What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-07-28 compared with 2022-05-09 · 64 added, 40 removed, 121 unchanged (46% of the section changed)

3 unchanged sentences

As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report, our actual results could differ materially from the results described in, or implied by, these forward-looking statements.

We are a clinical-stage biopharmaceutical company focused on the development and commercialization of novel medications for CNS disorders with a focus on abuse-deterrent medications.

We are a clinical-stage biopharmaceutical company focused on the development and commercialization of novel abuse-deterrent medications for CNS disorders.

Our lead investigational product candidate, ADAIR, is a proprietary, abuse-deterrent oral formulation of immediate-release dextroamphetamine (the main active ingredient in Adderall®), which we were developing for the treatment of attention-deficit/hyperactivity disorder (ADHD) and narcolepsy.

10 unchanged sentences

ADAIR scored similarly to what was observed in an earlier proof-of-concept study, however, reference dextroamphetamine did not score as high as expected and as seen in the previous study, thus driving the lack of statistical significance.

The SEAL study did meet all pharmacodynamic secondary endpoints including Overall Drug Liking and willingness to Take Drug Again at 12 and 24 hours post-dosing, demonstrating statistical significance.

We are continuing to assess the best path forward for the ADAIR and ADMIR development programs.

8 unchanged sentences

The global COVID-19 pandemic continues to present uncertainty and unforeseeable new risks to our operations and business plan.

We have closely monitored recent COVID-19 developments, including the lifting of COVID-19 safety measures, the drop in vaccination rates, the implementation of, and reaction to, vaccine mandates, the spread of various coronavirus strains such as the Delta variant, and supply chain and labor shortages.

In light of these developments, the full impact of the COVID-19 pandemic on our business, operations and clinical development plans remains uncertain and will vary depending on the pandemic’s future impact on our clinical trial enrollment, clinical trial sites, CROs, third-party manufacturers, and other third parties with whom we do business, as well as any legal or regulatory consequences resulting therefrom.

We have closely monitored recent COVID-19 developments, including the lifting of COVID-19 safety measures, the drop in vaccination rates, the implementation of, and reaction to, vaccine mandates, the spread of new strains or variants of the coronavirus (such as the Delta and Omicron variants), and supply chain and labor shortages.

In light of these developments, the full impact of the COVID-19 pandemic on our business, operations and clinical development plans remains uncertain and will vary depending on the pandemic’s future impact on our clinical trial enrollment (including our ability to recruit and retain patients), clinical trial sites, CROs, third-party manufacturers, and other third parties with whom we do business, as well as any legal or regulatory consequences resulting therefrom.

To the extent possible, we are conducting business as usual, with necessary or advisable modifications to employee travel and with most of our employees and consultants working remotely.

1 unchanged sentence

Financial Operations Overview

Licensing Revenues - Related Party

To date, we have not generated any revenue from the sale of any products, and we do not expect to generate significant revenues unless or until we obtain regulatory approval of and commercialize ADAIR.

Substantially all of our revenue to date has been generated by the license agreement with Medice from which we received a $0.1 million license fee in January 2020.

No licensing revenue was received during the three months ended March 31, 2022 or 2021.

We do not expect to generate any additional revenue from the license agreement with Medice in the near future.

Research and Development Expenses

15 unchanged sentences

General and administrative expenses consist primarily of compensation and consulting related expenses for executives and other administrative personnel, professional fees and other corporate expenses, including legal and accounting fees, travel expenses, facilities-related expenses, and consulting services relating to our formation and corporate matters.

We anticipate increased costs associated with being a public company, including expenses related to services associated with maintaining compliance with The Nasdaq Capital Market and SEC requirements, directors and officers insurance, increased legal and accounting costs and investor relations costs.

Our general and administrative expenses may also increase due to increases in professional and advisory fees as we evaluate our strategic alternatives.

We incur costs associated with being a public company, including expenses related to services associated with maintaining compliance with The Nasdaq Capital Market and SEC requirements, directors and officers insurance, legal and accounting costs and investor relations costs.

Our general and administrative expenses may increase due to increases in professional and advisory fees as we evaluate our strategic alternatives.

Other income consists of income recognized as a result of the extinguishment of the promissory note issued to us under the Paycheck Protection Program (PPP) as a result of the forgiveness of the note.

5 unchanged sentences

Upon the conversion of the 2021 Convertible Notes to common stock at the closing of the IPO, the embedded derivative liability was remeasured and removed from the balance sheet.

Warrant Liability and Change in Fair Value

We evaluated the warrants issued in connection with the May 2022 registered direct financing in accordance with ASC 815-40, Derivatives and Hedging — Contracts in Entity’s Own Equity (ASC 815-40), and concluded that a provision in the warrants related to the reduction of the exercise price in certain circumstances precludes the warrants from being accounted for as components of equity.

As the warrants meet the definition of a derivative as contemplated in ASC 815, the warrants are recorded as derivative liabilities on the Balance Sheets and measured at fair value at inception and at each reporting date in accordance with ASC 820, Fair Value Measurement , with changes in fair value recognized in the Statements of Operations and Comprehensive Loss in the period of change.

Interest Expense, net

1 unchanged sentence

Results of Operations

Comparison of the Three Months Ended March 31, 2022 and 2021

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

The following table summarizes the results of our operations for the periods indicated (in thousands):

Three Months Ended

License revenue-from related party $ — $ —

Three Months Ended June 30,

Operating expenses:

3 unchanged sentences

Loss from operations (1,506) (2,310)

Change in fair value of warrant liability (266) —

Interest expense, net (1) (2)

Net loss $ (1,773) $ (2,312)

Research and Development Expenses

Research and development expenses were $0.3 million and $1.2 million for the three months ended June 30, 2022 and 2021, respectively.

The $0.9 million decrease in research and development expenses was primarily due to a decrease of $0.8

million in expenses related to the registration development program of ADAIR and a decrease of $0.1 million in personnel expenses, including stock-based compensation expense.

General and Administrative Expenses

General and administrative expenses were $1.2 million and $1.1 million for the three months ended June 30, 2022 and 2021.

The $0.1 million increase in general and administrative expenses was primarily due to a $0.3 million increase in public company expense and consulting fees offset by a $0.2 million decrease in personnel expense, including stock-based compensation, and insurance expenses.

Change in Fair Value of Warrant Liability

In May 2022, we issued 3,700,000 shares of common stock pursuant to a securities purchase agreement at a purchase price of $1.0632 per share in a registered direct offering.

In connection with the registered direct offering, we issued warrants to purchase an aggregate of 3,700,000 shares of common stock at an exercise price of $0.9382 per share.

The warrants were classified as a liability in accordance with ASC 815-40 and the fair value of $1.3 million was recorded as a liability at inception.

The change in fair value of $0.3 million represents the increase in the fair value of the warrant liability from $1.3 million at inception to $1.6 million at June 30, 2022.

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

The following table summarizes the results of our operations for the periods indicated (in thousands):

Six Months Ended June 30,

Operating expenses:

Research and development 1,548 2,974

General and administrative 2,592 1,938

Total operating expenses 4,140 4,912

Loss from operations (4,140) (4,912)

Other income — 61

Revaluation of derivative liability — (89)

Change in fair value of warrant liability (266) —

Interest expense, net (2) (10)

1 unchanged sentence

Research and Development Expenses

Research and development expenses were $1.3 million and $1.8 million for the three months ended March 31, 2022 and 2021, respectively.

Research and development expenses were $1.5 million and $3.0 million for the six months ended June 30, 2022 and 2021, respectively.

The $1.5 million decrease in research and development expenses was primarily due to a decrease of $1.5 million in expenses related to the registration development program of ADAIR.

General and Administrative Expenses

General and administrative expenses were $1.4 million and $0.8 million for the three months ended March 31, 2022 and 2021, respectively.

The $0.5 million increase was primarily related to increased costs for directors and officers insurance of $0.2 million, personnel expenses, including stock compensation, of $0.1 million, public company expenses of $0.1 million and consulting fees of $0.1 million.

In May 2020, we issued a promissory note under the PPP totaling $61,000.

As of December 31, 2020, we had utilized the entire proceeds from such note for payroll costs (greater than 75%), costs related to health care benefits and rent payments.

In January 2021, we were notified that the note along with accumulated interest had been forgiven.

As a result, we recorded income from the extinguishment of the obligation in accordance with ASC 405-20-40-1.

General and administrative expenses were $2.6 million and $1.9 million for the six months ended June 30, 2022 and 2021, respectively.

The $0.7 million increase was primarily related to increased costs for public company expenses of $0.3 million, consulting fees of $0.2 million, insurance expense of $0.1 million and personnel expense, including non-cash stock compensation, of $0.1 million.

In May 2020, the Company issued a promissory note under the PPP totaling $61,000.

As of December 31, 2020, the Company had utilized the entire proceeds from such note for payroll costs (greater than 75%), costs related to health care benefits and rent payments and in January 2021, the Company was notified that the note along with accumulated interest had been forgiven.

As the PPP note was forgiven, the Company recorded income from the extinguishment of its obligation in accordance with ASC 405-20-40-1.

Revaluation of Derivative Liability

During the three months ended March 31, 2021, pursuant to ASC 815, we revalued the embedded derivative liability associated with the 2021 Convertible Notes, resulting in an $89,000 decrease in the fair value of the derivative liability.

Interest Expense, net

Interest expense, net, was $1,000 and $8,000 for the three months ended March 31, 2022 and 2021, respectively.

During the six months ended June 30, 2022, pursuant to ASC-815, we revalued the embedded derivative liability associated with the 2021 Convertible Notes, resulting in $89,000 in the fair value of the derivative liability associated with the 2021 Convertible Notes.

Change in Fair Value of Warrant Liability

In May 2022, we issued 3,700,000 shares of common stock pursuant to a securities purchase agreement at a purchase price of $1.0632 per share in a registered direct offering.

In connection with the registered direct offering, we issued warrants to purchase an aggregate of 3,700,000 shares of common stock at an exercise price of $0.9382 per share.

The warrants were classified as a liability in accordance with ASC 815-40 and the fair value of $1.3 million was recorded as a liability at inception.

The change in fair value of $0.3 million represents the increase in the fair value of the warrant liability from $1.3 million at inception to $1.6 million at June 30, 2022.

Liquidity and Capital Resources

Since inception, we have incurred losses and expect to continue to incur losses for the foreseeable future.

We incurred net losses of $2.6 million for each the three months ended March 31, 2022 and 2021.

As of March 31, 2022, we had an accumulated deficit of $24.5 million.

In March 2022, we announced that the SEAL study of ADAIR for the treatment of ADHD did not meet statistical significance for its primary endpoint.

We are continuing to evaluate the best path forward for the ADAIR and ADMIR programs and have also commenced a process of evaluating strategic alternatives to maximize stockholder value.

We have financed our working capital requirements to date through the issuance of common stock, convertible notes, short-term promissory notes, and a PPP promissory note.

As of March 31, 2022, we had $5.2 million in cash, cash equivalents and marketable securities.

We incurred net losses of $4.4 million and $5.0 million for the six months ended June 30, 2022 and 2021, respectively.

As of June 30, 2022, we had an accumulated deficit of $26.3 million.

We have financed our working capital requirements to date through the issuance of common stock, warrants, convertible notes, short-term promissory notes, and a PPP promissory note.

As of June 30, 2022, we had $5.2 million in cash and cash equivalents.

The following table summarizes our cash flows for the periods indicated (in thousands):

Three Months Ended March 31,

Six Months Ended June 30,

Net cash provided by (used in):

2 unchanged sentences

Financing activities 3,401 15,791

Net increase (decrease) in cash and cash equivalents $ (1,159) $ 12,871

Net increase in cash and cash equivalents $ 1,519 $ 10,351

Cash Flows from Operating Activities

For the three months ended March 31, 2022 and 2021, $2.3 million and $2.9 million were used in operating activities, respectively.

The $0.6 million decrease was primarily due to a $0.8 million decrease in prepaid and other current assets and a $0.2 million decrease in accounts payable, offset by increases accrued expenses of $0.4 million.

For the six months ended June 30, 2022 and 2021, $3.9 million and $5.4 million were used in operating activities, respectively.

The $1.6 million decrease was primarily due to a $0.6 million decrease in our net loss as well as a decrease in cash used for prepaid expense and other assets and accounts payable of $1.4 million, offset by a $0.4 million increase in cash used for accrued expenses.

Cash Flows from Investing Activities

Net cash provided by investing activities was $1.2 million for the three months ended March 31, 2022, which was related to the sale of marketable securities.

Net cash used in investing activities was $2.0 million for the six months ended June 30, 2022, which was related to purchases and sales of marketable securities.

Cash Flows from Financing Activities

Net cash used in financing activities was $23,000 for the three months ended March 31, 2022, which was related to payments of our finance lease.

Net cash provided by financing activities was $15.8 million for the three months ended March 31, 2021 and was primarily related to the net proceeds from our IPO and 2021 Convertible Notes financings.

Net cash provided by financing activities was $3.4 million during the six-month period ended June 30, 2022, which was related to net proceeds of $3.4 million from the sale of common stock and warrants in a registered direct financing in May 2022 offset by payments related to our finance lease of $46,000.

Net cash provided by financing activities was $15.8 million for the six months ended June 30, 2021 and was primarily related to the net proceeds from our IPO and 2021 Convertible Notes financings.

2021 Convertible Note Financing

In January 2021, we entered into a Convertible Promissory Note Purchase Agreement with certain existing stockholders, including SALMON Pharma GmbH (Salmon Pharma), an affiliate of Medice, and David Baker, our Chief Executive Officer, pursuant to which we issued convertible promissory notes (the 2021 Convertible Notes) for cash proceeds of $350,000.

we issued convertible promissory notes (the 2021 Convertible Notes) for cash proceeds of $350,000.

The 2021 Convertible Notes bear an interest rate of 7.0% per annum, non-compounding, and had a maturity date of September 30, 2021.

The 2021 Convertible Notes were convertible into shares of our capital stock offered to investors in any subsequent equity financing after the date of their issuance in which we issued any of our equity securities (a Qualified Financing) and were convertible at a twenty percent discount to the price per share offered in such Qualified Financing.

Such Qualified Financing included the initial public offering of our common stock, consummated in February 2021;

Such Qualified Financing included the initial public offering of our common stock, consummated on February 12, 2021;

therefore, the 2021 Convertible Notes converted into an aggregate of 54,906 shares of our common stock immediately prior to the closing of the IPO, as agreed upon among the parties thereto.

24 unchanged sentences

The Company’s critical accounting policies are described in Note 3, “Summary of Significant Accounting Policies,” in the Company’s Annual Report on Form 10-K filed with the SEC on February 14, 2022.

There have been no material changes to the significant accounting policies during the three months ended March 31, 2022, except for items mentioned in Note 3 of the unaudited interim financial statements in this Quarterly Report on Form 10-Q.

There have been no material changes to the significant accounting policies during the six months ended June 30, 2022, except for items mentioned in Note 3 of the unaudited interim financial statements in this Quarterly Report on Form 10-Q.

Emerging Growth Company Status

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging growth company for up to five years.

For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies.

For so long as we remain an emerging growth company, we are permitted

and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies.

These exemptions include:

9 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis