Form 10-Q Neothetics, Inc. For: Mar 31

May 12, 2016 8:03 AM EDT

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

x

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

For the quarterly period ended March 31, 2016

OR

¨

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

For the transition period from            to                

Commission File Number: 001-36754

 

Neothetics, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

20-8527075

( State or other jurisdiction of

incorporation or organization)

 

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

 

 

 

9171 Towne Centre Drive, Suite 270

San Diego, CA

 

92122

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (858) 750-1008

 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x    No¨  

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

 

Large accelerated filer

 

¨

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

¨  (Do not check if a small reporting company)

  

Smaller reporting company

 

x

 

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

As of April 29, 2016, the registrant had 13,799,196 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

 


Table of Contents

 

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements (Unaudited)

 

2

 

 

Condensed Balance Sheets

 

2

 

 

Condensed Statements of Operations

 

3

 

 

Condensed Statements of Cash Flows

 

4

 

 

Notes to Condensed Financial Statements

 

5

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

11

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

16

Item 4.

 

Controls and Procedures

 

17

PART II.

 

OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

18

Item 1A.

 

Risk Factors

 

18

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

18

Item 3.

 

Defaults Upon Senior Securities

 

18

Item 4.

 

Mine Safety Disclosures

 

18

Item 5.

 

Other Information

 

18

Item 6.

 

Exhibits

 

18

Signatures

 

19

Exhibit Index

 

20

 

 

 

i


 

PART I—FINANCIAL INFORMATION

 

 

Item 1. Financial Statements.

Neothetics, Inc.

Condensed Balance Sheets

(Unaudited)

 

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

24,089,869

 

 

$

37,748,603

 

Prepaid expenses and other current assets

 

 

1,075,300

 

 

 

1,976,997

 

Total current assets

 

 

25,165,169

 

 

 

39,725,600

 

 

 

 

 

 

 

 

 

 

Restricted cash

 

 

200,000

 

 

 

200,000

 

Property and equipment, net

 

 

168,596

 

 

 

186,372

 

Total assets

 

$

25,533,765

 

 

$

40,111,972

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,420,315

 

 

$

4,017,192

 

Accrued clinical trial expenses

 

 

630,419

 

 

 

1,422,810

 

Other accrued expenses

 

 

1,038,685

 

 

 

903,148

 

Long-term debt, current portion

 

 

785,123

 

 

 

2,756,351

 

Total current liabilities

 

 

3,874,542

 

 

 

9,099,501

 

Long-term debt, net of current portion

 

 

3,154,380

 

 

 

7,205,176

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 5,000,000  shares authorized; no shares issued and

     outstanding

 

 

 

 

Common stock, $0.0001 par value; 300,000,000 shares authorized; 13,799,196 and

      13,750,016 shares issued and outstanding at March 31, 2016 and

      December 31, 2015, respectively

 

 

1,379

 

 

 

1,374

 

Additional paid-in capital

 

 

137,361,777

 

 

 

136,637,678

 

Accumulated deficit

 

 

(118,858,313

)

 

 

(112,831,757

)

Total stockholders’ equity

 

 

18,504,843

 

 

 

23,807,295

 

Total liabilities and stockholders’ equity

 

$

25,533,765

 

 

$

40,111,972

 

 

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

 

2


 

Neothetics, Inc.

Condensed Statements of Operations

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

$

3,260,298

 

 

$

4,700,668

 

General and administrative

 

 

2,520,871

 

 

 

1,937,321

 

Total operating expenses

 

 

5,781,169

 

 

 

6,637,989

 

Loss from operations

 

 

(5,781,169

)

 

 

(6,637,989

)

Interest income

 

 

19,737

 

 

 

7,455

 

Interest expense

 

 

(265,124

)

 

 

(271,846

)

Net loss

 

$

(6,026,556

)

 

$

(6,902,380

)

Net loss per share, basic and diluted

 

$

(0.44

)

 

$

(0.50

)

Weighted average shares used to compute basic and diluted net loss per share

 

 

13,757,582

 

 

 

13,671,311

 

 

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

 

3


 

Neothetics, Inc.

Condensed Statements of Cash Flows

(Unaudited)

 

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(6,026,556

)

 

$

(6,902,380

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

17,776

 

 

 

3,802

 

Loss on disposal of assets

 

 

 

 

 

6,139

 

Noncash interest expense on debt

 

 

39,793

 

 

 

46,846

 

Share-based compensation

 

 

714,687

 

 

 

299,086

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

901,697

 

 

 

164,195

 

Accounts payable and accrued expenses

 

 

(3,253,731

)

 

 

1,578,915

 

Net cash used in operating activities

 

 

(7,606,334

)

 

 

(4,803,397

)

Investing activities

 

 

 

 

 

 

 

 

Restricted cash

 

 

 

 

 

(200,000

)

Purchase of property and equipment

 

 

 

 

 

(226,128

)

Net cash used in investing activities

 

 

 

 

 

(426,128

)

Financing activities

 

 

 

 

 

 

 

 

Partial prepayment resulting in loan extinguishment

 

 

(5,514,058

)

 

 

 

Principal payments on bank loan

 

 

(485,942

)

 

 

 

Loan amendment costs

 

 

(52,400

)

 

 

 

Net cash used in financing activities

 

 

(6,052,400

)

 

 

 

Net decrease in cash and cash equivalents

 

 

(13,658,734

)

 

 

(5,229,525

)

Cash and cash equivalents, beginning of period

 

 

37,748,603

 

 

 

75,947,516

 

Cash and cash equivalents, end of period

 

$

24,089,869

 

 

$

70,717,991

 

Supplemental disclosure of cash flow activity

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

230,924

 

 

$

225,000

 

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

 

4


 

Neothetics, Inc.

Notes to Unaudited Condensed Financial Statements

 

 

1.

Organization and Basis of Presentation

Neothetics, Inc. (Neothetics or the Company) was incorporated in Delaware on February 1, 2007, under the name Lipothera, Inc. In September 2008, the Company changed its name to Lithera, Inc. In August 2014, the Company changed its name to Neothetics, Inc. The Company is a clinical-stage specialty pharmaceutical company developing therapeutics for the aesthetic market. The Company’s lead product candidate is a novel injectable treatment for the reduction of central abdominal bulging due to subcutaneous fat in non-obese patients.

As of March 31, 2016, the Company has devoted substantially all of its efforts to product development, raising capital, and building infrastructure and has not realized revenues from its planned principal operations.

The accompanying unaudited financial statements of the Company should be read in conjunction with the audited financial statements and notes thereto as of and for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K (Annual Report) filed with the Securities and Exchange Commission (SEC). The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, since they are interim statements, the accompanying financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the accompanying financial statements reflect all adjustments (consisting of normal recurring adjustments) that are necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented. Interim results are not necessarily indicative of results for a full year.

 

 

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of 90 days or less at the date of purchase to be cash equivalents. Cash and cash equivalents include cash in readily available checking and money market accounts.

Restricted Cash

 Restricted cash as of March 31, 2016 represents a $200,000 restricted money market account used to secure the standby letter of credit issued in connection with a lease amendment (see Note 5 “Debt”).

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to significant risk on its cash due to the financial position of the depository institution in which those deposits are held.

Fair Value of Financial Instruments

The carrying amounts of prepaid and other current assets, accounts payable and accrued expenses are reasonable estimates of their fair value because of the short maturity of these items.

Property and Equipment

Property and equipment, which primarily consist of office furniture and equipment and computer equipment, are stated at cost and depreciated over the estimated useful lives of the assets (three to five years) using the straight-line method.

5


 

Impairment of Long-Lived Assets

Long-lived assets consist primarily of property and equipment. An impairment loss is recorded if and when events and circumstances indicate that assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. While the Company's current and historical operating losses and negative cash flows are indicators of impairment, management believes that future cash flows to be received support the carrying value of its long-lived assets and, accordingly, has not recognized any impairment losses since inception.

 

Research and Development Costs

Research and development expenses consist primarily of salaries and related overhead expenses, fees paid to consultants and contract research organizations, costs related to acquiring and manufacturing clinical trial materials, and costs related to compliance with regulatory requirements.

All research and development costs are charged to expense as incurred.

Income Taxes

The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and the tax reporting basis of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Valuation allowances are recorded when the realizability of such deferred tax assets is not more likely than not.

The guidance on accounting for uncertainty in income taxes prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company’s policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense. The Company has not recognized interest and penalties in the balance sheets or statements of operations. The Company is subject to taxation in the U.S. and state jurisdictions. The Company’s tax years from inception are subject to examination by the United States and California authorities due to the carryforwards of unutilized net operating losses (NOLs) and research and development credits.

Share-Based Compensation

Share-based compensation expense for stock option grants, restricted stock awards and employee stock purchase plan shares is recorded at the estimated fair value of the award as of the grant date and is recognized as expense on a straight-line basis over the requisite service period of the stock-based award. The estimation of stock options, restricted stock awards and employee stock purchase plan fair value requires management to make estimates and judgments about, among other things, employee exercise behavior, forfeiture rates and volatility of the Company’s common stock. The judgments directly affect the amount of compensation expense that will be recognized.

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and common share equivalents outstanding during the period. Common stock equivalents are only included when their effect is dilutive. The Company’s potentially dilutive securities, which include warrants and outstanding stock options and restricted stock awards under the stock compensation plans, have been excluded from the computation of diluted net loss per share as they would be anti-dilutive. For all periods presented, there is no difference in the number of shares used to compute basic and diluted shares outstanding due to the Company’s net loss position.

The following table sets forth the outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because to do so would be anti-dilutive.

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

Warrants for common stock

 

 

71,257

 

 

 

71,257

 

Common stock options and restricted stock awards issued and outstanding

 

 

1,120,578

 

 

 

1,413,803

 

 

 

 

1,191,835

 

 

 

1,485,060

 

 

All shares of convertible preferred stock were converted into shares of the Company’s common stock and all warrants were converted into warrants to purchase common stock as a result of the closing of the Company’s IPO in November 2014.

6


 

 

Recent Accounting Pronouncements

 

In March 2016, the FASB issued ASU 2016-09 (“ASU 2016-09”), Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies several aspects of the accounting for employee share-based payments, including accounting for income taxes, forfeitures, statutory tax withholding requirements, and classification on the statement of cash flows. The amendments in this ASU are effective for annual periods beginning after December 15, 2016. Early adoption is permitted. The Company is evaluating the impact of adoption on its condensed financial statements.

 

In February 2016, the FASB issued ASU 2016-02 (“ASU 2016-02”), Leases. ASU 2016-02 requires that lessees recognize assets and liabilities for the rights and obligations for leases with a lease term of more than one year. The amendments in this ASU are effective for annual periods ending after December 15, 2018. Early adoption is permitted. The Company is evaluating the impact of adoption on its condensed financial statements.

 

In August 2014, the FASB issued Accounting Standards Update (ASU) 2014-15, which defined management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related disclosure. ASU 2014-15 defined the term substantial doubt and requires an assessment for a period of one year after the date of the issuance of the financial statements. It requires certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans and requires an express statement and other disclosures when substantial doubt is not alleviated. The guidance becomes effective for reporting periods beginning after December 15, 2016, with early adoption permitted. The company will assess any additional disclosures based upon its liquidity at the time of initial adoption.

 

 

 

3. Fair Value Measurements

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts payable, accrued expenses, including warrants issued in connection with financing arrangements, and long-term debt. Fair value estimates of these instruments are made at a specific point in time based on relevant market information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. The carrying amount of cash and cash equivalents, accounts payable, and accrued expenses are generally considered to be representative of their respective fair values because of the short-term nature of these instruments.   The Company believes that the fair value of long-term debt approximates its carrying value based on the borrowing rates currently available to the Company for loans with similar terms.

The authoritative guidance for fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Market participants are buyers or sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. The guidance prioritizes three levels of inputs into the following hierarchy:

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

Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

7


 

Assets and liabilities measured at fair value on a recurring basis as of March 31, 2016 and December 31, 2015 are as follows:

 

 

 

 

 

 

 

Fair Value Measurements at Reporting Date Using

 

 

 

Balance as of

March 31,

2016

 

 

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund(1)

 

$

23,271,095

 

 

$

23,271,095

 

 

$

 

 

$

 

Total assets

 

$

23,271,095

 

 

$

23,271,095

 

 

$

 

 

$

 

 

(1) 

Included as a component of cash and cash equivalents on accompanying balance sheet.

 

 

 

 

 

 

 

Fair Value Measurements at Reporting Date Using

 

 

 

Balance as of

December 31,

2015

 

 

Quoted Prices

in Active

Markets for

Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund(1)

 

$

36,752,200

 

 

$

36,752,200

 

 

$

 

 

$

 

Total assets

 

$

36,752,200

 

 

$

36,752,200

 

 

$

 

 

$

 

 

(1) 

Included as a component of cash and cash equivalents on accompanying balance sheet.

 

 

4. Property and Equipment

Property and equipment consist of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Office furniture and equipment

 

$

279,547

 

 

$

279,547

 

Less accumulated depreciation and amortization

 

 

(110,951

)

 

 

(93,175

)

 

 

$

168,596

 

 

$

186,372

 

 

 

5. Debt

Loans

In February 2010, and as amended during 2012, the Company entered into a loan and security agreement (2010 Loan and Security Agreement) with Silicon Valley Bank (SVB), for borrowings of $3,750,000, collateralized by all assets of the Company. In connection with the borrowings, the Company issued warrants to the bank for the purchase of a total of 64,865 shares of Series B convertible preferred stock and warrants to purchase 75,000 shares of Series C convertible preferred stock. Effective upon the IPO, this was converted to a warrant to purchase 24,419 shares of common stock at a weighted average exercise price of $9.90 and expire ten years from the date of issuance. The 2010 Loan and Security Agreement was fully paid off in June 2014.

In June 2014, the Company entered into a Loan and Security Agreement (Loan Agreement) with Hercules Technology Growth Capital Inc. that provided for borrowings up to $10.0 million available to the Company in two tranches. Upon closing of the Loan Agreement, the Company borrowed $4.0 million. In October 2014, the Company entered into the first amendment of the Loan Agreement and borrowed the remaining $6.0 million available under the agreement.

In connection with the Loan Agreement, in June 2014, the Company issued warrants to purchase shares of Series C convertible preferred stock equal to 4% of the amount advanced under the loan. Effective upon the IPO, this was converted to a warrant to purchase 46,838 shares of common stock at $8.54, which expires eight years after the date of issuance. The fair value of the warrants issued was $207,429, based on the fair value of such Series C warrants at the date of issuance. The warrants’ fair value and financing fees of approximately $133,000 were recorded as a debt discount.

In March 2016, the Company entered into the second amendment of the Loan Agreement that provided for a prepayment of the outstanding loan carrying amount of $5.5 million with a prepayment fee of $110,000 expensed during the three months ended March

8


 

31, 2016. In connection with the second amendment, the Company re-priced the outstanding warrants to purchase 46,838 shares of common stock at a new exercise price of $0.62, which expire in September 2022. The Company recorded a debt discount of $9,417 associated with the fair value of the warrants issued in connection with the amendment. In addition, the loan amendment fees and legal fees of $52,400 were recorded as a debt discount. The initial value of the fees and warrants are amortized to interest expense over the remaining term using the effective interest method. In accordance with the accounting literature, the Company determined that the present value in the change of cash flows was greater than 10% and therefore extinguishment accounting has been applied resulting in the write off of the remaining unamortized discount.  Additionally, as the portion paid off was equal to the carrying value of the debt, no gain or loss was recorded in connection with the extinguishment.

The loan bears interest equal to the greater of either 9.0%, plus the Prime Rate as reported in The Wall Street Journal, less 3.25% or 9.0%. Interest only is due and payable through September 2016, with principal and interest payments due commencing October 2016 through loan maturity in January 2018 and an end of term payment of $300,000. The Company may elect a prepayment option. If elected, the Company will be required to pay the entire principal balance, all accrued and unpaid interest, together with a prepayment charge ranging from 1%-3% of the advance amount being prepaid, as well as the end of term payment. The loan is secured by substantially all assets of the Company. In connection with the second amendment to the Loan Agreement, the Company is required at all times to maintain an unrestricted cash balance of at least two times the amount of principal then outstanding under the Term Loan. The Company recorded total interest expense of $265,124 and $271,846 related to the Loan Agreement for the three months end March 31, 2016 and 2015, respectively.

At March 31, 2016, the principal balance outstanding under the Loan Agreement was $4.0 million. As of March 31, 2016, the principal and interest payments of the loan over its term are as follows:

 

2016

 

 

708,326

 

2017

 

 

1,912,509

 

2018

 

 

2,284,812

 

2019

 

 

 

2020

 

 

 

Total

 

 

4,905,647

 

Less interest

 

 

(905,647

)

Less debt discount

 

 

(60,497

)

Less current portion of debt

 

 

(785,123

)

Long-term debt, net of current portion

 

$

3,154,380

 

 

Letter of Credit

In January 2015, the Company executed a lease amendment with LJ Gateway, LLC for new office space. In connection with this lease amendment the Company issued a stand-by letter of credit in the amount of $200,000 in lieu of a security deposit. The standby letter of credit is secured by a restricted money market account. The terms of the standby letter of credit expire in May 2020 and are subject to automatic yearly renewal prior to this date.

 

 

6. Stockholders’ Equity

Warrants

As of March 31, 2016, warrants to purchase 71,257 shares of common stock remain outstanding, of which 24,419 warrants to purchase shares of common stock are at a weighted average exercise price of $9.90 and 46,838 warrants to purchase shares of common stock are at an exercise price of $0.62.

Common Stock

On December 1, 2015, the Company entered into a Controlled Equity Offering Sales Agreement, or Sales Agreement, with Cantor Fitzgerald, as a sales agent pursuant to which the Company may offer and sell from time to time, through Cantor Fitzgerald shares of Neothetics common stock, par value $0.0001 per share, having an aggregate offering price of up to $20.0 million. The minimum share price for this Controlled Equity Offering is selected at the discretion of the board of directors. Through March 31, 2016, no shares of common stock have been sold pursuant to this Sales Agreement.

9


 

Stock Compensation Plans

The following table summarizes the Company’s stock compensation plan activity for the three months ended March 31, 2016:

 

 

 

 

Options

Outstanding

 

 

Weighted

Average

Exercise Price

 

Outstanding and exercisable at December 31, 2015

 

 

1,363,027

 

 

$

3.09

 

Granted

 

 

157,500

 

 

$

0.97

 

Exercised

 

 

(49,180

)

 

$

-

 

Forfeited

 

 

(350,769

)

 

$

2.25

 

Outstanding and exercisable at March 31, 2016

 

 

1,120,578

 

 

$

3.19

 

 

The Company recognized non-cash share-based compensation expense related to its 2014 Employee Stock Purchase Plan, restricted stock awards and stock options granted to employees and directors as follows:

 

 

 

Three Months Ended March 31,

 

 

 

 

 

2016

 

 

2015

 

 

 

General and administrative

 

$

672,310

 

 

$

205,310

 

 

 

Research and development

 

 

42,377

 

 

 

93,776

 

 

 

 

 

$

714,687

 

 

$

299,086

 

 

 

Common Stock Reserved for Future Issuance

The following shares of common stock are reserved for future issuance at March 31, 2016:

 

Warrants issued and outstanding

 

 

71,257

 

Stock options issued and outstanding

 

 

1,120,578

 

Authorized for future awards under stock compensation plans

 

 

2,056,004

 

Employee Stock Purchase Plan

 

 

436,175

 

 

 

 

3,684,014

 

 

 

 

7. Commitments

Operating Leases

The Company entered into a noncancelable operating lease for its facilities on January 20, 2015. The lease expires in March 2020.          

The following table summarizes the minimum lease payments under this commitment:

2016

 

$

286,893

 

2017

 

 

395,520

 

2018

 

 

410,850

 

2019

 

 

431,508

 

2020

 

 

109,293

 

Total

 

$

1,634,064

 

 

 

 

 

 

 

 

 


10


 

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

The following discussion and analysis and the interim financial statements included in this quarterly report on Form 10-Q should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2015 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our annual report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 29, 2016. References to the Company throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations are made using the first person notations of “we,” “us” and “our.”  

Forward-Looking Statements

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements, other than statements of historical facts, contained in this document, including statements regarding our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business operations and financial performance and condition, are forward-looking statements. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “predict,” “project,” “potential,” “should,” “target,” “will,” “would,” or the negative of those terms and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

The forward-looking statements in this Form 10-Q include, among other things, statements about:

 

our ability to develop a modified formulation of LIPO-202;

 

whether our modified formulation of LIPO-202 is able to achieve the positive results observed from  the Phase 2 RESET clinical trial;

 

the initiation, timing, progress and results of ongoing and future Phase 2 and Phase 3 clinical trials and any preclinical studies, and our research and development programs;

 

our expectations regarding timing of results in our clinical trials;

 

our ability to raise additional funding for future clinical trials and operations;

 

estimates of our expenses, future revenue, capital requirements and our needs for additional financing;

 

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

 

the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology and our ability to operate our business without infringing on the intellectual property rights of others;

 

our expectations regarding the timing of our submission of an NDA for approval of LIPO-202 with the FDA and the likelihood and timing of approval of such NDA;

 

the potential for commercialization and market acceptance of LIPO-202;

 

our expectations regarding the potential market size and opportunity for LIPO-202, if approved for commercial use;

 

our plans to commercialize LIPO-202 and our ability to develop and maintain sales and marketing capabilities;

 

regulatory developments in the United States and foreign countries;

 

the success of competing procedures that are or become available;

 

our ability to maintain and establish collaborations;

 

our expectations regarding the time during which we will be an emerging growth company under the JOBS Act;

 

our financial performance; and

 

developments and projections relating to our competitors and our industry. 

11


 

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Forward-looking statements should be regarded solely as our current plans, estimates and beliefs. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this document, particularly in the “Risk Factors” section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

Overview

We are a clinical-stage specialty pharmaceutical company developing therapeutics for the aesthetic market. Our initial focus is on localized fat reduction and body contouring. Our lead product candidate, LIPO-202, is a first-in-class injectable formulation of the long-acting ß2-adrenergic receptor agonist, salmeterol xinafoate, which is an active ingredient in the U.S. Food and Drug Administration, or FDA, approved inhaled products SEREVENT DISKUS, ADVAIR HFA and ADVAIR DISKUS. We plan to continue the further development of LIPO-202, for the reduction of central abdominal bulging due to subcutaneous fat in non-obese patients.  We also plan to evaluate the use of LIPO 202 for the reduction of unwanted localized fat deposits under the chin, or submental fat. We previously completed development of LIPO-202 in our Phase 2 RESET trial in 2013, showing a statistically significant reduction in central abdominal bulging due to subcutaneous fat in non-obese patients.  In 2015, we conducted two pivotal U.S. Phase 3 trials of LIPO-202, which  failed to meet their co-primary composite or secondary endpoints as well as showing near identical results with no bias in sites or subgroups. In these trials, AbCONTOUR1 and AbCONTOUR2, LIPO-202 continued to show a safety profile similar to placebo. We, and expert consultants that we engaged, conducted a detailed review of these unexpected trial results. Based on the results of the review by us and our expert consultants, we concluded that modifications intended to make LIPO-202 commercially ready may have affected the drug product. We have initiated work on a modified formulation of LIPO-202, primarily based on the drug product formulation used in the Phase 2 RESET trial. We plan to conduct a randomized, placebo-controlled, double-blind Phase 2 clinical trial with this modified formulation and expect top-line data in the first quarter of 2017. We also plan to initiate a Phase 2 proof of concept study to examine the use of LIPO-202 for the reduction of unwanted localized fat deposits under the chin, or submental fat, and expect top-line results in late fourth quarter of 2016. Since commencing operations in February 2007, we have invested substantially all of our efforts and financial resources in the research and development and commercial planning for LIPO-202, which is currently our lead product candidate. Through March 31, 2016, we have funded substantially all of our operations through the sale and issuance of our preferred stock, venture debt, convertible debt and the sale of shares in our initial public offering.

We plan to conduct a Phase 2 trial with a modified formulation of LIPO-202 in the third quarter of 2016 for the reduction of central abdominal bulging, which the company anticipates having top-line data from in first quarter of 2017. This Phase 2 study will be a randomized, double-blind, placebo-controlled trial designed to assess the efficacy, safety and tolerability of a modified formulation of LIPO-202. Neothetics also plans to conduct  a Phase 2 proof of concept study of LIPO-202 for the reduction of localized fat deposits under the chin (submental fat) in the third quarter of 2016, which the company anticipates having top-line data from by year end 2016.

We have never been profitable and, as of March 31, 2016, we had an accumulated deficit of $118.9 million. We incurred net losses of $6.0 million and $6.9 million for the three months ended March 31, 2016 and 2015, respectively. We expect to continue to incur net operating losses for at least the next several years as we advance LIPO-202 through clinical development, seek regulatory approval, prepare for and, if approved, proceed to commercialization. We have no manufacturing facilities and all of our manufacturing activities are contracted out to third parties. Additionally, we currently utilize third-party CROs to carry out our clinical development. We will need substantial additional funding to support our operating activities. Adequate funding may not be available to us on acceptable terms, or at all. Our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations, and financial condition.

12


 

JOBS Act

In April 2012, the Jumpstart Our Business Startups Act of 2012, or JOBS Act, was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an “emerging growth company.” As an “emerging growth company,” we are electing not to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision not to take advantage of the extended transition period is irrevocable. In addition, we are in the process of evaluating the benefits of relying on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if as an “emerging growth company” we choose to rely on such exemptions, we may not be required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, as amended, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis) and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our IPO or until we no longer meet the requirements of being an “emerging growth company,” whichever is earlier.

Basis of Presentation

Revenues

Our ability to generate revenues from product sales, which we do not expect will occur before 2020, at the earliest, will depend heavily on our obtaining marketing approval from the FDA for, and, subsequent to that, our successful commercialization of, LIPO-202. If we fail to complete the development of LIPO-202 in a timely manner or to obtain regulatory approval, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.

Research and Development Expenses

Our research and development expenses consist primarily of:

 

·

fees paid to clinical consultants, clinical trial sites and vendors, including CROs in conjunction with implementing and monitoring our preclinical and clinical trials and acquiring and evaluating preclinical and clinical trial data, including all related fees, such as for investigator grants, patient screening fees, laboratory work and statistical compilation and analysis;

 

·

expenses related to preclinical studies, clinical trials and related clinical manufacturing, materials and supplies;

 

·

expenses related to compliance with drug development regulatory requirements in the United States and other foreign jurisdictions; and

 

·

personnel costs, including cash compensation, benefits and share-based compensation expense.

We expense both internal and external research and development costs in the periods in which they are incurred. To date, substantially all our research and development expenses have related to the development of LIPO-202. For the three months ended March 31, 2016 and 2015, we incurred costs of $3.3 million and $4.7 million, respectively, on research and development expenses.

We do not allocate compensation expense to individual product candidates, as we are organized and record expense by functional department and our employees may allocate time to more than one development project. We do not utilize a formal time allocation system to capture expenses on a project-by-project basis.

Conducting significant research and development is central to our business and strategy. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and greater duration of late stage clinical trials as compared to earlier clinical and preclinical development. We expect our research and development expenses will decrease temporarily until we initiate a Phase 2 trial with a modified formulation of LIPO-202.   The costs of clinical trials may vary significantly over the life of a project owing to a number of factors.

13


 

General and Administrative Expenses

Our general and administrative expenses primarily consist of personnel costs, including cash compensation, benefits and share-based compensation expense, associated with our executive, accounting and finance departments. Other general and administrative expenses include costs in connection with patent filing, prosecution and defense, facility, information technology costs and professional fees for legal, consulting, marketing, audit and tax services.

While we anticipate increased expenses to be related to salaries and benefits, legal, patents, travel and investor relations costs associated with being a public company, we temporarily expect that our general and administrative costs will decrease in the short term until we initiate our Phase 2 clinical trials in the third quarter of 2016.

Interest Income    

Our interest income consists primarily of interest received or earned on our cash and cash equivalents. We expect interest income to vary each reporting period depending on our average cash and cash equivalents and marketable securities balances during the period and applicable interest rates. To date, our interest income has not been significant in any individual period.

Interest Expense

Our interest expense consists of cash and noncash interest costs related to our borrowings. The noncash interest costs consist of the amortization of the fair value of warrants that were issued in connection with our borrowings, with the initial fair value of the warrants being amortized to interest expense over the term of the governing agreements, and the amortization of other debt issuance costs, primarily legal and banker fees, over the period the related convertible notes were outstanding. We expect interest expense to vary each reporting period depending on our average debt outstanding during the period, as well as applicable interest rates.

Critical Accounting Policies and Significant Judgments and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate these estimates, including those related to stock-based compensation and warrant liabilities. These estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for judgments about the carrying values of assets and liabilities and the recognition of revenues and expenses. Actual results may differ from these estimates under different assumptions or conditions. There have been no material changes to our critical accounting policies and estimates from the information provided in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies Involving Management Estimates and Assumptions,” included in our Annual Report on Form 10-K for the year ended December 31, 2015.

Results of Operations

Comparison of the Three Months Ended March 31, 2016 and 2015

 

 

 

Three Months Ended March 31,

 

 

Change

 

 

 

2016

 

 

2015

 

 

$

 

 

 

(in thousands)

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

3,260

 

 

$

4,701

 

 

 

(1,441

)

General and administrative

 

 

2,521

 

 

 

1,937

 

 

 

584

 

Total operating expenses

 

 

5,781

 

 

 

6,638

 

 

 

(857

)

Loss from operations

 

 

(5,781

)

 

 

(6,638

)

 

 

857

 

Interest income

 

 

20

 

 

 

7

 

 

 

13

 

Interest expense

 

 

(265

)

 

 

(272

)

 

 

7

 

Net loss

 

$

(6,026

)

 

$

(6,903

)

 

 

877

 

 

14


 

Research and Development Expenses. Research and development expenses decreased by $1.4 million, to $3.3 million for the three months ended March 31, 2016 from $4.7 million for the three months ended March 31, 2015. Approximately $1.5 million of the decrease was due to the completion of our AbCONTOUR1 and AbCONTOUR2 U.S. Phase 3 clinical trials and $0.6 million of the decrease was due to the reduction of other research and development activities.  The decrease was offset by $0.7 million increase due to the close out activities of the supplemental clinical trials.  

General and Administrative Expenses. General and administrative expenses increased by approximately $0.6 million to $2.5 million for the three months ended March 31, 2016, from $1.9 million for the three months ended March 31, 2015.  The increase of $0.8 million was due to costs incurred in connection with separation agreements with our former Chief Executive Officer and certain other former employees and $0.1 million increase was due to the debt prepayment fee.  The increases were offset by $0.3 million decrease in general legal fees, public and investor relations expenses, and outside services expenses.     

Interest Income. Interest income increased by $13,000, to approximately $20,000 for the three months ended March 31, 2016 from approximately $7,000 for the three months ended March 31, 2015. The increase resulted from higher return rate during the three months ended March 31, 2016.

Interest Expense. Interest expense decreased by approximately $7,000, to approximately $265,000 for the three months ended March 31, 2016 from approximately $272,000 for the three months ended March 31, 2015. The decrease was due to the decrease in long-term debt balance as the result of the principal payments that commenced in February 2016 and the early prepayment of long-term debt of $5.5 million.  

Liquidity and Capital Resources

We have incurred losses and negative cash flows from operating activities for the three months ended March 31, 2016 and 2015. As of March 31, 2016, we had an accumulated deficit of $118.9 million. We anticipate that we will continue to incur net losses for the foreseeable future as we continue the development and potential commercialization of LIPO-202 and incur additional costs associated with being a public company.

Prior to our IPO in November 2014, we funded our operations primarily through private placements of our convertible preferred stock, warrants, venture debt and convertible debt. In November 2014, we completed our IPO of 4,650,000 shares of common stock at an offering price of $14.00 per share. We received net proceeds of approximately $57.7 million, after deducting underwriting discounts, commissions and offering-related transaction costs. At March 31, 2016, we had cash and cash equivalents of approximately $24.1 million.

We believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cash requirements for at least the next twelve months. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.

To fund further operations, we will need to raise additional capital. If we are unable to obtain additional financing on commercially reasonable terms, or at all, our business, financial condition and results of operations will be materially adversely affected and we may be unable to continue as a going concern. If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our financial statements. We may obtain additional financing in the future through the issuance of our common stock from other equity or debt financings or through collaborations or partnerships with other companies.

Summary Statement of Cash Flows

The following table sets forth a summary of the net cash flow activity for each of the periods set forth below (in thousands):

 

 

March 31,

 

 

 

2016

 

 

2015

 

Net cash used in operating activities

 

$

(7,606

)

 

$

(4,803

)

Net cash used in investing activities

 

 

-

 

 

 

(426

)

Net cash used by financing activities

 

 

(6,052

)

 

 

-

 

Net decrease in cash and cash equivalents

 

$

(13,658

)

 

$

(5,229

)

15


 

  

Cash Flows from Operating Activities. Net cash used in operating activities was $7.6 million and $4.8 million for the three months ended March 31, 2016 and 2015, respectively. The increase in cash used in operations for three months ended March 31, 2016 compared to March 31, 2015 was primarily due to the increase in payments of accounts payable of $4.8 million, offset by the decrease in net loss of $0.9 million, the change in prepaid expenses of $0.7 million and the increase in share-based compensation of $0.4 million in connection with certain employee separation agreements.  

Cash Flows from Investing Activities. Net cash used in investing activities was $0 and $426,000 for the three months ended March 31, 2016 and 2015, respectively. During the three months ended March 31, 2015, cash used for investing activities consisted primarily of the purchase of furniture and equipment of $226,000 and an increase in restricted cash of $200,000.  

Cash Flows from Financing Activities. Net cash used by financing activities was $6 million and $0 for the three months ended March 31, 2016 and 2015, respectively. During the three months ended March 31, 2016, cash used by financing activities consisted primarily of principal payments of $0.5 million and prepayment of long-term debt of $5.5 million.

Operating and Capital Expenditure Requirements

Our future capital requirements are difficult to forecast and will depend on many factors, including:

 

·

the initiation, progress, costs and results of our planned Phase 2 clinical trials of LIPO-202;

 

·

the outcome, timing and cost of regulatory approvals;

 

·

the costs and timing of establishing sales, marketing and distribution capabilities, if LIPO-202 is approved;

 

·

delays that may be caused by changing regulatory requirements;

 

·

the costs involved in filing and prosecuting patent applications and enforcing and defending patent claims; and

 

·

the extent to which we acquire or invest in businesses, products or technologies.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic partnerships and licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic partnerships or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, our other technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market LIPO-202 even if we would otherwise prefer to develop and market LIPO-202 ourselves.

Contractual obligations and commitments

 

In January 2015, the Company entered into a noncancelable operating lease (see Note 7 “Commitments”). Other than described in Note 5 and Note 7 there have been no material changes outside the ordinary course of our business to the contractual obligations we reported in “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual obligations and commitments” in our annual report on Form 10-K for the year ended December 31, 2015.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements (as defined by applicable regulations of the Securities and Exchange Commission) that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As of March 31, 2016, there have been no material changes in our market risk from that described in “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our annual report on Form 10-K for the year ended December 31, 2015.

16


 

 

 

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this quarterly report on Form 10-Q. Based on such evaluation, our principal executive officer and principal financial officer has concluded that as of such date, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during our latest fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

17


 

PART II—OTHER INFORMATION

 

 

Item 1. Legal Proceedings.

We are currently not a party to any material legal proceedings.

 

 

Item 1A. Risk Factors.

There have been no material changes to the risk factors previously disclosed and included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. An investment in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described under Item 1A of Part I of our Annual Report on Form 10-K, together with all other information contained or incorporated by reference in this report before you decide to invest in our common stock. If any of the Risk Factors were to actually occur, our business, financial condition, results of operations and our future growth prospects could be materially and adversely affected. Under the circumstances, the trading price of our common stock could decline, and you may lose all or part of your investment.

 

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

Unregistered Sales of Equity Securities

None.

Use of Proceeds

None.

 

Item 3. Defaults Upon Senior Securities.

None.

 

 

Item 4. Mine Safety Disclosures.

Not applicable.

 

 

Item 5. Other Information.

None.

 

 

Item 6. Exhibits.

A list of exhibits is set forth on the Exhibit Index immediately following the signature page of this quarterly report on Form 10-Q and is incorporated herein by reference.

18


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

Company Name

 

 

 

 

 

Date: May 12, 2016

 

By:

 

/s/ Susan Knudson

 

 

 

 

Susan Knudson

 

 

 

 

Chief Financial Officer

(Principal Executive Officer and Principal Financial Officer)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19


 

 

EXHIBIT INDEX

 

Exhibit

 

 

 

Filed with
this

 

Incorporated by Reference

Number

 

Exhibit Title

 

Form 10‑Q

 

Form

 

File No.

 

Date Filed

3.1

 

Amended and Restated Certificate of Incorporation.

 

 

 

S‑1

 

333‑199449

 

10/17/2014

3.2

 

Amended and Restated Bylaws.

 

 

 

S‑1

 

333‑199449

 

10/17/2014

 

 

 

 

 

 

 

 

 

 

 

4.2

 

Warrant to Purchase Stock, dated February 23, 2010, issued to Silicon Valley Bank.

 

 

 

S‑1

 

333‑199449

 

10/17/2014

 

 

 

 

 

 

 

 

 

 

 

4.3

 

Warrant to Purchase Stock, dated March 30, 2012, issued to Silicon Valley Bank.

 

 

 

S‑1

 

333‑199449

 

10/17/2014

 

 

 

 

 

 

 

 

 

 

 

4.4

 

Warrant to Purchase Stock, dated August 17, 2012, issued to Silicon Valley Bank.

 

 

 

S‑1

 

333‑199449

 

10/17/2014

 

 

 

 

 

 

 

 

 

 

 

4.5

 

Warrant Agreement, dated June 11, 2014, by and between the Registrant and Hercules Technology III, L.P.

 

 

 

S‑1

 

333‑199449

 

10/17/2014

 

 

 

 

 

 

 

 

 

 

 

4.6

 

Fourth Amended and Restated Investors’ Rights Agreement, dated September 22, 2014, by and between the Registrant and the investors listed therein.

 

 

 

S‑1

 

333‑199449

 

10/17/2014

 

 

 

 

 

 

 

 

 

 

 

4.7

 

Warrant Modification Agreement, dated March 30, 2016, by and between the Registrant and Hercules Technology III, L.P.

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.1

 

Separation Agreement, dated  January 21, 2016, by and between the Registrant and Lincoln Krochmal.

 

 

 

10-K

 

001-36754

 

03/29/2016

 

 

 

 

 

 

 

 

 

 

 

10.2

 

Separation Agreement, dated March 17, 2016, by and between the Registrant and George W. Mahaffey

 

 

 

10-K

 

001-36754

 

03/29/2016

 

 

 

 

 

 

 

 

 

 

 

10.3

 

Second Amendment to Loan and Security Agreement, date March 30, 2016, by and between the Registrant and Hercules Technology Growth Capital, Inc.

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31.1‡

 

Certification of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 promulgated pursuant to the Securities Exchange Act of 1934, as amended.

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32.1‡

 

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101.INS

 

XBRL Instance Document

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20


 

Exhibit

 

 

 

Filed with
this

 

Incorporated by Reference

Number

 

Exhibit Title

 

Form 10‑Q

 

Form

 

File No.

 

Date Filed

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

X

 

 

 

 

 

 

 

21

Exhibit 4.7

 

 

WARRANT MODIFICATION AGREEMENT

This Warrant Modification Agreement is entered into as of March 30, 2016, between Hercules Technology III, L.P. (the “Warrantholder”) and Neothetics, Inc. (formerly known as Lithera, Inc., the “Company”).

Recitals

A.On June 11, 2014, the Company issued to Warrantholder a warrant (the “Warrant”) to purchase shares of its Preferred Stock on such terms as set forth therein.  Any terms not specifically defined herein shall have the meanings set forth in the Warrant.

B.On November 20, 2014, the Company closed its Initial Public Offering, at which time all shares of the Company’s preferred stock, including the Preferred Stock, were automatically converted into Common Stock.

C.In accordance with the provisions of Section 8(c) of the Warrant, as a result of the Initial Public Offering, the Warrant automatically became exercisable for Common Stock.

D.In connection with an amendment to the Loan Agreement of even date herewith, the Company and the Warrantholder now desire to adjust the Exercise Price of the Warrant.

Now, therefore, for good and valuable consideration, the receipt of which is hereby acknowledged, the Company and Warrantholder agree as follows:

 

1.The introductory paragraph of Section 1 is hereby amended and restated as follows:

“For value received, the Company hereby grants to the Warrantholder, and the Warrantholder is entitled, upon the terms and subject to the conditions hereinafter set forth, to subscribe for and purchase from the Company, 46,838 fully paid and non-assessable shares of the Common Stock. The Exercise Price of such shares is subject to adjustment as provided in Section 8.  As used herein, the following terms shall have the following meanings:”

2.The term “Exercise Price” in the Warrant is hereby amended and restated in its entirety as follows:

““Exercise Price” means the lower of the closing price on March 30, 2016 or the volume-weighted average of the closing prices over the fifteen (15) consecutive trading days ending on March 30, 2016.”

3.The definitions of “Next Round” and “Warrant Coverage” are hereby deleted.

4.All references to “Preferred Stock” shall instead refer to “Common Stock.”

 

Except as specifically set forth in this Warrant Modification Agreement, the Warrant remains unmodified and in full force and effect.  

 

***

 


Exhibit 4.7

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by its officers thereunto duly authorized as of the date set forth above.

 

COMPANY:NEOTHETICS, INC.

 

By:   /s/ Susan A. Knudson

Name:  Susan A. Knudson

Title: Chief Financial Officer

 

 

WARRANTHOLDER:  

HERCULES TECHNOLOGY III, L.P.,

a Delaware limited partnership

 

By:

Hercules Technology SBIC Management, LLC,

 

its General Partner

 

By:

Hercules Capital, Inc.,

 

its Manager

 

 

By:

/s/ Jennifer Choe

Name:Jennifer Choe
Title:Assistant General Counsel

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[signature page]

 

Exhibit 10.3

SECOND AMENDMENT

THIS SECOND AMENDMENT (the “Second Amendment”) to Loan and Security Agreement, dated as of March 30, 2016 (the “Second Amendment Date”), is hereby entered into by and among Neothetics, Inc. (formerly known as Lithera, Inc., “Borrower”), the several banks and other financial institutions or entities from time to time parties to the Loan Agreement (as defined below) (“Lender”), and Hercules Capital, Inc. (formerly known as Hercules Technology Growth Capital, Inc., “Agent”), in its capacity as administrative agent for itself and the Lender.  Any of the parties named above may be referred to herein as a (“Party”) and collectively, as the (“Parties”). Any terms not specifically defined herein shall have the definition ascribed to them in the Loan Agreement and Warrant, as defined below.

RECITALS

A.Whereas, Lender and Borrower have entered into that certain Loan and Security Agreement dated June 11, 2014 (as amended from time to time, the “Loan Agreement”);

B.Whereas, Borrower wishes to make a payment of principal in the amount of $5,514,057.72; and

C.Whereas, the Parties desire to amend the Loan Agreement in accordance with the terms of this Second Amendment.  Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in the Loan Agreement.

AGREEMENT

NOW, THEREFORE, the Parties agree as follows:

 

1.

Definitions.

 

(a)New Definitions.  The following definitions are hereby inserted alphabetically into Section 1.1, as follows:

“Second Amendment Non-Renewable Facility Charge” means $50,000.

“Term Loan Pay-Down Amount” shall mean a prepayment of principal in the amount of $5,514,057.72 made on the Second Amendment Date;

(b)Amended Definitions.  The following definitions are hereby amended and restated in their entirety as follows:

“Amortization Date” means October 1, 2016, provided however, if the Interest Only Extension Conditions are satisfied, then April 1, 2017.

“Facility Charge” means $50,000.

 


 

“First Amendment Non-Renewable Facility Charge” means $25,000.

“Interest Only Extension Conditions” shall mean satisfaction of each of the following events:  (a) no default or Event of Default shall have occurred; and (b) Borrower shall have completed an equity financing in which the Borrower sells and issues shares of its capital stock resulting in aggregate gross proceeds to the Borrower raised on or after the Second Amendment Date of at least $5,000,000 on or before October 1, 2016.

“Maximum Term Loan Amount” means Four Million and No/100 Dollars ($4,000,000).

 

2.

All references to Agent’s prior name of Hercules Technology Growth Capital, Inc. shall be revised to reflect Agent’s amended name of Hercules Capital, Inc.

 

3.

Section 2.2(d) of the Loan Agreement is hereby amended in its entirety to read as follows:

2.2(d)  Payment.  Borrower will pay interest on each Term Loan Advance on the first business day of each month, beginning the month after the Second Amendment Date.  Borrower shall repay the aggregate Term Loan principal balance that is outstanding on the day immediately preceding the Amortization Date, in equal monthly installments of principal and interest (mortgage style) beginning on the Amortization Date and continuing on the first Business Day of each month thereafter, amortized over a 28-month schedule if the Amortization Date is October 1, 2016, or over a 22-month schedule if the Amortization Date is April 1, 2017.  The entire Term Loan principal balance and all accrued but unpaid interest hereunder, shall be due and payable on Term Loan Maturity Date, which such final payment shall include a balloon payment for any remaining principal balance and all remaining accrued but unpaid interest based on the applicable amortized schedule.  Borrower shall make all payments under this Agreement without setoff, recoupment or deduction and regardless of any counterclaim or defense. Lender will initiate debit entries to the Borrower’s account as authorized on the ACH Authorization (i) on each payment date of all periodic obligations payable to Lender under each Term Advance and (ii) out-of-pocket legal fees and costs incurred by Agent or Lender in connection with Section 11.11 of this Agreement.

4.Section 2.5 of the Loan Agreement is hereby amended in its entirety to read as follows:

2.5  Prepayment.  At its option upon at least seven (7) Business Days prior notice to Agent, Borrower may prepay all, but not less than all, of the outstanding Advances by paying the entire principal balance, all accrued and unpaid interest thereon, together with a prepayment charge equal to the following percentage of the Advance amount being prepaid: if such Advance amounts are prepaid in any of the first twelve (12) months following the Second Amendment Date, 3.0%; and thereafter, 2.0% (each, a “Prepayment Charge”).  Borrower agrees that the Prepayment Charge is a reasonable calculation of

- 2 -


 

Lender’s lost profits in view of the difficulties and impracticality of determining actual damages resulting from an early repayment of the Advances.  Borrower shall prepay the outstanding amount of all principal and accrued interest through the prepayment date and the Prepayment Charge upon the occurrence of a Change in Control. Notwithstanding the foregoing, Agent and Lender agree to waive the Prepayment Charge if Agent and Lender (in its sole and absolute discretion) agree in writing to refinance the Advances prior to the Maturity Date.

5.Section 7.14 of the Loan Agreement is hereby amended in its entirety to read as follows:

7.14Minimum Unrestricted Cash.  Borrower at all times shall maintain unrestricted Cash in Deposit Accounts subject to an Account Control Agreement of at least two (2) times the amount of principal then outstanding under the Term Loan.

6.Exhibits and Schedules.  Exhibit F and Schedule 1.1 are hereby amended restated in their entireties by the revised forms of Exhibit F and Schedule 1.1 attached to this Amendment and incorporated herein.

7.Effect of this Second Amendment.  The provisions of this Second Amendment shall be effective for all parties effective as of the Second Amendment Date.  Except as necessary to carry out the intent of this Second Amendment and as specifically modified pursuant hereto, no other changes or modifications to the Loan Agreement are intended or implied and in all other respects such documents shall continue to be and shall remain unchanged and in full force and effect in accordance with their respective terms, and are hereby specifically ratified, reaffirmed and confirmed by all parties hereto as of the effective date hereof.  

8.Borrower represents and warrants that the representations and warranties contained in the Loan Agreement are true and correct in all material respects as of the date of this Second Amendment (except to the extent such representations and warranties contained in the Loan Agreement speak as of an earlier date in which case such representations and warranties are true and correct in all material respects as of such earlier date).

9.This Second Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.

10.Conditions Precedent.  As a condition to the effectiveness of this Second Amendment, Agent shall have received, in form and substance satisfactory to Agent, the following:

(a)this Second Amendment fully executed by the Parties;

(b)a fully executed Warrant Modification Agreement;

 

(c)the Term Loan Pay-Down Amount;

- 3 -


 

(d)the Prepayment Charge of $110,281.16 applicable with respect to the Term Loan Pay-Down Amount; 

(e)the Second Amendment Non-Renewable Facility Charge, which shall be deemed earned as of the Second Amendment Date;

(f)an amount equal to all Agent’s expenses incurred through the Second Amendment Date; and

(g)such other documents, and completion of such other matters, as Agent may reasonably deem necessary or appropriate.

 

[Signature page follows]

 

- 4 -


Exhibit 10.3

IN WITNESS WHEREOF, the Parties have executed this Second Amendment on the date first written above.

BORROWER:

NEOTHETICS, INC.

Signature:_/s/ Susan A. Knudson ____

Print Name:_Susan A. Knudson_______

Title:_Chief Financial Officer___

 

 

AGENT:

HERCULES CAPITAL, INC.

Signature:_/s/ Jennifer Choe  __________________

Jennifer Choe, Assistant General Counsel

 

 

LENDER:

HERCULES TECHNOLOGY III, L.P.
a Delaware limited partnership

 

By:

Hercules Technology SBIC Management, LLC, its General Partner

 

By:

Hercules Capital, Inc., its Manager

 

By:

_/s/ Jennifer Choe____________________
Jennifer Choe, Assistant General Counsel


 


 

EXHIBIT F

COMPLIANCE CERTIFICATE

Hercules Capital, Inc. (as “Agent”)
400 Hamilton Avenue, Suite 310
Palo Alto, CA 94301

 

Reference is made to that certain Loan and Security Agreement dated June 11, 2014, as amended, and all ancillary documents entered into in connection with such Loan and Security Agreement all as may be amended from time to time, (hereinafter referred to collectively as the “Loan Agreement”) by and among Hercules Capital, Inc. (formerly known as Hercules Technology Growth Capital, Inc., the “Agent”), the several banks and other financial institutions or entities from time to time party thereto (collectively, the “Lender”) and Hercules Capital, Inc., as agent for the Lender (the “Agent”) and Neothetics, Inc. (the “Company”) as Borrower. All capitalized terms not defined herein shall have the same meaning as defined in the Loan Agreement.

The undersigned is an Officer of the Company, knowledgeable of all Company financial matters, and is authorized to provide certification of information regarding the Company; hereby certifies that in accordance with the terms and conditions of the Loan Agreement, the Company is in compliance for the period ending ___________ of all covenants, conditions and terms and hereby reaffirms that all representations and warranties contained therein are true and correct on and as of the date of this Compliance Certificate with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date, after giving effect in all cases to any standard(s) of materiality contained in the Loan Agreement as to such representations and warranties.  Attached are the required documents supporting the above certification.  The undersigned further certifies that these are prepared in accordance with GAAP (except for the absence of footnotes with respect to unaudited financial statement and subject to normal year end adjustments) and are consistent from one period to the next except as explained below.

REPORTING REQUIREMENT

REQUIRED

CHECK IF ATTACHED

Interim Financial Statements

Monthly within 30 days

 

Interim Financial Statements

Quarterly within 30 days

 

Audited Financial Statements

FYE within 150 days

 

 

 

 


 


 

FINANCIAL COVENANT

 

 

Outstdg Principal

Unrestricted Cash

Minimum Unrestricted Cash

2x principal outstanding under the Term Loan

$______

$________

 

Very Truly Yours,

 

NEOTHETICS, INC.

 

 

By:

____________________________

Name:   _____________________________

 

Its:

____________________________


 


 

SCHEDULE 1.1

COMMITMENTS

LENDER

TERM COMMITMENT

HERCULES TECHNOLOGY III, L.P.

$4,000,000

TOTAL COMMITMENTS

$4,000,000

 

 

 

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Susan A. Knudson, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Neothetics, Inc. for the quarter ended March 31, 2016;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

(a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

[paragraph omitted in accordance with Exchange Act Rule 13a-14(a)];

 

(c)

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 12, 2016

 

By:

/s/ Susan A. Knudson

 

 

 

Susan A. Knudson

 

 

 

Chief Financial Officer

(Principal Executive Officer and Principal Financial Officer)

 

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Neothetics, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

Date: May 12, 2016

 

By:

/s/ Susan A. Knudson

 

 

 

Susan A. Knudson

 

 

 

Chief Financial Officer

(Principal Executive Officer and Principal Financial Officer)

 

 

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate document.

 

v3.4.0.3
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2016
Apr. 29, 2016
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 31, 2016  
Document Fiscal Year Focus 2016  
Document Fiscal Period Focus Q1  
Trading Symbol NEOT  
Entity Registrant Name Neothetics, Inc.  
Entity Central Index Key 0001618835  
Current Fiscal Year End Date --12-31  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   13,799,196
v3.4.0.3
Condensed Balance Sheets (Unaudited) - USD ($)
Mar. 31, 2016
Dec. 31, 2015
Current assets:    
Cash and cash equivalents $ 24,089,869 $ 37,748,603
Prepaid expenses and other current assets 1,075,300 1,976,997
Total current assets 25,165,169 39,725,600
Restricted cash 200,000 200,000
Property and equipment, net 168,596 186,372
Total assets 25,533,765 40,111,972
Current liabilities:    
Accounts payable 1,420,315 4,017,192
Accrued clinical trial expenses 630,419 1,422,810
Other accrued expenses 1,038,685 903,148
Long-term debt, current portion 785,123 2,756,351
Total current liabilities 3,874,542 9,099,501
Long-term debt, net of current portion $ 3,154,380 $ 7,205,176
Stockholders’ equity:    
Preferred stock, $0.0001 par value; 5,000,000 shares authorized; no shares issued and outstanding
Common stock, $0.0001 par value; 300,000,000 shares authorized; 13,799,196 and 13,750,016 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively $ 1,379 $ 1,374
Additional paid-in capital 137,361,777 136,637,678
Accumulated deficit (118,858,313) (112,831,757)
Total stockholders’ equity 18,504,843 23,807,295
Total liabilities and stockholders’ equity $ 25,533,765 $ 40,111,972
v3.4.0.3
Condensed Balance Sheets (Unaudited) (Parenthetical) - $ / shares
Mar. 31, 2016
Dec. 31, 2015
Statement Of Financial Position [Abstract]    
Preferred stock, par value $ 0.0001 $ 0.0001
Preferred stock, shares authorized 5,000,000 5,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value $ 0.0001 $ 0.0001
Common stock, shares authorized 300,000,000 300,000,000
Common stock, shares issued 13,799,196 13,750,016
Common stock, shares outstanding 13,799,196 13,750,016
v3.4.0.3
Condensed Statements of Operations (Unaudited) - USD ($)
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Operating expenses:    
Research and development $ 3,260,298 $ 4,700,668
General and administrative 2,520,871 1,937,321
Total operating expenses 5,781,169 6,637,989
Loss from operations (5,781,169) (6,637,989)
Interest income 19,737 7,455
Interest expense (265,124) (271,846)
Net loss $ (6,026,556) $ (6,902,380)
Net loss per share, basic and diluted $ (0.44) $ (0.50)
Weighted average shares used to compute basic and diluted net loss per share 13,757,582 13,671,311
v3.4.0.3
Condensed Statements of Cash Flows (Unaudited) - USD ($)
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Operating activities    
Net loss $ (6,026,556) $ (6,902,380)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 17,776 3,802
Loss on disposal of assets   6,139
Noncash interest expense on debt 39,793 46,846
Share-based compensation 714,687 299,086
Changes in operating assets and liabilities:    
Prepaid expenses and other current assets 901,697 164,195
Accounts payable and accrued expenses (3,253,731) 1,578,915
Net cash used in operating activities (7,606,334) (4,803,397)
Investing activities    
Restricted cash   (200,000)
Purchase of property and equipment   (226,128)
Net cash used in investing activities   (426,128)
Financing activities    
Partial prepayment resulting in loan extinguishment (5,514,058)  
Principal payments on bank loan (485,942)  
Loan amendment costs (52,400)  
Net cash used in financing activities (6,052,400)  
Net decrease in cash and cash equivalents (13,658,734) (5,229,525)
Cash and cash equivalents, beginning of period 37,748,603 75,947,516
Cash and cash equivalents, end of period 24,089,869 70,717,991
Supplemental disclosure of cash flow activity    
Cash paid for interest $ 230,924 $ 225,000
v3.4.0.3
Organization and Basis of Presentation
3 Months Ended
Mar. 31, 2016
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Organization and Basis of Presentation

 

1.

Organization and Basis of Presentation

Neothetics, Inc. (Neothetics or the Company) was incorporated in Delaware on February 1, 2007, under the name Lipothera, Inc. In September 2008, the Company changed its name to Lithera, Inc. In August 2014, the Company changed its name to Neothetics, Inc. The Company is a clinical-stage specialty pharmaceutical company developing therapeutics for the aesthetic market. The Company’s lead product candidate is a novel injectable treatment for the reduction of central abdominal bulging due to subcutaneous fat in non-obese patients.

As of March 31, 2016, the Company has devoted substantially all of its efforts to product development, raising capital, and building infrastructure and has not realized revenues from its planned principal operations.

The accompanying unaudited financial statements of the Company should be read in conjunction with the audited financial statements and notes thereto as of and for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K (Annual Report) filed with the Securities and Exchange Commission (SEC). The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, since they are interim statements, the accompanying financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the accompanying financial statements reflect all adjustments (consisting of normal recurring adjustments) that are necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented. Interim results are not necessarily indicative of results for a full year.

v3.4.0.3
Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2016
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of 90 days or less at the date of purchase to be cash equivalents. Cash and cash equivalents include cash in readily available checking and money market accounts.

Restricted Cash

 Restricted cash as of March 31, 2016 represents a $200,000 restricted money market account used to secure the standby letter of credit issued in connection with a lease amendment (see Note 5 “Debt”).

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to significant risk on its cash due to the financial position of the depository institution in which those deposits are held.

Fair Value of Financial Instruments

The carrying amounts of prepaid and other current assets, accounts payable and accrued expenses are reasonable estimates of their fair value because of the short maturity of these items.

Property and Equipment

Property and equipment, which primarily consist of office furniture and equipment and computer equipment, are stated at cost and depreciated over the estimated useful lives of the assets (three to five years) using the straight-line method.

Impairment of Long-Lived Assets

Long-lived assets consist primarily of property and equipment. An impairment loss is recorded if and when events and circumstances indicate that assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. While the Company's current and historical operating losses and negative cash flows are indicators of impairment, management believes that future cash flows to be received support the carrying value of its long-lived assets and, accordingly, has not recognized any impairment losses since inception.

 

Research and Development Costs

Research and development expenses consist primarily of salaries and related overhead expenses, fees paid to consultants and contract research organizations, costs related to acquiring and manufacturing clinical trial materials, and costs related to compliance with regulatory requirements.

All research and development costs are charged to expense as incurred.

Income Taxes

The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and the tax reporting basis of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Valuation allowances are recorded when the realizability of such deferred tax assets is not more likely than not.

The guidance on accounting for uncertainty in income taxes prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company’s policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense. The Company has not recognized interest and penalties in the balance sheets or statements of operations. The Company is subject to taxation in the U.S. and state jurisdictions. The Company’s tax years from inception are subject to examination by the United States and California authorities due to the carryforwards of unutilized net operating losses (NOLs) and research and development credits.

Share-Based Compensation

Share-based compensation expense for stock option grants, restricted stock awards and employee stock purchase plan shares is recorded at the estimated fair value of the award as of the grant date and is recognized as expense on a straight-line basis over the requisite service period of the stock-based award. The estimation of stock options, restricted stock awards and employee stock purchase plan fair value requires management to make estimates and judgments about, among other things, employee exercise behavior, forfeiture rates and volatility of the Company’s common stock. The judgments directly affect the amount of compensation expense that will be recognized.

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and common share equivalents outstanding during the period. Common stock equivalents are only included when their effect is dilutive. The Company’s potentially dilutive securities, which include warrants and outstanding stock options and restricted stock awards under the stock compensation plans, have been excluded from the computation of diluted net loss per share as they would be anti-dilutive. For all periods presented, there is no difference in the number of shares used to compute basic and diluted shares outstanding due to the Company’s net loss position.

The following table sets forth the outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because to do so would be anti-dilutive.

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

Warrants for common stock

 

 

71,257

 

 

 

71,257

 

Common stock options and restricted stock awards issued and outstanding

 

 

1,120,578

 

 

 

1,413,803

 

 

 

 

1,191,835

 

 

 

1,485,060

 

 

All shares of convertible preferred stock were converted into shares of the Company’s common stock and all warrants were converted into warrants to purchase common stock as a result of the closing of the Company’s IPO in November 2014.

 

Recent Accounting Pronouncements

 

In March 2016, the FASB issued ASU 2016-09 (“ASU 2016-09”), Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies several aspects of the accounting for employee share-based payments, including accounting for income taxes, forfeitures, statutory tax withholding requirements, and classification on the statement of cash flows. The amendments in this ASU are effective for annual periods beginning after December 15, 2016. Early adoption is permitted. The Company is evaluating the impact of adoption on its condensed financial statements.

 

In February 2016, the FASB issued ASU 2016-02 (“ASU 2016-02”), Leases. ASU 2016-02 requires that lessees recognize assets and liabilities for the rights and obligations for leases with a lease term of more than one year. The amendments in this ASU are effective for annual periods ending after December 15, 2018. Early adoption is permitted. The Company is evaluating the impact of adoption on its condensed financial statements.

 

In August 2014, the FASB issued Accounting Standards Update (ASU) 2014-15, which defined management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related disclosure. ASU 2014-15 defined the term substantial doubt and requires an assessment for a period of one year after the date of the issuance of the financial statements. It requires certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans and requires an express statement and other disclosures when substantial doubt is not alleviated. The guidance becomes effective for reporting periods beginning after December 15, 2016, with early adoption permitted. The company will assess any additional disclosures based upon its liquidity at the time of initial adoption.

 

v3.4.0.3
Fair Value Measurements
3 Months Ended
Mar. 31, 2016
Fair Value Disclosures [Abstract]  
Fair Value Measurements

3. Fair Value Measurements

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts payable, accrued expenses, including warrants issued in connection with financing arrangements, and long-term debt. Fair value estimates of these instruments are made at a specific point in time based on relevant market information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. The carrying amount of cash and cash equivalents, accounts payable, and accrued expenses are generally considered to be representative of their respective fair values because of the short-term nature of these instruments.   The Company believes that the fair value of long-term debt approximates its carrying value based on the borrowing rates currently available to the Company for loans with similar terms.

The authoritative guidance for fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Market participants are buyers or sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. The guidance prioritizes three levels of inputs into the following hierarchy:

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

Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and liabilities measured at fair value on a recurring basis as of March 31, 2016 and December 31, 2015 are as follows:

 

 

 

 

 

 

 

Fair Value Measurements at Reporting Date Using

 

 

 

Balance as of

March 31,

2016

 

 

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund(1)

 

$

23,271,095

 

 

$

23,271,095

 

 

$

 

 

$

 

Total assets

 

$

23,271,095

 

 

$

23,271,095

 

 

$

 

 

$

 

 

(1) 

Included as a component of cash and cash equivalents on accompanying balance sheet.

 

 

 

 

 

 

 

Fair Value Measurements at Reporting Date Using

 

 

 

Balance as of

December 31,

2015

 

 

Quoted Prices

in Active

Markets for

Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund(1)

 

$

36,752,200

 

 

$

36,752,200

 

 

$

 

 

$

 

Total assets

 

$

36,752,200

 

 

$

36,752,200

 

 

$

 

 

$

 

 

(1) 

Included as a component of cash and cash equivalents on accompanying balance sheet.

 

v3.4.0.3
Property and Equipment
3 Months Ended
Mar. 31, 2016
Property Plant And Equipment [Abstract]  
Property and Equipment

4. Property and Equipment

Property and equipment consist of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Office furniture and equipment

 

$

279,547

 

 

$

279,547

 

Less accumulated depreciation and amortization

 

 

(110,951

)

 

 

(93,175

)

 

 

$

168,596

 

 

$

186,372

 

 

v3.4.0.3
Debt
3 Months Ended
Mar. 31, 2016
Debt Disclosure [Abstract]  
Debt

5. Debt

Loans

In February 2010, and as amended during 2012, the Company entered into a loan and security agreement (2010 Loan and Security Agreement) with Silicon Valley Bank (SVB), for borrowings of $3,750,000, collateralized by all assets of the Company. In connection with the borrowings, the Company issued warrants to the bank for the purchase of a total of 64,865 shares of Series B convertible preferred stock and warrants to purchase 75,000 shares of Series C convertible preferred stock. Effective upon the IPO, this was converted to a warrant to purchase 24,419 shares of common stock at a weighted average exercise price of $9.90 and expire ten years from the date of issuance. The 2010 Loan and Security Agreement was fully paid off in June 2014.

In June 2014, the Company entered into a Loan and Security Agreement (Loan Agreement) with Hercules Technology Growth Capital Inc. that provided for borrowings up to $10.0 million available to the Company in two tranches. Upon closing of the Loan Agreement, the Company borrowed $4.0 million. In October 2014, the Company entered into the first amendment of the Loan Agreement and borrowed the remaining $6.0 million available under the agreement.

In connection with the Loan Agreement, in June 2014, the Company issued warrants to purchase shares of Series C convertible preferred stock equal to 4% of the amount advanced under the loan. Effective upon the IPO, this was converted to a warrant to purchase 46,838 shares of common stock at $8.54, which expires eight years after the date of issuance. The fair value of the warrants issued was $207,429, based on the fair value of such Series C warrants at the date of issuance. The warrants’ fair value and financing fees of approximately $133,000 were recorded as a debt discount.

In March 2016, the Company entered into the second amendment of the Loan Agreement that provided for a prepayment of the outstanding loan carrying amount of $5.5 million with a prepayment fee of $110,000 expensed during the three months ended March 31, 2016. In connection with the second amendment, the Company re-priced the outstanding warrants to purchase 46,838 shares of common stock at a new exercise price of $0.62, which expire in September 2022. The Company recorded a debt discount of $9,417 associated with the fair value of the warrants issued in connection with the amendment. In addition, the loan amendment fees and legal fees of $52,400 were recorded as a debt discount. The initial value of the fees and warrants are amortized to interest expense over the remaining term using the effective interest method. In accordance with the accounting literature, the Company determined that the present value in the change of cash flows was greater than 10% and therefore extinguishment accounting has been applied resulting in the write off of the remaining unamortized discount.  Additionally, as the portion paid off was equal to the carrying value of the debt, no gain or loss was recorded in connection with the extinguishment.

The loan bears interest equal to the greater of either 9.0%, plus the Prime Rate as reported in The Wall Street Journal, less 3.25% or 9.0%. Interest only is due and payable through September 2016, with principal and interest payments due commencing October 2016 through loan maturity in January 2018 and an end of term payment of $300,000. The Company may elect a prepayment option. If elected, the Company will be required to pay the entire principal balance, all accrued and unpaid interest, together with a prepayment charge ranging from 1%-3% of the advance amount being prepaid, as well as the end of term payment. The loan is secured by substantially all assets of the Company. In connection with the second amendment to the Loan Agreement, the Company is required at all times to maintain an unrestricted cash balance of at least two times the amount of principal then outstanding under the Term Loan. The Company recorded total interest expense of $265,124 and $271,846 related to the Loan Agreement for the three months end March 31, 2016 and 2015, respectively.

At March 31, 2016, the principal balance outstanding under the Loan Agreement was $4.0 million. As of March 31, 2016, the principal and interest payments of the loan over its term are as follows:

 

2016

 

 

708,326

 

2017

 

 

1,912,509

 

2018

 

 

2,284,812

 

2019

 

 

 

2020

 

 

 

Total

 

 

4,905,647

 

Less interest

 

 

(905,647

)

Less debt discount

 

 

(60,497

)

Less current portion of debt

 

 

(785,123

)

Long-term debt, net of current portion

 

$

3,154,380

 

 

Letter of Credit

In January 2015, the Company executed a lease amendment with LJ Gateway, LLC for new office space. In connection with this lease amendment the Company issued a stand-by letter of credit in the amount of $200,000 in lieu of a security deposit. The standby letter of credit is secured by a restricted money market account. The terms of the standby letter of credit expire in May 2020 and are subject to automatic yearly renewal prior to this date.

 

v3.4.0.3
Stockholders' Equity
3 Months Ended
Mar. 31, 2016
Equity [Abstract]  
Stockholders’ Equity

6. Stockholders’ Equity

Warrants

As of March 31, 2016, warrants to purchase 71,257 shares of common stock remain outstanding, of which 24,419 warrants to purchase shares of common stock are at a weighted average exercise price of $9.90 and 46,838 warrants to purchase shares of common stock are at an exercise price of $0.62.

Common Stock

On December 1, 2015, the Company entered into a Controlled Equity Offering Sales Agreement, or Sales Agreement, with Cantor Fitzgerald, as a sales agent pursuant to which the Company may offer and sell from time to time, through Cantor Fitzgerald shares of Neothetics common stock, par value $0.0001 per share, having an aggregate offering price of up to $20.0 million. The minimum share price for this Controlled Equity Offering is selected at the discretion of the board of directors. Through March 31, 2016, no shares of common stock have been sold pursuant to this Sales Agreement.

Stock Compensation Plans

The following table summarizes the Company’s stock compensation plan activity for the three months ended March 31, 2016:

 

 

 

 

Options

Outstanding

 

 

Weighted

Average

Exercise Price

 

Outstanding and exercisable at December 31, 2015

 

 

1,363,027

 

 

$

3.09

 

Granted

 

 

157,500

 

 

$

0.97

 

Exercised

 

 

(49,180

)

 

$

-

 

Forfeited

 

 

(350,769

)

 

$

2.25

 

Outstanding and exercisable at March 31, 2016

 

 

1,120,578

 

 

$

3.19

 

 

The Company recognized non-cash share-based compensation expense related to its 2014 Employee Stock Purchase Plan, restricted stock awards and stock options granted to employees and directors as follows:

 

 

 

Three Months Ended March 31,

 

 

 

 

 

2016

 

 

2015

 

 

 

General and administrative

 

$

672,310

 

 

$

205,310

 

 

 

Research and development

 

 

42,377

 

 

 

93,776

 

 

 

 

 

$

714,687

 

 

$

299,086

 

 

 

Common Stock Reserved for Future Issuance

The following shares of common stock are reserved for future issuance at March 31, 2016:

 

Warrants issued and outstanding

 

 

71,257

 

Stock options issued and outstanding

 

 

1,120,578

 

Authorized for future awards under stock compensation plans

 

 

2,056,004

 

Employee Stock Purchase Plan

 

 

436,175

 

 

 

 

3,684,014

 

 

v3.4.0.3
Commitments
3 Months Ended
Mar. 31, 2016
Commitments And Contingencies Disclosure [Abstract]  
Commitments

7. Commitments

Operating Leases

The Company entered into a noncancelable operating lease for its facilities on January 20, 2015. The lease expires in March 2020.          

The following table summarizes the minimum lease payments under this commitment:

2016

 

$

286,893

 

2017

 

 

395,520

 

2018

 

 

410,850

 

2019

 

 

431,508

 

2020

 

 

109,293

 

Total

 

$

1,634,064

 

 

 

v3.4.0.3
Summary of Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2016
Accounting Policies [Abstract]  
Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of 90 days or less at the date of purchase to be cash equivalents. Cash and cash equivalents include cash in readily available checking and money market accounts.

Restricted Cash

Restricted Cash

 Restricted cash as of March 31, 2016 represents a $200,000 restricted money market account used to secure the standby letter of credit issued in connection with a lease amendment (see Note 5 “Debt”).

Concentrations of Credit Risk

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to significant risk on its cash due to the financial position of the depository institution in which those deposits are held.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The carrying amounts of prepaid and other current assets, accounts payable and accrued expenses are reasonable estimates of their fair value because of the short maturity of these items.

Property and Equipment

Property and Equipment

Property and equipment, which primarily consist of office furniture and equipment and computer equipment, are stated at cost and depreciated over the estimated useful lives of the assets (three to five years) using the straight-line method.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

Long-lived assets consist primarily of property and equipment. An impairment loss is recorded if and when events and circumstances indicate that assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. While the Company's current and historical operating losses and negative cash flows are indicators of impairment, management believes that future cash flows to be received support the carrying value of its long-lived assets and, accordingly, has not recognized any impairment losses since inception.

Research and Development Costs

Research and Development Costs

Research and development expenses consist primarily of salaries and related overhead expenses, fees paid to consultants and contract research organizations, costs related to acquiring and manufacturing clinical trial materials, and costs related to compliance with regulatory requirements.

All research and development costs are charged to expense as incurred.

Income Taxes

Income Taxes

The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and the tax reporting basis of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Valuation allowances are recorded when the realizability of such deferred tax assets is not more likely than not.

The guidance on accounting for uncertainty in income taxes prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company’s policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense. The Company has not recognized interest and penalties in the balance sheets or statements of operations. The Company is subject to taxation in the U.S. and state jurisdictions. The Company’s tax years from inception are subject to examination by the United States and California authorities due to the carryforwards of unutilized net operating losses (NOLs) and research and development credits.

Share-Based Compensation

Share-Based Compensation

Share-based compensation expense for stock option grants, restricted stock awards and employee stock purchase plan shares is recorded at the estimated fair value of the award as of the grant date and is recognized as expense on a straight-line basis over the requisite service period of the stock-based award. The estimation of stock options, restricted stock awards and employee stock purchase plan fair value requires management to make estimates and judgments about, among other things, employee exercise behavior, forfeiture rates and volatility of the Company’s common stock. The judgments directly affect the amount of compensation expense that will be recognized.

Net Loss Per Share

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and common share equivalents outstanding during the period. Common stock equivalents are only included when their effect is dilutive. The Company’s potentially dilutive securities, which include warrants and outstanding stock options and restricted stock awards under the stock compensation plans, have been excluded from the computation of diluted net loss per share as they would be anti-dilutive. For all periods presented, there is no difference in the number of shares used to compute basic and diluted shares outstanding due to the Company’s net loss position.

The following table sets forth the outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because to do so would be anti-dilutive.

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

Warrants for common stock

 

 

71,257

 

 

 

71,257

 

Common stock options and restricted stock awards issued and outstanding

 

 

1,120,578

 

 

 

1,413,803

 

 

 

 

1,191,835

 

 

 

1,485,060

 

 

All shares of convertible preferred stock were converted into shares of the Company’s common stock and all warrants were converted into warrants to purchase common stock as a result of the closing of the Company’s IPO in November 2014.

Recent Accounting Pronouncements

 

Recent Accounting Pronouncements

 

In March 2016, the FASB issued ASU 2016-09 (“ASU 2016-09”), Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies several aspects of the accounting for employee share-based payments, including accounting for income taxes, forfeitures, statutory tax withholding requirements, and classification on the statement of cash flows. The amendments in this ASU are effective for annual periods beginning after December 15, 2016. Early adoption is permitted. The Company is evaluating the impact of adoption on its condensed financial statements.

 

In February 2016, the FASB issued ASU 2016-02 (“ASU 2016-02”), Leases. ASU 2016-02 requires that lessees recognize assets and liabilities for the rights and obligations for leases with a lease term of more than one year. The amendments in this ASU are effective for annual periods ending after December 15, 2018. Early adoption is permitted. The Company is evaluating the impact of adoption on its condensed financial statements.

 

In August 2014, the FASB issued Accounting Standards Update (ASU) 2014-15, which defined management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related disclosure. ASU 2014-15 defined the term substantial doubt and requires an assessment for a period of one year after the date of the issuance of the financial statements. It requires certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans and requires an express statement and other disclosures when substantial doubt is not alleviated. The guidance becomes effective for reporting periods beginning after December 15, 2016, with early adoption permitted. The company will assess any additional disclosures based upon its liquidity at the time of initial adoption.

 

v3.4.0.3
Summary of Significant Accounting Policies (Tables)
3 Months Ended
Mar. 31, 2016
Accounting Policies [Abstract]  
Summary of Outstanding Potentially Dilutive Securities Excluded from Calculation of Diluted Net Loss Per Share

The following table sets forth the outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because to do so would be anti-dilutive.

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

Warrants for common stock

 

 

71,257

 

 

 

71,257

 

Common stock options and restricted stock awards issued and outstanding

 

 

1,120,578

 

 

 

1,413,803

 

 

 

 

1,191,835

 

 

 

1,485,060

 

 

v3.4.0.3
Fair Value Measurements (Tables)
3 Months Ended
Mar. 31, 2016
Fair Value Disclosures [Abstract]  
Schedule of Assets and Liabilities at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis as of March 31, 2016 and December 31, 2015 are as follows:

 

 

 

 

 

 

 

Fair Value Measurements at Reporting Date Using

 

 

 

Balance as of

March 31,

2016

 

 

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund(1)

 

$

23,271,095

 

 

$

23,271,095

 

 

$

 

 

$

 

Total assets

 

$

23,271,095

 

 

$

23,271,095

 

 

$

 

 

$

 

 

(1) 

Included as a component of cash and cash equivalents on accompanying balance sheet.

 

 

 

 

 

 

 

Fair Value Measurements at Reporting Date Using

 

 

 

Balance as of

December 31,

2015

 

 

Quoted Prices

in Active

Markets for

Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund(1)

 

$

36,752,200

 

 

$

36,752,200

 

 

$

 

 

$

 

Total assets

 

$

36,752,200

 

 

$

36,752,200

 

 

$

 

 

$

 

 

(1) 

Included as a component of cash and cash equivalents on accompanying balance sheet.

v3.4.0.3
Property and Equipment (Tables)
3 Months Ended
Mar. 31, 2016
Property Plant And Equipment [Abstract]  
Summary of Property and Equipment

Property and equipment consist of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Office furniture and equipment

 

$

279,547

 

 

$

279,547

 

Less accumulated depreciation and amortization

 

 

(110,951

)

 

 

(93,175

)

 

 

$

168,596

 

 

$

186,372

 

 

v3.4.0.3
Debt (Tables)
3 Months Ended
Mar. 31, 2016
Debt Disclosure [Abstract]  
Schedule of Principal and Interest Payments of the Loan

As of March 31, 2016, the principal and interest payments of the loan over its term are as follows:

 

2016

 

 

708,326

 

2017

 

 

1,912,509

 

2018

 

 

2,284,812

 

2019

 

 

 

2020

 

 

 

Total

 

 

4,905,647

 

Less interest

 

 

(905,647

)

Less debt discount

 

 

(60,497

)

Less current portion of debt

 

 

(785,123

)

Long-term debt, net of current portion

 

$

3,154,380

 

 

v3.4.0.3
Stockholders' Equity (Tables)
3 Months Ended
Mar. 31, 2016
Equity [Abstract]  
Summary of Stock Compensation Plan Activity

The following table summarizes the Company’s stock compensation plan activity for the three months ended March 31, 2016:

 

 

 

 

Options

Outstanding

 

 

Weighted

Average

Exercise Price

 

Outstanding and exercisable at December 31, 2015

 

 

1,363,027

 

 

$

3.09

 

Granted

 

 

157,500

 

 

$

0.97

 

Exercised

 

 

(49,180

)

 

$

-

 

Forfeited

 

 

(350,769

)

 

$

2.25

 

Outstanding and exercisable at March 31, 2016

 

 

1,120,578

 

 

$

3.19

 

 

Summary of Recognized Non-Cash Share-Based Compensation Expense

The Company recognized non-cash share-based compensation expense related to its 2014 Employee Stock Purchase Plan, restricted stock awards and stock options granted to employees and directors as follows:

 

 

 

Three Months Ended March 31,

 

 

 

 

 

2016

 

 

2015

 

 

 

General and administrative

 

$

672,310

 

 

$

205,310

 

 

 

Research and development

 

 

42,377

 

 

 

93,776

 

 

 

 

 

$

714,687

 

 

$

299,086

 

 

 

 

Summary of Common Stock Reserved for Future Issuance

The following shares of common stock are reserved for future issuance at March 31, 2016:

 

Warrants issued and outstanding

 

 

71,257

 

Stock options issued and outstanding

 

 

1,120,578

 

Authorized for future awards under stock compensation plans

 

 

2,056,004

 

Employee Stock Purchase Plan

 

 

436,175

 

 

 

 

3,684,014

 

 

v3.4.0.3
Commitments (Tables)
3 Months Ended
Mar. 31, 2016
Commitments And Contingencies Disclosure [Abstract]  
Schedule of Future Minimum Lease Payments

The following table summarizes the minimum lease payments under this commitment:

2016

 

$

286,893

 

2017

 

 

395,520

 

2018

 

 

410,850

 

2019

 

 

431,508

 

2020

 

 

109,293

 

Total

 

$

1,634,064

 

 

v3.4.0.3
Organization and Basis of Presentation - Additional Information (Details)
3 Months Ended
Mar. 31, 2016
DELAWARE  
Organization And Basis Of Presentation [Line Items]  
Date of incorporation Feb. 01, 2007
v3.4.0.3
Summary of Significant Accounting Policies - Additional Information (Details) - USD ($)
3 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Summary Of Significant Accounting Policies [Line Items]    
Restricted cash $ 200,000 $ 200,000
Impairment of long-lived assets 0  
Interest and penalties related to income tax $ 0  
Minimum    
Summary Of Significant Accounting Policies [Line Items]    
Estimated useful lives of the assets 3 years  
Maximum    
Summary Of Significant Accounting Policies [Line Items]    
Estimated useful lives of the assets 5 years  
v3.4.0.3
Summary of Significant Accounting Policies - Summary of Outstanding Potentially Dilutive Securities Excluded from Calculation of Diluted Net Loss Per Share (Details) - shares
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]    
Anti-dilutive securities excluded from computation of earnings per share 1,191,835 1,485,060
Warrants for Common Stock    
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]    
Anti-dilutive securities excluded from computation of earnings per share 71,257 71,257
Common Stock Options and Restricted Stock Awards Issued and Outstanding    
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]    
Anti-dilutive securities excluded from computation of earnings per share 1,120,578 1,413,803
v3.4.0.3
Fair Value Measurements - Assets and Liabilities Measured at Fair Value on a Recurring Basis (Details) - Fair Value, Measurements, Recurring - USD ($)
Mar. 31, 2016
Dec. 31, 2015
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]    
Total assets $ 23,271,095 $ 36,752,200
Quoted Prices in Active Markets for Identical Assets (Level 1)    
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]    
Total assets 23,271,095 36,752,200
Money market fund    
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]    
Total assets 23,271,095 36,752,200
Money market fund | Quoted Prices in Active Markets for Identical Assets (Level 1)    
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]    
Total assets $ 23,271,095 $ 36,752,200
v3.4.0.3
Property and Equipment - Summary of Property and Equipment (Details) - USD ($)
Mar. 31, 2016
Dec. 31, 2015
Property Plant And Equipment [Abstract]    
Office furniture and equipment $ 279,547 $ 279,547
Less accumulated depreciation and amortization (110,951) (93,175)
Property and equipment, net $ 168,596 $ 186,372
v3.4.0.3
Debt - Additional Information (Details)
1 Months Ended 3 Months Ended 6 Months Ended
Jan. 31, 2015
USD ($)
Mar. 31, 2016
USD ($)
$ / shares
shares
Oct. 31, 2014
USD ($)
Jun. 30, 2014
USD ($)
$ / shares
Feb. 28, 2010
USD ($)
$ / shares
shares
Mar. 31, 2016
USD ($)
$ / shares
shares
Mar. 31, 2015
USD ($)
Jun. 30, 2014
USD ($)
Tranche
$ / shares
Debt Instrument [Line Items]                
Warrants issued and outstanding | shares   71,257       71,257    
Interest expense           $ 265,124 $ 271,846  
Stand-by Letter of Credit | LJ Gateway, LLC                
Debt Instrument [Line Items]                
Line of credit $ 200,000              
Line of credit facility, expiration date 2020-05              
2010 Loan and Security Agreement | Silicon Valley Bank                
Debt Instrument [Line Items]                
Line of credit facility collateralized         $ 3,750,000      
Warrants issued and outstanding | shares         24,419      
Warrant exercise price per share | $ / shares         $ 9.90      
Warrant expiration period from date of issuance         10 years      
2010 Loan and Security Agreement | Silicon Valley Bank | Series B Convertible Preferred Stock                
Debt Instrument [Line Items]                
Warrants issued in connection with debt | shares         64,865      
2010 Loan and Security Agreement | Silicon Valley Bank | Series C Convertible Preferred Stock                
Debt Instrument [Line Items]                
Warrants issued in connection with debt | shares         75,000      
2014 Loan and Security Agreement | Hercules Technology Growth Capital Inc                
Debt Instrument [Line Items]                
Maximum borrowing capacity       $ 10,000,000       $ 10,000,000
Number of tranches | Tranche               2
Amount borrowed under loan agreement     $ 6,000,000 4,000,000        
Debt discount   $ 52,400   $ 133,000   52,400   $ 133,000
Prepayment of outstanding loan carrying amount   $ 5,500,000            
Prepayment fees           $ 110,000    
Present value in change of cash flows minimum percentage   10.00%            
Gains (Losses) on extinguishment of debt   $ 0            
Debt instrument, payment terms           Interest only is due and payable through September 2016, with principal and interest payments due commencing October 2016    
Debt instrument maturity period           2018-01    
End of term payment   $ 300,000       $ 300,000    
Interest expense           $ 265,124 $ 271,846  
2014 Loan and Security Agreement | Hercules Technology Growth Capital Inc | Scenario One [Member]                
Debt Instrument [Line Items]                
Interest rate on loan           9.00%    
2014 Loan and Security Agreement | Hercules Technology Growth Capital Inc | Scenario Two [Member]                
Debt Instrument [Line Items]                
Debt Instrument, description of variable rate basis           The loan bears interest equal to the greater of either 9.0%, plus the Prime Rate as reported in The Wall Street Journal, less 3.25% or 9.0%    
2014 Loan and Security Agreement | Hercules Technology Growth Capital Inc | Minimum                
Debt Instrument [Line Items]                
Percentage of prepayment charge on debt           1.00%    
2014 Loan and Security Agreement | Hercules Technology Growth Capital Inc | Maximum                
Debt Instrument [Line Items]                
Percentage of prepayment charge on debt           3.00%    
2014 Loan and Security Agreement | Hercules Technology Growth Capital Inc | Prime Rate | Minimum                
Debt Instrument [Line Items]                
Percentage deducted from sum of fixed and prime rate           3.25%    
2014 Loan and Security Agreement | Hercules Technology Growth Capital Inc | Prime Rate | Maximum                
Debt Instrument [Line Items]                
Percentage deducted from sum of fixed and prime rate           9.00%    
2014 Loan and Security Agreement | Hercules Technology Growth Capital Inc | Warrants                
Debt Instrument [Line Items]                
Warrants issued and outstanding | shares   46,838       46,838    
Warrant exercise price per share | $ / shares   $ 0.62   $ 8.54   $ 0.62   $ 8.54
Warrant expiration period from date of issuance       8 years        
Debt discount   $ 9,417       $ 9,417    
Warrant expiration date   2022-09            
2014 Loan and Security Agreement | Hercules Technology Growth Capital Inc | Series C Convertible Preferred Stock                
Debt Instrument [Line Items]                
Warrants issued as percentage of loan amount       4.00%        
Fair value of warrants issued       $ 207,429       $ 207,429
2014 Loan and Security Agreement | Hercules Technology Growth Capital Inc Loan And Security Agreement                
Debt Instrument [Line Items]                
Debt discount   $ 60,497       60,497    
Principal balance outstanding   $ 4,000,000       $ 4,000,000    
v3.4.0.3
Debt - Schedule of Principal and Interest Payments of the Loan (Details) - USD ($)
Mar. 31, 2016
Dec. 31, 2015
Debt Instrument [Line Items]    
Less current portion of debt $ (785,123) $ (2,756,351)
Long-term debt, net of current portion 3,154,380 $ 7,205,176
2014 Loan and Security Agreement | Hercules Technology Growth Capital Inc Loan And Security Agreement    
Debt Instrument [Line Items]    
2016 708,326  
2017 1,912,509  
2018 2,284,812  
Total 4,905,647  
Less interest (905,647)  
Less debt discount (60,497)  
Less current portion of debt (785,123)  
Long-term debt, net of current portion $ 3,154,380  
v3.4.0.3
Stockholders' Equity - Additional Information (Details) - USD ($)
Dec. 01, 2015
Mar. 31, 2016
Dec. 31, 2015
Class Of Stock [Line Items]      
Common stock shares outstanding under warrant conversion   71,257  
Common stock, par value   $ 0.0001 $ 0.0001
Common stock, shares issued   13,799,196 13,750,016
Cantor Fitzgerald      
Class Of Stock [Line Items]      
Common stock, shares issued   0  
Controlled Equity Offering Sales Agreement | Cantor Fitzgerald      
Class Of Stock [Line Items]      
Common stock, par value $ 0.0001    
Controlled Equity Offering Sales Agreement | Cantor Fitzgerald | Maximum      
Class Of Stock [Line Items]      
Aggregate offering price $ 20,000,000    
Warrants with Exercise price $9.90      
Class Of Stock [Line Items]      
Common stock shares outstanding under warrant conversion   24,419  
Warrant exercise price per share   $ 9.90  
Warrants with Exercise price $0.62      
Class Of Stock [Line Items]      
Common stock shares outstanding under warrant conversion   46,838  
Warrant exercise price per share   $ 0.62  
v3.4.0.3
Stockholders' Equity - Summary of Stock Compensation Plan Activity (Details)
3 Months Ended
Mar. 31, 2016
$ / shares
shares
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Options Outstanding beginning of period 1,363,027
Options Granted 157,500
Options Exercised (49,180)
Options Forfeited (350,769)
Options Outstanding at end of period 1,120,578
Weighted Average Exercise Price, Outstanding at beginning of period | $ / shares $ 3.09
Weighted Average Exercise Price, Granted | $ / shares 0.97
Weighted Average Exercise Price, Forfeited | $ / shares 2.25
Weighted Average Exercise Price, Outstanding at end of period | $ / shares $ 3.19
v3.4.0.3
Stockholders' Equity - Summary of Recognized Non-Cash Share-Based Compensation Expense (Details) - USD ($)
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]    
Share-based compensation expense $ 714,687 $ 299,086
General And Administrative    
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]    
Share-based compensation expense 672,310 205,310
Research And Development    
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]    
Share-based compensation expense $ 42,377 $ 93,776
v3.4.0.3
Stockholders' Equity - Summary of Common Stock Reserved for Future Issuance (Details) - shares
Mar. 31, 2016
Dec. 31, 2015
Common Stock Reserved For Future Issuance [Line Items]    
Total common stock reserved for future issuance 3,684,014  
Stock options issued and outstanding 1,120,578 1,363,027
Authorized for future awards under stock compensation plans 2,056,004  
Warrants issued and outstanding    
Common Stock Reserved For Future Issuance [Line Items]    
Total common stock reserved for future issuance 71,257  
Stock options issued and outstanding    
Common Stock Reserved For Future Issuance [Line Items]    
Stock options issued and outstanding 1,120,578  
Employee Stock Purchase Plan    
Common Stock Reserved For Future Issuance [Line Items]    
Total common stock reserved for future issuance 436,175  
v3.4.0.3
Commitments - Additional Information (Details)
3 Months Ended
Mar. 31, 2016
Commitments And Contingencies Disclosure [Abstract]  
Non-cancelable operating lease agreement date Jan. 20, 2015
Lease expiration period 2020-03
v3.4.0.3
Commitments - Summarized minimum lease payments (Details)
Mar. 31, 2016
USD ($)
Commitments And Contingencies Disclosure [Abstract]  
2016 $ 286,893
2017 395,520
2018 410,850
2019 431,508
2020 109,293
Future minimum lease payments under operating leases $ 1,634,064
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