.

Our effective tax rate for the six months ended June 30, 2022, as well as for the year ended December 31, 2021, has been

impacted by the full valuation allowance on our deferred tax assets.

Our effective tax rate for the nine months ended September 30, 2022, as well as for the year ended December 31, 2021,

has been impacted by the full valuation allowance on our deferred tax assets.

Since our inception, we have not recorded any

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deemed to occur, our net operating losses could be limited.

During the three months ended June 30, 2021,

we received notification that a loan to us under the Paycheck Protection Program (the “PPP”) in the amount of $646

thousand was forgiven in full pursuant to the PPP program under the Coronavirus Aid, Relief, and Economic Security Act (the

“CARES Act”).

Section 1106(i) of the CARES Act specifically requires taxpayers to exclude canceled indebtedness from PPP

loans from gross income, and accordingly, the debt forgiveness amount is nontaxable to us.

Subsequent to the passage of the CARES

Act, the IRS issued Notice 2020-32, which precludes a deduction for an expense that would otherwise be deductible if the

payment results in the forgiveness of a loan, thereby preventing entities from claiming a double tax benefit on the qualifying

expenses for PPP loans.

On December 27, 2020, the Consolidated Appropriations Act (“CAA”) was signed into law, which

reverses existing IRS guidance provided in Notice 2020-32 by allowing taxpayers to fully deduct any business expenses, regardless of

whether the expense was paid for using forgiven PPP loan proceeds.

None of the other provisions of the CARES Act or CAA had a

material impact to our tax accounts.

The following table summarizes our results of

operations for the three and six months ended June 30, 2022 and 2021:

During the three months ended June 30, 2021, we

received notification that a loan to us under the Paycheck Protection Program (the “PPP”) in the amount of $646 thousand was

forgiven in full pursuant to the PPP program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

Section 1106(i) of the CARES Act specifically requires taxpayers to exclude canceled indebtedness from PPP loans from gross income, and

accordingly, the debt forgiveness amount is nontaxable to us.

Subsequent to the passage of the CARES Act, the IRS issued Notice 2020-32,

which precludes a deduction for an expense that would otherwise be deductible if the payment results in the forgiveness of a loan, thereby

preventing entities from claiming a double tax benefit on the qualifying expenses for PPP loans.

On December 27, 2020, the Consolidated

Appropriations Act (“CAA”) was signed into law, which reverses existing IRS guidance provided in Notice 2020-32 by allowing

taxpayers to fully deduct any business expenses, regardless of whether the expense was paid for using forgiven PPP loan proceeds.

of the other provisions of the CARES Act or CAA had a material impact to our tax accounts.

The following table summarizes our results of operations for the three

and nine months ended September 30, 2022 and 2021:

For the Three Months

For the Six Months

Ended June 30,

For the Nine Months

Ended September 30,

Grant Revenue

Total revenue

Cost of sales

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Payroll Protection Program loan forgiveness

Other income (expense)

Total other income

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Net loss per common share - basic and fully diluted

Comparison of the Three Months Ended June 30, 2022 and 2021

Comparison of the Three Months Ended September 30, 2022 and 2021

Sales, net of sales discounts and promotions,

were $277,000 for the three months ended June 30, 2022, compared to $160,000 for the same period in 2021.

were $250,000 for the three months ended September 30, 2022, compared to $183,000 for the same period in 2021.

Sales increased by $67,000

in the three months ended June 30, 2022 due, in part, to continued focus of our internet sales initiatives, 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 enhanced strategic partnerships and collaborations with key distributors and PMPs.

In addition, we saw increased

sales activity from our field sales organization due in part to the launch of our new Elevate product offering.

in the three months ended September 30, 2022 due, in part, to continued focus of our internet sales initiatives, 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 enhanced strategic partnerships and collaborations with key distributors and Pest Management Professionals

In addition, we saw increased sales activity from our field sales organization including the launch of our new

Elevate product offering.

Cost of Sales

Cost of sales was $128,000, or 51.2% of net sales,

for the three months ended June 30, 2022, compared to $119,000, or 74.4% of net sales, for the three months ended June 30, 2021.

in cost of goods sold of $22,000 in 2022 is primarily due to higher sales volume.

The decrease in cost of sales as a percentage of net

sales was primarily due to lower production scrap and manufacturing process improvement and efficiencies during the three months ended

June 30, 2022.

Gross profit for the three months ended June 30,

2022 was $136,000, or 49.1% of net sales, compared to a gross profit of $41,000, or 25.6% of net sales, for the same period in 2021.

increase in gross profit was a direct result of the impact of lower production scrap and continued manufacturing efficiencies as a result

of scale-up activities.

Research and Development Expenses

for the three months ended September 30, 2022, compared to $106,000, or 66.7% of net sales, for the three months ended September 30, 2021.

The increase in cost of goods sold of $15,000 in 2022 is primarily due to higher sales volume.

The decrease in cost of sales as a percentage

of net sales during the three months ended September 30, 2022 was due to lower production scrap and manufacturing process improvements

and efficiencies.

Gross profit for the three months ended September

30, 2022 was $122,000, or 48.8% of net sales, compared to a gross profit of $77,000, or 42.1% of net product sales, for the same period

The increase in gross profit was a direct result of the impact of increased sales over lower production scrap and continued manufacturing

efficiencies.

Development Expenses

Three Months Ended

September 30,

(in thousands)

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Research and development expenses were $452,000

for the three months ended June 30, 2022, compared to $455,000 for the same period in 2021.

The $24,000 decrease in research and development

expenses was primarily due to a decrease of $45,000 in depreciation expense and a decrease in other research and development expenses

offset by an increase in personnel-related costs of $22,000, a $7,000 increase in professional fees, a $3,000 increase in freight expense

and a $1,000 increase in facility related expenses.

for the three months ended September 30, 2022, compared to $514,000 for the same period in 2021.

The $62,000 decrease in research and

development expenses was primarily due to a decrease of $43,000 in depreciation expense a decrease in other research and development expenses

of $101,000, a $38,000 decrease in professional fees and an $8,000 decrease in freight expense offset by an increase in personnel-related

costs of $106,000, and a $1,000 increase in facility related expenses.

Personnel related expense, including stock-based

compensation expense increased for the three months ended June 30, 2022, relative to the same period of 2021, due to the full quarter

compensation expense increased for the three months ended September 30, 2022, relative to the same period of 2021, due to the full quarter

impact of headcount additions made in 2021 to meet current and future demand.

Professional fees increased for the three months

ended June 30, 2022, relative to the same period of 2021, primarily due to increased consulting expenses related to field and regulatory

compliance studies and increased annual EPA and state registrations.

Freight expense, the expense related to unbilled

freight charges, increased for the three months ended June 30, 2022, relative to the same period of 2021, primarily due to increased product

sales volume associated with new customer acquisition and increased freight rates due to increased fuel surcharges.

Facility-related expenses increased $1,000 due

primarily to contractual rent escalation in our facility lease contracts.

The decrease in other research and development expenses of $12,000

in the three months ended June 30, 2022 compared to the same period in 2021 was primarily due to decreased expenses related to field and

product improvement studies.

We also continue to develop our supply chain, particularly identifying and improving our sourcing of key

ingredients for our product candidates.

Professional fees decreased $38,000 for the three

months ended September 30, 2022, relative to the same period of 2021, primarily due to completion of consulting fees in 2021 for products

sold in the current year.

Depreciation expense decreased $43,000 for the

three months ended June 30, 2022 over the three months ended June 30, 2021 due to several assets becoming fully depreciated during the

three months ended September 30, 2022 over the three months ended September 30, 2021 due to several assets becoming fully depreciated

during the prior quarter.

Facility-related expenses increased $1,000 due primarily to contractual

rent escalation in our facility lease contracts.

The decrease in other research and development

expenses of $80,000 in the three months ended September 30, 2022 compared to the same period in 2021 was primarily due to decreased expenses

related to field and product improvement studies.

We also continue to develop our supply chain, particularly identifying and improving

our sourcing of key ingredients for our product candidates.

Selling, General and Administrative Expenses

Three Months Ended

September 30,

(in thousands)

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Total selling, general and administrative expenses

Selling, general and administrative expenses were approximately $2.3

million for the three months ended June 30, 2022, as compared to approximately $1.9 million for the three months ended June 30, 2021.

The increase of $342,000 in selling, general and administrative expenses was primarily due to an increase of $262,000 in professional

fees, an $95,000 increase in marketing expenses, a $5,000 increase in office supplies/IT expenses, a $27,000 increase in insurance expense

and an increase in other selling, general and administrative expenses of $44,000, offset by an $80,000 decrease in personnel related expenses

and an $11,000 decrease in travel and entertainment expenses.

The increase in professional services expenses for the three months ended

June 30, 2022 was primarily due to marketing professional fees associated with outsourcing our marketing programs.

Selling, general and administrative expenses were

approximately $2.3 million for the three months ended September 30, 2022, as compared to approximately $1.8 million for the three months

ended September 30, 2021.

The increase of $473,000 in selling, general and administrative expenses was primarily due to an increase of

$304,000 in professional fees, a $158,000 increase in marketing expenses, a $40,000 increase in office supplies/IT expenses, an $18,000

increase in insurance expense, and a $ 21,000 increase in travel and entertainment, offset by a $43,000 decrease in personnel related

expenses and a $25,000 decrease in other expenses.

The increase in professional services expenses for the three months ended September

30, 2022 was primarily due to legal fees associated with on-going litigation, the special meeting and proxy vote.

Other marketing expenses

increased $95,000 during the three months ended June 30, 2022 over the same period in 2021 primarily due to increases in digital marketing

Office supplies/IT expenses were higher during the three months ended June 30, 2022 over the same period in 2021 primarily

due to increased IT support services and increased Directors and Officers insurance premiums.

The decrease in net salary costs of $80,000

for the three months ended June 30, 2022 over the same period in 2021 was due primarily to sales salary restructuring effective January

Travel and entertainment expenses for the three months ended June 30, 2022 were $11,000 lower than the same period in 2021 primarily

due to the timing of travel scheduled for 2022 deferred to the third quarter.

Interest Income/Expense, Net

We recorded interest income, net of $1,000 for

the three months ended June 30, 2022, as compared to interest expense, net of $2,000 for the same period in 2021.

The $3,000 decrease

in interest expense, net for the period was a result of decreased interest expense on certain notes payable and finance leases that expired

after June 30, 2021.

increased $158,000 during the three months ended September 30, 2022 over the same period in 2021 primarily due to increases in digital

marketing advertising.

Office supplies/IT expenses were higher during the three months ended September 30, 2022 over the same period in

2021 primarily due to increased IT support services and increased software subscriptions for staff.

Travel and entertainment expenses

for the three months ended September 30, 2022 were $21,000 higher than the same period in 2021 primarily due to the timing of early travel

scheduled for 2022 taken in the third quarter.

The decrease in net salary costs of $43,000 and the decrease in other costs of $25,000

for the three months ended September 30, 2022 over the same period in 2021 was due primarily to sales salary restructuring effective January

Income/Expense, Net

recorded interest income, net of $1,000 for the three months ended September 30, 2022, as compared to interest expense, net of $0 for

the same period in 2021.

The $1,000 increase in interest income/expense, net for the period was a result of decreased interest expense

on certain notes payable and finance leases that expired after September 30, 2021.

Paycheck Protection Program Loan Forgiveness

PPP loan forgiveness income for the three months

ended June 30, 2021 represents the forgiveness of a promissory note pursuant to the PPP under the CARES Act, that we secured under this

Other Income (Expense)

Other income, net was $2,000 for the three months

ended June 30, 2022 as compared to $1,000 for the three months ended June 30, 2021.

The $1,000 increase of other income, net for the three

months ended June 30, 2022 represented increased gains on sale of miscellaneous fixed assets.

Comparison of the Six Months Ended June 30, 2022 and 2021

loan forgiveness income for the three months ended September 30, 2021 represents the forgiveness of a promissory note pursuant

to the PPP under the CARES Act, that we secured under this program.

Income (Expense)

Income (Expense), net was $(28,000) for the three months ended September 30, 2022 as compared to $0 for the three months ended September

The $(28,000) decrease of other income, net for the three months ended September 30, 2022 represent a loss on the facility

fixed assets.

Comparison of the Nine Months Ended September 30, 2022 and 2021

Sales, net of sales discounts and promotions,

were $472,000 for the six months ended June 30, 2022, compared to $248,000 for the same period in 2021.

Sales increased by $224,000 in

the first six months of 2022 due, in part to continued focus of our internet sales initiatives, 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,

were $722,000 for the nine months ended September 30, 2022, compared to $407,000 for the same period in 2021.

Sales increased by $291,000

in the first nine months of 2022 due, in part to continued focus of our internet sales initiatives, 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 enhanced strategic partnerships and collaborations with key distributors and PMPs.

In addition, we saw increased sales activity

from our field sales organization due in part to the launch of our new Elevate product offering.

from our field sales organization including the launch of our new Elevate product offering.

Cost of Sales

Cost of sales was $246,000, or 52.1% of net sales,

for the six months ended June 30, 2022, compared to $169,000, or 68.1% of net sales, for the six months ended June 30, 2021.

in cost of goods sold of $77,000 in 2022 is primarily due to higher sales volume.

The decrease in cost of sales as a percentage of net

sales was primarily due to lower production scrap and manufacturing process improvement and efficiencies during the six months ended June

Gross profit for the six months ended June 30,

Cost of sales were $374,000, or 51.8% of net

sales, for the nine months ended September 30, 2022, compared to $275,000, or 67.5% of net sales, for the nine months ended September

The increase in cost of goods sold of $99,000 in 2022 is primarily due to higher sales volume.

The decrease in cost of sales

as a percentage of net sales was primarily due to lower production scrap and manufacturing process improvements and efficiencies during

the nine months ended September 30, 2022.

Gross profit for the nine months ended September

30, 2022 was $348,000, or 48.2% of net sales, compared to a gross profit of $156,000, or 36.2% of net sales, for the same period in 2021.

increase in gross profit was a direct result of the impact of lower production scrap and continued manufacturing efficiencies as a result

of scale-up activities.

The increase in gross profit was a direct result of the impact of lower production scrap and continued manufacturing efficiencies as

a result of scale-up activities.

Research and Development Expenses

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

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Total research and development expenses

Research and development expenses were $947,000

for the six months ended June 30, 2022, compared to $910,000 for the same period in 2021.

The $37,000 increase in research and development

expenses was primarily due to an increase of $28,000 in personnel-related costs, a $23,000 increase in professional fees, an $18,000 increase

in freight expense, a $7,000 increase in facility related expenses and $6,000 increase in other research and development expenses, offset

by a $45,000 decrease in depreciation expense.

Research and development expenses were $1.4 million

for the nine months ended September 30, 2022 and the same period in 2021.

Increases of $118,000 in personnel-related costs, $40,000 in

freight expense and $10,000 in facility related expenses were offset by decreases of $181,000 in other research and development expenses,

$11,000 in depreciation expense and $1,000 in professional fees.

Personnel related expense, including stock-based

compensation expense for the six months ended June 30, 2022 increased, relative to the same period of 2021, due to an increase in headcount

to meet current and future demand.

Professional fees increased for the six months

ended June 30, 2022 relative to the same period of 2021, primarily due to increased consulting expenses related to field and regulatory

compliance studies and increased annual EPA and state registrations.

Freight expense, the expense related to unbilled

freight charges, increased $18,000 for the six months ended June 30, 2022 relative to the same period of 2021 primarily due to increased

product sales volume associated with new customer acquisition and increased freight rates due to increased fuel surcharges.

Facility-related expenses increased $7,000 due

primarily to contractual rent escalation in our facility lease contracts and a slight increase in utility expenses.

The increase in other research and development

expenses of $6,000 in the six months ended June 30, 2022 compared to the same period in 2021 was primarily due to increased expenses related

to field and product improvement studies.

We also continue to develop our supply chain, particularly identifying and improving our sourcing

of key ingredients for our product candidates.

Depreciation expense decreased $45,000 for the

six months ended June 30, 2022 over the six months ended June 30, 2021 due to several assets becoming fully depreciated during the period.

compensation expense for the nine months ended September 30, 2022 increased, relative to the same period of 2021, due to an increase

in headcount to meet current and future demand.

Depreciation expense decreased $11,000

for the nine months ended September 30, 2022 over the nine months ended September 30, 2021 due to several assets becoming fully depreciated

during the period.

Facility-related expenses increased $10,000 due primarily to contractual

rent escalation in our facility lease contracts and a slight increase in utility expenses.

The decrease in other research and development

expenses of $181,000 in the nine months ended September 30, 2022 compared to the same period in 2021 was primarily due to process development

improvements resulting in reduced waste and more efficient manufacturing expenses.

Selling, General and Administrative Expenses

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

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Total selling, general and administrative expenses

Selling, general and administrative expenses were approximately $4.2

million for the six months ended June 30, 2022, as compared to approximately $3.4 million for the six months ended June 30, 2021.

increase of $827,000 in selling, general and administrative expenses was primarily due to an increase of $134,000 in net salary costs,

an increase of $409,000 in professional fees, a $2,000 decrease in facility-related expenses, a $92,000 increase in marketing expenses,

a $20,000 increase in office supplies/IT expenses, a $10,000 increase in travel and entertainment, a $76,000 increase in insurance expense

and an increase in other selling, general and administrative expenses of $88,000.

The increase in net compensation costs of $134,000 was due primarily

to expenses related to an equity award to our employees as well as an increase in administrative headcount during the last 6 months of

2021, offset by sales rep compensation restructuring effective January 1, 2022.

The increase in professional services expenses of $409,000

was primarily due to marketing professional fees associated with outsourcing our marketing programs.

Facility related expenses were lower

during the six months ended June 30, 2022 over the same period in 2021 due to lower utility costs that were incurred in 2021 to wind down

the Flagstaff facility not incurred in 2022.

Other marketing expenses increased $92,000 during the six months ended June 30, 2022 over

the same period in 2021 primarily due to increases in digital marketing advertising.

Office supplies/IT expenses were higher during the

six months ended June 30, 2022 over the same period in 2021 due to increased IT support services Travel and entertainment expenses for

the six months ended June 30, 2022 were $10,000 higher than the same period in 2021 primarily due to the timing of travel, incurred in

Insurance expenses increased during the six months ended June 30, 2022 primarily due to increased Directors and Officers insurance

Other selling and general administrative expenses were $88,000 greater in the six months ended June 30, 2022 over the same period

in 2021 due to a $12,000 reserve for uncollectable receivables and increased sales promotion and related expenses during the six months

ended June 30, 2022.

Interest Income/Expense, Net

We recorded interest income, net of $2,000 for

the six months ended June 30, 2022, compared to interest expense, net of $5,000 for the same period in 2021.

The $7,000 decrease in interest

expense, net for the period was a result of decreased interest expense on certain notes payable and finance leases that were paid down

or expired after June 30, 2021.

Selling, general and administrative expenses

were approximately $6.5 million for the nine months ended September 30, 2022, as compared to approximately $5.2 million for the nine

months ended September 30, 2021.

The increase of $1.3 million in selling, general and administrative expenses was primarily due increases

of $91,000 in net personnel related costs, $714,000 in professional fees, $284,000 increase in marketing expenses, $186,000 increase

in office supplies/IT expenses, $95,000 increase in insurance expense, and a $3,000 increase in travel and entertainment offset by a

$ 3,000 decrease in facility-related expenses and other selling, general and administrative expenses of $70,000.

The increase in net personnel related costs of

$91,000 was due primarily to stock-based compensation expense as well as an increase in headcount during the last 6 months of 2021.

The increase in professional services expenses

of $714,000 was primarily due to legal fees associated with on-going litigation, equity financing and increased consulting services.

Marketing expenses increased

$284,000 during the nine months ended September 30, 2022 over the same period in 2021 primarily due to increases in digital marketing

Office supplies/IT expenses were $186,000 higher

during the nine months ended September 30, 2022 over the same period in 2021 due to increased IT support services.

Insurance expenses increased during the nine

months ended September 30, 2022 primarily due to increased Directors and Officers insurance premiums.

Other selling and general administrative expenses

were $70,000 lower in the nine months ended September 30, 2022 over the same period in 2021 due to a decrease in interest expense from

the termination of our capital lease requirements and notes payable and a decrease in franchise tax expense.

Income/Expense, Net

recorded interest income, net of $3,000 for the nine months ended September 30, 2022, compared to interest expense, net of $5,000 for

the same period in 2021.

The $8,000 increase in interest income/expense, net for the period was a result of decreased interest expense

on certain notes payable and finance leases that were paid down or expired after September 30, 2021.

Paycheck Protection Program Loan Forgiveness

PPP loan forgiveness income for the three months

ended June 30, 2021 represents the forgiveness of a promissory note pursuant to the PPP under the CARES Act, that we secured under this

Other Income (Expense)

Other income, net was $2,000 for the six months ended June 30, 2022

as compared to $22,000 for the six months ended June 30, 2021.

The $20,000 decrease in other income was primarily due to the impact of

a payroll benefits accrual from 2019 that was reversed in the six months ended June 30, 2021, as the liability period had expired.

loan forgiveness income for the nine months ended September 30, 2021 represents the forgiveness of a promissory note pursuant

to the PPP under the CARES Act, that we secured under this program.

Income (Expense)

Income (Expense), net was $(26,000) for the nine months ended September 30, 2022 as compared to other income of $22,000 for the nine

months ended September 30, 2021.

The $48,000 decrease of other income(expense) was primarily due to the impact of a payroll benefits

accrual from 2019 that was reversed in 2021, as the liability period had expired and a loss on the facility fixed assets.

Liquidity and Capital Resources

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for the near future.

We have generated limited revenue to date from product sales, research grants and licensing fees received under a

former license.

We have generated limited revenue to date from product sales, research grants and licensing fees received under

a former license.

We have primarily funded our operations to date through the sale of equity securities, including convertible preferred

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and debt financing, consisting primarily of convertible notes.

Through June 30, 2022, we have received net proceeds

Through September 30, 2022, we received net proceeds

of $89.6 million from our sales of common stock, preferred stock and warrant exercises and issuance of convertible and other promissory

notes, an aggregate of $2.0 million from licensing fees and an aggregate of $2.3 million in net product sales.

As of June 30, 2022, we

had an accumulated deficit of $117.4 million and cash and cash equivalents of $5.0 million.

As of September 30, 2022,

we had an accumulated deficit of $120 million and cash and cash equivalents of $2.8 million.

Our ultimate success depends upon the outcome

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Based upon our current operating plan, we expect

that cash and cash equivalents at June 30, 2022, in combination with anticipated revenue and any additional sales of our equity securities,

will be sufficient to fund our current operations for at least the next six to nine months.

We have evaluated and will continue to evaluate

our operating expenses and will concentrate our resources toward the successful commercialization of ContraPest in the United States.

However, if anticipated revenue targets and margin targets are not achieved or expenses are more than we have budgeted, we may need to

raise additional financing before that time.

If we need more financing, including within the next six to nine months, and we are unable

to raise the necessary capital through the sale of our securities, we may be required to take other measures that could impair our ability

to be successful and operate as a going concern.

In any event, we may require additional capital in order to fund our operating losses

and research and development activities before we become profitable and may opportunistically raise capital.

We may never achieve profitability

or generate positive cash flows, and unless and until we do, we will continue to need to raise capital through equity or debt financing.

If such equity or debt financing is not available at adequate levels or on acceptable terms, we may need to delay, limit or terminate

commercialization and development efforts or discontinue operations.

that cash and cash equivalents at September 30, 2022, in combination with anticipated revenue and any additional sales of our equity

securities, will be sufficient to fund our current operations for at least the next six to nine months.

We have evaluated and will continue

to evaluate our operating expenses and will concentrate our resources toward the successful commercialization of ContraPest in the United

However, if anticipated revenue targets and margin targets are not achieved or expenses are more than we have budgeted, we may

need to raise additional financing before that time.

If we need more financing, including within the next six to nine months, and we

are unable to raise the necessary capital through the sale of our securities, we may be required to take other measures that could impair

our ability to be successful and operate as a going concern.

In any event, we may require additional capital in order to fund our operating

losses and research and development activities before we become profitable and may opportunistically raise capital.

We may never achieve

profitability or generate positive cash flows, and unless and until we do, we will continue to need to raise capital through equity or

debt financing.

If such equity or debt financing is not available at adequate levels or on acceptable terms, we may need to delay, limit

or terminate commercialization and development efforts or discontinue operations.

Additional Funding Requirements

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to incur costs associated with operating as a public company.

In particular, we expect to incur substantial

and increased expenses as we:

work to maximize market acceptance for, and generate sales of, our products, including by conducting field demonstrations at potential lead customers;

explore strategic partnerships to enable us to penetrate additional target markets and geographical locations;

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

seek additional regulatory approvals for ContraPest, including to more fully expand the market and use for ContraPest and, if we believe there is commercial viability, for our other product candidates;

further develop our manufacturing processes to contain costs while being able to scale to meet future demand of ContraPest and any other product candidates for which we receive regulatory approval;

continue product development of ContraPest and advance our research and development activities and, as our operating budget permits, advance the research and development programs for other product candidates;

In particular, we expect to incur substantial and increased expenses

● work to maximize market acceptance for, and generate sales of,

our products, including by conducting field demonstrations at potential lead customers;

● explore strategic partnerships to enable us to penetrate additional

target markets and geographical locations;

● manage the infrastructure for sales, marketing and distribution

of ContraPest and any other product candidates for which we may receive regulatory approval;

● seek additional regulatory approvals for ContraPest, including

to more fully expand the market and use for ContraPest and, if we believe there is commercial

viability, for our other product candidates;

● further develop our manufacturing processes to contain costs

while being able to scale to meet future demand of ContraPest and any other product candidates

for which we receive regulatory approval;

● continue product development of ContraPest and advance our research

and development activities and, as our operating budget permits, advance the research and

development programs for other product candidates;

● maintain 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 believe we will need additional financing to

fund these continuing and additional expenses.

The following table summarizes our sources and

uses of cash for each of the periods presented:

Six Months Ended

● 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 will need additional financing to fund these continuing and additional

The following table summarizes our sources and uses of cash for each

of the periods presented:

Nine Months Ended

September 30,

Cash used in operating activities

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Operating Activities .

During the six months ended June 30, 2022, operating activities used

$4.1 million of cash, primarily resulting from our net loss of $4.9 million offset by changes in our operating assets and liabilities

of $198,000 and by non-cash charges of $555,000, consisting primarily of stock-based compensation, depreciation and amortization and bad

debt expense.

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.

Net cash generated by changes in our operating assets and liabilities

for the six months ended June 30, 2022 of $259,000 consisted primarily of an increase in deferred revenue of $41,000, a net increase in

accrued expenses and accounts payable of $145,000 and a decrease in inventory of $25,000, offset by an increase in prepaid expenses of

$108,000 and an increase in accounts receivable of $19,000.

During the six months ended June 30, 2021, operating

activities used $4.0 million of cash, primarily resulting from our net loss of $3.5 million, changes in our operating assets and liabilities

of $317,000 and by non-cash charges of $163,000, consisting primarily of stock-based compensation, depreciation and amortization, offset

by the Paycheck Protection Program loan forgiveness during the period.

Our net loss was primarily attributable to manufacturing, research

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

Net cash used by changes in our operating assets and liabilities for the six months ended June 30, 2021 of $317,000 consisted primarily

of a net decrease in accrued expenses and accounts payable of $51,000, an increase in prepaid expenses of $203,000, an increase in inventory

of $24,000 and an increase in accounts receivable of $49,000, offset by a decrease in other assets of $10,000.

During the nine months ended September 30, 2022,

operating activities used $6.3 million of cash, primarily resulting from our net loss of $7.5 million offset by changes in our operating

assets and liabilities of $457,000 and by non-cash charges of $723,000, consisting primarily of stock-based compensation, depreciation

and amortization and bad debt expense.

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.

Net cash generated by changes in our

operating assets and liabilities for the nine months ended September 30, 2022 of $457,000 consisted primarily of a decrease in prepaid

expenses $ 174,000 and a decrease in accounts receivable of $ 16,000 offset by an increase in inventory of $ 48,000 , an increase in

deferred revenue of $48,000 and a net increase in accrued expenses and accounts payable of $551,000.

During the nine months ended September 30, 2021,

operating activities used $6.0 million of cash, primarily resulting from our net loss of $5.8 million, changes in our operating assets

and liabilities of $387,000 and by non-cash charges of $128,000, consisting primarily of stock-based compensation, depreciation and amortization,

offset by the Paycheck Protection Program loan forgiveness during the period.

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.

Net cash used by changes in our operating assets and liabilities for the nine months ended September 30, 2021 of $387,000 consisted primarily

of an increase in prepaid expenses of $403,000, an increase in inventory of $62,000 and an increase in accounts receivable of $54,000,

offset by a net increase in accrued expenses and accounts payable of $ 121,000 and a decrease in other assets of $11,000.

Investing Activities.

For the six months ended June 30, 2022, net cash

used in investing activities was $146,000 due to the purchases of property, plant and equipment and construction in progress.

For the six months ended June 30, 2021, net cash

used in investing activities was $83,000 due to the purchases of property, plant and equipment and increases in construction in progress.

For the nine months ended September 30, 2022,

net cash used in investing activities was $135,000 due to the purchases of property, plant and equipment and construction in progress.

For the nine months ended September 30,

2021, net cash used in investing activities was $83,000 due to the purchases of property, plant and equipment and increases in construction

Financing Activities.

During the six months ended June 30, 2022, net

cash used by financing activities was $32,000 as a result of $5,000 of repayments related to notes payable and $27,000 in repayments of

finance lease obligations.

During the six months ended June 30, 2021, net

cash provided by financing activities was $13.6 million as a result of $12.4 million in net proceeds from the issuance of common stock

and net proceeds of $1.2 million from the exercise of warrants, offset by $26,000 related to payments of finance lease obligations, $28,000

During the nine months ended September 30, 2022,

net cash used by financing activities was $32,000 as a result of $5,000 of repayments related to notes payable and $27,000 in repayments

of finance lease obligations.

During the nine months ended September 30, 2021,

net cash provided by financing activities was $13.6 million as a result of $12.4 million in net proceeds from the issuance of common

stock and net proceeds of $1.2 million from the exercise of warrants, offset by $40,000 related to payments of finance lease obligations,

$36,000 related to repayments of notes payable and $17,000 for the payment of employee withholding taxes related to share based awards.

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and the disclosure of contingent assets and liabilities in our financial statements.

We base our estimates on historical experience, known

trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis

for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

We base our estimates on historical experience,

known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the

basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

our estimates and assumptions on an ongoing basis.

Our actual results may differ from these estimates under different assumptions or conditions.

Our actual results may differ from these estimates under different assumptions or

While our significant accounting policies are

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(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 us under ASC 606 are straightforward and similar to the unit of account and performance

obligation determination under ASC Topic 605, Revenue Recognition .

We recognize revenue when product is shipped at

a fixed selling price on payment terms of 30 to 120 days from invoicing.

We recognize other revenue earned from pilot studies, consulting

and implementation services upon the performance of specific services under the respective service contract.

and (4) the collectability of the fee is

reasonably assured.

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

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

We recognize revenue when product is

shipped at a fixed selling price on payment terms of 30 to 120 days from invoicing.

We recognize other revenue earned from pilot studies,

consulting and implementation services upon the performance of specific services under the respective service contract.

We derive revenue primarily from commercial sales

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with ASC Topic 718 — Stock Compensation .

We estimate the grant date fair value of the awards, and the resulting

stock-based compensation expense, using the Black-Scholes option-pricing model.

The grant date fair value of stock-based awards is expensed

on a straight-line basis over the vesting period of the respective award.

We recorded stock-based compensation expense of

approximately $206,000 and $182,000 for the three months ended June 30, 2022 and June 30, 2021, respectively, and approximately $430,000

and $337,000 for the six months ended June 30, 2022 and June 30, 2021, 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.

The Black-Scholes option-pricing model requires

the use of highly subjective and complex assumptions, which determine the fair value of stock-based awards.

If we had made different assumptions,

our stock-based compensation expense, net loss and loss per share of common stock could have been significantly different.

Our assumptions

are as follows:

We estimate the grant date fair value of the awards, and the resulting stock-based

compensation expense, using the Black-Scholes option-pricing model.

The grant date fair value of stock-based awards is expensed on a

straight-line basis over the vesting period of the respective award.

We recorded stock-based compensation expense

of approximately $139,000 and $214,000 for the three months ended September 30, 2022 and September 30, 2021, respectively, and approximately

$570,000 and $550,000 for the nine months ended September 30, 2022 and September 30, 2021, 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.

The Black-Scholes option-pricing model requires the use of highly subjective

and complex assumptions, which determine the fair value of stock-based awards.

If we had made different assumptions, our stock-based compensation

expense, net loss and loss per share of common stock could have been significantly different.

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.

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

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 .

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.

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 rate .

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

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

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

Treasury yield in effect at the time of grant

for zero coupon U.S.

Treasury notes with maturities approximately equal to the expected term.

● 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.

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 .

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.

Significant Factors, Assumptions and Methodologies

Used in Determining Fair Value of Our Common Stock

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.

Significant Factors, Assumptions and Methodologies Used in Determining

Fair Value of Our Common Stock

As noted above, we are required to estimate the

fair value of the common stock underlying our stock-based awards when performing the fair value calculations using the Black-Scholes option-pricing

The assumptions underlying

these valuations represent management’s best estimates, which involve inherent uncertainties and the application of management’s

If we had made different assumptions than those used, the amount of our stock-based compensation expense, net income and net

income per share amounts could have been significantly different.

The fair value per share of our common stock for purposes of determining

stock-based compensation expense is the closing price of our common stock as reported on the applicable grant date.

The compensation cost

that has been included in the statements of operations and comprehensive loss for all stock-based compensation arrangements is as follows:

fair value of the common stock underlying our stock-based awards when performing the fair value calculations using the Black-Scholes

option-pricing model.

The assumptions underlying these valuations represent

management’s best estimates, which involve inherent uncertainties and the application of management’s judgment.

made different assumptions than those used, the amount of our stock-based compensation expense, net income and net income per share amounts

could have been significantly different.

The fair value per share of our common stock for purposes of determining stock-based compensation

expense is the closing price of our common stock as reported on the applicable grant date.

The compensation cost that has been included

in the statements of operations and comprehensive loss for all stock-based compensation arrangements is as follows:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Research and development

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Total stock-based compensation expense

The intrinsic value of stock options outstanding as of June 30, 2022

The intrinsic value of stock options outstanding as of September 30,

Quantitative and Qualitative Disclosures about Market Risk

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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 2. Management’s Discussion and Analysis