What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-03 compared with 2022-07-28 · 59 added, 38 removed, 147 unchanged (40% of the section changed)

14 unchanged sentences

All subjects were non-dependent recreational stimulant users with an additional history of recreational intranasal drug use.

The SEAL study did not meet its primary endpoint, which was E max Drug Liking.

The SEAL study did not meet its primary endpoint, which was Emax Drug Liking.

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.

41 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

Warrant Liability, Change in Fair Value and Warrant Conversion

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

Interest expense, net, consists of interest earned on our cash, cash equivalents and marketable securities held with institutional banks, the amortization of discounts and accretion of premiums on marketable securities and interest expense on our finance lease of equipment utilized in the commercial scale manufacturing of ADAIR.

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 accompanying Statements of Operations and Comprehensive Loss in the period of change.

The derivative liabilities will ultimately be converted into the Company’s common stock when the warrants are exercised, or will be extinguished upon expiry of the warrant term.

Upon exercise, the intrinsic value of the shares issued is transferred to stockholders’ equity.

The difference between the intrinsic value of the stock issued and the fair value of the warrant is recorded as gain or loss on the exchange in the accompanying Statements of Operations and Comprehensive Loss in the period of exercise.

Interest Income (Expense), net

Interest income (expense), net, consists of interest earned on our cash, cash equivalents and marketable securities held with institutional banks, the amortization of discounts and accretion of premiums on marketable securities and interest expense on our finance lease of equipment utilized in the commercial scale manufacturing of ADAIR.

Results of Operations

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

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

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

Three Months Ended June 30,

Three Months Ended

September 30,

Operating expenses:

4 unchanged sentences

Change in fair value of warrant liability 757 —

Interest expense, net (1) (2)

Loss on warrant conversion (388) —

Interest income (expense), net 2 (4)

Net loss $ (1,033) $ (1,257)

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.

Research and development expenses were $(18,000) and $0.2 million for the three months ended September 30, 2022 and 2021, respectively.

The $0.2 million decrease in research and development expenses was primarily due to a $0.2 million decrease in personnel expenses, including the reversal of stock compensation.

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

General and administrative expenses were $1.4 million and $1.0 million for the three months ended September 30, 2022 and 2021, respectively.

The $0.4 million increase was primarily related an increase in expenses and fees of $0.6 million as a result of our evaluation of strategic alternatives, offset by a decrease in personnel expenses, including stock compensation, of $0.2 million.

Change in Fair Value of Warrant Liability and Loss on Warrant Conversion

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.

1 unchanged sentence

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

On July 25, 2022, we amended the terms of the warrants issued in May 2022 to obligate each warrant holder who signed the warrant amendment (Applicable Holder) to effect a cashless exercise, in whole, by August 10, 2022 (the Expiration Date).

The warrant amendment entitled the Applicable Holder to receive one share of common stock for each warrant in lieu of the aggregate number of shares of common stock that would have been received using the cashless exercise formula set forth in the warrant agreement (Alternate Cashless Exercise).

If the warrants held by the Applicable Holders were not exercised by the Expiration Date, they were automatically exercised pursuant to the Alternate Cashless Exercise.

A total of 2,220,000 warrants were exercised pursuant to the Alternate Cashless Exercise.

As a result of the warrant conversion, we recognized a $0.6 million reversal of the warrant liability and a loss of $0.4 million.

The change in fair value of $0.8 million represents a decrease in the fair value of the warrants outstanding during the three months ended September 30, 2022.

Interest Income (Expense), net

Interest income, net, was $2,000 for the three months ended September 30, 2022.

Interest expense, net, was $4,000 for the three months ended September 30, 2021.

Comparison of the Nine Months Ended September 30, 2022 and 2021

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

Six Months Ended June 30,

Nine Months Ended

September 30,

License revenue-from related party $ — $ —

Operating expenses:

6 unchanged sentences

Change in fair value of warrant liability 490 —

Loss on warrant conversion (388) —

Interest expense, net — (14)

1 unchanged sentence

Research and Development Expenses

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.

Research and development expenses were $1.5 million and $3.2 million for the nine months ended September 30, 2022 and 2021, respectively.

The $1.7 million decrease in research and development expenses was primarily due to decreases of $1.3 million in expenses related to the registration development program of ADAIR, decreases in personnel expense, including non-cash stock compensation, of $0.3 million and decreases in consulting expenses of $0.1 million.

General and Administrative Expenses

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.

General and administrative expenses were $4.0 million and $3.0 million for the nine months ended September 30, 2022 and 2021, respectively.

The $1.0 million increase was primarily related to increased expenses and fees as a result of our evaluation of strategic alternatives.

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

2 unchanged sentences

Revaluation of Derivative Liability

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

During the nine months ended September 30, 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 associated with the 2021 Convertible Notes.

Change in Fair Value of Warrant Liability and Loss on Warrant Conversion

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.

1 unchanged sentence

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.

If the warrants held by the Applicable Holders were not exercised by the Expiration Date, they were automatically exercised pursuant to the Alternate Cashless Exercise.

A total of 2,220,000 warrants were exercised pursuant to the Alternate Cashless Exercise.

As a result of the warrant conversion, we recognized a $0.6 million reversal of the warrant liability and a loss of $0.4 million.

The change in fair value of $0.5 million represents the decrease in the fair value of the warrant liability from inception to September 30, 2022.

Interest Expense, net

Interest expense was $50,000 and $24,000 for the nine months ended September 30, 2022 and 2021, respectively.

Interest income was $50,000 and $10,000 for the nine months ended September 30, 2022 and 2021, respectively.

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 $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 incurred net losses of $5.4 million and $6.2 million for the nine months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022, we had an accumulated deficit of $27.3 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.

As of September 30, 2022, we had $4.7 million in cash and cash equivalents.

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

Six Months Ended June 30,

Nine Months Ended September 30, 2022

Net cash provided by (used in):

4 unchanged sentences

Cash Flows from Operating Activities

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.

For the nine months ended September 30, 2022 and 2021, $5.8 million and $6.7 million were used in operating activities, respectively.

The $0.9 million decrease was primarily due to a $0.8 million decrease in our net loss.

Cash Flows from Investing Activities

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.

Net cash used in investing activities was $3.4 million for the nine months ended September 30, 2022, which was primarily related to the net purchase of marketable securities.

Cash Flows from Financing Activities

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.

Net cash provided by financing activities was $3.4 million during the nine-month period ended September 30, 2022, which was related to the net proceeds from our registered direct financing in May 2022.

Net cash provided by financing activities was $15.8 million for the nine months ended September 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.

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

27 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 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.

There have been no material changes to the significant accounting policies during the nine months ended September 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