7. Stockholders’ (Deficit) Equity

Private placement of preferred stock

In August 2022, the Company entered into a securities purchase agreement (the “Preferred SPA”) with several accredited investors for the issuance and sale of (i) an aggregate of 22,275 shares of its Series 3 Convertible Preferred Stock, stated value $100 per share, (ii) 225 shares of its Series 4 Convertible Preferred Stock, stated value $100 per share, and (iii) Series 3 warrants to purchase up to 276,140 shares of its common stock in a private placement for aggregate gross proceeds of $2.3 million, with $0.1 million of issuance costs for net proceeds of $2.1 million. The shares of Series 3 Convertible Preferred Stock were convertible into an aggregate of 546,760 shares of common stock of the Company and the shares of Series 4 Convertible Preferred Stock were convertible into an aggregate of 5,523 shares of common stock of the Company, in each case, at a conversion price of $4.074 per share. The Series 3 Warrants have an exercise price of $4.074 per share, are exercisable commencing six months after issuance, and will expire five years from the issuance date. The net proceeds from the private placement were allocated to the Series 3 Convertible Preferred Stock, Series 4 Convertible Preferred Stock and Series 3 warrants based on their relative fair values.

Sonnet BioTherapeutics Holdings, Inc.

Notes to Consolidated Financial Statements

The shares of the Series 3 and Series 4 Convertible Preferred Stock had no voting rights other than the right to vote with common stockholders, as a single class, on a proposed amendment to the Company’s Certificate of Incorporation, as amended, to effect a reverse split of the outstanding shares of common stock. Each share of Series 3 Convertible Preferred Stock was entitled to vote on an as-converted basis, and each share of Series 4 Convertible Preferred Stock was entitled to 17,857,142 votes per share, provided that the Series 4 Convertible Preferred Stock be automatically voted in the same proportions as the shares of common stock and Series 3 Convertible Preferred Stock on the reverse split proposal. The shares of the Series 3 and Series 4 Convertible Preferred Stock were convertible at the option of the holder at any time following the effective date of a reverse split of the Company’s outstanding common stock. In addition, the Company could elect mandatory conversion on the date of the reverse stock split or the Company could force conversion of all or a part of the Series 3 and Series 4 Convertible Preferred Stock at any time after 120 days following the issuance of the preferred stock, in either case provided certain equity conditions were met.

The private placement closed on August 15, 2022, and the stockholders voted to approve the reverse stock split on September 15, 2022. The Series 3 and Series 4 Convertible Preferred Stock were converted to 552,283 shares of common stock on September 30, 2022. As of September 30, 2022, there are no shares of preferred stock issued and outstanding.

Common stock

Through September 30, 2022, the Company sold an aggregate of 664,537 shares of common stock pursuant to the 2022 Sales Agreement with BTIG for gross proceeds of $2.0 million and net proceeds of $1.9 million.

Also during the year ended September 30, 2022, the Company issued 24,091 shares of common stock upon the vesting of restricted stock units.

In August 2021, the Company completed an underwritten public offering and received gross proceeds of approximately $30.0 million, with $2.4 million of issuance expenses for net proceeds of $27.6 million. The Company sold 2,370,963 shares of its common stock and pre-funded warrants to purchase 150,045 shares of common stock at $0.0014 per share. Each share of common stock was sold with a common warrant to purchase one share of common stock with an exercise price of $11.90, at a combined offering price of $11.90, and each pre-funded warrant was sold with a common warrant to purchase one share of common stock with an exercise price of $11.90, at a combined offering price of $11.8986, for an aggregate issuance of 2,521,008 common warrants.

In connection with the offering, the Company granted the underwriters a 30-day overallotment option to purchase up to 378,151 shares of common stock and up to 378,151 common stock warrants. The underwriters partially exercised their overallotment option, resulting in the issuance of an additional 306,700 common warrants with an exercise price of $11.90, each of which was to purchase one share of common stock and was sold at a price of $0.14 per warrant.

In addition, warrants to purchase 50,416 shares of common stock were issued to the underwriters as compensation for their services related to the offering. These common stock warrants have an exercise price of $14.875 per share.

In February 2021, the Company entered into an At-the-Market Sales Agreement with BTIG (the “2021 Sales Agreement”). Pursuant to the 2021 Sales Agreement, the Company had the ability to offer and sell, from time to time, through BTIG, as sales agent and/or principal, shares of its common stock, having an aggregate offering price of up to $15.9 million, subject to certain limitations set forth in the 2021 Sales Agreement. Through September 30, 2021, the Company sold an aggregate of 532,446 shares of common stock under the 2021 Sales Agreement for gross proceeds of $15.9 million and net proceeds of $15.2 million, thus reaching the maximum amount able to be sold under the 2021 Sales Agreement.

Also during the year ended September 30, 2021, the Company issued 23,351 shares of common stock upon the vesting of restricted stock units.

Sonnet BioTherapeutics Holdings, Inc.

Notes to Consolidated Financial Statements

Warrant amendments and exercises

During the year ended September 30, 2021, the Series B warrant holders exercised 1,705 warrants for proceeds of $2. An additional 160,173 of Series B warrants were net share settled, resulting in the issuance of 160,167 shares of common stock.

During the year ended September 30, 2021, the Chanticleer warrants to purchase 13,297 shares of common stock with an exercise price of $0.14 per share were net share settled, resulting in the issuance of 13,244 shares of common stock.

During the year ended September 30, 2021, the 150,045 of pre-funded warrants sold in conjunction with the 2021 public offering were net share settled, resulting in the issuance of 150,019 shares of common stock.

Common stock warrants

As of September 30, 2022, the following equity-classified warrants and related terms were outstanding:

Schedule of Warrants Outstanding 

As discussed above, the Series 3 warrants were issued during 2022 in connection with the private placement of preferred stock. The net proceeds from the private placement were allocated to the Series 3 and Series 4 Convertible Preferred Stock and the Series 3 warrants based on their relative fair values at the issuance date, resulting in an allocation of $0.6 million to the Series 3 warrants. Assumptions used in calculating the fair value of the warrants at the issuance date include the following:

Schedule of Fair Value of Warrants at Issuance