Company Quick10K Filing
Quick10K
Soleno Therapeutics
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$2.00 32 $64
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
S-1 2019-03-29 Public Filing
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
8-K 2019-08-07 Earnings, Exhibits
8-K 2019-06-10 Officers, Shareholder Vote, Exhibits
8-K 2019-05-13 Earnings, Exhibits
8-K 2019-04-26 Officers, Exhibits
8-K 2019-03-18 Earnings, Exhibits
8-K 2019-03-14 Other Events, Exhibits
8-K 2019-01-24 Officers
8-K 2018-12-19 Enter Agreement, Sale of Shares, Officers, Other Events, Exhibits
8-K 2018-11-14 Earnings, Exhibits
8-K 2018-10-16 Officers
8-K 2018-08-14 Earnings, Exhibits
8-K 2018-06-11 Shareholder Vote
8-K 2018-05-30 Officers, Exhibits
8-K 2018-05-16 Earnings, Exhibits
8-K 2018-05-14 Other Events, Exhibits
8-K 2018-01-02 Officers
PBR Petrobras 96,400
CDNS Cadence Design Systems 19,310
SFM Sprouts Farmers Market 2,650
BCOV Brightcove 364
JRJC China Finance Online 27
TOGL Toga 0
BRTX Biorestorative Therapies 0
CA CA 0
EFSH 1847 Holdings 0
AEI20 AEI Net Lease Income & Growth Fund XX 0
SLNO 2019-06-30
Part I-Financial Information
Item 1. Financial Statements
Note 1. Overview
Note 2. Going Concern and Management's Plans
Note 3. Summary of Significant Accounting Policies
Note 4. Fair Value of Financial Instruments
Note 5. Warrant Liabilities
Note 6. Commitments and Contingencies
Note 8. Stockholders' Equity
Note 9. Net Loss per Share
Note 10. Fair Value of Contingent Consideration
Note 11. Compensation Plan for Board Members
Note 12. Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 slno-ex311_6.htm
EX-31.2 slno-ex312_7.htm
EX-32.1 slno-ex321_8.htm
EX-32.2 slno-ex322_9.htm

Soleno Therapeutics Earnings 2019-06-30

SLNO 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 slno-10q_20190630.htm 10-Q slno-10q_20190630.htm

 

 

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 June 30, 2019

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 Number: 001-36593

 

SOLENO THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

77-0523891

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

1235 Radio Road, Suite 110,

Redwood City, California

(Address of principal executive offices)

94065

(Zip Code)

(650) 213-8444

(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, $0.001 par value

SLNO

NASDAQ

Common Stock, $0.001 per value, underlying the warrants

SLNOW

NASDAQ

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, 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  

As of August 2, 2019, there were 31,793,292 shares of the registrant’s Common Stock, par value $0.001 per share, outstanding.

 

 


SOLENO THERAPEUTICS, INC.

TABLE OF CONTENTS

 

 

Page

PART I—FINANCIAL INFORMATION

3

Item 1. Financial Statements

3

Condensed Consolidated Balance Sheets

3

Condensed Consolidated Statements of Operations (unaudited)

4

Condensed Consolidated Statements of Stockholders’ Equity (unaudited)

5

Condensed Consolidated Statements of Cash Flows (unaudited)

6

Notes to Condensed Consolidated Financial Statements (unaudited)

7

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

21

Item 3. Quantitative and Qualitative Disclosures About Market Risk

26

Item 4. Controls and Procedures

27

PART II—OTHER INFORMATION

28

Item 1. Legal Proceedings

28

Item 1A. Risk Factors

28

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

28

Item 3. Defaults Upon Senior Securities

28

Item 4. Mine Safety Disclosures

28

Item 5. Other Information

28

Item 6. Exhibits

29

EXHIBIT INDEX

30

SIGNATURES

36

 

 

 


 

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

Soleno Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(In thousands except share and per share data)

 

 

 

June 30,

2019

 

 

December 31,

2018

 

Assets

 

(Unaudited)

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

15,503

 

 

$

23,099

 

Prepaid expenses and other current assets

 

 

471

 

 

 

529

 

Due from related party

 

 

18

 

 

 

64

 

Minority interest investment in former subsidiary

 

 

623

 

 

 

978

 

Total current assets

 

 

16,615

 

 

 

24,670

 

Long-term assets

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

22

 

 

 

12

 

Intangible assets, net

 

 

17,497

 

 

 

18,469

 

Total assets

 

$

34,134

 

 

$

43,151

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,740

 

 

$

934

 

Accrued compensation and other current liabilities

 

 

1,115

 

 

 

943

 

Total current liabilities

 

 

2,855

 

 

 

1,877

 

Long-term liabilities

 

 

 

 

 

 

 

 

Series A warrant liability

 

 

51

 

 

 

49

 

2017 PIPE Warrant liability

 

 

10,202

 

 

 

4,563

 

2018 PIPE Warrant liability

 

 

1,145

 

 

 

600

 

Contingent liability for Essentialis purchase price

 

 

6,038

 

 

 

5,649

 

Total liabilities

 

 

20,291

 

 

 

12,738

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Preferred Stock, $.001 par value, 10,000,000 shares authorized:

 

 

 

 

 

 

 

 

Series B convertible preferred stock, 13,780 shares designated at

   June 30, 2019 and December 31, 2018; zero shares issued and

   outstanding at June 30, 2019 and at December 31, 2018.

   Liquidation value of zero.

 

 

 

 

 

 

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

   31,793,292 and 31,755,169 shares issued and outstanding at

   June 30, 2019 and December 31, 2018, respectively.

 

 

32

 

 

 

32

 

Additional paid-in-capital

 

 

157,881

 

 

 

157,413

 

Accumulated deficit

 

 

(144,070

)

 

 

(127,032

)

Total stockholders’ equity

 

 

13,843

 

 

 

30,413

 

Total liabilities and stockholders’ equity

 

$

34,134

 

 

$

43,151

 

 

See accompanying notes to condensed consolidated financial statements

3


 

 

Soleno Therapeutics, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

(In thousands except share and per share data)

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

$

3,745

 

 

$

1,714

 

 

$

6,505

 

 

$

2,894

 

General and administrative

 

1,695

 

 

 

1,766

 

 

 

3,707

 

 

 

3,633

 

Change in fair value of contingent consideration

 

183

 

 

 

(67

)

 

 

389

 

 

 

361

 

Total operating expenses

 

5,623

 

 

 

3,413

 

 

 

10,601

 

 

 

6,888

 

Operating loss

 

(5,623

)

 

 

(3,413

)

 

 

(10,601

)

 

 

(6,888

)

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cease-use income

 

 

 

 

3

 

 

 

 

 

 

6

 

Change in fair value of warrants liabilities

 

(4,267

)

 

 

(3,255

)

 

 

(6,186

)

 

 

(3,092

)

Loss from minority interest investment

 

(165

)

 

 

 

 

 

(355

)

 

 

 

Interest income

 

47

 

 

 

30

 

 

 

104

 

 

 

49

 

Total other income (expense)

 

(4,385

)

 

 

(3,222

)

 

 

(6,437

)

 

 

(3,037

)

Loss from continuing operations

 

(10,008

)

 

 

(6,635

)

 

 

(17,038

)

 

 

(9,925

)

Loss from discontinued operations

 

 

 

 

(423

)

 

 

 

 

 

(937

)

Net loss

$

(10,008

)

 

$

(7,058

)

 

$

(17,038

)

 

$

(10,862

)

Loss per common share from continuing operations, basic and diluted

$

(0.31

)

 

$

(0.33

)

 

$

(0.54

)

 

$

(0.50

)

Loss per common share from discontinued operations, basic and diluted

 

 

 

 

(0.02

)

 

 

 

 

 

(0.05

)

Net loss per common share, basic and diluted

$

(0.31

)

 

$

(0.35

)

 

$

(0.54

)

 

$

(0.55

)

Weighted-average common shares outstanding used to calculate basic and

   diluted net loss per common share

 

31,776,951

 

 

 

20,345,437

 

 

 

31,766,593

 

 

 

19,940,126

 

 

See accompanying notes to condensed consolidated financial statements

4


 

 Soleno Therapeutics, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

For the Three and Six Months Ended June 30, 2019 and 2018

(unaudited)

(In thousands except share data)

 

 

 

Series B Convertible

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balances at January 1, 2018

 

 

4,571

 

 

$

 

 

 

19,238,972

 

 

$

19

 

 

$

140,495

 

 

$

(113,697

)

 

$

26,817

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

200

 

 

 

 

 

 

 

200

 

Issuance of common stock on conversion of

   series B convertible preferred shares

 

 

(1,000

)

 

 

(—

)

 

 

200,000

 

 

 

1

 

 

 

 

 

 

 

 

 

 

1

 

Issuance of restricted common stock for

   bonuses

 

 

 

 

 

 

 

 

 

 

99,217

 

 

 

 

 

 

159

 

 

 

 

 

 

 

159

 

Issuance of common stock to board members

   in lieu of cash payments for quarterly

   board fees

 

 

 

 

 

 

 

 

 

 

49,519

 

 

 

 

 

 

82

 

 

 

 

 

 

 

82

 

Transaction costs for the 2017 PIPE common

   stock and warrant issuance.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(203

)

 

 

 

 

 

 

(203

)

Issuance of common stock held back on

   acquisition of Essentialis

 

 

 

 

 

 

 

 

 

 

180,667

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,804

)

 

 

(3,804

)

Balances at March 31, 2018

 

 

3,571

 

 

 

 

 

 

19,768,375

 

 

 

20

 

 

 

140,733

 

 

 

(117,501

)

 

 

23,252

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

199

 

 

 

 

 

 

 

199

 

Issuance of common stock on conversion of

   series B convertible preferred shares

 

 

(3,571

)

 

 

(—

)

 

 

714,200

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

(1

)

Issuance of common stock to board members

   in lieu of cash payments for quarterly

   board fees

 

 

 

 

 

 

 

 

 

 

27,925

 

 

 

 

 

 

54

 

 

 

 

 

 

 

54

 

Transaction costs for the 2017 PIPE common

   stock and warrant issuance.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

203

 

 

 

 

 

 

 

203

 

Issuance of common stock held back on

   acquisition of Essentialis

 

 

 

 

 

 

 

 

 

 

903,367

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,058

)

 

 

(7,058

)

Balances at June 30, 2018

 

 

 

 

$

 

 

 

21,413,867

 

 

$

21

 

 

$

141,187

 

 

$

(124,559

)

 

$

16,649

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series B Convertible

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balances at January 1, 2019

 

 

 

 

$

 

 

 

31,755,169

 

 

$

32

 

 

$

157,413

 

 

$

(127,032

)

 

$

30,413

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

202

 

 

 

 

 

 

 

202

 

Issuance of common stock to board members

   in lieu of cash payments for quarterly board fees

 

 

 

 

 

 

 

 

 

 

21,415

 

 

 

 

 

 

46

 

 

 

 

 

 

 

46

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,030

)

 

 

(7,030

)

Balances at March 31, 2019

 

 

 

 

 

 

 

 

31,776,584

 

 

 

32

 

 

 

157,661

 

 

 

(134,062

)

 

 

23,631

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

175

 

 

 

 

 

 

 

175

 

Issuance of common stock to board members

   in lieu of cash payments for quarterly board fees

 

 

 

 

 

 

 

 

 

 

16,708

 

 

 

 

 

 

45

 

 

 

 

 

 

 

45

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,008

)

 

 

(10,008

)

Balances at June 30, 2019

 

 

 

 

$

 

 

 

31,793,292

 

 

$

32

 

 

 

157,881

 

 

$

(144,070

)

 

$

13,843

 

 

See accompanying notes to condensed consolidated financial statements

5


 

Soleno Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(In thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(17,038

)

 

$

(10,862

)

Loss from discontinued operations

 

 

 

 

 

(937

)

Loss from continuing operations

 

 

(17,038

)

 

 

(9,925

)

Adjustments to reconcile net loss from continuing operations to net cash used in

   operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

978

 

 

 

983

 

Stock-based compensation expense

 

 

377

 

 

 

519

 

Board fees paid with common stock

 

 

91

 

 

 

136

 

Change in fair value of stock warrants

 

 

6,186

 

 

 

3,092

 

Change in fair value of contingent consideration

 

 

389

 

 

 

361

 

Operating loss on minority interest investment

 

 

355

 

 

 

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

58

 

 

 

95

 

Due from related party

 

 

46

 

 

 

 

Accounts payable

 

 

806

 

 

 

348

 

Accrued compensation and other current liabilities

 

 

172

 

 

 

(111

)

Net cash used in continuing operating activities

 

 

(7,580

)

 

 

(4,502

)

Net cash used in discontinued operating activities

 

 

 

 

 

(768

)

Net cash used in operating activities

 

 

(7,580

)

 

 

(5,270

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(16

)

 

 

(1

)

Net cash used in continuing investing activities

 

 

(16

)

 

 

(1

)

Net cash used in investing activities

 

 

(16

)

 

 

(1

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net cash provided by discontinued financing activities

 

 

 

 

 

825

 

Net cash provided by financing activities

 

 

 

 

 

825

 

Net decrease in cash, cash equivalents and restricted cash from

   continuing operations

 

 

(7,596

)

 

 

(4,503

)

Net decrease in cash, cash equivalents and restricted cash from

   discontinued operations

 

 

 

 

 

57

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(7,596

)

 

 

(4,446

)

Net increase in cash and cash equivalents included in current assets held for

   sale

 

 

 

 

 

(96

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

23,099

 

 

 

17,135

 

Cash, cash equivalents and restricted cash, end of period

 

$

15,503

 

 

$

12,593

 

 

See accompanying notes to condensed consolidated financial statements.

 


6


 

Soleno Therapeutics, Inc.

June 30, 2019

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1. Overview

Soleno Therapeutics, Inc. (the “Company” or “Soleno”) was incorporated in the State of Delaware on August 25, 1999, and is located in Redwood City, California. On May 8, 2017, Soleno received stockholder approval to amend its Amended and Restated Certificate of Incorporation to change its name from “Capnia, Inc.” to “Soleno Therapeutics, Inc.” The Company is focused on the development and commercialization of novel therapeutics for the treatment of rare diseases. Its lead candidate, Diazoxide Choline Controlled Release tablets, or DCCR, a once-daily oral tablet for the treatment of Prader-Willi Syndrome, or PWS, is currently being evaluated in a Phase III clinical development program.

The Company initially established its operations as a diversified healthcare company that developed and commercialized innovative diagnostics, devices and therapeutics addressing unmet medical needs, which consisted of: precision metering of gas flow technology marketed as Serenz® Allergy Relief, or Serenz, and  the CoSense® End-Tidal Carbon Monoxide Monitor, or CoSense, which measures End-Tidal Carbon Monoxide and aids in the detection of excessive hemolysis, a condition in which red blood cells degrade rapidly and which can lead to adverse neurological outcomes; and, products that included temperature probes, scales, surgical tables, and patient surfaces.

On March 7, 2017, the Company completed its merger, or the Merger, with Essentialis, Inc., a Delaware corporation, or Essentialis, in accordance with the Merger Agreement by and between Soleno Therapeutics and Essentialis dated December 22, 2016, or the Merger Agreement. After the Merger, the Company’s primary focus has been the development and commercialization of novel therapeutics for the treatment of rare diseases. Essentialis was a privately-held, clinical-stage biotechnology company focused on the development of breakthrough medicines for the treatment of rare diseases in which there is increased mortality and risk of cardiovascular and endocrine complications. Prior to the Merger, Essentialiss efforts were focused primarily on developing and testing product candidates that target the ATP-sensitive potassium channel, a metabolically-regulated membrane protein whose modulation has the potential to impact a wide range of rare metabolic, cardiovascular, and central nervous system diseases. Essentialis had tested DCCR as a treatment for PWS, a complex metabolic/neurobehavioral disorder. DCCR has orphan designation for the treatment of PWS in the United States, or U.S., as well as in the European Union, or E.U.

 

Subsequent to the Merger with Essentialis described above, the Company determined to divest, sell or dispose of its business efforts focused on the development and commercialization of its Serenz and CoSense technologies. Accordingly, and pursuant to ASC 205-20-45-10, any assets and liabilities related to the discontinued activities of CoSense and Serenz were presented separately as held for sale items, and the related operations reported herein for the CoSense and Serenz activities are reported as discontinued operations in the statements of operations.

The Company’s current research and development efforts are primarily focused on advancing its lead candidate, DCCR tablets, for the treatment of PWS, through late-stage clinical development.

Note 2. Going Concern and Management’s Plans

The Company had a net loss of $17.0 million during the six months ended June 30, 2019 and has an accumulated deficit of $144.1 million at June 30, 2019, resulting from having incurred losses since its inception. The Company had $13.8 million of working capital at June 30, 2019, and used $7.6 million of cash in its operating activities during the six months ended June 30, 2019. The Company has financed its operations principally through issuances of equity securities.

On December 19, 2018, the Company entered into a Securities Purchase Agreement with certain purchasers, pursuant to which the Company sold and issued 10,272,375 units at a price per unit of $1.61, for aggregate gross proceeds of $16.5 million. Each unit consisted of one share of common stock and a warrant to purchase 0.05 shares of common stock at an exercise price of $2.00 per share, for an aggregate of 10,272,375 shares of common stock and corresponding warrants to purchase an aggregate of 513,617 shares of common stock, together with the shares of common stock are referred to as the 2018 Resale Shares.

The accompanying condensed consolidated financial statements have been prepared under the assumption the Company will continue to operate as a going concern, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern.

The Company expects to continue incurring losses for the foreseeable future and may be required to raise additional capital to complete its clinical trials, pursue product development initiatives and penetrate markets for the sale of its products. Management

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believes that the Company will continue to have access to capital resources through possible public or private equity offerings, debt financings, corporate collaborations or other means, but the Company’s access to such capital resources is uncertain and is not assured. If the Company is unable to secure additional capital, it may be required to curtail its clinical trials and development of new products and take additional measures to reduce expenses in order to conserve its cash in amounts sufficient to sustain operations and meet its obligations. These measures could cause significant delays in the Company’s efforts to complete its clinical trials and commercialize its products, which is critical to the realization of its business plan and the future operations of the Company. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should it be unable to continue as a going concern.

Management believes that the Company does not have sufficient capital resources to sustain operations through at least the next twelve months from the date of this filing. Additionally, in view of the Company’s expectation to incur significant losses for the foreseeable future it will be required to raise additional capital resources in order to fund its operations, although the availability of, and the Company’s access to such resources is not assured. Accordingly, management believes that there is substantial doubt regarding the Company’s ability to continue operating as a going concern within one year from the date of filing these financial statements.

The Company’s current research and development efforts are primarily focused on advancing its lead candidate, DCCR tablets for the treatment of PWS, into late-stage clinical development.

 

Note 3. Summary of Significant Accounting Policies

There have been no material changes to the significant accounting policies during the six months ended June 30, 2019 as compared to the significant accounting policies described in Note 3 of the “Notes to Consolidated Financial Statements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. Below are those policies with current period updates.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, and the applicable rules and regulations of the SEC for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The condensed consolidated balance sheet at December 31, 2018, has been derived from the audited consolidated financial statements at that date, but does not include all disclosures, including notes, required by GAAP for complete financial statements.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. The interim results are not necessarily indicative of the results for any future interim period or for the entire year.

The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2018, included in the Company’s Annual Report on Form 10-K.

Recent Accounting Standards

Recently Adopted Accounting Standards

In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting”, to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. Under the guidance, the measurement of equity-classified nonemployee awards is fixed at the grant date, which may lower the cost and reduce volatility in the income statement. This ASU was early adopted by the Company at the beginning of 2019.  Its adoption did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2018, SEC adopted the final rule under SEC Release No. 33-10532, “Disclosure Update and Simplification”, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders’ equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders’ equity presented in the balance sheet must now be provided in a note or separate statement. The Company has applied this new guidance to its condensed financial statements beginning in the first quarter of 2019.

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Recently Issued Accounting Standards

In February 2016, the FASB issued ASU 2016-02: “Leases (Topic 842)”. ASU 2016-02 provides new comprehensive lease accounting guidance that supersedes existing lease guidance. Upon adoption of ASU 2016-02, the Company may elect to apply the transition approach either as of the beginning of the earliest period presented in the financial statements – in which case it would restate its comparative periods, or as of the beginning of the period of adoption – in which case it would not restate its comparative periods. ASU 2016-02 requires the Company to capitalize most current operating lease obligations as right-of-use assets with a corresponding liability based on the present value of future operating lease obligations. Criteria for distinguishing leases between finance and operating are substantially similar to criteria for distinguishing between capital leases and operating leases in existing lease guidance. Lease agreements that are 12 months or less are permitted to be excluded from the balance sheet. Topic 842 includes a number of optional practical expedients that the Company may elect to apply. Expanded disclosures with additional qualitative and quantitative information will also be required. The adoption will include updates as provided under ASU 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842, ASU 2018-10, Codification Improvements to Topic 842, Leases, ASU 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors and ASU 2019-01, Leases (Topic 842): Codification Improvements. Topic 842 is effective for public entities with fiscal years beginning after December 15, 2018 and for all other entities for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. As the Company is an emerging growth company and elected 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, Topic 842 will be effective for the Company beginning in fiscal 2020, although early adoption is permitted. The Company will adopt the new lease standard effective beginning in the fiscal year beginning January 1, 2020 using a modified retrospective method and will not restate comparative periods. The Company currently believes that its operating lease commitments will be subject to the new standard and recognized as an operating lease liability and right-of-use asset upon the adoption of Topic 842, which will increase the Company’s total assets and total liabilities in its condensed consolidated balance sheet.

In July 2017, the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features; (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception”, (ASU 2017-11). Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. The amendments in Part I of ASU 2017-11 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. As the Company is an emerging growth company and elected 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, this ASU 2017-11 will be effective for the Company beginning in fiscal 2020, although early adoption is permitted. The Company is currently assessing the potential impact of adopting ASU 2017-11 on its condensed consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”. The ASU modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. This ASU is effective for the Company beginning in 2020. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU No. 2018-13 and delay adoption of the additional disclosures until their effective date. The Company has not yet evaluated the impact of adoption of this ASU on its condensed consolidated financial statements disclosures.

Note 4. Fair Value of Financial Instruments

The carrying value of the Company’s cash, restricted cash, cash equivalents and accounts payable, approximate fair value due to the short-term nature of these items.

Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability 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.

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The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:

 

Level I Unadjusted quoted prices in active markets for identical assets or liabilities;

 

Level II Inputs other than quoted prices included within Level I that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

 

Level III Unobservable inputs that are supported by little or no market activity for the related assets or liabilities.  

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands).

 

 

 

Fair Value Measurements at June 30, 2019

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A warrant liability

 

$

51

 

 

$

51

 

 

$

 

 

$

 

Series C warrant liability

 

 

 

 

 

 

 

 

 

 

 

 

2017 PIPE warrant liability

 

 

10,202

 

 

 

 

 

 

 

 

 

10,202

 

2018 PIPE warrant liability

 

 

1,145

 

 

 

 

 

 

 

 

 

1,145

 

Essentialis purchase price contingency liability

 

 

6,038

 

 

 

 

 

 

 

 

 

6,038

 

Total common stock warrant and contingent

   consideration liability

 

$

17,436

 

 

$

51

 

 

$

 

 

$

17,385

 

 

 

 

Fair Value Measurements at December 31, 2018

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A warrant liability

 

$

49

 

 

$

49

 

 

$

 

 

$

 

Series C warrant liability

 

 

 

 

 

 

 

 

 

 

 

 

2017 PIPE warrant liability

 

 

4,563

 

 

 

 

 

 

 

 

 

4,563

 

2018 PIPE warrant liability

 

 

600

 

 

 

 

 

 

 

 

 

600

 

Essentialis purchase price contingency liability

 

 

5,649

 

 

 

 

 

 

 

 

 

5,649

 

Total common stock warrant and contingent

   consideration liability

 

$

10,861

 

 

$

49

 

 

$

 

 

$

10,812

 

 

The Series A Warrant is a registered security that trades on the open market and the fair value of the Series A Warrant liability is based on the publicly quoted trading price of the warrants which is listed on and obtained from NASDAQ. Accordingly, the fair value of Series A Warrants is a Level 1 measurement. The fair value measurement of the Series C Warrants is based on significant inputs that are unobservable and thus represent Level 3 measurements. The Company’s estimated fair value of the Series C Warrant liability is calculated using the Black-Scholes valuation model, which is equivalent to fair value computed using the Binomial Lattice Option Model. Key assumptions include the volatility of the Company’s stock, the expected warrant term, expected dividend yield and risk-free interest rates. The Company’s estimated fair value of the 2017 PIPE Warrants and the 2018 PIPE Warrants was calculated using a Monte Carlo simulation of a geometric Brownian motion model. The Monte Carlo simulation pricing model requires the input of highly subjective assumptions including the expected stock price volatility, the expected term, the expected dividend yield and the risk-free interest rate. The fair value of the Essentialis purchase price contingent liability is estimated using scenario-based methods based upon the Company’s analysis of the likelihood of obtaining specified approvals from the Federal Drug Administration as well as reaching cumulative revenue milestones (see Note 10). The Level 3 estimates are based, in part, on subjective assumptions.

During the periods presented, the Company has not changed the manner in which it values liabilities that are measured at fair value using Level 3 inputs. The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the hierarchy during the periods presented.

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The following table sets forth a summary of the changes in the fair value of the Company’s Level 1 and Level 3 warrants, which are treated as liabilities (dollars in thousands).

 

 

 

Series A Warrant

 

 

Series C Warrant

 

 

2017 PIPE Warrants

 

 

2018 PIPE Warrants

 

 

Purchase Price

 

 

 

Number of

Warrants

 

 

Liability

 

 

Number of

Warrants

 

 

Liability

 

 

Number of

Warrants

 

 

Liability

 

 

Number of

Warrants

 

 

Liability

 

 

Contingent

Liability

 

Balance at December 31, 2018

 

 

485,121

 

 

$

49

 

 

 

118,083

 

 

$

 

 

 

6,024,425

 

 

$

4,563

 

 

 

513,617

 

 

$

600

 

 

$

5,649

 

Change in value of Series A Warrants

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in value of 2017 PIPE Warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,639

 

 

 

 

 

 

 

 

 

 

Change in value of 2018 PIPE Warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

545

 

 

 

 

Change in value of contingent liability