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Table of Contents

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, 2021

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

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 11, 2021 was 175,341,173.

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, 2021 and September 30, 2020

1

Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2021 and 2020

2

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Three and Nine Months Ended June 30, 2021 and 2020

3

Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2021 and 2020

5

Notes to Unaudited Interim Consolidated Financial Statements

6

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

22

Item 3. Quantitative and Qualitative Disclosures About Market Risk

34

Item 4. Controls and Procedures

34

PART II. OTHER INFORMATION

35

Item 1. Legal Proceedings

35

Item 1A. Risk Factors

35

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

35

Item 3. Defaults Upon Senior Securities

35

Item 4. Mine Safety Disclosures

35

Item 5. Other Information

35

Item 6. Exhibits

36

SIGNATURES

37

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 “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, 2020, filed with the SEC on December 23, 2020, as amended January 28, 2021, 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;
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 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, and our expectations regarding our current cash resources;
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. 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, 2021

September 30, 2020

Assets

Current assets:

Cash

$

19,692,035

$

12,535,986

Prepaid expenses and other current assets

12,205,296

5,407,882

Total current assets

31,897,331

17,943,868

Property and equipment, net

204,531

327,249

Operating lease right-of-use assets, net

121,197

166,986

Equity method investment

464,654

Other assets

194,355

1,294,448

Total assets

$

32,882,068

$

19,732,551

Liabilities, convertible preferred stock and stockholders’ equity

Current liabilities:

Current portion of long-term debt

$

11,549,425

$

50,285

Current portion of finance lease liabilities

27,459

29,778

Current portion of operating lease liabilities

41,720

187,486

Stockholder notes

3,612,500

Accounts payable

2,671,501

2,394,818

Accrued expenses

3,491,944

7,757,310

Income taxes payable

1,856,629

1,856,629

Total current liabilities

19,638,678

15,888,806

Long-term debt

904,200

Finance lease liabilities

21,703

42,482

Operating lease liabilities

38,203

Warrant liability

434,248

70,772

Total liabilities

20,132,832

16,906,260

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; 174,813,326 shares issued and outstanding at June 30, 2021 and 127,183,109 shares issued and outstanding at September 30, 2020

1,748,133

1,271,831

Additional paid-in capital

340,479,991

291,274,366

Accumulated deficit

(329,478,888)

(289,719,906)

Total stockholders' equity

12,749,236

2,826,291

Total liabilities, convertible preferred stock and stockholders' equity

$

32,882,068

$

19,732,551

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, 

    

2021

    

2020

    

2021

    

2020

Operating expenses:

Research and development

$

8,545,279

$

8,488,143

$

29,023,253

$

18,718,659

General and administrative

2,929,717

3,286,739

9,267,962

7,580,638

Impairment of property and equipment

104,296

527,624

11,474,996

11,879,178

38,291,215

26,826,921

Loss from operations

(11,474,996)

(11,879,178)

(38,291,215)

(26,826,921)

Loss on equity method investment

435,346

435,346

Interest expense, net

256,873

443,624

666,945

1,737,440

(Gain) loss on extinguishment of debt

(6,164,284)

1,896,296

Change in fair value of redemption feature

(1,796,982)

Change in fair value of warrant liability

29,332

127,506

363,476

(74,636)

Loss before income taxes

(12,196,547)

(6,286,024)

(39,756,982)

(28,589,039)

Income tax expense (benefit)

(3,271,157)

2,000

(3,271,157)

Net loss

(12,196,547)

(3,014,867)

(39,758,982)

(25,317,882)

Series A-1 convertible preferred stock dividends and related settlement

(166,133)

Deemed dividend upon modification of warrants

(3,140,009)

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

(10,328,118)

Net loss attributable to common stockholders

$

(12,196,547)

$

(3,014,867)

$

(39,758,982)

$

(38,952,142)

Per share information:

Net loss per share of common stock, basic and diluted

$

(0.07)

$

(0.03)

$

(0.27)

$

(0.69)

Weighted average shares outstanding, basic and diluted

168,420,675

90,757,825

146,860,652

56,089,036

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 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, 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

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, 2020

$

127,183,109

$

1,271,831

$

291,274,366

$

(289,719,906)

$

2,826,291

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

43,814,913

438,149

42,175,197

42,613,346

Stock-based compensation expense

3,482,772

3,482,772

Net loss

(39,758,982)

(39,758,982)

Balance at June 30, 2021

$

174,813,326

$

1,748,133

$

340,479,991

$

(329,478,888)

$

12,749,236

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Table of Contents

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 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

Sale of common stock, net of issuance costs

34,466,467

344,665

34,004,060

34,348,725

Issuance of vested restricted stock units

109

1

(1)

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

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

7,244,739

72,447

(72,447)

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

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, 

    

2021

    

2020

OPERATING ACTIVITIES

Net loss

$

(39,758,982)

$

(25,317,882)

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

Depreciation and amortization

211,466

473,920

Loss on extinguishment of debt

1,896,296

Non-cash interest expense

640,215

235,636

Stock-based compensation

3,482,772

2,022,736

Change in fair value of redemption feature

(1,796,982)

Change in fair value of warrant liability

363,476

(74,636)

Impairment of property and equipment

527,624

Gain on settlement of lease termination obligation

(552,340)

Loss on lease termination

680,017

Loss on equity method investment

435,346

Changes in operating assets and liabilities:

Prepaid expenses and other current assets

(6,904,417)

676,564

Other assets

298,523

(84,120)

Operating lease liability

(140,272)

(122,193)

Accounts payable

194,029

900,030

Accrued expenses

(3,532,940)

215,175

Other liabilities

55,587

Net cash used in operating activities

(45,263,124)

(19,712,228)

INVESTING ACTIVITIES

Investment in joint venture

(900,000)

Net cash used in investing activities

(900,000)

FINANCING ACTIVITIES

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

42,514,237

34,739,271

Proceeds from debt

10,000,000

904,200

Payment of debt issuance costs

(8,032)

Proceeds from exercise of common stock warrants

3,585,809

1,138,900

Payments of finance lease obligations

(23,098)

(196,959)

Repayment of debt

(3,649,743)

(35,632)

Net cash provided by financing activities

52,419,173

36,549,780

Net increase in cash

7,156,049

15,937,552

Cash at beginning of period

12,535,986

8,015,528

Cash at end of period

$

19,692,035

$

23,953,080

Supplemental disclosure of cash flow information

Cash paid for interest

$

17,915

$

910,503

Accrued interest settled by conversion into common stock

$

$

1,531,004

Supplemental schedule of non-cash financing activities:

Senior secured notes principal converted into common stock

$

$

7,033,950

Unsecured notes principal converted into common stock

$

$

977,966

Issuance of exchange notes at estimated fair value

$

$

7,050,206

Issuance of redemption feature at estimated fair value

$

$

8,264,451

Series A-1 convertible preferred stock dividends and related settlement

$

$

166,133

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

$

82,654

$

390,546

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

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Table of Contents

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 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 Iselin, 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 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 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, 2021 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, 2021, the Company had $10.7 million of principal and accrued interest due under an unsecured promissory note maturing on January 1, 2022, and a $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.

In July 2021, the Company sold 527,216 shares of common stock under its "at-the-market" equity offering program (the "ATM Offering"). The Company generated $1.3 million in net proceeds from the ATM Offering after payment of fees to the sales agent of $43,000.

Management believes that the Company’s existing cash as of June 30, 2021, together with the $1.3 million in net proceeds from the sale of shares of common stock under the ATM Offering in July 2021, will be sufficient to fund its operations through December 2021. Substantial 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. These strategies may include but are not limited to proceeds from potential licensing and/or marketing arrangements with pharmaceutical companies, the issuance of equity securities, and the issuance of additional debt, potential collaborations 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 complete revenue-generating partnerships with pharmaceutical 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 (“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, 2021 and its results of operations for the three and nine months ended June 30, 2021 and 2020, cash flows for the nine months ended June 30, 2021 and 2020, and convertible preferred stock and stockholders’ equity (deficit) for the three and nine months ended June 30, 2021 and 2020. Operating results for the three and nine months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the full year ending September 30, 2021. 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, 2020 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on December 23, 2020 and amended on January 28, 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.

Equity method investment

The Company accounts for equity investments where it owns a non-controlling interest, but has the ability to exercise significant influence, under the equity method of accounting. Under the equity method of accounting, the original cost of the investment is adjusted for the Company’s share of equity in the earnings or loss of the equity investee and reduced by dividends and distributions of capital received, unless the fair value option is elected, in which case the investment balance is marked to fair value each reporting period and the impact of changes in fair value of the equity investment are reported in earnings. The Company has not elected the fair value option. The Company assesses its investment for other-than-temporary impairment when events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable and recognize an impairment loss to adjust the investment to its then-current fair value.

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

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Outlook Therapeutics, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

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.

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, 

    

2021

    

2020

    

2021

    

2020

Net loss attributable to common stockholders

$

(12,196,547)

$

(3,014,867)

$

(39,758,982)

$

(38,952,142)

Common stock outstanding (weighted average)

168,420,675

90,757,825

146,860,652

56,089,036

Basic and diluted net loss per share

$

(0.07)

$

(0.03)

$

(0.27)

$

(0.69)

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, 2021 and 2020, as they would be antidilutive:

As of June 30, 

    

2021

    

2020

Performance-based stock units

2,470

2,470

Stock options

12,110,015

2,238,470

Common stock warrants

5,129,460

7,051,857

Recently issued accounting pronouncements

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 Company adopted ASU 2018-13 on October 1, 2020 and the adoption of this standard did not have a material impact on the Company’s financial statements.

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 all entities with fiscal years beginning after December 15, 2021, including interim periods therein. The Company is currently evaluating the impact of adopting this guidance to its consolidated financial statements.

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

June 30, 2021

    

(Level 1)

    

(Level 2)

    

(Level 3)

Liabilities

Warrant liability

$

$

$

434,248

September 30, 2020

(Level 1)

    

(Level 2)

    

(Level 3)

Liabilities

Warrant liability

$

$

$

70,772

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, 2021:

    

Warrants

Balance at October 1, 2020

$

70,772

Change in fair value

363,476

Balance at June 30, 2021

$

434,248

The warrants issued in connection with the convertible senior secured notes (see Note 8) 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 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, 2021

    

September 30, 2020

Risk-free interest rate

0.59

%

0.24

%

Remaining contractual term of warrant

3.6

years

4.4

years

Expected volatility

98.3

%

94.7

%

Annual dividend yield

%

%

Fair value of common stock

$

2.49

per share

$

0.72

per share

Fair Value of Other Financial Instruments

At June 30, 2021, the carrying values of the PPP loan and unsecured promissory note approximate their respective fair values due to their short duration to maturity.

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Outlook Therapeutics, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

5.    Property and Equipment, Net

Property and equipment, net, consists of:

    

June 30, 2021

    

September 30, 2020

Laboratory equipment

$

1,067,351

$

1,067,351

Less: accumulated depreciation and amortization

(862,820)

(740,102)

$

204,531

$

327,249

Depreciation expense was $40,906 and $50,959 for the three months ended June 30, 2021 and 2020, respectively and $122,718 and $178,510 for the nine months ended June 30, 2021 and 2020, respectively.

6.  Other Assets

Other assets consist of:

    

June 30, 2021

    

September 30, 2020

Investment in PRC joint venture

$

$

900,000

Other assets

194,355

394,448

$

194,355

$

1,294,448

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 which was included in other assets at September 30, 2020 and upon formation of Syntone in April 2021, the Company reclassified the investment to equity method investment in the accompanying consolidated balance sheets. The Company expects to be required to make an additional capital contribution to Syntone 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. 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 $2.1 million.

7.     Accrued Expenses

Accrued expenses consists of:

    

June 30, 2021

    

September 30, 2020

Compensation

$

452,278

$

579,618

Severance and related costs

9,521

Research and development

2,837,663

2,890,333

Interest payable

10,454

3,691

Professional fees

43,302

132,085

Lease termination obligation

3,971,111

Other accrued expenses

148,247

170,951

$

3,491,944

$

7,757,310

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Outlook Therapeutics, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

8.    Debt

Debt consists of:

    

June 30, 2021

    

September 30, 2020

Unsecured promissory note

$

10,734,986

$

Paycheck Protection Program term loan

904,200

904,200

Equipment loans

13,042

50,285

Total debt

11,652,228

954,485

Less: unamortized loan costs

(102,803)

Total debt, net of unamortized loan costs

11,549,425

954,485

Less: current portion

(11,549,425)

(50,285)

Long-term debt

$

$

904,200

Unsecured promissory note

On November 5, 2020, the Company received $10.0 million in net proceeds from issuance of an unsecured promissory note with face amount of $10.2 million. Debt issuance costs totaling $228,032 are recorded as debt discount and are deducted from the principal in the accompanying consolidated balance sheets. The debt discount is amortized as a component of interest expense over the 14-month term of the underlying debt using the effective interest method. The note bears interest at a rate of 7.5% per annum and matures January 1, 2022. 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 and nine months ended June 30, 2021, the Company recognized $248,186, and $640,215, respectively, of interest expense related to the unsecured promissory note.

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 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 October 15, 2021 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. Aggregate interest expense on the PPP loan for the three and nine months ended June 30, 2021 was $2,279, and $6,763, respectively.

Senior secured notes

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.

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

11

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Outlook Therapeutics, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

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. 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 three months ended December 31, 2019 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.

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.

During the year ended September 30, 2020, the holder of the new senior secured notes converted the entire outstanding principal and accrued interest and as of September 30, 2020, there were no longer any new senior secured notes outstanding.

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

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 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 three months ended December 31, 2019, 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 $1.10. As of December 31, 2019, these unsecured notes were no longer outstanding. During the nine months ended June 30, 2020, the Company recognized $12,997 of interest expense related to the unsecured notes. No interest expense related to the unsecured notes was recognized during the three months ended June 30, 2020.

Stockholder notes

    

June 30, 2021

    

September 30, 2020

Restricted stock repurchase notes

$

$

800,000

Common stock repurchase note