ContraFect (CFRXQ) Risk Analysis

There has been significant volatility in the market price and trading volume of equity and derivative securities, which is unrelated to the financial performance of the companies issuing the securities, including due to the effects of the COVID-19 pandemic and the recent failure of certain financial institutions. In addition, equity markets have experienced significant price and volume fluctuations that have affected the market prices for the securities of biotechnology and also newly public companies for a number of reasons, including reasons that may be unrelated to the business or operating performance of the companies. These broad market fluctuations may negatively affect the market price of our common stock. The trading price of our securities has been and is likely to continue to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control, including limited trading volume. In addition to the factors discussed in this "Risk Factors" section and elsewhere in this Quarterly Report on Form 10-Q, these factors include: -   our ability to implement our preclinical, clinical and other development or operational plans;-   adverse regulatory decisions;-   strategic actions by us or our competitors, such as acquisitions or restructurings;-   new laws or regulations, or new interpretations of existing laws or regulations, applicable to our business;-   actual or anticipated fluctuations in our financial condition or annual or quarterly results of operations;-   our cash position;-   public reaction to our press releases, other public announcements and filings with the SEC;-   changes in investor and financial analyst perceptions of the risks and condition of our business;-   changes in, or our failure to meet, performance expectations of investors or financial analysts (including, without limitation, with respect to the status of development of our product candidates);-   changes in market valuations of biotechnology companies;-   changes in key personnel;-   increased competition;-   sales of common stock by us or members of our management team;-   trading volume of our common stock;-   issuances of debt or equity securities;-   the granting or exercise of employee stock options or other equity awards;-   changes in accounting standards, policies, guidance, interpretations or principles;-   ineffectiveness of our internal controls;-   actions by institutional or other large stockholders;-   significant lawsuits, including patent or stockholder litigation;-   general political, market and economic conditions, including as a result of health pandemics; and -   other events or factors, many of which are beyond our control. In addition, the stock market in general, and the Nasdaq Capital Market and biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. In the past, securities class action litigation has often been instituted against companies following periods of volatility in the market price of a company's securities. This type of litigation, if instituted, could result in substantial costs and a diversion of management's attention and resources, which would harm our business, operating results or financial condition.

We are required to meet the continued listing requirements of the Nasdaq Capital Market and other Nasdaq rules, including those regarding director independence and independent committee requirements, minimum stockholders' equity, minimum share price and certain other corporate governance requirements. For example, we are required to maintain a minimum bid price for our listed common stock of $1.00 per share and maintain stockholders' equity of at least $2.5 million. If we do not meet these continued listing requirements, our common stock could be delisted. On November 22, 2022, we received an expected letter from The Nasdaq Stock Market LLC ("Nasdaq"), referred to herein as the Nasdaq Staff Deficiency Letter, indicating that our stockholders' deficit as reported in our Quarterly Report on Form 10-Q for the period ended September 30, 2022, did not satisfy the continued listing requirement under Nasdaq Listing Rule 5550(b)(1) (the "Rule") for the Nasdaq Capital Market, which requires that a listed company's stockholders' equity be at least $2.5 million. As reported on our Form 10-Q for the period ended September 30, 2022, our stockholders' deficit as of September 30, 2022 was $3.1 million. The Nasdaq Staff Deficiency Letter has no immediate effect on the listing or trading of our common stock. In accordance with Nasdaq Listing Rule 5810(c)(2)(C), we had 45 calendar days from the date of the Nasdaq Staff Deficiency Letter, or until January 6, 2023, to submit a plan to regain compliance with Nasdaq Listing Rule 5550(b)(1). Subsequent to the receipt of the Nasdaq Staff Deficiency Letter, and prior to the deadline set forth in such letter, we submitted a plan to regain compliance with the Rule to Nasdaq. On January 20, 2023, the Nasdaq staff informed us that the staff had determined to deny our request for continued listing on the Nasdaq Capital Market and that, unless we were to request an appeal of such determination, trading of our common stock would be suspended at the opening of business on January 31, 2023 and a Form 25-NSE would be filed with the Securities and Exchange Commission, which would remove our securities from listing and registration on the Nasdaq Capital Market. In reaching its decision, the Nasdaq staff indicated that its determination was based on concerns that our ability to raise additional capital through the exercise of certain recently issued warrants to purchase our common stock or other capital raising transactions, in order to cure our non-compliance with the Rule, were not within our control and such funds may be insufficient to sustain compliance over the long term. We subsequently requested a hearing before a Nasdaq Hearings Panel (the "Panel") to appeal the Nasdaq staff's determination. The hearing took place in March 2023. On April 12, 2023, we received formal notice from Nasdaq indicating that the Panel had granted our request for continued listing on The Nasdaq Capital Market, subject to our evidencing compliance with all applicable criteria for continued listing, including the $2.5 million minimum stockholders' equity requirement set forth in the Rule, by no later than June 30, 2023 (the "Compliance Period"). Our continued listing during the Compliance Period is subject to our satisfaction of certain conditions, including the requirement that we provide the Panel with an interim update on our efforts to regain compliance with the Rule. In addition, we are required to notify Nasdaq of any significant events that occur during the Compliance Period, including, but not limited to, any event that may call into question our ability to meet the terms of the exception granted. While we are seeking to timely comply with the terms of the Panel's decision, there can be no assurance that we will be able to do so and the Panel has reserved the right to reconsider the terms of this exception under certain circumstances. We continue to evaluate various alternative courses of action to regain compliance with the continued listing requirement under the Rule for the Nasdaq Capital Market. However, there can be no assurance that we will be able to satisfy the Nasdaq Capital Market's continued listing requirements, regain compliance with the Rule, or maintain compliance with the other Nasdaq continued listing requirements in the future. Delisting from the Nasdaq Capital Market would cause us to pursue eligibility for trading of these securities on other markets or exchanges, or on the "pink sheets." In such case, our stockholders' ability to trade, or obtain quotations of the market value of our common stock would be severely limited because of lower trading volumes and transaction delays. These factors could contribute to lower prices and larger spreads in the bid and ask prices of these securities. There can be no assurance that our securities, if delisted from the Nasdaq Capital Market in the future, would be listed on a national securities exchange, a national quotation service, the over-the-counter markets or the pink sheets. Delisting from the Nasdaq Capital Market, or even the issuance of a notice of potential delisting, would also result in negative publicity, make it more difficult for us to raise additional capital, adversely affect the market liquidity of our securities, decrease securities analysts' coverage of us or diminish investor, supplier and employee confidence.

Sales of substantial amounts of shares of our common stock or warrants in the public market, or the perception that these sales may occur, could adversely affect the price of our securities and impair our ability to raise capital through the sale of additional equity securities. As of May 10, 2023, we have approximately 3.7 million shares of common stock outstanding, of which substantially all are freely tradable, or may become freely tradable, without restriction, in the public market unless held by our "affiliates," as defined under Rule 144 of the Securities Act of 1933, as amended (the "Securities Act"). Additionally, we have warrants to purchase approximately 7.2 million shares of our common stock outstanding as of May 10, 2023. Approximately 7.2 million shares of common stock underlying the warrants will be freely tradable upon exercise unless held by our affiliates. We have registered 80,056 shares of our common stock as of May 10, 2023 that we may issue under our employee benefit plans. These shares can be freely sold in the public market upon issuance, unless pursuant to their terms these stock awards have transfer restrictions attached to them. Additionally, pursuant to the 2014 Omnibus Incentive Plan (the "2014 Plan"), our management is authorized to grant stock options and other equity linked award to our employees, directors and consultants. The 2014 Plan provides that the number of shares available for future grant under our 2014 Plan will automatically increase on January 1st each year, from January 1, 2015 through January 1, 2024, by an amount equal to four percent of all shares of our capital stock outstanding as of December 31st of the preceding calendar year, subject to the ability of our board of directors to take action to reduce the size of such increase in any given year. Unless our board of directors elects not to increase the number of shares underlying our 2014 Plan each year, our stockholders may experience additional dilution, which could cause our stock price to decline.

Provisions in our corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions could also limit the price that investors might be willing to pay in the future for our securities, thereby depressing the market prices of our securities. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions: -   allow the authorized number of our directors to be changed only by resolution of our board of directors;-   establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our board of directors;-   require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent;-   limit who may call stockholder meetings;-   authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a stockholder rights plan, or so-called "poison pill," that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and -   require the approval of the holders of at least 75% of the votes that all our stockholders would be entitled to cast to amend or repeal certain provisions of our charter or bylaws. Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.

We may finance the development of our product pipeline or generate additional working capital through additional equity financing. Therefore, subject to the rules of the Nasdaq, we may issue additional shares of our common stock, warrants and other equity securities of equal or senior rank, with or without stockholder approval, in a number of circumstances from time to time. The issuance by us of shares of our common stock, warrants or other equity securities of equal or senior rank will have the following effects: -   the proportionate ownership interest in us held by our existing stockholders will decrease;-   the relative voting strength of each previously outstanding share of common stock may be diminished; and -   the market price of our common stock may decline. In addition, if we issue shares of our common stock and/or warrants in a future offering (or, in the case of our common stock, the exercise of outstanding warrants to purchase our common stock), it could be dilutive to our security holders.

The SEC has adopted regulations which generally define a "penny stock" to be an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to specific exemptions, including an exemption for any securities listed on a national securities exchange. The rules impose additional sales practice requirements on broker-dealers for transactions involving "penny stock", with some exceptions. If shares of our common stock were delisted from the Nasdaq Capital Market and determined to be "penny stock", broker-dealers may find it more difficult to trade such securities and investors may find it more difficult to acquire or dispose of such securities on the secondary market.

The projections of securities research analysts may vary widely and may not accurately predict the results we actually achieve. The price of our common stock may decline if our actual results do not match the projections of these securities research analysts. Similarly, if one or more of the analysts who write reports on us downgrades our stock or publishes inaccurate or unfavorable research about our business, the price of our common stock could decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, the price or trading volume of our common stock could decline.