UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2020

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to

Commission File No. 001‑37759

OUTLOOK THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

38‑3982704

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

4260 U.S. Route 1
Monmouth Junction, New Jersey

 

08852

(Address of principal executive offices)

 

(Zip Code)

 

(609) 619‑3990

(Registrant’s  telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Common Stock

 

OTLK

 

Nasdaq Stock Market LLC

Series A Warrants

 

OTLKW

 

Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes                No        

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes                No        

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b‑2 of the Exchange Act.

 

 

 

 

 

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.         

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act).     Yes No  

The number of shares of the registrant’s common stock, $0.01 par value per share, outstanding as of May 13,  2020 was 91,377,648.

 

 

 

Outlook Therapeutics, Inc.

Table of Contents

 

    

Page
Number

 

 

 

PART I. FINANCIAL INFORMATION 

 

 

 

 

 

Item 1. Financial Statements (Unaudited) 

 

1

 

 

 

Consolidated Balance Sheets as of March 31, 2020 and September 30, 2019 

 

1

 

 

 

Consolidated Statements of Operations for the Three and Six Months Ended March 31, 2020 and 2019 

 

2

 

 

 

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Three and Six Months Ended March 31, 2020 and 2019 

 

3

 

 

 

Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2020 and 2019 

 

5

 

 

 

Notes to Unaudited Interim Consolidated Financial Statements 

 

6

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 

 

22

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk 

 

36

 

 

 

Item 4. Controls and Procedures 

 

36

 

 

 

PART II. OTHER INFORMATION 

 

37

 

 

 

Item 1. Legal Proceedings 

 

37

 

 

 

Item 1A. Risk Factors 

 

37

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 

 

39

 

 

 

Item 3. Defaults Upon Senior Securities 

 

39

 

 

 

Item 4. Mine Safety Disclosures 

 

39

 

 

 

Item 5. Other Information 

 

40

 

 

 

Item 6. Exhibits 

 

41

 

 

 

SIGNATURES 

 

43

 

In this report, unless otherwise stated or as the context otherwise requires, references to “Outlook Therapeutics,” “Outlook,” “the Company,” “we,” “us,” “our” and similar references refer to Outlook Therapeutics, Inc. and its consolidated subsidiaries. The Outlook logo, LYTENAVA and other trademarks or service marks of Outlook Therapeutics, Inc. appearing in this report are the property of Outlook Therapeutics, Inc. This report also contains registered marks, trademarks and trade names of other companies. All other trademarks, registered marks and trade names appearing in this report are the property of their respective holders. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.

 

 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this report, including statements regarding our future financial condition, business strategy and plans, and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “believe,” “may,” “could,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “seek,” “plan,” “expect,” “should,” “would,” “potentially” or the negative of these terms or similar expressions in this report.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled “Risk Factors” contained in our annual report on Form 10-K for the year ended September 30, 2019 filed with the SEC on December 19, 2019 and risks disclosed in Part II, Item 1A of this quarterly report, including, among other things, risks associated with:

·

the timing and the success of the design of the clinical trials and planned clinical trials of our lead product candidate, ONS-5010;

·

whether the results of our clinical trials will be sufficient to support domestic or global regulatory approvals;

·

our ability to obtain and maintain regulatory approval for ONS-5010 in the United States and other markets if we successfully complete clinical trials;

·

our expectations regarding the potential market size and the size of the patient populations for our product candidates, if approved, for commercial use;

·

our ability to fund our working capital requirements;

·

the rate and degree of market acceptance of our current and future product candidates;

·

the implementation of our business model and strategic plans for our business and product candidates;

·

developments or disputes concerning our intellectual property or other proprietary rights;

·

our ability to maintain and establish collaborations or obtain additional funding;

·

our expectations regarding government and third-party payor coverage and reimbursement;

·

our ability to compete in the markets we serve;

·

the factors that may impact our financial results; and

·

our estimates regarding the sufficiency of our cash resources and our need for additional funding.

 

These risks are not exhaustive. Additional factors could harm our business and financial performance, such as risks associated with the ongoing COVID-19 global pandemic, and uncertainty regarding the overall effect that it may ultimately have on our clinical trials and otherwise. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or implied by, any forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Unless required by law, we undertake no obligation to update or revise any forward-looking statements to reflect new information or future events or developments. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. We qualify all of the forward-looking statements in this report by these cautionary statements.

 

 

ii

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Outlook Therapeutics, Inc.

Consolidated Balance Sheets

(unaudited)

 

 

 

 

 

 

 

 

 

 

March 31, 

 

September 30, 

 

    

2020

    

2019

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$

4,652,923

 

$

8,015,528

Prepaid expenses and other current assets

 

 

4,833,089

 

 

4,986,033

Assets held for sale

 

 

 —

 

 

500,000

Total current assets

 

 

9,486,012

 

 

13,501,561

 

 

 

 

 

 

 

Property and equipment, net

 

 

523,409

 

 

3,175,960

Operating lease right-of-use assets, net

 

 

244,600

 

 

 —

Finance lease right-of-use assets, net 

 

 

2,375,000

 

 

 —

Other assets

 

 

540,834

 

 

457,476

Total assets

 

$

13,169,855

 

$

17,134,997

 

 

 

 

 

 

 

Liabilities, convertible preferred stock and stockholders’ equity (deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Convertible senior secured notes

 

$

7,185,993

 

$

6,699,000

Current portion of long-term debt

 

 

49,364

 

 

1,026,168

Current portion of finance lease liabilities

 

 

52,851

 

 

192,290

Current portion of operating lease liabilities

 

 

175,853

 

 

 —

Stockholder notes

 

 

3,612,500

 

 

3,612,500

Accounts payable

 

 

3,306,553

 

 

2,277,817

Accrued expenses

 

 

7,463,091

 

 

4,622,988

Income taxes payable

 

 

1,859,434

 

 

1,859,434

Total current liabilities

 

 

23,705,639

 

 

20,290,197

 

 

 

 

 

 

 

Long-term debt

 

 

25,709

 

 

50,285

Redemption feature

 

 

6,467,469

 

 

 —

Finance lease liabilities

 

 

3,346,381

 

 

3,365,790

Operating lease liabilities

 

 

95,747

 

 

 —

Warrant liability

 

 

53,592

 

 

255,734

Other liabilities

 

 

 —

 

 

3,942,948

Total liabilities

 

 

33,694,537

 

 

27,904,954

 

 

 

 

 

 

 

Convertible preferred stock:

 

 

 

 

 

 

Series A convertible preferred stock, par value $0.01 per share: 1,000,000 shares authorized, no shares issued and outstanding

 

 

 —

 

 

 —

Series A-1 convertible preferred stock, par value $0.01 per share: 200,000 shares authorized, no shares issued and outstanding at March 31, 2020 and 66,451 shares issued and outstanding at September 30, 2019

 

 

 —

 

 

5,359,404

Total convertible preferred stock

 

 

 —

 

 

5,359,404

 

 

 

 

 

 

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

Preferred stock, par value $0.01 per share: 7,300,000 shares authorized, no shares issued and outstanding

 

 

 —

 

 

 —

Series B convertible preferred stock, par value $0.01 per share: 1,500,000 shares authorized, no shares issued

 

 

 —

 

 

 —

Common stock, par value $0.01 per share; 200,000,000 shares authorized; 89,751,192 shares issued and outstanding at March 31, 2020 and 28,609,995 shares issued and outstanding at September 30, 2019

 

 

897,512

 

 

286,100

Additional paid-in capital

 

 

255,361,229

 

 

238,064,947

Accumulated deficit

 

 

(276,783,423)

 

 

(254,480,408)

Total stockholders' equity (deficit)

 

 

(20,524,682)

 

 

(16,129,361)

Total liabilities, convertible preferred stock and stockholders' equity (deficit)

 

$

13,169,855

 

$

17,134,997

 

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

1

Outlook Therapeutics, Inc.

Consolidated Statements of Operations

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended March 31, 

 

Six months ended March 31, 

 

    

2020

    

2019

    

2020

    

2019

Collaboration revenues

 

$

 —

 

$

641,140

 

$

 —

 

$

1,708,738

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

4,383,214

 

 

5,935,884

 

 

10,230,516

 

 

12,007,406

General and administrative

 

 

1,957,175

 

 

1,849,158

 

 

4,293,899

 

 

4,753,146

Impairment of property and equipment

 

 

423,328

 

 

561,735

 

 

423,328

 

 

2,911,138

 

 

 

6,763,717

 

 

8,346,777

 

 

14,947,743

 

 

19,671,690

Loss from operations

 

 

(6,763,717)

 

 

(7,705,637)

 

 

(14,947,743)

 

 

(17,962,952)

Interest expense, net

 

 

696,151

 

 

1,053,877

 

 

1,293,816

 

 

2,174,726

Loss on extinguishment of debt

 

 

 —

 

 

183,554

 

 

8,060,580

 

 

183,554

Change in fair value of redemption feature

 

 

(1,759,037)

 

 

 —

 

 

(1,796,982)

 

 

 —

Change in fair value of warrant liability

 

 

(764)

 

 

1,301,728

 

 

(202,142)

 

 

(334,592)

Net loss 

 

 

(5,700,067)

 

 

(10,244,796)

 

 

(22,303,015)

 

 

(19,986,640)

Beneficial conversion feature upon issuance of Series A-1 convertible preferred stock

 

 

 —

 

 

(61,365)

 

 

 —

 

 

(61,365)

Series A-1 convertible preferred stock dividends and related settlement

 

 

 —

 

 

(154,271)

 

 

(166,133)

 

 

(304,779)

Deemed dividend upon modification of warrants

 

 

(1,431,406)

 

 

(829,530)

 

 

(3,140,009)

 

 

(829,530)

Deemed dividend upon amendment of the terms of the Series A-1 convertible preferred stock

 

 

(10,328,118)

 

 

 —

 

 

(10,328,118)

 

 

 —

Net loss attributable to common stockholders

 

$

(17,459,591)

 

$

(11,289,962)

 

$

(35,937,275)

 

$

(21,182,314)

 

 

 

 

 

 

 

 

 

 

 

 

 

Per share information:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share of common stock, basic and diluted

 

$

(0.36)

 

$

(0.98)

 

$

(0.93)

 

$

(1.98)

Weighted average shares outstanding, basic and diluted

 

 

47,895,771

 

 

11,529,033

 

 

38,849,364

 

 

10,677,020

 

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

 

 

2

Outlook Therapeutics, Inc.

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred Stock

 

 

Stockholders' Equity (Deficit)

 

 

Series A-1

 

 

Common Stock

 

Additional  Paid-in

 

Accumulated

 

Total Stockholders'

 

    

Shares

    

Amount

  

  

Shares

    

Amount

    

Capital

    

Deficit

    

Equity (Deficit)

Balance at January 1, 2020

 

68,112

 

$

5,525,537

 

 

38,430,924

 

$

384,309

 

$

239,766,786

 

$

(271,083,356)

 

$

(30,932,261)

Issuance of common stock in connection with exercise of warrants

 

 —

 

 

 —

 

 

4,657,852

 

 

46,579

 

 

1,034,043

 

 

 —

 

 

1,080,622

Sale of common stock, net of issuance costs

 

 —

 

 

 —

 

 

10,059,056

 

 

100,591

 

 

9,096,357

 

 

 —

 

 

9,196,948

Issuance of restricted common stock to MTTR, LLC principals (Note 12)

 

 —

 

 

 —

 

 

7,244,739

 

 

72,447

 

 

(72,447)

 

 

 —

 

 

 —

Conversion of Series A-1 convertible preferred stock to common stock

 

(68,112)

 

 

(5,525,537)

 

 

29,358,621

 

 

293,586

 

 

5,231,951

 

 

 —

 

 

5,525,537

Stock-based compensation expense

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

304,539

 

 

 —

 

 

304,539

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(5,700,067)

 

 

(5,700,067)

Balance at March 31, 2020

 

 —

 

$

 —

 

 

89,751,192

 

$

897,512

 

$

255,361,229

 

$

(276,783,423)

 

$

(20,524,682)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred Stock

 

 

Stockholders' Equity (Deficit)

 

 

Series A-1

 

 

Common Stock

 

Additional  Paid-in

 

Accumulated

 

Total Stockholders'

 

    

Shares

    

Amount

  

  

Shares

    

Amount

    

Capital

    

Deficit

    

Equity (Deficit)

Balance at January 1, 2019

 

61,708

 

$

4,884,924

 

 

10,636,421

 

$

106,365

 

$

203,237,836

 

$

(229,698,465)

 

$

(26,354,264)

Proceeds from exercise of common stock warrants

 

 —

 

 

 —

 

 

358

 

 

 3

 

 

(3)

 

 

 —

 

 

 —

Private placement sale of common stock, net of costs

 

 —

 

 

 —

 

 

1,072,156

 

 

10,721

 

 

7,986,738

 

 

 —

 

 

7,997,459

Issuance of vested restricted stock units

 

 —

 

 

 —

 

 

301

 

 

 3

 

 

(3)

 

 

 —

 

 

 —

Issuance of common stock in connection with conversion of senior secured notes

 

 —

 

 

 —

 

 

50,394

 

 

504

 

 

401,464

 

 

 —

 

 

401,968

Series A-1 convertible preferred stock dividends and related settlement

 

1,542

 

 

154,271

 

 

 —

 

 

 —

 

 

(154,271)

 

 

 —

 

 

(154,271)

Stock-based compensation expense

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

267,742

 

 

 —

 

 

267,742

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(10,244,796)

 

 

(10,244,796)

Balance at March 31, 2019

 

63,250

 

$

5,039,195

 

 

11,759,630

 

$

117,596

 

$

211,739,503

 

$

(239,943,261)

 

$

(28,086,162)

 

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

3

Outlook Therapeutics, Inc.

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred Stock

 

 

Stockholders' Equity (Deficit)

 

 

Series A-1

 

 

Common Stock

 

Additional  Paid-in

 

Accumulated

 

Total Stockholders'

 

    

Shares

    

Amount

  

  

Shares

    

Amount

    

Capital

    

Deficit

    

Equity (Deficit)

Balance at October 1, 2019

 

66,451

 

$

5,359,404

 

 

28,609,995

 

$

286,100

 

$

238,064,947

 

$

(254,480,408)

 

$

(16,129,361)

Issuance of common stock in connection with exercise of warrants

 

 —

 

 

 —

 

 

13,003,414

 

 

130,034

 

 

1,008,866

 

 

 —

 

 

1,138,900

Issuance of common stock in connection with conversion of stockholder notes

 

 —

 

 

 —

 

 

1,475,258

 

 

14,753

 

 

1,533,673

 

 

 —

 

 

1,548,426

Issuance of vested restricted stock units

 

 —

 

 

 —

 

 

109

 

 

 1

 

 

(1)

 

 

 —

 

 

 —

Sale of common stock, net of issuance costs

 

 —

 

 

 —

 

 

10,059,056

 

 

100,591

 

 

9,096,357

 

 

 —

 

 

9,196,948

Issuance of restricted common stock to MTTR, LLC principals (Note 12)

 

 —

 

 

 —

 

 

7,244,739

 

 

72,447

 

 

(72,447)

 

 

 —

 

 

 —

Series A-1 convertible preferred stock dividends and related settlement

 

1,661

 

 

166,133

 

 

 —

 

 

 —

 

 

(166,133)

 

 

 —

 

 

(166,133)

Conversion of Series A-1 convertible preferred stock to common stock

 

(68,112)

 

 

(5,525,537)

 

 

29,358,621

 

 

293,586

 

 

5,231,951

 

 

 —

 

 

5,525,537

Stock-based compensation expense

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

664,016

 

 

 —

 

 

664,016

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(22,303,015)

 

 

(22,303,015)

Balance at March 31, 2020

 

 —

 

$

 —

 

 

89,751,192

 

$

897,512

 

$

255,361,229

 

$

(276,783,423)

 

$

(20,524,682)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred Stock

 

 

Stockholders' Equity (Deficit)

 

 

Series A-1

 

 

Common Stock

 

Additional  Paid-in

 

Accumulated

 

Total Stockholders'

 

    

Shares

    

Amount

  

  

Shares

    

Amount

    

Capital

    

Deficit

    

Equity (Deficit)

Balance at October 1, 2018

 

60,203

 

$

4,734,416

 

 

9,027,491

 

$

90,275

 

$

190,672,166

 

$

(216,307,363)

 

$

(25,544,922)

Cumulative effect of adoption of ASU 2014-09 (Topic 606)

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(3,649,258)

 

 

(3,649,258)

Proceeds from exercise of common stock warrants

 

 —

 

 

 —

 

 

909

 

 

 9

 

 

(9)

 

 

 —

 

 

 —

Private placement sale of common stock, net of costs

 

 —

 

 

 —

 

 

2,680,390

 

 

26,804

 

 

19,781,513

 

 

 —

 

 

19,808,317

Issuance of vested restricted stock units

 

 —

 

 

 —

 

 

446

 

 

 4

 

 

(4)

 

 

 —

 

 

 —

Issuance of common stock in connection with conversion of senior secured notes

 

 —

 

 

 —

 

 

50,394

 

 

504

 

 

401,464

 

 

 —

 

 

401,968

Series A-1 convertible preferred stock dividends and related settlement

 

3,047

 

 

304,779

 

 

 —

 

 

 —

 

 

(304,779)

 

 

 —

 

 

(304,779)

Stock-based compensation expense

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,140,031

 

 

 —

 

 

1,140,031

Accrued directors fees settled in fully vested stock options

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

49,121

 

 

 —

 

 

49,121

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(19,986,640)

 

 

(19,986,640)

Balance at March 31, 2019

 

63,250

 

$

5,039,195

 

 

11,759,630

 

$

117,596

 

$

211,739,503

 

$

(239,943,261)

 

$

(28,086,162)

 

The accompanying notes are an integral part of these unaudited interim consolidated financial statements. 

 

 

4

Outlook Therapeutics, Inc.

Consolidated Statements of Cash Flows

(unaudited)

 

 

 

 

 

 

 

 

 

 

Six months ended March 31, 

 

    

2020

    

2019

OPERATING ACTIVITIES

 

 

 

 

 

 

Net loss

 

$

(22,303,015)

 

$

(19,986,640)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

351,623

 

 

1,639,618

Loss on extinguishment of debt

 

 

8,060,580

 

 

183,554

Non-cash interest expense

 

 

135,787

 

 

895,255

Stock-based compensation

 

 

664,016

 

 

1,140,031

Change in fair value of redemption feature

 

 

(1,796,982)

 

 

 —

Change in fair value of warrant liability

 

 

(202,142)

 

 

(334,592)

Impairment of property and equipment

 

 

423,328

 

 

2,911,138

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

229,616

 

 

(71,433)

Other assets

 

 

(83,358)

 

 

42,527

Operating lease liability

 

 

(80,572)

 

 

 —

Accounts payable 

 

 

1,028,736

 

 

233,164

Accrued expenses

 

 

(233,806)

 

 

(778,391)

Deferred revenue

 

 

 —

 

 

(1,693,738)

Other liabilities

 

 

49,455

 

 

(221,287)

Net cash used in operating activities

 

 

(13,756,734)

 

 

(16,040,794)

INVESTING ACTIVITIES

 

 

 

 

 

 

Purchase of property and equipment

 

 

 —

 

 

(286,569)

Net cash used in investing activities

 

 

 —

 

 

(286,569)

FINANCING ACTIVITIES

 

 

 

 

 

 

Proceeds from the sale of common stock, net of offering costs

 

 

9,457,400

 

 

19,808,317

Proceeds from exercise of common stock warrants

 

 

1,138,900

 

 

 —

Payments of finance lease obligations

 

 

(178,757)

 

 

(415,697)

Repayment of debt

 

 

(23,414)

 

 

(4,627,180)

Net cash provided by financing activities

 

 

10,394,129

 

 

14,765,440

 

 

 

 

 

 

 

Net decrease in cash

 

 

(3,362,605)

 

 

(1,561,923)

Cash at beginning of period

 

 

8,015,528

 

 

1,717,391

Cash at end of period

 

$

4,652,923

 

$

155,468

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid for interest

 

$

718,521

 

$

1,681,746

Accrued interest settled by conversion into common stock

 

$

 —

 

$

1,393

Supplemental schedule of noncash investing activities:

 

 

 

 

 

 

Purchases of property and equipment in accounts payable and accrued expenses

 

$

 —

 

$

1,095,266

 

 

 

 

 

 

 

Supplemental schedule of noncash financing activities:

 

 

 

 

 

 

Carrying amount of senior secured notes converted into common stock

 

$

 —

 

$

400,575

Issuance of capital lease obligations in connection with purchase of property and equipment

 

$

 —

 

$

48,682

Unsecured notes and accrued interest converted into common stock

 

$

1,548,426

 

$

 —

Issuance of exchange notes at estimated fair value

 

$

7,050,206

 

$

 —

Issuance of redemption feature at estimated fair value

 

$

8,264,451

 

$

 —

Change in fair value of convertible senior secured notes warrants recorded as debt discount

 

$

 —

 

$

1,466,710

Series A-1 convertible preferred stock dividends and related settlement

 

$

166,133

 

$

304,779

Deferred offering costs and common stock issuance costs in accounts payable and accrued expenses

 

$

260,452

 

$

74,975

Accrued directors' fees settled in fully vested stock options

 

$

 —

 

$

49,121

 

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

 

 

5

Table of Contents

Outlook Therapeutics, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

 

1.     Organization and Description of Business

Outlook Therapeutics, Inc. (“Outlook” or the “Company”) was incorporated in New Jersey on January 5, 2010, started operations in July 2011, and reincorporated in Delaware by merging with and into a Delaware corporation in October 2015 and changed its name to “Outlook Therapeutics, Inc.” in November 2018. The Company is a late clinical-stage biopharmaceutical company focused on developing and commercializing ONS-5010, an ophthalmic formulation of bevacizumab for use in retinal indications. The Company is based in Monmouth Junction, New Jersey.

 

The Company has been actively monitoring the novel coronavirus (“COVID-19”) pandemic and its impact globally. Given the Company’s current infrastructure needs and current strategy, the Company was able to transition to remote working with limited impact on productivity, as shelter-in-place and similar government orders were imposed. All clinical and chemistry, manufacturing and control activities are currently active for both NORSE 1 and NORSE 2, the Company’s two clinical trials under its Phase 3 program for ONS-5010.

 

The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19. Management believes the financial results for the three months ended March 31, 2020 were not significantly impacted by COVID-19.

 

2.    Liquidity

The Company has incurred substantial losses and negative cash flows from operations since its inception and has a stockholders’ deficit of  $20.5  million as of March 31, 2020. As of March 31, 2020, the Company had substantial indebtedness that included $7.8 million outstanding aggregate principal amount and accrued interest of convertible senior secured notes that mature on December 31, 2020 and $3.6 million unsecured notes that were due on demand as of such date. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying unaudited interim consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The unaudited interim consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

On December 11, 2019, the Company received approval from the New Jersey Economic Development Authority’s Technology Business Tax Certificate Transfer Program to sell approximately $3.6 million of its unused New Jersey net operating losses (“NOLs”) and research and development tax credits (“R&D credits”). The Company received approximately $3.3 million of proceeds from the sale of the New Jersey NOLs and R&D credits in May 2020. 

Commencing in April 2020, following receipt of necessary stockholder approval, the holder of the convertible senior secured notes began exchanging the outstanding principal and accrued interest from those notes for the Company’s common stock per the terms of the notes. The holder exchanged $831,932 of principal and accrued interest for an aggregate 1,626,456 shares of the Company’s common stock between April 1, 2020 and May  13, 2020.

 

On May 4, 2020, the Company received $0.9 million in proceeds from a loan granted pursuant to the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

Management believes that the Company’s existing cash as of March 31, 2020, the $3.3 million of proceeds from the sale of New Jersey NOLs and R&D credits, and the $0.9 million proceeds from a loan granted pursuant to the PPP received in May 2020 will be sufficient to fund its operations through August 2020, excluding any repayment of debt. Substantial additional financing will be needed by the Company to fund its operations in the future and to commercially develop its product candidates. Management is currently evaluating different strategies to obtain the required funding for future operations. These strategies may include but are not limited to: payments from potential strategic research and development partners, licensing and/or marketing arrangements with pharmaceutical companies, private placements of equity and/or

6

Table of Contents

Outlook Therapeutics, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

 

debt securities, sale of its development stage product candidates to third parties and public offerings of equity and/or debt securities. There can be no assurance that these future funding efforts will be successful.

The Company’s future operations are highly dependent on a combination of factors, including (i) the timely and successful completion of additional financing discussed above; (ii) the Company’s ability to complete revenue-generating partnerships with pharmaceutical companies; (iii) the success of its research and development; (iv) the development of competitive therapies by other biotechnology and pharmaceutical companies, and, ultimately; (v) regulatory approval and market acceptance of the Company’s proposed future products.

3.     Basis of Presentation and Summary of Significant Accounting Policies

Basis of presentation

The accompanying unaudited interim consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10‑Q and Article 10 of Regulation S-X. Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).

In the opinion of management, the accompanying unaudited interim consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial position as of March 31, 2020 and its results of operations for the three and six months ended March 31, 2020 and 2019, cash flows for the six months ended March 31, 2020 and 2019, and convertible preferred stock and stockholders’ equity for the three and six months ended March 31, 2020 and 2019. Operating results for the three and six months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the full year ending September 30, 2020. The unaudited interim consolidated financial statements, presented herein, do not contain the required disclosures under GAAP for annual consolidated financial statements. The accompanying unaudited interim consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and related notes as of and for the year ended September 30, 2019 included in the Company’s Annual Report on Form 10‑K filed with the Securities and Exchange Commission (“SEC”) on December 19, 2019.

Use of estimates

The preparation of the unaudited interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Due to the uncertainty of factors surrounding the estimates or judgments used in the preparation of the unaudited interim consolidated financial statements, including as a result of the ongoing COVID-19 pandemic, actual results may materially vary from these estimates. Estimates and assumptions are periodically reviewed, and the effects of revisions are reflected in the unaudited interim consolidated financial statements in the period they are determined to be necessary.

Net loss per share

Basic and diluted net loss per common share is determined by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period.

For purposes of calculating diluted loss per common share, the denominator includes both the weighted average common shares outstanding and the number of common stock equivalents if the inclusion of such common stock equivalents would be dilutive. Dilutive common stock equivalents potentially include warrants, stock options and non-vested restricted stock unit (“RSU”) awards using the treasury stock method. For all periods presented, there is no difference in the number of shares used to compute basic and diluted shares due to the Company’s loss.

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Table of Contents

Outlook Therapeutics, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

 

The following table sets forth the computation of basic earnings per share and diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended March 31, 

 

Six months ended March 31, 

 

    

2020

    

2019

    

2020

    

2019

Net loss attributable to common stockholders

 

$ (17,459,591)

 

$ (11,289,962)

 

$

(35,937,275)

 

$

(21,182,314)

Common stock outstanding (weighted average)

 

47,895,771

 

11,529,033

 

 

38,849,364

 

 

10,677,020

Basic and diluted net loss per share

 

$ (0.36)

 

$ (0.98)

 

$

(0.93)

 

$

(1.98)

 

The following potentially dilutive securities (in common stock equivalents) have been excluded from the computation of diluted weighted-average shares outstanding as of March 31, 2020 and 2019, as they would be antidilutive:

 

 

 

 

 

 

 

 

As of March 31, 

 

    

2020

    

2019

Series A-1 convertible preferred stock

 

 —

 

1,195,295

Convertible senior secured notes

 

 —

 

957,482

Convertible unsecured notes

 

 —

 

147,347

Performance-based stock units

 

2,470

 

16,131

Restricted stock units

 

 —

 

7,156

Stock options

 

2,218,551

 

541,746

Common stock warrants

 

6,463,338

 

5,660,949

 

Recently issued and adopted accounting pronouncements

On October 1, 2019, the Company adopted ASU No. 2016-02, Leases (“ASC 842” or “ASU 2016-02”) issued by the FASB in February 2016 which was subsequently supplemented by clarifying guidance to improve financial reporting of leasing transactions. The new lease accounting guidance requires lessees to recognize lease liabilities and right-of-use assets on the balance sheet for all leases with initial terms longer than 12 months and provides enhanced disclosures on key information of leasing arrangements. The guidance allowed companies to apply the requirements retrospectively, either to all prior periods presented or through a cumulative adjustment in the year of adoption. 

The Company adopted the new standard effective October 1, 2019 using the modified retrospective transition method using the package of practical expedients and a discount rate of 9% and elected to not apply the standard in the comparative periods presented in the year of adoption. The Company has implemented the internal controls to monitor and record historical and future lease arrangements and required disclosures. For all existing operating leases as of September 30, 2019, the Company recorded right of use assets of $352,172 and corresponding lease liabilities of $318,672 with an offset to other liabilities of $33,500 to eliminate deferred rent on the consolidated balance sheets. The Company recorded right of use assets of $2,525,000 and corresponding finance lease liabilities of $3,558,080 for leases previously classified as capital leases. This did not include an existing lease termination obligation of $3,909,448 pertaining to a lease for premises that had been leased in Cranbury, New Jersey for a planned office and laboratory expansion that did not materialize, and which prior termination remained unchanged as a result of the transition. Refer to Note 9 for the Company’s lease disclosures.

At lease commencement, the Company records a lease liability based on the present value of lease payments over the expected lease term including any options to extend the lease that the Company is reasonably certain to exercise. The Company calculates the present value of lease payments using an incremental borrowing rate as the Company’s leases do not provide an implicit interest rate. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. At the lease commencement date, the Company records a corresponding right-of-use lease asset based on the lease liability, adjusted for any lease incentives received and any initial direct costs paid to the lessor prior to the lease commencement date. The

8

Table of Contents

Outlook Therapeutics, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

 

Company may enter into leases with an initial term of 12 months or less (“Short-Term Leases”). For Short-Term Leases, the Company records the rent expense on a straight-line basis and does not record the leases on the consolidated balance sheet. The Company had no Short-Term Leases as of March 31, 2020.

After lease commencement, the Company measures its leases as follows: (i) the lease liability based on the present value of the remaining lease payments using the discount rate determined at lease commencement and (ii) the right-of-use lease asset based on the re-measured lease liability, adjusted for any unamortized lease incentives received, any unamortized initial direct costs and the cumulative difference between rent expense and amounts paid under the lease agreement. Any lease incentives received, and any initial direct costs are amortized on a straight-line basis over the expected lease term. Rent expense is recorded on a straight-line basis over the expected lease term.

The adoption of the new lease accounting standard did not have a material impact on the Company’s results of operations or cash flows.

On October 1, 2019, the Company adopted ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting Compensation, issued by the FASB in June 2018. The amendments in this ASU expanded the scope of Compensation—Stock Compensation (“Topic 718”) to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments specified that Topic 718 applied to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The Company applied the new guidance to share-based payments entered after October 1, 2019.

 

In August 2018, the FASB issued ASU No. 2018‑13, Fair Value Measurement (Topic 820):  Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"), which removes and modifies some existing disclosure requirements and adds others. ASU 2018-13 modifies the disclosure requirements for fair value measurements and removes the requirement to disclose (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (2) the policy for timing of transfers between levels, and (3) the valuation processes for Level 3 fair value measurements. ASU 2018-13 requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The ASU is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted for any eliminated or modified disclosures upon issuance of this ASU. The Company is currently evaluating the impact of the adoption of this standard.

 

Reclassifications

Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation.

4.     Fair Value Measurements

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

·

Level 1 - Quoted prices in active markets for identical assets or liabilities.

·

Level 2 - Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

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Table of Contents

Outlook Therapeutics, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

 

·

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

 

    

(Level 1)

    

(Level 2)

    

(Level 3)

Liabilities

 

 

 

 

 

 

 

 

 

Redemption feature

 

$

 —

 

$

 —

 

$

6,467,469

Warrant liability

 

 

 —

 

 

 —

 

 

53,592

 

 

$

 —

 

$

 —

 

$

6,521,061

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2019

 

 

(Level 1)