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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, 2022

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.)

 

 

 

485 Route 1 South
Building F, Suite 320

Iselin, New Jersey

 

08830

(Address of principal executive offices)

 

(Zip Code)

(609619-3990

(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

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 8, 2022 was 226,144,634.

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, 2022 and September 30, 2021

1

Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2022 and 2021

2

Consolidated Statements of Stockholders’ Equity (Deficit) for the Three and Nine Months Ended June 30, 2022 and 2021

3

Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2022 and 2021

4

Notes to Unaudited Interim Consolidated Financial Statements

5

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

19

Item 3. Quantitative and Qualitative Disclosures About Market Risk

30

Item 4. Controls and Procedures

30

PART II. OTHER INFORMATION

31

Item 1. Legal Proceedings

31

Item 1A. Risk Factors

31

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

32

Item 3. Defaults Upon Senior Securities

32

Item 4. Mine Safety Disclosures

32

Item 5. Other Information

32

Item 6. Exhibits

33

SIGNATURES

34

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.

Table of Contents

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 “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “seek,” “should,” “will,” “would,” 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, 2021, filed with the Securities and Exchange Commission (“SEC”) on December 23, 2021, including, among other things, risks associated with:

the initiation, timing, progress and results of our past, current and planned clinical trials of our lead product candidate, ONS-5010;
our reliance on our contract manufacturing organizations and other vendors;
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;
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, and our expectations regarding our current cash resources;
the rate and degree of market acceptance of our current and future product candidates including our commercialization strategy and manufacturing capabilities for ONS-5010;
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 novel coronavirus (“COVID-19”) global pandemic. 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

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Outlook Therapeutics, Inc.

Consolidated Balance Sheets

(unaudited)

June 30, 2022

    

September 30, 2021

Assets

Current assets:

Cash and cash equivalents

$

26,021,429

$

14,477,324

Prepaid expenses and other current assets

11,491,956

7,030,823

Total current assets

37,513,385

21,508,147

Property and equipment, net

40,906

163,625

Operating lease right-of-use assets, net

80,924

111,429

Equity method investment

812,156

853,660

Other assets

140,356

174,590

Total assets

$

38,587,727

$

22,811,451

Liabilities, convertible preferred stock and stockholders’ equity

Current liabilities:

Current portion of long-term debt

$

10,459,372

$

904,200

Current portion of finance lease liabilities

14,354

26,464

Current portion of operating lease liabilities

38,203

42,854

Accounts payable

2,480,871

2,196,349

Accrued expenses

3,580,535

1,725,721

Income taxes payable

1,856,629

1,856,629

Total current liabilities

18,429,964

6,752,217

Long-term debt

10,885,854

Finance lease liabilities

7,349

16,018

Operating lease liabilities

26,995

Warrant liability

68,319

522,918

Total liabilities

18,505,632

18,204,002

Commitments and contingencies (Note 9)

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

Total convertible preferred stock

Stockholders’ equity:

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 and outstanding

Common stock, par value $0.01 per share; 325,000,000 shares authorized; 225,942,719 and 176,461,628 shares issued and outstanding at June 30, 2022 and September 30, 2021, respectively

2,259,427

1,764,616

Additional paid-in capital

412,413,161

345,726,087

Accumulated deficit

(394,590,493)

(342,883,254)

Total stockholders' equity

20,082,095

4,607,449

Total liabilities, convertible preferred stock and stockholders' equity

$

38,587,727

$

22,811,451

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

1

Table of Contents

Outlook Therapeutics, Inc.

Consolidated Statements of Operations

(unaudited)

Three months ended June 30, 

Nine months ended June 30, 

    

2022

    

2021

    

2022

    

2021

Operating expenses:

Research and development

$

11,249,191

$

8,545,279

$

33,341,333

$

29,023,253

General and administrative

5,774,769

2,929,717

15,741,888

9,267,962

Loss from operations

(17,023,960)

(11,474,996)

(49,083,221)

(38,291,215)

Loss on equity method investment

11,805

435,346

41,504

435,346

Interest expense, net

356,947

256,873

1,126,808

666,945

Loss on extinguishment of debt

1,025,402

Change in fair value of unsecured convertible promissory note

376,963

882,903

Change in fair value of warrant liability

(229,714)

29,332

(454,599)

363,476

Loss before income taxes

(17,539,961)

(12,196,547)

(51,705,239)

(39,756,982)

Income tax expense

2,000

2,000

Net loss

$

(17,539,961)

$

(12,196,547)

$

(51,707,239)

$

(39,758,982)

Per share information:

Net loss per share of common stock, basic and diluted

$

(0.08)

$

(0.07)

$

(0.25)

$

(0.27)

Weighted average shares outstanding, basic and diluted

220,497,826

168,420,675

209,108,090

146,860,652

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

2

Table of Contents

Outlook Therapeutics, Inc.

Consolidated Statements of Stockholders’ Equity (Deficit)

(unaudited)

Stockholders' Equity (Deficit)

Common Stock

Additional Paid-in

Accumulated

Total Stockholders'

    

Shares

    

Amount

    

Capital

    

Deficit

    

Equity (Deficit)

Balance at October 1, 2021

176,461,628

$

1,764,616

$

345,726,087

$

(342,883,254)

$

4,607,449

Issuance of common stock in connection with exercise of stock options

25,000

250

17,500

17,750

Sale of common stock, net of issuance costs

47,773,974

477,740

56,979,163

57,456,903

Stock-based compensation expense

1,204,048

1,204,048

Net loss

(14,462,729)

(14,462,729)

Balance at December 31, 2021

224,260,602

$

2,242,606

$

403,926,798

$

(357,345,983)

$

48,823,421

Issuance of common stock in connection with exercise of warrants

15,675

157

187,943

188,100

Sale of common stock, net of issuance costs

1,516,465

15,164

2,877,750

2,892,914

Stock-based compensation expense

3,762,795

3,762,795

Net loss

(19,704,549)

(19,704,549)

Balance at March 31, 2022

225,792,742

$

2,257,927

$

410,755,286

$

(377,050,532)

$

35,962,681

Issuance of common stock in connection with exercise of warrants

Sale of common stock, net of issuance costs

149,977

1,500

290,001

291,501

Stock-based compensation expense

1,367,874

1,367,874

Net loss

(17,539,961)

(17,539,961)

Balance at June 30, 2022

225,942,719

$

2,259,427

$

412,413,161

$

(394,590,493)

$

20,082,095

Stockholders' Equity (Deficit)

Common Stock

Additional Paid-in

Accumulated

Total Stockholders'

    

Shares

    

Amount

    

Capital

    

Deficit

    

Equity (Deficit)

Balance at October 1, 2020

127,183,109

$

1,271,831

$

291,274,366

$

(289,719,906)

$

2,826,291

Stock-based compensation expense

1,154,641

1,154,641

Net loss

(14,455,914)

(14,455,914)

Balance at December 31, 2020

127,183,109

$

1,271,831

$

292,429,007

$

(304,175,820)

$

(10,474,982)

Issuance of common stock in connection with exercise of warrants

3,815,304

38,153

3,547,656

3,585,809

Sale of common stock, net of issuance costs

42,607,394

426,074

39,091,045

39,517,119

Stock-based compensation expense

1,129,747

1,129,747

Net loss

(13,106,521)

(13,106,521)

Balance at March 31, 2021

173,605,807

$

1,736,058

$

336,197,455

$

(317,282,341)

$

20,651,172

Sale of common stock, net of issuance costs

1,207,519

12,075

3,084,152

3,096,227

Stock-based compensation expense

1,198,384

1,198,384

Net loss

(12,196,547)

(12,196,547)

Balance at June 30, 2021

174,813,326

$

1,748,133

$

340,479,991

$

(329,478,888)

$

12,749,236

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

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Table of Contents

Outlook Therapeutics, Inc.

Consolidated Statements of Cash Flows

(unaudited)

Nine months ended June 30, 

    

2022

    

2021

OPERATING ACTIVITIES

Net loss

$

(51,707,239)

$

(39,758,982)

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

Depreciation and amortization

153,224

211,466

Loss on extinguishment of debt

1,025,402

Non-cash interest expense

1,199,697

640,215

Stock-based compensation

6,334,717

3,482,772

Change in fair value of unsecured convertible promissory note

882,903

Change in fair value of warrant liability

(454,599)

363,476

Gain on settlement of lease termination obligation

(552,340)

Loss on equity method investment

41,504

435,346

Changes in operating assets and liabilities:

Prepaid expenses and other current assets

(4,461,133)

(6,904,417)

Other assets

298,523

Operating lease liability

(31,646)

(140,272)

Accounts payable

284,522

194,029

Accrued expenses

308,776

(3,532,940)

Net cash used in operating activities

(46,423,872)

(45,263,124)

FINANCING ACTIVITIES

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

60,675,552

42,514,237

Proceeds from debt

10,000,000

10,000,000

Payment of debt issuance costs

(8,032)

Proceeds from exercise of common stock warrants

188,100

3,585,809

Proceeds from exercise of stock options

17,750

Payments of finance lease obligations

(20,779)

(23,098)

Repayment of debt

(12,292,646)

(3,649,743)

Payment of financing costs

(600,000)

Net cash provided by financing activities

57,967,977

52,419,173

Net increase in cash and cash equivalents

11,544,105

7,156,049

Cash and cash equivalents at beginning of period

14,477,324

12,535,986

Cash and cash equivalents at end of period

$

26,021,429

$

19,692,035

Supplemental disclosure of cash flow information:

Cash paid for interest

$

1,556,088

$

17,915

Supplemental schedule of non-cash financing activities:

Deferred offering costs amortization

$

34,234

$

82,654

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, 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 pre-commercial biopharmaceutical company focused on developing and commercializing ONS-5010, an ophthalmic formulation of bevacizumab for use in retinal indications. The Company is based in Iselin, New Jersey.

The Company has been actively monitoring the ongoing 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 development activities are currently active in support of the Company’s Biologics License Application (“BLA”) registration program for ONS-5010 for wet age-related macular degeneration (“wet AMD”).

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 any 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, 2022 were not significantly impacted by COVID-19.

2.    Liquidity

The Company has incurred recurring losses and negative cash flows from operations since its inception and has an accumulated deficit of $394,590,493 as of June 30, 2022. As of June 30, 2022, the Company had $10,847,966 of principal and accrued interest due under an unsecured promissory note maturing on January 1, 2023. As a result, there is 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.

Management believes that the Company’s existing cash and cash equivalents as of June 30, 2022 will be sufficient to fund its operations into the first calendar quarter of 2023. Additional financing will be needed by the Company to fund its operations in the future and to commercially develop ONS-5010 and any other product candidates. Management is currently evaluating different strategies to obtain the required funding for future operations such as continuing to access capital through the current ATM Offering (as defined below) and negotiating a potential extension of maturity for notes that are scheduled to mature in January 2023. Refer to Note 10 for further details on the ATM Offering. These strategies may also include, but are not limited to, proceeds from potential licensing and/or marketing arrangements or collaborations with pharmaceutical or other companies, the issuance of equity securities, the issuance of additional debt, and revenues from potential future product sales, if any. 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 successfully begin marketing of its product candidates or complete revenue-generating partnerships with other companies; (iii) the success of its research and development; (iv) the development of competitive therapies by other biotechnology and pharmaceutical companies; and, ultimately, (v) regulatory approval and market acceptance of the Company’s proposed future products.

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Outlook Therapeutics, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

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 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, 2022 and its results of operations for the three and nine months ended June 30, 2022 and 2021, cash flows for the nine months ended June 30, 2022 and 2021, and stockholders’ equity (deficit) for the three and nine months ended June 30, 2022 and 2021. Operating results for the nine months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the full year ending September 30, 2022. The unaudited interim consolidated financial statements presented herein do not contain all of 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, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC on December 23, 2021.

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.

Fair value option

As permitted under ASC 825, Financial Instruments (“ASC 825") the Company has elected the fair value option to account for its convertible promissory note (Note 8). In accordance with ASC 825, the Company records the convertible promissory note at fair value with changes in fair value recorded in the consolidated statements of operations.

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. Potentially dilutive securities include warrants, performance-based stock options and units, 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 loss per share and diluted loss per share:

Three months ended June 30, 

Nine months ended June 30, 

    

2022

    

2021

    

2022

    

2021

Net loss attributable to common stockholders

$

(17,539,961)

$

(12,196,547)

$

(51,707,239)

$

(39,758,982)

Common stock shares outstanding (weighted average)

220,497,826

168,420,675

209,108,090

146,860,652

Basic and diluted net loss per share

$

(0.08)

$

(0.07)

$

(0.25)

$

(0.27)

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, 2022, and 2021, as they would be antidilutive:

As of June 30, 

    

2022

    

2021

Performance-based stock units

2,470

2,470

Performance-based stock options

700,000

Stock options

20,099,581

12,010,781

Common stock warrants

6,812,794

5,129,460

Recently issued accounting pronouncements

In January 2020, FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), which, generally, provides guidance for investments in entities accounted for under the equity method of accounting. ASU 2020-01 is effective for public companies with fiscal years beginning after December 15, 2020 and for all other entities the amendments are effective for fiscal years beginning after December 15, 2021, including interim periods therein. The Company adopted ASU 2020-01 on October 1, 2021 and the adoption of this standard did not have a material impact on the Company’s consolidated financial condition, results of operations, cash flows and financial statement disclosures.

In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) — Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted net income per share calculation in certain areas. The new guidance is effective for annual and interim periods beginning after December 15, 2021, and early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently evaluating the new standard, but adoption is not expected to have a material impact on its consolidated financial condition, results of operations, cash flows and financial statement disclosures.

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.

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Outlook Therapeutics, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

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.
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 liabilities that are measured at fair value on a recurring basis:

June 30, 2022

    

(Level 1)

    

(Level 2)

    

(Level 3)

Liabilities

Warrant liability

$

$

$

68,319

September 30, 2021

(Level 1)

    

(Level 2)

    

(Level 3)

Liabilities

Warrant liability

$

$

$

522,918

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 unsecured convertible promissory note for the nine months ended June 30, 2022:

Unsecured Convertible

    

Promissory Note

    

Warrants

Balance at October 1, 2021

$

$

522,918

Fair value at issuance date

12,051,581

Change in fair value

882,903

(454,599)

Repayment

(12,934,484)

Balance at June 30, 2022

$

$

68,319

As further described in Note 8, the Company elected the fair value option to account for its amended unsecured convertible promissory note. The fair value of the amended unsecured convertible promissory note at issuance was estimated using a discounted cash flow model. Significant estimates in the cash flow model include the discount rate and the probability and timing of redemption.

The warrants issued in connection with the convertible senior secured notes originally issued pursuant to a certain Note and Warrant Purchase Agreement dated December 22, 2017 are classified as liabilities on the accompanying consolidated balance sheets 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

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Outlook Therapeutics, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

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, 2022

September 30, 2021

Risk-free interest rate

2.96

%

0.62

%

Remaining contractual term of warrant (years)

2.6

3.4

Expected volatility

100.3

%

124.7

%

Annual dividend yield

%

%

Fair value of common stock (per share)

$

1.02

$

2.17

Fair Value of Other Financial Instruments

At June 30, 2022, the fair value and carrying value of the unsecured promissory note included in long-term debt on the consolidated balance sheet on June 30, 2022 was $10,647,000 and $10,459,372, respectively. The estimated fair value was based on discounted expected future cash flows using the prevailing interest rate that is a Level 3 input under the fair value hierarchy.

5.    Property and Equipment, Net

Property and equipment, net, consists of:

    

June 30, 2022

    

September 30, 2021

Laboratory equipment

$

1,067,351

$

1,067,351

Less: accumulated depreciation

(1,026,445)

(903,726)

$

40,906

$

163,625

Depreciation expense was $40,906 for the three months ended June 30, 2022 and 2021, and $122,719 and $122,718 for the nine months ended June 30, 2022 and 2021, respectively.

6.  Equity Method Investment

In connection with the execution of a stock purchase agreement with Syntone Ventures LLC (“Syntone Ventures”), the U.S. based affiliate of Syntone Technologies Group Co. Ltd. (“Syntone PRC”) on May 22, 2020, the Company and Syntone PRC entered into a joint venture agreement pursuant to which they agreed to form a People’s Republic of China (“PRC”) joint venture, Beijing Syntone Biopharma Ltd (“Syntone”), that is 80% owned by Syntone PRC and 20% owned by the Company. As the Company can exert significant influence over, but does not control, Syntone’s operations through voting rights or representation on Syntone’s board of directors, the Company accounts for this investment using the equity method of accounting. Upon formation of Syntone in April 2021, the Company entered into a royalty-free license with Syntone for the development, commercialization and manufacture of 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 and expects to be required to make an additional capital contribution to Syntone of approximately $2,100,000, 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. The maximum exposure to a loss as a result of the Company’s involvement in Syntone is limited to the initial investment and the future capital contributions of approximately $2,100,000.

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Outlook Therapeutics, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

7.     Accrued Expenses

Accrued expenses consists of:

    

June 30, 2022

    

September 30, 2021

Compensation

$

1,324,246

$

753,808

Research and development

1,455,024

808,780

Interest payable

12,909

Professional fees

586,649

Other accrued expenses

214,616

150,224

$

3,580,535

$

1,725,721

8.    Debt

Debt consists of:

    

June 30, 2022

    

September 30, 2021

Unsecured promissory note

$

10,847,966

10,938,145

Paycheck Protection Program term loan

904,200

Total debt

10,847,966

11,842,345

Less: unamortized loan costs

(388,594)

(52,291)

Total debt, net of unamortized loan costs

10,459,372

11,790,054

Less: current portion

(10,459,372)

(904,200)

Long-term debt

$

$

10,885,854

Unsecured convertible promissory note

On November 5, 2020, the Company received $10,000,000 in net proceeds from the issuance of an unsecured promissory note with a face amount of $10,220,000, which was amended in November 2021 and became convertible. Debt issuance costs totaling $228,032 were recorded as debt discount and were deducted from the principal in the accompanying consolidated balance sheets. The debt discount was amortized as a component of interest expense over the 14-month term of the underlying debt using the effective interest method. The note bore interest at a rate of 7.5% per annum and was due to mature January 1, 2022. On November 16, 2021, the Company entered into a note amendment, which, among other things, (i) extended the maturity date to January 1, 2023, (ii) increased the interest rate from 7.5% per annum to 10% per annum beginning on January 1, 2022, and (iii) provided for the lender’s right to redeem some or all of the outstanding balance of the note for shares of the Company’s common stock beginning July 1, 2022, subject to certain limitations. The amendment was accounted for as an extinguishment of the old promissory note. As a result, the Company recorded a loss on debt extinguishment of $1,025,402, which is the difference between the fair value of the amended promissory note and the net carrying value of the old promissory note, which includes $26,488 of unamortized debt discount and lender fees of $552,633. The amended promissory note included redemption options whereby beginning on July 1, 2022, the holder had the option to redeem up to $2,000,000 of outstanding principal and accrued and unpaid interest per calendar month for shares of the Company’s common stock at a redemption price equal to 75% of the lowest closing bid price in the three trading days immediately preceding the date the holder delivers written notice. The Company elected to account for the amended promissory note at fair value (Note 4) and was not required to bifurcate the redemption options as derivatives.

The Company prepaid the note in full on June 30, 2022 by paying 105% of the outstanding balance. The total payment was $12,934,484, which included interest of $1,546,038.

Unsecured promissory note

On November 16, 2021, the Company received $10,000,000 in net proceeds from the issuance of an unsecured promissory note with a face amount of $10,220,000. Debt issuance costs totaling $820,000 were recorded as debt discount and are

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Outlook Therapeutics, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

deducted from the principal in the accompanying consolidated balance sheets. The debt discount is amortized as a component of interest expense over the term of the underlying debt using the effective interest method. The note bears interest at a rate of 9.5% per annum compounding daily and matures January 1, 2023. The Company may prepay all or a portion of the note at any time by paying 105% of the outstanding balance elected for pre-payment.

During the three months ended June 30, 2022 and 2021, the Company recognized $436,593 and $242,816, respectively, of interest expense related to the unsecured promissory notes of which $179,228 and $48,801, respectively, are related to the amortization of debt discount. During the nine months ended June 30, 2022 and 2021, the Company recognized $1,199,697 and $640,215, respectively, of interest expense related to the unsecured promissory notes of which $457,208 and $125,229, respectively, are related to the amortization of debt discount.

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 October 15, 2021, the Company began 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 October 15, 2021 by May 2, 2022. The loan was fully repaid on May 2, 2022. Aggregate interest expense on the PPP loan for the three months ended June 30, 2022 and 2021 was $131 and $2,279, respectively, and for the nine months ended June 30, 2022 and 2021 was $2,726 and $6,763, respectively.

9.     Commitments and Contingencies

Litigation

On July 20, 2020, Laboratorios Liomont S.A. de C.V. (“Liomont”), filed a complaint against the Company in the U.S. District Court of the Southern District of New York alleging certain breach of contract claims under the June 25, 2014 strategic development, license and supply agreement relating to the biosimilar development program for ONS-3010 and ONS-1045 claiming $3,000,000 in damages. On March 30, 2021, the Company entered into a confidential settlement agreement with Liomont, and the complaint was dismissed on April 11, 2021. The Company agreed to make an initial settlement payment of $625,000 that was paid in April 2021; and an additional payment of $750,000, which was accrued at March 31, 2022 and paid in April 2022. There are no remaining future financial obligations.

Leases

Corporate office

In March 2021, the Company assigned its Monmouth Junction, New Jersey corporate office lease to a third party and does not have remaining future obligations. In March 2021, the Company entered into a new three-year term corporate office lease in Iselin, New Jersey that commenced on April 23, 2021.

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% per annum.

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.

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Outlook Therapeutics, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

The components of lease cost for the three and nine months ended June 30, 2022 and 2021 are as follows:

Three months ended June 30, 

Nine months ended June 30, 

    

2022

    

2021

    

2022

    

2021

Lease cost:

 

  

 

  

 

  

 

  

Amortization of right-of-use assets

$

$

$

$

Interest on lease liabilities

 

723

 

1,210

 

2,547

 

3,997

Total finance lease cost

 

723

 

1,210

 

2,547

 

3,997

Operating lease cost

 

11,217

 

8,413

 

33,650

 

95,663

Total lease cost

$

11,940

$

9,623

$

36,197

$

99,660

Amounts reported in the consolidated balance sheets for leases where the Company is the lessee are as follows:

    

June 30, 2022

    

September 30, 2021

Operating leases:

 

 

  

Right-of-use asset

$

80,924

$

111,429

Operating lease liabilities

 

38,203

 

69,849

Finance leases:

 

  

 

  

Right-of-use asset

$

$

Financing lease liabilities

 

21,703

 

42,482

Weighted-average remaining lease term (years):

 

  

 

  

Operating leases

1.8

2.6

Finance leases

 

1.3

 

1.7

Weighted-average discount rate:

 

  

 

  

Operating leases

7.5%

7.5%

Finance leases

 

11.8%

 

9.5%

Other information related to leases for the nine months ended June 30, 2022 and 2021 are as follows:

Nine months ended June 30, 

    

2022

    

2021

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

 

 

  

Operating cash flows from finance leases

$

2,547

$

3,997

Operating cash flows from operating leases

 

34,791

 

147,187

Financing cash flows from finance leases

 

20,779

 

23,098

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

 

  

 

  

Operating leases

$

$

128,473

Future minimum lease payments under non-cancelable leases as of June 30, 2022 are as follows for the years ending September 30:

Operating leases

Finance leases

2022 (remaining three months)

$

11,861

$

6,279

2023

 

27,675

 

13,149

2024

 

 

4,383

Total undiscounted lease payments

$

39,536

$

23,811

Less: Imputed interest

 

1,333

 

2,108

Total lease obligations

$

38,203

$

21,703

12

Table of Contents

Outlook Therapeutics, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

10.    Common Stock and Stockholders’ Equity (Deficit)

Common stock

In November 2021, the Company issued 46,000,000 shares of common stock in an underwritten public offering at a purchase price per share of $1.25 for $53,968,057 in net proceeds after payment of underwriter discounts and commissions and other underwriter offering costs. GMS Ventures and Investments (“GMS Ventures”), the Company’s largest stockholder and strategic partner, purchased an aggregate of 16,000,000 shares of common stock in the public offering at the public offering price per share. In connection with the underwritten public offering, the Company issued the underwriter warrants to purchase up to an aggregate of 2,100,000 shares of common stock at an exercise price of $1.5625 per share, which warrants have a five-year term.

H.C. Wainwright & Co. At-the-Market Offering Agreement

On March 26, 2021, the Company entered into an At-the-Market Offering Agreement (the “Agreement”) with H.C. Wainwright & Co., as sales agent (“Wainwright” or the “Agent”), under which the Company may issue and sell shares of its common stock from time to time through Wainwright as sales agent (the “ATM Offering”). The Company filed a prospectus supplement, dated March 26, 2021, with the Securities and Exchange Commission pursuant to which the Company may offer and sell shares of common stock having an aggregate offering price of up to up to $40,000,000 from time to time through Wainwright. The Company incurred financing costs of $197,654, which were capitalized and are being reclassified to additional paid in capital on a pro rata basis when the Company sells common stock under the ATM Offering. As of June 30, 2022, $127,763 of such deferred costs are included in other assets on the consolidated balance sheets.

Under the Agreement, the Company pays Wainwright a commission equal to 3.0% of the aggregate gross proceeds of any sales of common stock under the Agreement. The offering of common stock pursuant to the Agreement will terminate upon the earlier of (i) the sale of all common stock subject to the Agreement or (ii) termination of the Agreement in accordance with its terms.

During the nine months ended June 30, 2022, the Company sold 3,440,416 shares of common stock under the ATM Offering and generated $6,929,743 in gross proceeds. The Company paid fees to the Agent and other issuance costs of $222,249.

Common stock warrants

As of June 30, 2022, 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

December 22, 2024

(i)

277,128

$

12.00

April 13, 2025

(i)

145,686

$

12.00

May 31, 2025

(i)

62,437

$

12.00

February 24, 2025

172,864

$

1.27

February 26, 2024

1,747,047

$

0.9535

June 22, 2025

191,268

$

1.51875

January 28, 2026

2,116,364

$

1.25000

November 23, 2026

2,100,000

$

1.56250

6,812,794

13

Table of Contents

Outlook Therapeutics, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

(i)The warrants were issued in connection with the convertible senior secured notes originally issued pursuant to the certain Note and Warrant Purchase Agreement dated December 22, 2017 and are classified as liabilities on the accompanying consolidated balance sheets, as the warrants include cash settlement features at the option of the holders under certain circumstances. Refer to Note 4 for fair value measurements disclosures.

During the nine months ended June 30, 2022, warrants to purchase an aggregate of 400,360 shares of common stock with a weighted average exercise price of $12.00 expired; and warrants to purchase an aggregate of 15,675 shares of common stock with a weighted average exercise price of $12.00 were exercised for cash.

11.  Stock-Based Compensation

2011 Equity Incentive Plan

The Company’s 2011 Equity Compensation Plan (the “2011 Plan”) provided for the Company to sell or issue restricted common stock, RSUs, performance-based awards (“PSUs”), cash-based awards or to grant stock options for the purchase of common stock to officers, employees, consultants and directors of the Company. The 2011 Plan was administered by the board of directors or, at the discretion of the board of directors, by a committee of the board. As of June 30, 2022, PSUs representing 2,470 shares of the Company’s common stock were outstanding under the 2011 Plan. Effective with the December 2015 adoption of the 2015 Equity Incentive Plan, (the “2015 Plan”), no future awards under the 2011 Plan will be granted.

2015 Equity Incentive Plan

In December 2015, the Company adopted the 2015 Plan. The 2015 Plan provides for the grant of stock options, stock appreciation rights, restricted stock awards, RSU awards, performance stock awards and other forms of equity compensation to Company employees, directors and consultants. The aggregate number of shares of common stock authorized for issuance pursuant to the Company’s 2015 Plan is 34,565,837. As of June 30, 2022, 13,571,604 shares remained available for grant under the 2015 Plan.

Stock options and RSUs are granted under the Company’s 2015 Plan and generally vest over a period of one to four years from the date of grant and, in the case of stock options, have a term of 10 years. The Company recognizes the grant date fair value of each option and share of RSU over its vesting period.

The Company recorded stock-based compensation expense in the following expense categories of its statements of operations for the three and nine months ended June 30, 2022 and 2021:

Three months ended June 30, 

Nine months ended June 30, 

2022

    

2021

    

2022

    

2021

Research and development

$

205,410

$

239,231

$

2,278,067

$

707,442

General and administrative

1,162,464

959,153

4,056,650

2,775,330

$