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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2020

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 No. 001-37759

OUTLOOK THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

Delaware

 

38-3982704

(State or other jurisdiction of
incorporation or organization)

 

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

 

 

 

4260 U.S. Route 1
Monmouth Junction, New Jersey

 

08852

(Address of principal executive offices)

 

(Zip Code)

(609) 619-3990

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Common Stock

OTLK

Nasdaq Stock Market LLC

Series A Warrants

OTLKW

Nasdaq Stock Market LLC

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes                No        

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

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.        

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

The number of shares of the registrant’s common stock, $0.01 par value per share, outstanding as of August 12, 2020 was 127,183,109.


Table of Contents

Outlook Therapeutics, Inc.

Table of Contents

    

Page
Number

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

1

Consolidated Balance Sheets as of June 30, 2020 and September 30, 2019

1

Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2020 and 2019

2

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Three and Nine Months Ended June 30, 2020 and 2019

3

Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2020 and 2019

5

Notes to Unaudited Interim Consolidated Financial Statements

6

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

23

Item 3. Quantitative and Qualitative Disclosures About Market Risk

36

Item 4. Controls and Procedures

37

PART II. OTHER INFORMATION

37

Item 1. Legal Proceedings

37

Item 1A. Risk Factors

37

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

40

Item 3. Defaults Upon Senior Securities

40

Item 4. Mine Safety Disclosures

40

Item 5. Other Information

40

Item 6. Exhibits

41

SIGNATURES

42

In this report, unless otherwise stated or as the context otherwise requires, references to “Outlook Therapeutics,” “Outlook,” “the Company,” “we,” “us,” “our” and similar references refer to Outlook Therapeutics, Inc. and its consolidated subsidiaries. The Outlook logo, LYTENAVA and other trademarks or service marks of Outlook Therapeutics, Inc. appearing in this report are the property of Outlook Therapeutics, Inc. This report also contains registered marks, trademarks and trade names of other companies. All other trademarks, registered marks and trade names appearing in this report are the property of their respective holders. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.


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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this report, including statements regarding our future financial condition, business strategy and plans, and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “believe,” “may,” “could,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “seek,” “plan,” “expect,” “should,” “would,” “potentially” or the negative of these terms or similar expressions in this report.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled “Risk Factors” contained in our annual report on Form 10-K for the year ended September 30, 2019 filed with the SEC on December 19, 2019 and risks disclosed in Part II, Item 1A of this quarterly report, including, among other things, risks associated with:

the timing and the success of the design of the clinical trials and planned clinical trials of our lead product candidate, ONS-5010;
whether the results of our clinical trials will be sufficient to support domestic or global regulatory approvals;
our ability to obtain and maintain regulatory approval for ONS-5010 in the United States and other markets if we successfully complete clinical trials;
our expectations regarding the potential market size and the size of the patient populations for our product candidates, if approved, for commercial use;
our ability to fund our working capital requirements;
the rate and degree of market acceptance of our current and future product candidates;
the implementation of our business model and strategic plans for our business and product candidates;
developments or disputes concerning our intellectual property or other proprietary rights;
our ability to maintain and establish collaborations or obtain additional funding;
our expectations regarding government and third-party payor coverage and reimbursement;
our ability to compete in the markets we serve;
the factors that may impact our financial results; and
our estimates regarding the sufficiency of our cash resources and our need for additional funding.

These risks are not exhaustive. Additional factors could harm our business and financial performance, such as risks associated with the ongoing COVID-19 global pandemic, and uncertainty regarding the overall effect that it may ultimately have on our clinical trials and otherwise. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors, 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, or implied by, any forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Unless required by law, we undertake no obligation to update or revise any forward-looking statements to reflect new information or future events or developments. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. We qualify all of the forward-looking statements in this report by these cautionary statements.

ii


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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Outlook Therapeutics, Inc.

Consolidated Balance Sheets

(unaudited)

June 30, 

September 30, 

    

2020

    

2019

Assets

Current assets:

Cash

$

23,953,080

$

8,015,528

Prepaid expenses and other current assets

4,282,298

4,986,033

Assets held for sale

500,000

Total current assets

28,235,378

13,501,561

Property and equipment, net

368,155

3,175,960

Operating lease right-of-use assets, net

206,229

Other assets

1,433,198

457,476

Total assets

$

30,242,960

$

17,134,997

Liabilities, convertible preferred stock and stockholders’ equity (deficit)

Current liabilities:

Convertible senior secured notes

$

$

6,699,000

Current portion of long-term debt

422,131

1,026,168

Current portion of finance lease liabilities

41,213

192,290

Current portion of operating lease liabilities

181,585

Stockholder notes

3,612,500

3,612,500

Accounts payable

5,008,923

2,277,817

Accrued expenses

7,328,154

4,622,988

Income taxes payable

1,859,434

1,859,434

Total current liabilities

18,453,940

20,290,197

Long-term debt

544,924

50,285

Finance lease liabilities

49,162

3,365,790

Operating lease liabilities

48,394

Warrant liability

181,098

255,734

Other liabilities

3,942,948

Total liabilities

19,277,518

27,904,954

Convertible preferred stock:

Series A convertible preferred stock, par value $0.01 per share: 1,000,000 shares authorized, no shares issued and outstanding

Series A-1 convertible preferred stock, par value $0.01 per share: 200,000 shares authorized, no shares issued and outstanding at June 30, 2020 and 66,451 shares issued and outstanding at September 30, 2019

5,359,404

Total convertible preferred stock

5,359,404

Stockholders’ equity (deficit):

Preferred stock, par value $0.01 per share: 7,300,000 shares authorized, no shares issued and outstanding

Series B convertible preferred stock, par value $0.01 per share: 1,500,000 shares authorized, no shares issued

Common stock, par value $0.01 per share; 200,000,000 shares authorized; 126,360,064 shares issued and outstanding at June 30, 2020 and 28,609,995 shares issued and outstanding at September 30, 2019

1,263,601

286,100

Additional paid-in capital

289,500,131

238,064,947

Accumulated deficit

(279,798,290)

(254,480,408)

Total stockholders' equity (deficit)

10,965,442

(16,129,361)

Total liabilities, convertible preferred stock and stockholders' equity (deficit)

$

30,242,960

$

17,134,997

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

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Outlook Therapeutics, Inc.

Consolidated Statements of Operations

(unaudited)

Three months ended June 30, 

Nine months ended June 30, 

    

2020

    

2019

    

2020

    

2019

Collaboration revenues

$

$

583,848

$

$

2,292,586

Operating expenses:

Research and development

8,488,143

4,342,539

18,718,659

16,349,946

General and administrative

3,286,739

1,834,545

7,580,638

6,587,691

Impairment of property and equipment

104,296

50,927

527,624

2,962,064

11,879,178

6,228,011

26,826,921

25,899,701

Loss from operations

(11,879,178)

(5,644,163)

(26,826,921)

(23,607,115)

Interest expense, net

443,624

1,081,779

1,737,440

3,256,505

(Gain) loss on extinguishment of debt

(6,164,284)

423,686

1,896,296

607,240

Change in fair value of redemption feature

(1,796,982)

Change in fair value of warrant liability

127,506

(1,931,244)

(74,636)

(2,265,836)

Loss before income taxes

(6,286,024)

(5,218,384)

(28,589,039)

(25,205,024)

Income tax benefit

(3,271,157)

(777,500)

(3,271,157)

(777,500)

Net loss

(3,014,867)

(4,440,884)

(25,317,882)

(24,427,524)

Beneficial conversion feature upon issuance of Series A-1 convertible preferred stock

(61,365)

Series A-1 convertible preferred stock dividends and related settlement

(158,128)

(166,133)

(462,907)

Deemed dividend upon modification of warrants

(3,140,009)

(829,530)

Deemed dividend upon amendment of the terms of the Series A-1 convertible preferred stock

(10,328,118)

Net loss attributable to common stockholders

$

(3,014,867)

$

(4,599,012)

$

(38,952,142)

$

(25,781,326)

Per share information:

Net loss per share of common stock, basic and diluted

$

(0.03)

$

(0.20)

$

(0.69)

$

(1.74)

Weighted average shares outstanding, basic and diluted

90,757,825

23,007,077

56,089,036

14,787,010

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

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Outlook Therapeutics, Inc.

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(unaudited)

Convertible Preferred Stock

Stockholders' Equity (Deficit)

Series A-1

Common Stock

Additional Paid-in

Accumulated

Total Stockholders'

    

Shares

    

Amount

  

  

Shares

    

Amount

    

Capital

    

Deficit

    

Equity (Deficit)

Balance at April 1, 2020

$

89,751,192

$

897,512

$

255,361,229

$

(276,783,423)

$

(20,524,682)

Issuance of common stock in connection with conversion of senior secured notes and interest

12,201,461

122,015

7,872,479

7,994,494

Sale of common stock, net of issuance costs

24,407,411

244,074

24,907,703

25,151,777

Stock-based compensation expense

1,358,720

1,358,720

Net loss

(3,014,867)

(3,014,867)

Balance at June 30, 2020

$

126,360,064

$

1,263,601

$

289,500,131

$

(279,798,290)

$

10,965,442

Convertible Preferred Stock

Stockholders' Equity (Deficit)

Series A-1

Common Stock

Additional Paid-in

Accumulated

Total Stockholders'

    

Shares

    

Amount

  

  

Shares

    

Amount

    

Capital

    

Deficit

    

Equity (Deficit)

Balance at April 1, 2019

63,250

$

5,039,195

11,759,630

$

117,596

$

211,739,503

$

(239,943,261)

$

(28,086,162)

Proceeds from exercise of common stock warrants

6,133,398

61,334

(56,984)

4,350

Sale of common stock in public offering, net of issuance costs

10,340,000

103,400

26,053,103

26,156,503

Series A-1 convertible preferred stock dividends and related settlement

1,581

158,128

(158,128)

(158,128)

Stock-based compensation expense

(31,265)

(31,265)

Net loss

(4,440,884)

(4,440,884)

Balance at June 30, 2019

64,831

$

5,197,323

28,233,028

$

282,330

$

237,546,229

$

(244,384,145)

$

(6,555,586)

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

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Outlook Therapeutics, Inc.

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(unaudited)

Convertible Preferred Stock

Stockholders' Equity (Deficit)

Series A-1

Common Stock

Additional Paid-in

Accumulated

Total Stockholders'

    

Shares

    

Amount

  

  

Shares

    

Amount

    

Capital

    

Deficit

    

Equity (Deficit)

Balance at October 1, 2019

66,451

$

5,359,404

28,609,995

$

286,100

$

238,064,947

$

(254,480,408)

$

(16,129,361)

Issuance of common stock in connection with exercise of warrants

13,003,414

130,034

1,008,866

1,138,900

Issuance of common stock in connection with conversion of stockholder notes and interest

1,475,258

14,753

1,533,673

1,548,426

Issuance of common stock in connection with conversion of senior secured notes and interest

12,201,461

122,015

7,872,479

7,994,494

Issuance of vested restricted stock units

109

1

(1)

Sale of common stock, net of issuance costs

34,466,467

344,665

34,004,060

34,348,725

Issuance of restricted common stock to MTTR, LLC principals (Note 12)

7,244,739

72,447

(72,447)

Series A-1 convertible preferred stock dividends and related settlement

1,661

166,133

(166,133)

(166,133)

Conversion of Series A-1 convertible preferred stock to common stock

(68,112)

(5,525,537)

29,358,621

293,586

5,231,951

5,525,537

Stock-based compensation expense

2,022,736

2,022,736

Net loss

(25,317,882)

(25,317,882)

Balance at June 30, 2020

$

126,360,064

$

1,263,601

$

289,500,131

$

(279,798,290)

$

10,965,442

Convertible Preferred Stock

Stockholders' Equity (Deficit)

Series A-1

Common Stock

Additional Paid-in

Accumulated

Total Stockholders'

    

Shares

    

Amount

  

  

Shares

    

Amount

    

Capital

    

Deficit

    

Equity (Deficit)

Balance at October 1, 2018

60,203

$

4,734,416

9,027,491

$

90,275

$

190,672,166

$

(216,307,363)

$

(25,544,922)

Cumulative effect of adoption of ASU 2014-09 (Topic 606)

(3,649,258)

(3,649,258)

Proceeds from exercise of common stock warrants

6,134,307

61,343

(56,993)

4,350

Private placement sale of common stock, net of issuance costs

2,680,390

26,804

19,781,513

19,808,317

Issuance of vested restricted stock units

446

4

(4)

Issuance of common stock in connection with conversion of senior secured notes

50,394

504

401,464

401,968

Sale of common stock in public offering, net of issuance costs

10,340,000

103,400

26,053,103

26,156,503

Series A-1 convertible preferred stock dividends and related settlement

4,628

462,907

(462,907)

(462,907)

Stock-based compensation expense

1,108,766

1,108,766

Accrued directors fees settled in fully vested stock options

49,121

49,121

Net loss

(24,427,524)

(24,427,524)

Balance at June 30, 2019

64,831

$

5,197,323

28,233,028

$

282,330

$

237,546,229

$

(244,384,145)

$

(6,555,586)

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

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Outlook Therapeutics, Inc.

Consolidated Statements of Cash Flows

(unaudited)

Nine months ended June 30, 

    

2020

    

2019

OPERATING ACTIVITIES

Net loss

$

(25,317,882)

$

(24,427,524)

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

Depreciation and amortization

473,920

2,473,005

Loss on extinguishment of debt

1,896,296

607,240

Non-cash interest expense

235,636

1,314,321

Stock-based compensation

2,022,736

1,108,766

Change in fair value of redemption feature

(1,796,982)

Change in fair value of warrant liability

(74,636)

(2,265,836)

Impairment of property and equipment

527,624

2,962,064

Loss on lease termination

680,017

Changes in operating assets and liabilities:

Prepaid expenses and other current assets

676,564

(2,779,990)

Other assets

(84,120)

(109,096)

Operating lease liability

(122,193)

Accounts payable

900,030

(1,935,958)

Accrued expenses

215,175

(1,090,468)

Deferred revenue

(2,277,586)

Other liabilities

55,587

73,531

Net cash used in operating activities

(19,712,228)

(26,347,531)

INVESTING ACTIVITIES

Purchase of property and equipment

(437,306)

Investment in joint venture

(900,000)

Net cash used in investing activities

(900,000)

(437,306)

FINANCING ACTIVITIES

Proceeds from the sale of common stock, net of offering costs

34,739,271

45,964,820

Proceeds from debt

904,200

Proceeds from exercise of common stock warrants

1,138,900

4,350

Payments of finance lease obligations

(196,959)

(470,295)

Repayment of debt

(35,632)

(6,404,597)

Net cash provided by financing activities

36,549,780

39,094,278

Net increase in cash

15,937,552

12,309,441

Cash at beginning of period

8,015,528

1,717,391

Cash at end of period

$

23,953,080

$

14,026,832

Supplemental disclosure of cash flow information

Cash paid for interest

$

910,503

$

2,710,376

Accrued interest settled by conversion into common stock

$

1,531,004

$

1,393

Supplemental schedule of non-cash investing activities:

Purchases of property and equipment in accounts payable and accrued expenses

$

$

1,048,286

Supplemental schedule of non-cash financing activities:

Senior secured notes principal converted into common stock

$

7,033,950

$

400,575

Unsecured notes principal converted into common stock

$

977,966

$

Issuance of capital lease obligations in connection with purchase of property and equipment

$

$

48,683

Issuance of exchange notes at estimated fair value

$

7,050,206

$

Issuance of redemption feature at estimated fair value

$

8,264,451

$

Change in fair value of convertible senior secured notes warrants recorded as debt discount

$

$

1,466,710

Series A-1 convertible preferred stock dividends and related settlement

$

166,133

$

462,907

Deferred offering costs and common stock issuance costs in accounts payable and accrued expenses

$

390,546

$

Accrued directors' fees settled in fully vested stock options

$

$

49,121

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

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Outlook Therapeutics, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

1.     Organization and Description of Business

Outlook Therapeutics, Inc. (“Outlook” or the “Company”) was incorporated in New Jersey on January 5, 2010, started operations in July 2011, and reincorporated in Delaware by merging with and into a Delaware corporation in October 2015 and changed its name to “Outlook Therapeutics, Inc.” in November 2018. The Company is a late clinical-stage biopharmaceutical company focused on developing and commercializing ONS-5010, an ophthalmic formulation of bevacizumab for use in retinal indications. The Company is based in Monmouth Junction, New Jersey.

The Company has been actively monitoring the novel coronavirus (“COVID-19”) pandemic and its impact globally. Given the Company’s current infrastructure needs and current strategy, the Company was able to transition to remote working with limited impact on productivity, as shelter-in-place and similar government orders were imposed. All clinical and chemistry, manufacturing and control activities are currently active for both NORSE 1 and NORSE 2, the Company’s two clinical trials under its Phase 3 program for ONS-5010.

The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19. Management believes the financial results for the nine months ended June 30, 2020 were not significantly impacted by COVID-19.

2.    Liquidity

The Company has incurred substantial losses and negative cash flows from operations since its inception. As of June 30, 2020, the Company had $3.6 million of unsecured notes that were due on demand as of such date and $0.9 million loan granted pursuant to the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which matures on May 2, 2022. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying unaudited interim consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The unaudited interim consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

On July 16, 2020, the Company received $1.0 million in proceeds in connection with a securities purchase agreement entered into on June 22, 2020 with Syntone Ventures LLC (“Syntone”), a U.S. affiliate of Syntone Technologies Group Co. Ltd., a People's Republic of China (“PRC”) entity, the Company’s strategic partner for ONS-5010 in China, in a private placement pursuant to which the Company issued and sold 823,045 shares of its common stock at a purchase price of $1.215 per share.

Management believes that the Company’s existing cash as of June 30, 2020, and the $1.0 million proceeds received in July 2020 from the Syntone private placement pursuant to the June 2020 securities purchase agreement will be sufficient to fund its operations through the first quarter of fiscal 2021. Substantial additional financing will be needed by the Company to fund its operations in the future and to commercially develop its product candidates. Management is currently evaluating different strategies to obtain the required funding for future operations. These strategies may include but are not limited to: payments from potential strategic research and development partners, licensing and/or marketing arrangements with pharmaceutical companies, private placements of equity and/or debt securities, sale of its development stage product candidates to third parties and public offerings of equity and/or debt securities. There can be no assurance that these future funding efforts will be successful.

The Company’s future operations are highly dependent on a combination of factors, including (i) the timely and successful completion of additional financing discussed above; (ii) the Company’s ability to complete revenue-generating partnerships with pharmaceutical companies; (iii) the success of its research and development; (iv) the development of

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Outlook Therapeutics, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

competitive therapies by other biotechnology and pharmaceutical companies, and, ultimately; (v) regulatory approval and market acceptance of the Company’s proposed future products.

3.     Basis of Presentation and Summary of Significant Accounting Policies

Basis of presentation

The accompanying unaudited interim consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).

In the opinion of management, the accompanying unaudited interim consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial position as of June 30, 2020 and its results of operations for the three and nine months ended June 30, 2020 and 2019, cash flows for the nine months ended June 30, 2020 and 2019, and convertible preferred stock and stockholders’ equity for the three and nine months ended June 30, 2020 and 2019. Operating results for the three and nine months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the full year ending September 30, 2020. The unaudited interim consolidated financial statements, presented herein, do not contain the required disclosures under GAAP for annual consolidated financial statements. The accompanying unaudited interim consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and related notes as of and for the year ended September 30, 2019 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on December 19, 2019.

Use of estimates

The preparation of the unaudited interim consolidated 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 reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Due to the uncertainty of factors surrounding the estimates or judgments used in the preparation of the unaudited interim consolidated financial statements, including as a result of the ongoing COVID-19 pandemic, actual results may materially vary from these estimates. Estimates and assumptions are periodically reviewed, and the effects of revisions are reflected in the unaudited interim consolidated financial statements in the period they are determined to be necessary.

Net loss per share

Basic and diluted net loss per common share is determined by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period.

For purposes of calculating diluted loss per common share, the denominator includes both the weighted average common shares outstanding and the number of common stock equivalents if the inclusion of such common stock equivalents would be dilutive. Dilutive common stock equivalents potentially include warrants, stock options and non-vested restricted stock unit (“RSU”) awards using the treasury stock method. For all periods presented, there is no difference in the number of shares used to compute basic and diluted shares due to the Company’s loss.

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Outlook Therapeutics, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

The following table sets forth the computation of basic earnings per share and diluted earnings per share:

Three months ended June 30, 

Nine months ended June 30, 

    

2020

    

2019

    

2020

    

2019

Net loss attributable to common stockholders

$ (3,014,867)

$ (4,599,012)

$

(38,952,142)

$

(25,781,326)

Common stock outstanding (weighted average)

90,757,825

23,007,077

56,089,036

14,787,010

Basic and diluted net loss per share

$ (0.03)

$ (0.20)

$

(0.69)

$

(1.74)

The following potentially dilutive securities (in common stock equivalents) have been excluded from the computation of diluted weighted-average shares outstanding as of June 30, 2020 and 2019, as they would be antidilutive:

As of June 30, 

    

2020

    

2019

Series A-1 convertible preferred stock

1,225,172

Convertible senior secured notes

767,605

Convertible unsecured notes

149,573

Performance-based stock units

2,470

16,131

Restricted stock units

3,750

Stock options

2,238,470

605,452

Common stock warrants

7,051,857

16,067,923

Recently issued and adopted accounting pronouncements

On October 1, 2019, the Company adopted ASU No. 2016-02, Leases (“ASC 842” or “ASU 2016-02”) issued by the FASB in February 2016 which was subsequently supplemented by clarifying guidance to improve financial reporting of leasing transactions. The new lease accounting guidance requires lessees to recognize lease liabilities and right-of-use assets on the balance sheet for all leases with initial terms longer than 12 months and provides enhanced disclosures on key information of leasing arrangements. The guidance allowed companies to apply the requirements retrospectively, either to all prior periods presented or through a cumulative adjustment in the year of adoption.

The Company adopted the new standard effective October 1, 2019 using the modified retrospective transition method using the package of practical expedients and a discount rate of 9% and elected to not apply the standard in the comparative periods presented in the year of adoption. The Company has implemented internal controls to monitor and record historical and future lease arrangements and required disclosures. For all existing operating leases as of September 30, 2019, the Company recorded right of use assets of $352,172 and corresponding lease liabilities of $318,672 with an offset to other liabilities of $33,500 to eliminate deferred rent on the consolidated balance sheets. The Company recorded right of use assets of $2,525,000 and corresponding finance lease liabilities of $3,558,080 for leases previously classified as capital leases. This did not include an existing lease termination obligation of $3,909,448 pertaining to a lease for premises that had been leased in Cranbury, New Jersey for a planned office and laboratory expansion that did not materialize, and which prior termination remained unchanged as a result of the transition. Refer to Note 9 for the Company’s lease disclosures.

At lease commencement, the Company records a lease liability based on the present value of lease payments over the expected lease term including any options to extend the lease that the Company is reasonably certain to exercise. The Company calculates the present value of lease payments using an incremental borrowing rate as the Company’s leases do not provide an implicit interest rate. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. At the lease commencement date, the Company records a corresponding right-of-use lease asset based on the lease liability, adjusted for any lease incentives received and any initial direct costs paid to the lessor prior to the lease commencement date. The Company may enter into leases with an initial term of 12 months or less (“Short-Term Leases”). For Short-Term Leases,

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Outlook Therapeutics, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

the Company records the rent expense on a straight-line basis and does not record the leases on the consolidated balance sheet. The Company had no Short-Term Leases as of June 30, 2020.

After lease commencement, the Company measures its leases as follows: (i) the lease liability based on the present value of the remaining lease payments using the discount rate determined at lease commencement and (ii) the right-of-use lease asset based on the re-measured lease liability, adjusted for any unamortized lease incentives received, any unamortized initial direct costs and the cumulative difference between rent expense and amounts paid under the lease agreement. Any lease incentives received, and any initial direct costs are amortized on a straight-line basis over the expected lease term. Rent expense is recorded on a straight-line basis over the expected lease term.

The adoption of the new lease accounting standard did not have a material impact on the Company’s results of operations or cash flows.

On October 1, 2019, the Company adopted ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting Compensation, issued by the FASB in June 2018. The amendments in this ASU expanded the scope of Compensation—Stock Compensation (“Topic 718”) to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments specified that Topic 718 applied to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The Company applied the new guidance to share-based payments entered after October 1, 2019 and the adoption of this standard did not have a material impact on the Company’s financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"), which removes and modifies some existing disclosure requirements and adds others. ASU 2018-13 modifies the disclosure requirements for fair value measurements and removes the requirement to disclose (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (2) the policy for timing of transfers between levels, and (3) the valuation processes for Level 3 fair value measurements. ASU 2018-13 requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The ASU is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted for any eliminated or modified disclosures upon issuance of this ASU. The Company is currently evaluating the impact of the adoption of this standard.

Reclassifications

Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation.

4.     Fair Value Measurements

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined 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. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

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Outlook Therapeutics, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis:

June 30, 2020

    

(Level 1)

    

(Level 2)

    

(Level 3)

Liabilities

Warrant liability

$

$

$

181,098

September 30, 2019

(Level 1)

    

(Level 2)

    

(Level 3)

Liabilities

Warrant liability

$

$

$

255,734

The Company evaluated a redemption feature within the senior secured notes issued in December 2019 and determined bifurcation of the redemption feature was required. The redemption feature is accounted for as a derivative instrument and re-measured at each reporting period until the redemption feature is exercised, expires, or otherwise settled. During the three months ended June 30, 2020, the remaining outstanding principal and accrued interest on the senior secured notes were exchanged for shares of its common stock and as a result, the Company wrote off the redemption feature liability as a gain on extinguishment of debt.

The table presented below is a summary of changes in the fair value of the Company’s Level 3 valuation for the warrant liability and redemption feature for the nine months ended June 30, 2020:

Redemption

    

Warrants

    

Feature

Balance at October 1, 2019

$

255,734

$

Addition of feature on December 20, 2019

8,264,451

Change in fair value

(74,636)

(1,796,982)

Write off due to extinguishment of senior secured notes

(6,467,469)

Balance at June 30, 2020

$

181,098

$

The warrants issued in connection with the convertible senior secured notes (see Note 8) are classified as liabilities on the accompanying consolidated balance sheet as the warrants include cash settlement features at the option of the holders under certain circumstances. The warrant liability is revalued each reporting period with the change in fair value recorded in the accompanying consolidated statements of operations until the warrants are exercised or expire. The fair value of the warrant liability is estimated using the Black-Scholes option pricing model using the following assumptions:

    

June 30, 2020

    

September 30, 2019

Risk-free interest rate

0.36

%

1.56

%

Remaining contractual life of warrant

4.63

years

5.38

years

Expected volatility

92.1

%

89.0

%

Annual dividend yield

0

%

0

%

Fair value of common stock

$

1.29

per share

$

1.49

per share

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Outlook Therapeutics, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

The fair value of the redemption feature was estimated by using a Monte Carlo simulation model and a with-and-without perspective, where the fair value of debt instrument was measured with the derivative and without the derivative and the difference is the implied fair value of the redemption feature. The value of the debt instrument with the redemption feature depended on the daily stock price path followed by the Company’s common stock price. This model simulated daily common stock prices from the issuance date through the maturity date for the debt instrument. At issuance, the Company utilized a volatility estimate of 130% based upon the observed historical volatility of both the Company and peer group for 1-year and 2-year periods. Risk-free interest rate was based upon US treasury yields.

5.    Property and Equipment, Net

Property and equipment, net, consists of:

June 30, 

September 30, 

    

2020

    

2019

Laboratory equipment

$

1,067,351

$

1,067,351

Leasehold improvements

160,086

Land and building

3,000,000

1,067,351

4,227,437

Less: accumulated depreciation and amortization

(699,196)

(1,051,477)

$

368,155

$

3,175,960

Depreciation and amortization expense was $50,959 and $833,387 for the three months ended June 30, 2020 and 2019, respectively, and $178,510 and $2,473,005 for the nine months ended June 30, 2020 and 2019, respectively.

On October 1, 2019, the Company adopted ASC 842, which resulted in the reclassification of property and equipment under capital leases to finance lease right-of-use assets separately disclosed on the consolidated balance sheets. Refer to Note 9 for the Company’s lease disclosures.

At September 30, 2019, $3,000,000 represented the Company’s corporate office lease that was classified as a capital lease. The Company’s corporate office lease was due to mature in February 2028 and the effective interest rate on the corporate office lease was 43.9%. At September 30, 2019, $475,000 of accumulated amortization was related to capital leases.

Impairment charges

During the three and nine months ended June 30, 2020, the Company recorded an impairment charge of $104,296 and $527,624, respectively, primarily due to the write-off of assets held for sale after the Company determined that the carrying amount of these assets was not recoverable as result of a lease termination agreement entered into in May 2020. Refer to Note 9 for further details.

During the three and nine months ended June 30, 2019, the Company wrote off certain construction in progress and laboratory equipment with a carrying amount of $50,927 and $2,962,064, respectively. The Company determined that the carrying amount of these assets was not recoverable and was less than the fair value less the cost to sell due to the Company changing its operations to outsource the development and manufacturing of ONS-5010.

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Outlook Therapeutics, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

6.      Other Assets

Other assets consist of:

June 30, 

September 30, 

    

2020

    

2019

Advance to PRC joint venture

$

900,000

$

Other assets

533,198

457,476

$

1,433,198

$

457,476

In connection with the Syntone stock purchase agreement, on May 22, 2020, the Company and Syntone entered into a joint venture agreement pursuant to which they agreed to form a PRC joint venture that will be 80% owned by Syntone and 20% owned by the Company. Once formed, the Company intends to enter into a royalty-free license with the PRC joint venture for the development, commercialization and manufacture of the Company’s product candidate, ONS-5010 in the greater China market, which includes Hong Kong, Taiwan and Macau.

The Company made the initial investment of $900,000 in June 2020. The Company expects to be required to make an additional capital contribution to the PRC joint venture of approximately $2.1 million, which will be made within four years after the establishment date in accordance with the development plan contemplated in the license agreement or on such other terms within such four-year period.

7.     Accrued Expenses

Accrued expenses consists of:

June 30, 

September 30, 

    

2020

    

2019

Compensation

$

402,212

$

919,394

Severance and related costs

29,803

505,570

Research and development

2,642,922

1,692,040

Interest payable

1,412

934,145

Professional fees

157,353

419,216

Lease termination obligation

3,954,717

Other accrued expenses

139,735

152,623

$

7,328,154

$

4,622,988

8.    Debt

Senior secured notes

June 30, 

September 30, 

    

2020

    

2019

Convertible senior secured notes

$

$

6,699,000

In December 2019, the Company entered into an exchange agreement with the holders of its $7,254,077 outstanding aggregate principal amount and accrued interest of senior secured notes (the “Old Senior Notes”) originally issued pursuant to the certain Note and Warrant Purchase Agreement dated December 22, 2017, as amended on April 13, 2017, November 5, 2018, and June 28, 2019 (the “Exchange Agreement”). Pursuant to the Exchange Agreement, the holders of the Old Senior Notes exchanged the entire outstanding principal and accrued interest for new senior secured notes having an aggregate outstanding original principal amount of $7,589,027 which included an aggregate exchange fee of $334,950.

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Outlook Therapeutics, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

The new senior secured notes were substantially similar to the Old Senior Notes, as amended through the date of the Exchange Agreement, bore interest at a rate of 12.0% per annum and would have matured December 31, 2020 (subject to extension to June 30, 2021 at the Company’s option upon payment of an extension fee equal to 3% of the outstanding balance and being in compliance with applicable Nasdaq listing requirements). The new senior secured notes were convertible, at the option of the holder, beginning April 1, 2020, into shares of the Company’s common stock at a conversion price equal to 90% of the two lowest closing bid prices in the 20 trading days immediately preceding such conversion, subject to a floor price of $0.232 per share. The conversion feature was determined to be a redemption feature and was bifurcated from the debt instrument. The estimated fair value of the redemption feature was $8,264,451 at issuance (see Note 4). The Exchange Agreement was accounted for as an extinguishment of debt.

The Company recognized a loss on extinguishment of convertible senior secured notes for the Exchange Agreement during the nine months ended June 30, 2020 of $8,060,580, which amount was equal to the excess fair value of the notes and bifurcated redemption feature over the notes’ net carrying value.

During the three months ended June 30, 2020, the holder of the new senior secured notes converted the entire outstanding principal and accrued interest totaling $7,994,494 for 12,201,461 shares of the Company’s common stock at an average conversion price of $0.66 per share. As of June 30, 2020, there are no longer any new senior secured notes outstanding. The Company recognized a $6,164,284 gain on extinguishment of the new senior secured notes exchanged for shares of common stock during the three and nine months ended June 30, 2020 primarily due to the redemption feature liability and write-off of unamortized debt discount.

Aggregate interest expense on the Old Senior Notes and the new senior secured notes for the three months ended June 30, 2020 and 2019 was $269,437 and $526,615, respectively, and $819,498 and $1,689,533 for the nine months ended June 30, 2020 and 2019, respectively.

Stockholder notes

The Company previously repurchased shares of its restricted stock in exchange for notes in the amount of $800,000 that do not bear interest and are due on demand.

The Company has a $2,812,500 note payable related to the previous repurchase of common stock that does not bear interest and is due on demand.

Other Indebtedness

The Company has other outstanding debt consisting of unsecured notes, a PPP term loan and equipment loans.

June 30, 

September 30, 

2020

    

2019

Unsecured notes

$

$

977,966

Paycheck Protection Program term loan

904,200

Equipment loans

62,855

98,487

967,055

1,076,453

Less: current portion

(422,131)

(1,026,168)

Long-term debt

$

544,924

$

50,285

Unsecured notes

On March 7, 2019, the Company entered into a forbearance and exchange agreement with Iliad Research and Trading, L.P., a Utah limited partnership (the "Lender"). Concurrently with the execution of this agreement, the Lender purchased two stockholder notes issued by the Company previously in the original principal amount of $1,000,000 with an aggregate outstanding balance as of March 7, 2019 of $1,947,133, including accrued interest. The stockholder notes were accruing

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Outlook Therapeutics, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

interest at the rate of 2.5% per month. The Lender agreed to refrain and forbear from bringing any action to collect under the stockholder notes until March 7, 2020 and to reduce the interest rates currently in effect to 12.0% per annum simple interest during such forbearance period. The Company also agreed to, at Lender's election, repay or exchange the stockholder notes (or portions thereof) for shares of the Company's common stock at an exchange rate of $13.44 per share or, beginning September 2019, at 95% of the average of the two lowest closing bid prices in the prior twenty trading days, as applicable.

During the nine months ended June 30, 2020, the remaining unsecured notes with an aggregate carrying amount of $977,966 and accrued interest of $570,460 were exchanged for 1,475,258 shares of the Company’s common stock at an average exchange price of $1.05. As of June 30, 2020, these unsecured notes were no longer outstanding.

Paycheck Protection Program term loan

On May 4, 2020, the Company received $904,200 in proceeds from a loan granted pursuant to the PPP of the CARES Act. The PPP term loan is evidenced by a promissory note containing the terms and conditions for repayment of the PPP term loan. The PPP term loan provides for an initial six-month deferral of payments and any amount owed on the loan has a two-year maturity (May 2022), with an interest rate of 1% per annum. Commencing December 15, 2020, the Company is required to pay the lender equal monthly payments of principal and interest as required to fully amortize any principal amount outstanding on the PPP term loan as of December 15, 2020 by May 2, 2022. The Company has the right to prepay any amounts outstanding under this loan at any time and from time to time, in whole or in part, without penalty.

During the three months ended June 30, 2019, the Company recognized interest expense related to other indebtedness of $3,480 and $33,552, respectively, and $21,634 and $181,061 for the nine months ended June 30, 2020 and 2019, respectively.

9.    Leases

Corporate office and warehouse leases

On May 6, 2020, the Company terminated its lease agreement for approximately 66,000 square feet of office, manufacturing and laboratory space located in Cranbury, New Jersey, which previously served as its headquarters, and relocated its corporate office to Monmouth Junction, New Jersey, a site previously used as a warehouse location. The Company’s Monmouth Junction, New Jersey lease matures in September 2021. In consideration for the termination of the lease, the Company agreed to make payments to the landlord totaling $981,987, payable in eight monthly installments commencing May 1, 2020.

In connection with the lease termination, the Company recorded a liability of $981,987 at May 11, 2020, the cease-use date, that represents the undiscounted future termination payments as the termination period is less than a year. The Company derecognized the assets and liabilities associated with the financing lease and recorded a charge of $680,017 to general and administrative expense.

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Outlook Therapeutics, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

At June 30, 2020, the lease termination obligation of $731,987 is included in accounts payable on the consolidated balance sheets. A rollforward of the charges incurred to general and administrative expense for the nine months ended June 30, 2020:

Balance

Expensed / Accrued

Cash

Non-cash

Balance

    

October 1, 2019

    

Expense

    

Payments

    

Adjustments

    

June 30, 2020

Lease termination payments

$

$

981,987

$

(250,000)

$

$

731,987

Assets and liabilities derecognition

(842,514)

842,514

Other charges

540,544

(540,544)

$

$

680,017

$

(790,544)

$

842,514

$

731,987

Equipment leases

The Company has equipment leases, with terms between 12 and 36 months, recorded as finance leases. The equipment leases bear interest between 4.0% and 13.0%.

Certain lease agreements contain provisions for future rent increases. Payments due under the lease contracts include minimum payments that the Company is obligated to make under the non-cancelable initial terms of the leases as the renewal terms are at the Company’s option. Lease expense is recorded as research and development or general and administrative based on the use of the leased asset.

The components of lease cost for the three and nine months ended June 30, 2020 are as follows:

Three months ended June 30, 

 

Nine months ended June 30, 

    

2020

 

2020

Finance lease cost:

 

  

  

Amortization of right-of-use assets

$

32,967

$

182,967

Interest on lease liabilities

 

165,191

 

903,278

Total finance lease cost

 

198,158

 

1,086,245

Operating lease cost

 

43,625

 

130,875

Total lease cost

$

241,783

$

1,217,120

Amounts reported in the consolidated balance sheets for leases where the Company is the lessee as of June 30, 2020 were as follows:

    

June 30, 2020

Operating leases:

 

  

Right-of-use asset

$

206,229

Operating lease liabilities

 

229,979

Finance leases:

 

  

Right-of-use asset

$

Financing lease liabilities

 

90,375

Weighted-average remaining lease term (years):

 

  

Operating leases

1.3

Finance leases

 

2.3

Weighted-average discount rate:

 

  

Operating leases

9.0%

Finance leases

 

8.1%

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Outlook Therapeutics, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

Other information related to leases for the nine months ended June 30, 2020 are as follows:

Nine months ended June 30, 

    

2020

Cash paid for amounts included in the measurement of lease obligations:

 

  

Operating cash flows from finance leases

$

903,278

Operating cash flows from operating leases

 

140,625

Financing cash flows from finance leases

 

196,959

Right-of-use assets obtained in exchange for lease obligations:

 

  

Operating leases

$

Finance leases

 

Future minimum lease payments under non-cancelable leases as of June 30, 2020 are as follows for the years ending September 30:

    

Operating leases

    

Finance leases

2020 (remaining three months)

$

46,875

$

19,864

2021

 

195,000

 

34,869

2022

 

 

29,605

2023

 

 

13,149

2024

 

 

4,383

Total undiscounted lease payments

$

241,875

$

101,870

Less: Imputed interest

 

11,896

 

11,495

Total lease obligations

$

229,979

$

90,375

Future minimum rental payments under non-cancelable leases prior to adoption of ASC 842, Leases, as of September 30, 2019 were as follows:

    

Operating leases

    

Finance leases

2020

$

187,500

$

1,608,067

2021

 

195,000

 

1,506,592

2022

 

 

1,535,809

2023

 

 

1,564,027

2024

 

 

1,593,291

Thereafter

 

 

5,691,492

Total undiscounted lease payments

$

382,500

$

13,499,278

Less: Imputed interest

 

 

9,941,198

Total lease obligations

$

382,500

$

3,558,080

Office and laboratory lease termination obligation

In August 2018, the Company entered into a lease termination agreement effective September 1, 2018, to terminate the lease for unutilized office and laboratory space in Cranbury, New Jersey. In consideration for the termination of the lease, the Company agreed to make payments to the landlord totaling up to $5.8 million, which includes (i) $287,615 upon execution of the termination agreement, (ii) $50,000 per month for up to 30 months, commencing September 1, 2018, and (iii) a $4.0 million payment, in any event, on or before February 1, 2021. The Company and landlord agreed that the $174,250 security deposit will be used to pay the 7th, 8th, 9th and a portion of the 10th monthly payments. The Company may pay the final $4.0 million payment at any time, whereupon the Company’s obligation to make the remaining monthly payments terminates.

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Outlook Therapeutics, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

At June 30, 2020, the lease termination obligation of $3,954,717 is included in accrued expenses on the consolidated balance sheets. A roll forward of the charges incurred to general and administrative expense for the nine months ended June 30, 2020 is as follows:

Balance

Expensed / Accrued

Cash

Balance

    

October 1, 2019

    

Expense

    

Payments

    

June 30, 2020

Lease termination payments

$

3,909,448

$

495,269

$

(450,000)

$

3,954,717

10.    Common Stock, Convertible Preferred Stock and Stockholders’ Equity (Deficit)

Common stock

In February 2020, the Company issued, in a registered direct offering, an aggregate of 7,598,426 shares of common stock and, in a concurrent private placement to the same investors, warrants to purchase up to an aggregate of 3,799,213 shares of common stock at a combined purchase price per share and accompanying warrant of $1.016 for approximately $7.7 million in gross proceeds after payment of placement agent fees and other offering costs. In a separate concurrent private placement, the Company issued 2,460,630 shares of common stock and warrants to purchase up to an aggregate of 1,230,315 shares of common stock to GMS Ventures and Investments, an affiliate of BioLexis Pte. Ltd. (“BioLexis”), the Company’s controlling stockholder and strategic partner, at a combined purchase price per share and accompanying warrant of $1.016 for $2.5 million. The warrants issued were exercisable immediately at an exercise price of $0.9535 per share and will expire four years from the issuance date.

In connection with the registered direct offering and concurrent private placement of warrants to those investors, the Company issued placement agent warrants to purchase up to an aggregate of 531,890 shares of common stock, on substantially the same terms as the concurrent private placement warrants, at an exercise price of $1.27 per share and a 5-year term.

Effective March 19, 2020, following approval of the Company’s stockholders, the Company issued an aggregate of 7,244,739 shares of its common stock to the four principals (who include two of its named executive officers, Messrs. Dagnon and Evanson) of MTTR, LLC (“MTTR”) pursuant to their respective consulting agreements that were entered into on January 27, 2020 concurrent with the termination agreement and mutual release with MTTR to terminate the strategic partnership agreement. Refer to Note 11 for the accounting of the restricted stock issued and Note 12 for further details on the terminated MTTR strategic partnership agreement.

In June 2020, the Company issued, in a private placement, an aggregate of 16,000,000 shares of common stock to Syntone, pursuant to a stock purchase agreement entered into on May 22, 2020, at a purchase price of $1.00 per share, for aggregate gross proceeds to the Company of $16.0 million.

In June 2020, the Company issued, in a registered direct offering, an aggregate of 8,407,411 shares of common stock at a purchase price of $1.215 per share, for aggregate gross proceeds to the Company of approximately $10.2 million. In connection with the registered direct offering, the Company issued placement agent warrants to purchase up to an aggregate of 588,519 shares of common stock, at an exercise price of $1.51875 per share and a 5-year term.

During the nine months ended June 30, 2020 and 2019, the Company issued 109 and 446 shares of common stock, respectively, upon the vesting of RSUs.

Series A-1 convertible preferred stock

A total of 200,000 shares of Series A-1 Convertible Preferred Stock (the “Series A-1”) have been authorized for issuance under the Certificate of Designation of Series A-1 Convertible Preferred Stock of the Company (the “Certificate of

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Table of Contents

Outlook Therapeutics, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

Designation”). The shares of Series A-1 have a stated value of $100.00 per share, and rank senior to all junior securities (as defined in the Certificate of Designation).

The Series A-1 accrued dividends at a rate of 10% per annum, compounded quarterly, payable quarterly at the Company’s option in cash or in kind in additional shares of Series A-1. The Series A-1 was also entitled to dividends on an as-if-converted basis in the same form as any dividends actually paid on shares of common stock or other securities. The initial conversion rate was subject to appropriate adjustment in the event of a stock split, stock dividend, combination, reclassification or other recapitalization affecting the common stock. The holders of the Series A-1 had the right to vote on matters submitted to a vote of the Company’s stockholders on an as-converted basis, voting with the Company’s other stockholders as a single class. In addition, without the prior written consent of a majority of the outstanding shares of Series A-1, the Company could not take certain actions, including amending its certificate of incorporation or bylaws, or issuing securities ranking pari passu or senior to the Series A-1.

On March 23, 2020, the Company issued 29,358,621 shares of its common stock upon conversion of the 68,112 shares of Series A-1 outstanding by BioLexis, pursuant to an agreement entered on January 27, 2020 with BioLexis, whereby the effective conversion rate of the Series A-1 was increased from the $18.89797 per share to $431.03447263 per share, (or an effective conversion rate of $0.232 per share) following stockholder approval of the amended terms on March 19, 2020.

The amendment to the Series A-1 was deemed an extinguishment for accounting purposes. The excess fair value of common stock received over the net carrying value of the Series A-1 was $10,328,118 and reflected as a deemed dividend in the consolidated statements of operations for purposes of presenting net loss attributable to common stockholders when calculating basic and diluted loss per share.

During the nine months ended June 30, 2020, the Company issued 1,661 shares of Series A-1 to settle the related dividends that were due on a quarterly basis. At June 30, 2020, there were no shares of Series A-1 outstanding.

Common stock warrants

As of June 30, 2020, shares of common stock issuable upon the exercise of outstanding warrants were as follows:

Shares of

common stock

issuable upon

exercise of

Exercise Price

Expiration Date

    

warrants

    

Per Share

February 18, 2022

416,666

$

12.00

December 22, 2024

277,128

$

12.00

April 13, 2025

145,688

$

12.00

May 31, 2025

62,438

$

12.00

February 24, 2025

531,890

$

1.27