What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-03-17 compared with 2020-03-13 · 190 added, 182 removed, 373 unchanged (50% of the section changed)

4 unchanged sentences

Statements of Operations and Comprehensive Loss for the years ended December 31, 2020 and 2019

Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit) for the years ended December 31, 2019 and 2018

Statements of Stockholders' Equity for the years ended December 31, 2020 and 2019

Statements of Cash Flows for the years ended December 31, 2020 and 2019

Notes to Financial Statements

Report of Independent Regist ered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors

2 unchanged sentences

We have audited the accompanying balance sheets of Verrica Pharmaceuticals Inc.

(the Company) as of December 31, 2019 and 2018, the related statements of operations and comprehensive loss, convertible preferred stock and stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively, the financial statements).

(the Company) as of December 31, 2020 and 2019, the related statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with U.S.

27 unchanged sentences

Operating lease right-of-use asset

Other non-current assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

1 unchanged sentence

Accounts payable

Accrued expenses

Accrued expenses and other current liabilities

Operating lease liability

Accounts payable and accrued expenses - related party

Deferred revenue

Current debt, net

Total current liabilities

13 unchanged sentences

Accumulated deficit

Accumulated other comprehensive gain/(loss)

Accumulated other comprehensive gain

Total stockholders’ equity

12 unchanged sentences

Interest income

Interest expense

Other expense

Total other income

Total other (expense)/income

Net loss per share, basic and diluted

1 unchanged sentence

Other comprehensive loss:

Unrealized gain/(loss) on marketable securities

Unrealized (loss)/gain on marketable securities

Comprehensive loss

1 unchanged sentence

VERRICA PHARMACEUTICALS INC.

STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

Series A Convertible

Series B Convertible

Series C Convertible

Stockholders’

Preferred Stock

Comprehensive

3 unchanged sentences

Exercise of stock options

Conversion of preferred

stock into common stock

Series C convertible preferred

Issuance costs for Series C

Issuance of common stock

in connection with IPO,

net of offering costs

Unrealized loss on marketable

Balance as of December 31,

Stock-based compensation

Exercise of stock options

Subscription receivable (Note 9)

2 unchanged sentences

Balance as of December 31,

Stock-based compensation

Repurchased and retired common stock

Exercise of stock options

Repayment of subscription receivable (Note 9)

Unrealized loss on marketable

Balance as of December 31,

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

8 unchanged sentences

Depreciation expense

Noncash interest expense on debt

Amortization on operating lease right-of-use asset

4 unchanged sentences

Accounts payable and accrued expenses - related party

Deferred revenue

Operating lease liability

5 unchanged sentences

Increase in deposits

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities

Cash flows from financing activities

Proceeds from the issuance of common stock in connection with IPO

Payment of offering cost in connection with issuance of common stock in

connection with IPO

Proceeds from exercise of stock options

Proceeds received from issuance of Series C preferred stock

Stock issuance costs related to Series C preferred stock

Proceeds from issuance of debt, net

Debt issuance cost

Repayment of subscription receivable

Net cash provided by financing activities

Net (decrease) increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at the beginning of the year

Cash and cash equivalents at the end of the year

Supplemental disclosure of cash flow information:

Cash paid for interest

Supplemental disclosure of noncash investing and financing activities:

Change in unrealized gain/(loss) on marketable securities

Property and equipment purchases payable or accrued at period end

Subscription receivable on exercise of options

Conversion of preferred stock into common stock

Accrual for purchases of property, plant and equipment

Right-of-use asset obtained in exchange for lease obligation

Change in unrealized gain/(loss) on marketable securities

Cash paid for interest

Debt issuance costs included in accrued expenses at year end

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

5 unchanged sentences

The Company is a dermatology therapeutics company committed to the development and commercialization of novel treatments that provide meaningful benefit for people living with skin diseases.

Reverse Stock Split

On June 4, 2018, the Company effected a 1.714-for-one reverse stock split of Company’s common stock.

No fractional shares were issued in connection with the stock split.

The par value and other terms of the common stock were not affected by the stock split.

All share and per share amounts, including stock options, have been retroactively adjusted in these financial statements for all periods presented to reflect the 1.714-for-one reverse stock split.

Further, exercise prices of stock options have been retroactively adjusted in these financial statements for all periods presented to reflect the 1.714-for-one reverse stock split.

The number of shares of the Company’s preferred stock were not affected by the reverse stock split;

however, the conversion ratios were adjusted to reflect the reverse stock split.

Liquidity and Capital Resources

1 unchanged sentence

As of December 31, 2020, the Company had an accumulated deficit of $ 103.9 million.

On February 20, 2018 and March 7, 2018, the Company issued an aggregate of 4,606,267 shares of Series C convertible preferred stock, at an issuance price of $4.559 per share, for gross proceeds of $21.0 million.

On June 19, 2018, the Company completed an initial public offering (“IPO”) of its common stock, which resulted in the issuance and sale of 5,750,000 shares of its common stock at a public offering price of $15.00 per share, generating net proceeds of $78.4 million after deducting underwriting discounts and other offering costs.

Upon the closing of the IPO, all outstanding shares of the Company’s Series A, Series B and Series C convertible preferred stock were automatically converted into 16,246,872 shares of the Company’s common stock.

In addition, upon the closing of the IPO, the Company’s amended and restated certificate of incorporation authorized the Company to issue up to 200,000,000 shares of common stock, $0.0001 par value per share, and 10,000,000 shares of preferred stock, $0.0001 par value per share, all of which shares of preferred stock are undesignated.

In March 2020, the Company entered into a Mezzanine Loan Agreement (Note 11), pursuant to which the Company borrowed (i) $ 35.0 million in March 2020 that remains outstanding as of December 31, 2020 and (ii) $ 5.0 million on March 1, 2021.

On March 17, 2021, the Company entered into the Torii Agreement (Note 13), pursuant to which Torii is obligated to make an upfront payment of $ 11.5 million.

As discussed in Note 12, the Mezzanine Loan Agreement was amended on October 26, 2020 and now includes a minimum liquidity covenant.

If the Company is not in compliance with the minimum liquidity ratio covenant, the outstanding debt and any related final payment fees, prepayment fees, and accrued interest become due upon demand.

The Company believes that, without additional financing, it is probable that it will not be in compliance with the minimum liquidity ratio covenant at some point in the next twelve months.

Even if the Company is not in compliance with the minimum liquidity covenant and the debt becomes due, management believes the Company currently has sufficient funds to meet its operational requirements for at least the next twelve months from the issuance of these financial statements.

Note 2—Significant Accounting Policies

3 unchanged sentences

The Company’s functional currency is the U.S.

The Company has been actively monitoring the novel coronavirus (“COVID-19”) pandemic and its impact globally.

Management believes the financial results for the year ended December 31, 2020 were not significantly impacted by COVID-19.

In addition, management believes the remote working arrangements, travel restrictions and any other regulations imposed by various governmental jurisdictions have had limited impact on the Company’s ability to maintain internal operations during the year.

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.

As a direct result of COVID-19, the Company decided to delay the initiation of its previously planned Phase 3 clinical trials to evaluate VP-102 in subjects with common warts as well as its previously planned Phase 2 clinical trial to evaluate VP-103 in subjects with plantar warts.

Use of Estimates

1 unchanged sentence

The most significant estimates in the Company’s financial statements relate to the valuation of common stock and stock options.

These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources.

other sources.

Actual results may differ materially and adversely from these estimates.

7 unchanged sentences

There were no marketable securities with a maturity of greater than one year as of December 31, 2020.

Unrealized gains and losses on marketable debt securities are recorded as a separate component of accumulated other comprehensive loss included in stockholders’ equity.

Unrealized gains and losses on marketable debt securities are recorded as a separate component of accumulated other comprehensive gain or loss included in stockholders’ equity.

Concentrations of Credit Risk and Off-Balance Sheet Risk

13 unchanged sentences

Fair value is generally determined using discounted cash flows.

No impairment losses have been recorded since inception.

No impairment losses have been recorded during the years ended December 31, 2020 or 2019.

Research and Development Costs

12 unchanged sentences

Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions, and other events and circumstances from non-owner sources.

For the year ended December 31, 2019, comprehensive loss includes net loss and unrealized gain (loss) on marketable securities.

For the years ended December 31, 2020 and 2019, comprehensive loss includes net loss and unrealized gain (loss) on marketable securities.

Stock-Based Compensation

1 unchanged sentence

The Company uses the Black-Scholes option-pricing model to value its stock option awards.

For stock-based awards granted to employees, non-employees and to members of the board of directors for their services, the Company estimates the grant date fair value of each option award and recognizes employee compensation expense on a straight-line basis over the vesting period of the award.

For stock-based awards granted to employees, non-employees and to members of the board of directors for their services, the Company estimates the grant date fair value of each option award and recognizes compensation expense on a straight-line basis over the vesting period of the award.

The use of the Black‑Scholes option-pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk‑free interest rates, and, for grants prior to the Company’s IPO, the value of the common stock.

1 unchanged sentence

The simplified method is based on the average of the vesting tranches and the contractual life of each grant.

The Company historically has been a private company and lacks

company-specific historical and implied volatility information.

The Company historically has been a private company and lacks company-specific historical and implied volatility information.

Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies.

1 unchanged sentence

Treasury notes with a term approximating the expected life of the option.

Expected dividend yield is zero based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

Expected dividend yield is zero based on the fact that the Company has never paid cash dividends and does no t expect to pay any cash dividends in the foreseeable future.

The fair value of restricted stock awards are based on the closing price of the Company’s common stock on the grant date.

15 unchanged sentences

Recently Adopted Accounting Pronouncements

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 , which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with the movement amongst or hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements.

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

The adoption of this guidance as of January 1, 2020 did not have an impact on the financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles–Goodwill and Other–Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract , which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).

The guidance also requires the entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement, which includes reasonably certain renewals.

The guidance becomes effective for the Company in the year ending December 31, 2020.

The adoption of this guidance as of January 1, 2020 did not have an impact on the financial statements.

In June 2018, the FASB issued ASU No.

2 unchanged sentences

Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees.

The changes take effect for public companies for fiscal years starting after December 15, 2018, including interim periods within that fiscal year.

changes take effect for public companies for fiscal years starting after December 15, 2018, including interim periods within that fiscal year.

The Company adopted this ASU as of January 1, 2019 and recorded an adjustment to accumulated deficit and additional paid-in capital of $ 98,000 .

1 unchanged sentence

For public companies, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a modified retrospective approach and early adoption is permitted.

In transition, entities may also

elect a package of practical expedients that must be applied in its entirety to all leases commencing before the adoption date, unless the lease is modified, and permits entities to not reassess (a) the existence of a lease, (b) lease classification or (c) determination of initial direct costs, as of the adoption date, which effectively allows entities to carryforward accounting conclusions under previous GAAP.

In transition, entities may also elect a package of practical expedients that must be applied in its entirety to all leases commencing before the adoption date, unless the lease is modified, and permits entities to not reassess (a) the existence of a lease, (b) lease classification or (c) determination of initial direct costs, as of the adoption date, which effectively allows entities to carryforward accounting conclusions under previous GAAP.

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842):

3 unchanged sentences

See Note 10 for additional information.

Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

Early adoption is permitted upon issuance of the update.

The Company does not expect the adoption of this guidance to have a material impact on its financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles–Goodwill and Other–Internal-Use Software (Subtopic 350-40):

The guidance becomes effective for the Company in the year ending December 31, 2020 and early adoption is permitted.

The Company does not expect the adoption of this guidance to have a material impact on its financial statements.

Note 3—Investments in Marketable Securities

Investments in marketable securities consisted of the following as of December 31, 2020 and 2019 (in thousands):

December 31, 2019

As of December 31, 2020

treasury securities

2 unchanged sentences

Total marketable securities

December 31, 2018

As of December 31, 2019

treasury securities

2 unchanged sentences

Total marketable securities

Unrealized gains and losses on marketable securities are recorded as a separate component of accumulated other comprehensive gain (loss) included in stockholders’ equity.

Realized gains (losses) are included in interest

income (expense) in the statement of operations and comprehensive loss on a specific identification basis.

The Company did not record any realized gains or losses during the years ended December 31, 2019 and 2018.

To date, the Company has not recorded any impairment charges on marketable securities related to other-than-temporary declines in market value.

Unrealized gains and losses on marketable debt securities are recorded as a separate component of accumulated other comprehensive gain (loss) included in stockholders’ equity.

Realized gains (losses) are included in interest income (expense) in the statement of operations and comprehensive loss on a specific identification basis.

The Company recorded nominal realized gains and losses during the years ended December 31, 2020 and 2019.

The Company has not recorded any impairment charges on marketable securities related to other-than-temporary declines in market value during the years ended December 31, 2020 or 2019.

Accretion of bond discount on marketable securities and interest income on marketable securities is recorded as interest income on the statement of operations and comprehensive loss.

There were no marketable securities with a maturity of greater than one year for either period presented.

Unrealized gains and losses on marketable debt securities are recorded as a separate component of accumulated other comprehensive gain (loss) included in stockholders’ equity.

The following tables presents fair value by level in accordance with ASC 820 (see Note 2) of the Company’s marketable securities (in thousands):

10 unchanged sentences

As of December 31,

Leasehold improvements

Office furniture and fixtures

Machinery and equipment

Leasehold improvements

Office equipment

5 unchanged sentences

Note 5—Related Party Transactions

Prior to the IPO, the Company was controlled by PBM VP Holdings, LLC (“PBM VP Holdings”) an affiliate of PBM Capital Group, LLC (“PBM”).

Prior to the completion of the initial public offering (“IPO”) of the Company’s common stock in June 2018, the Company was controlled by PBM VP Holdings, LLC (“PBM VP Holdings”) an affiliate of PBM Capital Group, LLC (“PBM”).

Manning, who is the Chairman and Chief Executive Officer of PBM and the current chairman of the Company’s Board of Directors, and certain entities affiliated with Mr.

Manning, continue to be the Company’s largest shareholder on a collective basis.

On December 2, 2015, the Company entered into a Services Agreement (a “SA”) with PBM.

On December 2, 2015, the Company entered into a Services Agreement (the “SA”) with PBM.

Pursuant to the terms of the SA, which had an initial term of twelve months (and was automatically renewable for successive monthly periods), PBM rendered advisory and consulting services to the Company.

Services provided under the SA included certain business development, operations, technical, contract, accounting and back office support services.

In consideration for these services, the Company was obligated to pay PBM a monthly management fee of $2,500.

On March 29, 2018, the Company amended the SA with PBM, effective as of April 1, 2018, increasing the monthly fee to $50,000.

On January 1, 2019 and October 1, 2019, the SA was amended to reduce the monthly management fee to $26,333 and $5,000, respectively, as a result of a reduction in services provided by PBM.

In consideration for these services, the Company was obligated to pay PBM a monthly management fee.

On January 1, 2019, the Company amended the SA with PBM, decreasing the monthly fee to $ 26,333 .

On October 1, 2019, the SA was amended to reduce the monthly management fee to $ 5,000 as a result of a reduction in services provided by PBM.

For the years ended December 31, 2020 and 2019, the Company incurred expenses under the SA of $ 60,000 and $ 252,500 , respectively, which were primarily included in general and administrative expenses.

As of December 31, 2019 and 2018, the Company had payables due to PBM and its affiliates of $0 and $38,000, respectively.

These balances include amounts due for other miscellaneous expenses incurred by PBM and its affiliates.

As of December 31, 2020 and 2019, the Company had no payables due to PBM and its affiliates.

Note 6—Accrued Expenses

3 unchanged sentences

Clinical trials and drug development

Consulting - former Chief Scientific Officer

Professional fees

Total accrued expenses

Construction in process

Interest expense

Other accrued expenses and other current liabilities

Total accrued expenses and other current liabilities

Note 7—Commitments and Contingencies

As of December 31, 2019 and 2018, there was no litigation against the Company.

On July 14, 2020, plaintiff Isaiah Potter (“Potter”) filed a putative class action complaint captioned Potter v.

Verrica Pharmaceuticals Inc., in the U.S.

District Court for the Eastern District of Pennsylvania against the Company and certain of its executive officers, or the Defendants.

The complaint alleged that Defendants violated federal securities laws by, among other things, failing to disclose certain supposed safety risks attendant to the VP-102 drug-device and likely delays to regulatory approval of VP-102.

The complaint sought unspecified compensatory damages on behalf of Potter and all other persons and entities that purchased or otherwise acquired our securities between September 16, 2019 and June 29, 2020.

On December 14, 2020, Potter voluntarily sought to dismiss this case and the parties filed a stipulation of dismissal, which the court granted on December 21, 2020.

The case was dismissed with prejudice as to Potter and without prejudice as to the unnamed class members.

Supply Agreement and Purchase Order

1 unchanged sentence

All executed purchase orders for crude cantharidin in the ordinary course of business are expected to be covered under the terms of the supply agreement.

Pursuant to the supply agreement, the supplier has agreed that it will not supply cantharidin, any beetles or other raw material from which cantharidin is derived to any other customer in

North America, subject to specified minimum annual purchase orders and forecasts by the Company .

Pursuant to the supply agreement, the supplier has agreed that it will not supply cantharidin, any beetles or other raw material from which cantharidin is derived to any other customer in North America, subject to specified minimum annual purchase orders and forecasts by the Company.

The supply agreement has an initial five-year term, which is subject to automatic renewal absent termination by either party in accordance with the terms of the supply agreement.

Each party also has the right to terminate the supply agreement for other customary reasons such as material breach or bankruptcy.

On March 22, 2018, the Company executed a purchase order with a supplier, denominated in Chinese yuan, pursuant to which the Company agreed to purchase $2.3 million of crude cantharidin material.

As of December 31, 2019, this purchase order was fulfilled and the Company has no remaining obligation.

During 2019, the Company executed a single purchase order pursuant to which the Company agreed to purchase $ 1.8 million of crude cantharidin material.

As of December 31, 2019, the Company had made a prepayment of $ 1.1 million against this purchase order.

In January 2020, the Company received the initial shipment of material.

The Company has a remaining outstanding obligation of $0.7 million for crude cantharidin material under this purchase order.

The Company received the shipments of material in 2020, and as of December 31, 2020, this purchase order was fulfilled, and the Company has no remaining obligation.

Agreements with Former Chief Scientific Officer

On May 31, 2018, the Company and the former Chief Scientific Officer (“CSO”) executed a transition agreement related to his resignation from employment as well as a Consulting Agreement (the “Consulting Agreement”) that began upon the closing of the IPO.

The Consulting Agreement provides for cash payments to the former CSO of $29,375 per month for the first 12 months of the agreement.

After the first 12 months, the former CSO will receive $300 per hour for each hour of consulting services provided.

As of December 31, 2019 and 2018, $0 and $0.2 million, respectively, remained accrued under this Consulting Agreement.

The Consulting Agreement provided for cash payments to the former CSO of $ 29,375 per month for the first 12 months of the agreement.

After the first 12 months, the former CSO received $ 300 per hour for each hour of consulting services provided.

As of December 31, 2020 and 2019, the Company has no remaining obligation under this Consulting Agreement.

Note 8—Stockholders’ Equity

2 unchanged sentences

Common stock owners are entitled to dividends when funds are legally available and declared by the Board.

Restricted Stock

Pursuant to an Amended and Restated Stock Purchase Agreement (the “Amended and Restated Agreement”) between the Company and the former CSO, 848,859 shares held by the former CSO are subject to repurchase by the Company at $0.0001 per share in the event the CSO ceases to be a consultant.

These shares will be released from the repurchase option on the earliest to occur of (i) a change in control, (ii) regulatory approval of the Company’s new drug application for VP-102 for the treatment of molluscum, (iii) commercial sale of products and (iv) a covered termination, as defined in the Amended and Restated Agreement.

No compensation expense has been recognized for these nonvested shares as these shares are performance-based and the triggering event was not determined to be probable as of December 31, 2019.

On November 27, 2019, the Company granted 300,000 restricted stock units to its executive officers.

The restricted stock units vest 50% upon receipt of regulatory approval of the Company’s new drug application for VP-102 for the treatment of molluscum (the “Approval Date”) and 50% shall vest on the one year anniversary of the Approval Date subject to the holders’ continuous service through each applicable date.

Convertible Preferred Stock

Upon the closing of the IPO on June 19, 2018, all outstanding shares of the Company’s Series A Preferred Stock were automatically converted into 12,428,773 shares of the Company’s common stock and all outstanding shares of the Company’s Series B Preferred Stock were automatically converted in to 1,130,679 shares of the Company’s common stock.

On February 20, 2018 and March 7, 2018, the Company issued and sold an aggregate of 4,606,267 shares of Series C Preferred Stock, at an issuance price of $4.559 per share, for aggregate gross proceeds of $21.0 million.

Upon the closing of the IPO on June 19, 2018, all outstanding shares of the Company’s Series C Preferred Stock were automatically converted into 2,687,420 shares of the Company’s common stock.

The Company classified its Convertible Preferred Stock outside of stockholders’ deficit because redemption of the Convertible Preferred Stock, upon a deemed liquidation event, was not solely within the Company’s control.

Note 9—Stock-Based Compensation

In June 2018, the Board adopted and approved the 2018 Equity Incentive Plan (the “2018 Plan”), which amended and restated the Company’s prior 2013 Equity Incentive Plan (the “2013 Plan”) and became effective in connection with the IPO pricing on June 19, 2018.

Prior to the effectiveness of the 2018 Plan, the 2013 Plan provided for the grant of share-based awards to employees, directors and consultants of the Company.

47 unchanged sentences

Restricted Stock

Pursuant to an Amended and Restated Agreement between the Company and the former CSO, 848,859 shares held by the former CSO are subject to repurchase at $0.0001 per share in the event the CSO ceases to be a consultant.

The following table summarizes restricted stock awards related to the Amended and Restated Agreement:

Pursuant to the Amended and Restated Stock Purchase Agreement (the “Amended and Restated Agreement”) between the Company and the former CSO, 848,859 shares held by the former CSO were subject to repurchase by the Company at $ 0.0001714 per share in the event the former CSO ceased to be a consultant to the

These shares were to be released from the repurchase option on the earliest to occur of (i) a change in control, (ii) regulatory approval of the Company’s new drug application for VP-102 for the treatment of molluscum, (iii) commercial sale of products and (iv) a covered termination, as defined in the Amended and Restated Agreement.

In December 2020, the Company and the former CSO amended the agreement whereby 424,430 shares were no longer subject to repurchase and the remaining 424,429 shares were repurchased and retired by the Company at $ 0.0001714 per share.

The Company accounted for the December 2020 amendment as a modification to a share-based payment arrangement whereby the shares no longer subject to repurchase represent a new grant.

The value of the new grant was $ 4.8 million and was recognized immediately.

Prior to the December 2020 modification, no compensation expense had been recognized for these nonvested shares as these shares were performance-based and the triggering event was not determined to be probable.

In November 2019 and August 2020, the Company granted 300,000 and 250,000 restricted stock units to its executive officers.

The restricted stock units vest 50 % upon receipt of regulatory approval of the Company’s new drug application for VP-102 for the treatment of molluscum (the “Approval Date”) and 50 % shall vest on the one year anniversary of the Approval Date subject to the holders’ continuous service through each applicable date.

No compensation expenses has been recognized for these nonvested restricted stock units as these shares are performance based and the triggering event was not determined to be probable as of December 31, 2020.

As of December 31, 2020, the total unrecognized compensation expense related to the restricted stock was $ 5.6 million.

The following table summarizes restricted stock awards:

Weighted Average

1 unchanged sentence

Number of Shares

Nonvested at December 31, 2017

Nonvested at December 31, 2018

Nonvested at December 31, 2019

On November 27, 2019, the Company granted 300,000 restricted stock units to its executive officers to key executives.

No compensation expenses has been recognized for these nonvested restricted stock units and the shares subject to the Amended and Restated Agreement as these shares are performance based and the triggering event was not determined to be probable as of December 31, 2019.

As of December 31, 2019, the total unrecognized compensation expense related to the restricted stock units and shares subject to the Amended and Restated Agreement was $5.0 million.

Non-vested as of December 31, 2018

Non-vested as of December 31, 2019

Non-vested as of December 31, 2020

Stock-based compensation expense, which includes expense for both employees and non-employees, has been reported in the Company’s statements of operations for the years ended December 31, 2020 and 2019 as follows (in thousands):

9 unchanged sentences

Variable lease expenses, if any, are recorded when incurred.

In calculating the right-of-use asset and lease liability, the Company elected to combine lease and non-lease components.

The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term.

The Company continues to account for leases in the prior period financial statements under the previous guidance in ASC 840, Leases .

In calculating the right-of-use asset and lease liability, the Company elec ted to combine lease and non-lease components.

The Company excludes short-term leases having initial terms of 12 months or less from the guidance as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term.

The Company leases office space in West Chester, Pennsylvania under an agreement classified as an operating lease that expires in May 2021 .

1 unchanged sentence

On July 1, 2019 , the Company entered into a lease for 5,829 square feet of office space located in West Chester, Pennsylvania that is expected to serve as the Company’s new headquarters .

The initial term of the lease is seven

years and the base rent over the initial term is $1.3 million.

The Company plans to vacate its existing headquarters space as soon as the new space is available which is currently expected on or around June 1, 2020.

As a result, amortization of the right-of-use asset associated with the current property lease is now being amortized over the revised remaining useful life .

In addition, the useful life of associated leasehold improvements has been accelerated to reflect the expected abandonment of the property, such that they will be fully amortized when the property is vacated.

On March 12, 2020 the Company entered into an amendment to the lease agreement.

The amendment expands the original premises to include 5,372 square feet of additional office space increasing the total rentable premise to 11,201 square feet of space.

For the first six months following the commencement date of September 1, 2020, the base rent is based on the square footage of the original premises.

The initial term will expire on September 1, 2027 .

Base rent over the initial term is approximately $ 2.4 million, and the Company is also responsible for its share of the landlord’s operating expense.

At the commencement date of the new lease, the Company recorded a right-of-use asset of $ 1.9 million and a lease liability of $ 1.9 million on the balance sheet.

As of December 31, 2020, the Company had an operating lease liability of $ 1,891,000 , of which $ 198,000 was classified as current, and an operating right-of-use asset of $ 1,836,000 .

5 unchanged sentences

Total rent expense

Maturities of the Company’s operating lease excluding short-term leases as of December 31, 2018:

Total lease payments

Maturities of the Company’s operating lease as of December 31, 2019, excluding short-term leases and the new headquarters lease in West Chester, which is estimated to commence in June 2020, are as follows (in thousands):

Maturities of the Company’s operating lease, excluding short-term leases as of December 31, 2020 are as follows (in thousands):

Total lease payments

Less imputed interest

Total rent expense

Total lease liability

The remaining term of the Company’s operating lease was 6.7 years and the discount rate used to measure the present value of the Company’s operating lease liability was 6.25 % as of December 31, 2020.

On March 10, 2020 (the “Effective Date”), the Company entered into (i) a mezzanine loan and security agreement (the “Mezzanine Loan Agreement”) with Silicon Valley Bank, as administrative agent and collateral agent (the “Agent”), and Silicon Valley Bank and West River Innovation Lending Fund VIII, L.P., as lenders (the “Mezzanine Lenders”), pursuant to which the Mezzanine Lenders have agreed to lend the Company up to $ 50.0 million in a series of term loans, and (ii) a loan and security agreement (the “Senior Loan Agreement”, and together with the Mezzanine Loan Agreement, the “Loan Agreements”) with Silicon Valley Bank, as lender (the “Senior Lender”, and together with the Mezzanine Lenders, the “Lenders”), pursuant to which the Senior Lender has agreed

to provide the Company with a revolving line of credit of up to $ 5.0 million.

Upon entering into the Loan Agreements, the Company borrowed $ 35.0 million in term loans from the Mezzanine Lenders (the “Term A Loan ”).

On October 26, 2020, the Company entered into (i) the first amendment to the Mezzanine Loan Agreement (the “Mezzanine Loan Amendment”) and (ii) the first amendment to the Senior Loan Agreement (the “Senior Loan Amendment” and together with the Mezzanine Loan Amendment the “Loan Agreement Amendments”) with the Lenders, under which the Company borrowed an additional $ 5.0 million in term loans on March 1, 2021 from the Mezzanine Lenders (the “Term B1 Loan”).

Under the terms of the Mezzanine Loan Agreement, as amended, the Company may, at its sole discretion, borrow from the Mezzanine Lenders up to an additional $ 10.0 million in term loans (the “Term B2 Loan”).

The Term B1 Loan and Term B2 Loan, together with the Term A Loan, are referred to herein as the “Term Loans.” The Term B2 Loan will be available for draw if the Company receives approval from the FDA of the NDA for VP-102 prior to September 30, 2021 and the Company maintains compliance with the minimum liquidity covenant until the earlier of September 30, 2021 or the occurrence of an event of default.

Under the terms of the Senior Loan Agreement, as amended, the Company may, at its sole discretion, borrow from the Senior Lender one or more advances on the revolving credit line (the “Revolving Loans”, and together with the Term Loans, the “Loans”) in an aggregate amount not to exceed the lesser of (i) 85 % of the aggregate amount then-contained in the Company’s eligible accounts receivable and (ii) $ 5.0 million.

The Company’s obligations under the Senior Loan Agreement and the Mezzanine Loan Agreement, as amended, are secured by, respectively, a first priority perfected security interest and second priority perfected security interest in substantially all of the Company’s current and future assets, other than its intellectual property (except rights to payment from the sale, licensing or disposition of such intellectual property).

The Company has also agreed not to encumber its intellectual property assets, except as permitted by the Loan Agreements.

All of the Loans mature on March 1, 2024 (the “Maturity Date”).

The Term Loans will be interest-only through March 31, 2022, followed by 24 equal monthly payments of principal and interest;

provided that if the Company draws the Term B Loan, the Term Loans will be interest-only through September 30, 2022, followed by 18 equal monthl y payments of principal and interest.

The Term Loans will bear interest at a floating per annum rate equal to the greater of (i) 7.25 % and (ii) the sum of (a) the prime rate reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue, plus (b) 2.50 %.

The Revolving Loans will bear interest at a floating per annum rate equal to the greater of (i) 6.00 % and (ii) the sum of (a) the prime rate reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue, plus (b) 1.25 %.

Under the terms of the Mezzanine Loan Agreement, as amended, the Company will be required to make a final payment fee of $ 3,750,000 payable on the earlier of (i) the Maturity Date, (ii) the acceleration of any Term Loans, or (iii) the prepayment of the Term Loans (the “Final Payment”).

The Company is recording the final payment fee using the effective interest rate method over the term of the Term Loan with an increase in debt.

The Company may prepay all, or any portion of the Term Loans upon 5 business days advance written notice to the Agent, provided that the Company will be obligated to pay a prepayment fee equal to (i) $ 1.5 million if prepaid on or before October 26, 2021, (ii) $ 1.0 million if prepaid between October 27, 2021 and October 26, 2022, and (iii) $ 0.5 million if prepaid between October 27, 2022 and October 26, 2023 and (iv) no prepayment fee if prepaid after October 26, 2023 (each, a “Prepayment Fee”).

The Company may terminate the revolving credit line under the Senior Loan Agreement at any time upon three business days advance written notice to the Senior Lender.

If the Company terminates the revolving credit line prior to the Maturity Date, it must pay to the Senior Lender an early termination fee of $ 50,000 (the “Termination Fee”).

Under the Loan Agreements, as amended, the Company is subject to a number of affirmative and restrictive covenants, including covenants regarding maintaining a specified minimum liquidity ratio, delivery of financial statements, maintenance of inventory, payment of taxes, maintenance of insurance, protection of intellectual property rights, dispositions of property, business combinations or acquisitions, incurrence of additional indebtedness or liens, investments and transactions with affiliates, and, beginning as of March 31, 2022, achieving minimum levels of trailing six-month net product revenues, among other customary covenants.

As of December 31, 2020 the Company is in compliance with all covenants.

Upon the occurrence of certain events, including but not limited to the Company’s failure to satisfy its payment obligations under the Loan Agreements, the breach of certain of its other covenants under the Loan Agreements, or the occurrence of a material adverse change, cross defaults to other indebtedness or material agreements, judgment defaults and defaults related to failure to maintain governmental approvals failure of which to maintain could result in a material adverse effect, the Agent and the Lenders will have the right, among other remedies, to declare all principal and interest immediately due and payable, to exercise secured party remedies, to receive the Final Payment and Termination Fee and, if the payment of principal and interest is due prior to the Maturity Date, to receive the applicable Prepayment Fee.

The Loan Agreements also include subjective acceleration clauses that permit the Lenders to accelerate the maturity date under certain circumstances, including a material adverse change in the Company’s business, operations, or financial condition or a material impairment of the prospect of repayment of the Company’s obligations to the Mezzanine Lenders.

Pursuant to the Loan Agreement Amendments, the Company is subject to a minimum liquidity covenant defined as the balance of the of the Company’s unrestricted cash, cash equivalents, and marketable securities in accounts maintained at Silicon Valley Bank being greater than one and one half times the Company’s aggregate outstanding obligations to the Mezzanine Lenders.

The Company believes that, without additional financing, it is probable that it will not be in compliance with its minimum liquidity ratio covenant at some point in the next twelve months.

In accordance with FASB ASC 470, since the Mezzanine Loan Agreement contains subjective acceleration clauses and the assessment that it is probable that the minimum liquidity ratio covenant will not be met, the Company has classified all outstanding principal and final payment fees as a current liability in the accompanying balance sheet as of December 31, 2020.

Upon entering into the Loan Agreement, the Company received proceeds of $ 35.0 million in term loans and incurred debt discount and issuance costs of $ 3.3 million.

The terms of the Loan Agreements as amended include a final payment fee of $ 3.8 million, classified as a contra-liability on the balance sheet as of December 31, 2020.

The Company incurred additional debt issuance costs related to the revolving credit line of $ 0.1 million, classified as other non-current assets in the balance sheet as of December 31, 2020.

These costs related to the revolving credit line are being amortized to interest expense over the life of the loans using the straight-line method.

For the year ended December 31, 2020, the Company recognized interest expense of $ 3.0 million, of which $ 2.1 million was interest on the term loan and $ 0.9 million, was noncash interest expense related to the amortization of deferred debt issuance costs and accrual of the final payment fee.

T he following table summarizes the composition of debt as reflected on the balance sheet as of December 31, 2020 (in thousands):

Gross proceeds

Accrued final payment fee

Unamortized debt discount and issuance costs

Total short-term debt, net

In the event the Company maintains compliance with its minimum liquidity covenant to avoid an acceleration of payments, the aggregate maturities of debt as of December 31, 2020 are as follows (in thousands):

(1) Excludes the final payment fee due at time of maturity.

Note 12–Income Taxes

10 unchanged sentences

Net operating loss carryovers

Research and development credits

Share-based compensation

Lease liabilities

Accrued compensation

Total deferred tax assets

2 unchanged sentences

Deferred tax liabilities:

Right-of-use assets

Total deferred tax liabilities

4 unchanged sentences

Under the 2017 federal income tax law changes, federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such federal net operating losses is limited.

In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards may be limited .

As of December 31, 2019 and 2018, the Company has uncertain tax positions related to federal and state income credits for its research and development activities.

The total amount of unrecognized tax benefits was $1.5 million and $0.1 million as of December 31, 2019 and 2018.

As of December 31, 2020, the Company had federal and state research and development carryforwards of $ 2.4 million.

In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50 % change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss and tax credit carryforwards may be limited .

The Company has not done an analysis to determine whether or not ownership changes have occurred since inception.

As of December 31, 2019, the Company had uncertain tax positions related to federal income tax credits for its research and development activities.

The total amount of unrecognized tax benefits was $ 1.5 million.

The Company released the uncertain tax position in 2020 and as of December 31, 2020 has recognized a deferred tax benefit of $ 2.4 million of federal income tax credits for its research and development activities.

The Company will recognize interest and penalties, if any, related to uncertain tax positions in income tax expense.

As of December 31, 2019 and 2018, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statement of operations.

As of December 31,

2020 and 2019, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statement of operations.

The Company does not anticipate a material change to unrecognized tax benefits in the next twelve months.

The 2017 and subsequent federal and state tax years for the Company remain open for the assessment of income taxes.

Note 12–Selected Quarterly Financial Data (Unaudited)

The following tables present the quarterly results of operations for 2019 and 2018 (in thousands, except share and per share amounts):

For the Quarter Ended

September 30,

Operating expenses:

Research and development

General and administrative

Total operating expenses

Loss from operations

Total other income

Net loss per share, basic and diluted

Weighted average common shares

outstanding, basic and diluted

For the Quarter Ended

September 30,

Operating expenses:

Research and development

General and administrative

Total operating expenses

Loss from operations

Total other income

Net loss per share, basic and diluted

Weighted average common shares

outstanding, basic and diluted

Note 13–Subsequent Event

On March 10, 2020 (the “Effective Date”), the Company entered into (i) a mezzanine loan and security agreement (the “Mezzanine Loan Agreement”) with Silicon Valley Bank, as administrative agent and collateral agent (the “Agent”), and Silicon Valley Bank and West River Innovation Lending Fund VIII, L.P., as lenders (the “Mezzanine Lenders”), pursuant to which the Mezzanine Lenders have agreed to lend the Company up to $50.0 million in a series of term loans, and (ii) a loan and security agreement (the “Senior Loan Agreement”, and together with the Mezzanine Loan Agreement, the “Loan Agreements”) with Silicon Valley Bank, as lender (the “Senior Lender”, and together with the Mezzanine Lenders, the “Lenders”), pursuant to which the Senior Lender has agreed to provide the Company a revolving line of credit of up to $5.0 million.

Upon entering into the Loan Agreements, the Company borrowed $35.0 million in term loans from the Mezzanine Lenders (the “Term A Loan”).

Under the terms of the Mezzanine Loan Agreement, the Company may, at its sole discretion, borrow from the Mezzanine Lenders up to an additional $15.0 million in term loans (the “Term B Loan”, and together with the Term A Loan, the “Term Loans”) upon the Company’s achievement of (i) a specified amount in trailing six-month net revenue and (ii) an equity raise of at least $40.0 million (the foregoing clauses (i) and (ii), collectively, the “Term B Milestone”).

The Company may draw the Term B Loan during the period commencing on the date of the occurrence of the Term B Milestone and ending on the earliest of (i) December 31, 2021 and (ii) the occurrence of an event of default.

Under the terms of the Senior Loan Agreement, the Company may, at its sole discretion, borrow from the Senior Lender one or more advances on the revolving credit line (the “Revolving Loans”, and together with the Term Loans, the “Loans”) in an aggregate amount not to exceed the lesser of (i) 85 % of the aggregate amount then-contained in the Company’s eligible accounts receivable and (ii) $ 5.0 million.

The Company’s obligations under the Senior Loan Agreement and the Mezzanine Loan Agreement are secured by, respectively, a first priority perfected security interest and second priority perfected security interest in substantially all of the Company’s current and future assets, other than its intellectual property (except rights to payment from the sale, licensing or disposition of such intellectual property).

The Company has also agreed not to encumber its intellectual property assets, except as permitted by the Loan Agreements.

All of the Loans mature on March 1, 2024 (the “Maturity Date”).

The Term Loans will be interest-only through March 31, 2022, followed by 24 equal monthly payments of principal and interest;

provided that if the Company draws the Term B Loan, the Term Loans will be interest-only through September 30, 2022, followed by 18 equal monthly payments of principal and interest.

The Term Loans will bear interest at a floating per annum rate equal to the greater of (i) 7.25% and (ii) the sum of (a) the prime rate reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue, plus (b) 2.50%.

The Revolving Loans will bear interest at a floating per annum rate equal to the greater of (i) 6.00% and (ii) the sum of (a) the prime rate reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue, plus (b) 1.25%.

The Company will be required to make a final payment of 7.50% of the original principal amount of the Term Loans drawn payable on the earlier of (i) the Maturity Date, (ii) the acceleration of any Term Loans, or (iii) the prepayment of the Term Loans (the “Final Payment”).

The Company may prepay all, or any portion (in increments of at least $1.0 million), of the Term Loans upon 5 business days’ advance written notice to the Agent, provided that the Company will be obligated to pay a prepayment fee equal to (i) 3.00% of the principal amount of the applicable Term Loan prepaid on or before the first anniversary of the Effective Date, (ii) 2.00% of the principal amount of the applicable Term Loan prepaid between the first and second anniversary of the Effective Date, and (iii) 1.00% of the principal amount of the applicable Term Loan prepaid thereafter, and prior to the third anniversary of the Effective Date (each, a “Prepayment Fee”).

The Company may terminate the revolving credit line under the Senior Loan Agreement at any time upon 3 business days’ advance written notice to the Senior Lender.

If the Company terminates the revolving credit line prior to the Maturity Date, it must pay to the Senior Lender an early termination fee of $50,000 (the “Termination Fee”).

The Company is subject to a number of affirmative and restrictive covenants pursuant to the Loan Agreements, including covenants regarding achieving minimum product revenues, delivery of financial statements, maintenance of inventory, payment of taxes, maintenance of insurance, protection of intellectual property rights, dispositions of property, business combinations or acquisitions, incurrence of additional indebtedness or liens, investments and transactions with affiliates, among other customary covenants.

CHANGES IN AND DISAGREEMENTS WITH ACCO UNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Note 13—License and Collaboration Agreements

In August 2020, the Company entered into an option agreement with Torii Pharmaceutical Co., Ltd.

(“Torii”) for the development and commercialization of the Company’s product candidates for the treatment of molluscum contagiosum and common warts in Japan, including VP-102 (the “Option Agreement”).

Torii paid the Company $ 0.5 million to secure the exclusive option.

The $ 0.5 million is included in deferred revenue as of December 31, 2020 in the balance sheet.

On March 2, 2021, Torii exercised the exclusive option in the Option Agreement.

On March 17, 2021, the Company entered into a collaboration and license agreement (the “Torii Agreement”) with Torii, pursuant to which the Company granted Torii an exclusive license to develop and commercialize the Company’s product candidates that contain a topical formulation of cantharidin for the treatment of molluscum contagiosum and common warts in Japan, including VP-102.

Additionally, the Company granted Torii a right of first negotiation with respect to additional indications for the licensed products and certain additional products for use in the licensed field, in each case in Japan.

Pursuant to the Torii Agreement, the Company is entitled to receive an up-front payment from Torii of $ 11.5 million.

Additionally, the Company is entitled to receive from Torii an additional $ 58 million in aggregate payments contingent on achievement of specified development, regulatory, and sales milestones, in addition to tiered transfer price payments for supply of product in the percentage range of the mid- 30 ’s to the mid- 40 ’s of net sales.

The transfer payments shall be payable, on a product-by-product basis, beginning on the first commercial sale of such product and ending on the latest of (a) expiration of the last-to-expire valid claim contained in certain licensed patents in Japan that cover such product, (b) expiration of regulatory exclusivity for the first indication for such product in Japan, and, (c) (i) with respect to the first product, ten years after first commercial sale of such product, and, (ii) with respect to any other product, the later of (x) ten years after first commercial sale of the first product and (y) five years after first commercial sale of such product.

The Torii Agreement expires on a product-by-product basis upon expiration of Torii’s obligation under the agreement to make transfer price payments for such product.

Torii has the right to terminate the agreement upon specified prior written notice to us.

Additionally, either party may terminate the agreement in the event of an uncured material breach of the agreement by, or insolvency of, the other party.

The Company may terminate the agreement in the event that Torii commences a legal action challenging the validity, enforceability or scope of any licensed patents.

In August 2020, the Company entered into an exclusive license agreement with Lytix Biopharma AS (“Lytix”) for the use of licensed technology to research, develop, manufacture, have manufactured, use, sell, have sold, offer for sale, import, and otherwise commercialize products for use in all malignant and pre-malignant dermatological indications, other than metastatic melanoma and metastatic merkel cell carcinoma (the” Lytix Agreement”).

As part of the Lytix Agreement, the Company paid Lytix a one-time up-front fee of $ 0.3 million in 2020.

In addition, in February 2021, the Company paid Lytix a one-time $ 2.3 million payment upon the achievement by Lytix of a regulatory milestone.

The $ 0.3 million was recognized in research and development expense in the statement of operations for the year ended December 31, 2020.

The Company is also obligated to pay up to $ 111.0 million contingent on achievement of specified development, regulatory, and sales milestones, as well as tiered royalties based on worldwide annual net sales ranging in the low double digits to the mid-teens, subject to certain customary reductions.

The Company’s obligation to pay royalties expires on a country-by-country and product-by-product basis on the later of the expiration or abandonment of the last to expire licensed patent covering LTX-315 anywhere in the world and expiration of regulatory exclusivity for LTX-315 in such country.

Additionally, all upfront fees and milestone based payments received by the Company from a sublicensee will be treated as net sales and will be subject to the royalty payment obligations under the Lytix Agreement, and all royalties received by the Company from a sublicensee shall be shared with Lytix at a rate that is initially 50 % but decreases based on the stage of development of LTX-315 at the time such sublicense is granted.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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-K

Item 8. Financial Statements and Supplementary Data