neos_Current_Folio_10Q

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended JUNE 30, 2019

 

OR

 

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

 

For the transition period from                     to                   

 

Commission File Number 001-37508

 

Neos Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

 

 

 

Delaware

 

2834

 

27-0395455

State or Other Jurisdiction of
Incorporation or Organization)

    

(Primary Standard Industrial
Classification Code Number)

    

(I.R.S. Employer
Identification Number)

 

2940 N. Hwy 360

Grand Prairie, TX 75050

(972) 408-1300

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

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,  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  ☒

 

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, par value $0.001 per share

 

NEOS

 

The NASDAQ Global Market

 

The number of shares outstanding of the registrant’s common stock as of August 2, 2019: 49,730,275 shares.

 

 

 

 

Table of Contents

NEOS THERAPEUTICS, INC.

 

INDEX

 

 

 

 

 

 

Page No.

 

 

 

PART I — FINANCIAL INFORMATION 

 

 

 

 

Item 1 

Financial Statements (Unaudited) 

5

 

Condensed Consolidated Balance Sheets

5

 

Condensed Consolidated Statements of Operations

6

 

Condensed Consolidated Statements of Comprehensive Income (Loss)

7

 

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

8

 

Condensed Consolidated Statements of Cash Flows

9

 

Notes to Condensed Consolidated Financial Statements

10

Item 2 

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

35

Item 3 

Quantitative and Qualitative Disclosures about Market Risk

54

Item 4 

Controls and Procedures

55

 

 

 

PART II — OTHER INFORMATION 

 

 

 

 

Item 1 

Legal Proceedings

56

Item 1A 

Risk Factors

56

Item 2 

Unregistered Sales of Equity Securities and Use of Proceeds

95

Item 3 

Defaults Upon Senior Securities

95

Item 4 

Mine Safety Disclosures

95

Item 5 

Other Information

95

Item 6 

Exhibits

96

 

 

 

SIGNATURES 

97

 

 

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Special note regarding forward-looking statements

 

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

 

·

our anticipated cash needs and our estimates regarding our anticipated expenses, capital requirements and our needs for additional financings;

 

·

our ability to successfully commercialize Adzenys XR-ODT®, Cotempla XR-ODT® and Adzenys ER® or develop and commercialize any other future product or product candidate;

 

·

our ability to maintain our license for NT0502, to successfully complete clinical development of this molecule, to file for and obtain regulatory approval of NT0502 and to otherwise realize the intended benefits of this license;

 

·

our debt facility agreement, as amended, with Deerfield Private Design Fund III, L.P. and Deerfield Special Situations Fund, L.P. and our ability to satisfy the repayment obligations thereunder;

 

·

the cost or other aspects of the future sales of Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER or the timing, cost or other aspects of the commercial launch and future sales of any other future product or product candidate;

 

·

our ability to increase our manufacturing and distribution capabilities for Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER or any other future product or product candidate;

 

·

the attention deficit hyperactivity disorder patient market size and market adoption of Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER by physicians and patients;

 

·

the therapeutic benefits, effectiveness and safety of Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER or any other future product or product candidate;

 

·

our expectations regarding the commercial supply of Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER, or any other future products, or our generic Tussionex;

 

·

our ability to receive, and the timing of any receipt of the U.S. Food and Drug Administration, (“FDA”), approvals, or other regulatory action in the United States and elsewhere, for any future product candidate;

 

·

our expectations regarding federal, state and foreign regulatory requirements;

 

·

our entry into the settlement and licensing agreement with Actavis Laboratories FL, Inc. (“Actavis”), the effect of our agreement with Actavis on its Abbreviated New Drug Application (“ANDA”) and with the FDA for a generic version of Adzenys XR-ODT, and the expected timing of the marketing of Actavis’s generic version of Adzenys XR-ODT under the ANDA;

 

3

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·

our entry into the settlement and licensing agreement with Teva Pharmaceuticals USA, Inc. (“Teva”), the effect of our agreement with Teva on its ANDA and with the FDA for a generic version of Cotempla XR-ODT, and the expected timing of the marketing of Teva’s generic version of Cotempla XR-ODT under the ANDA;

 

·

our product research and development activities, including the timing and progress of our ongoing and planned clinical trials, and projected expenditures;

 

·

issuance of patents to us by the U.S. Patent and Trademark Office and other governmental patent agencies;

 

·

our ability to achieve profitability;

 

·

our staffing needs; and

 

·

the additional risks, uncertainties and other factors described under the caption “Risk Factors” in this Quarterly Report on Form 10-Q.

 

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

 

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

 

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

 

Furthermore, this Quarterly Report on Form 10-Q includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information.

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PART I—FINANCIAL INFORMATION

ITEM 1.     CONDENSED FINANCIAL STATEMENTS.

Neos Therapeutics, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

    

2019

    

2018

    

ASSETS

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

25,757

 

$

46,478

 

Short-term investments

 

 

4,494

 

 

 —

 

Accounts receivable, net of allowances for chargebacks and cash discounts of $2,509 and $1,865, respectively

 

 

20,144

 

 

27,801

 

Inventories

 

 

12,374

 

 

10,367

 

Other current assets

 

 

1,811

 

 

4,032

 

Total current assets

 

 

64,580

 

 

88,678

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

7,636

 

 

7,914

 

Operating lease right-of-use assets

 

 

3,274

 

 

 —

 

Intangible assets, net

 

 

13,619

 

 

14,616

 

Other assets

 

 

149

 

 

149

 

Total assets

 

$

89,258

 

$

111,357

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

6,556

 

$

12,730

 

Accrued expenses

 

 

33,684

 

 

35,818

 

Current portion of operating lease liabilities

 

 

606

 

 

 —

 

Current portion of long-term debt

 

 

16,372

 

 

8,557

 

Total current liabilities

 

 

57,218

 

 

57,105

 

 

 

 

 

 

 

 

 

Long-Term Liabilities:

 

 

 

 

 

 

 

Long-term debt, net of current portion

 

 

28,489

 

 

43,217

 

Operating lease liabilities

 

 

3,608

 

 

 —

 

Derivative liability

 

 

1,373

 

 

2,017

 

Deferred rent

 

 

 —

 

 

989

 

Other long-term liabilities

 

 

182

 

 

184

 

Total long-term liabilities

 

 

33,652

 

 

46,407

 

 

 

 

 

 

 

 

 

Stockholders' Equity (Deficit):

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 5,000,000 shares authorized, no shares issued or outstanding at June 30, 2019 and December 31, 2018

 

 

 —

 

 

 —

 

Common stock, $0.001 par value, 100,000,000 shares authorized at June 30, 2019 and December 31, 2018 ; 49,764,076 and 49,730,275 shares issued and outstanding, respectively, at June 30, 2019; 49,710,104 and 49,676,303 shares issued and outstanding, respectively, at December 31, 2018

 

 

50

 

 

50

 

Treasury stock, at cost, 33,801 shares at June 30, 2019 and December 31, 2018

 

 

(352)

 

 

(352)

 

Additional paid-in capital

 

 

327,035

 

 

325,130

 

Accumulated deficit

 

 

(328,346)

 

 

(316,983)

 

Accumulated other comprehensive income

 

 

 1

 

 

 —

 

Total stockholders' equity (deficit)

 

 

(1,612)

 

 

7,845

 

Total liabilities and stockholders' equity

 

$

89,258

 

$

111,357

 

 

See notes to condensed consolidated financial statements.

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Neos Therapeutics, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

    

2019

    

2018

    

2019

    

2018

    

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net product sales

 

$

15,643

 

$

11,363

 

$

30,277

 

$

22,092

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

5,099

 

 

6,987

 

 

11,495

 

 

12,208

 

Gross profit

 

 

10,544

 

 

4,376

 

 

18,782

 

 

9,884

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development expenses

 

 

2,009

 

 

2,381

 

 

5,206

 

 

4,072

 

Selling and marketing expenses

 

 

7,269

 

 

11,557

 

 

14,338

 

 

24,547

 

General and administrative expenses

 

 

3,712

 

 

3,705

 

 

7,505

 

 

7,051

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(2,446)

 

 

(13,267)

 

 

(8,267)

 

 

(25,786)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(1,987)

 

 

(2,232)

 

 

(4,102)

 

 

(4,452)

 

Other income, net

 

 

670

 

 

292

 

 

1,006

 

 

595

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(3,763)

 

$

(15,207)

 

$

(11,363)

 

$

(29,643)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

49,727,718

 

 

29,008,909

 

 

49,715,707

 

 

29,002,966

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share of common stock, basic and diluted

 

$

(0.08)

 

$

(0.52)

 

$

(0.23)

 

$

(1.02)

 

 

See notes to condensed consolidated financial statements.

 

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Neos Therapeutics, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

    

2019

    

2018

    

2019

    

 

2018

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(3,763)

 

$

(15,207)

 

$

(11,363)

 

$

(29,643)

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gain on short-term investments

 

 

 2

 

 

 4

 

 

 1

 

 

 7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income

 

$

 2

 

$

 4

 

$

 1

 

$

 7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss

 

$

(3,761)

 

$

(15,203)

 

$

(11,362)

 

$

(29,636)

 

 

See notes to condensed consolidated financial statements.

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Neos Therapeutics, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except shares)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

 

 

2019

 

2018

 

 

    

Shares

    

Amount

    

Shares

    

Amount

 

 

 

(In $ thousands, except share data)

 

Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of the beginning of the period

 

 

 —

 

$

 —

 

 

 —

 

$

 —

 

Balance as of the end of the period

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of the beginning of the period

 

 

49,756,317

 

 

50

 

 

29,030,757

 

 

29

 

Issuance of common stock upon RSU conversion

 

 

7,759

 

 

 —

 

 

17,832

 

 

 —

 

Balance as of the end of the period

 

 

49,764,076

 

 

50

 

 

29,048,589

 

 

29

 

Treasury Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of the beginning of the period

 

 

(33,801)

 

 

(352)

 

 

(33,801)

 

 

(352)

 

Balance as of the end of the period

 

 

(33,801)

 

 

(352)

 

 

(33,801)

 

 

(352)

 

Additional Paid-In Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of the beginning of the period

 

 

 

 

 

326,014

 

 

 

 

 

275,551

 

Payroll tax withheld for RSU releases

 

 

 

 

 

(1)

 

 

 

 

 

 —

 

Share-based compensation expense

 

 

 

 

 

1,022

 

 

 

 

 

1,086

 

Balance as of the end of the period

 

 

 

 

 

327,035

 

 

 

 

 

276,637

 

Retained Earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of the beginning of the period

 

 

 

 

 

(324,583)

 

 

 

 

 

(279,744)

 

Net loss

 

 

 

 

 

(3,763)

 

 

 

 

 

(15,207)

 

Balance as of the end of the period

 

 

 

 

 

(328,346)

 

 

 

 

 

(294,951)

 

Accumulated Other Comprehensive Income (Loss), Net

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of the beginning of the period

 

 

 

 

 

(1)

 

 

 

 

 

(3)

 

Net unrealized gain on investments

 

 

 

 

 

 2

 

 

 

 

 

 4

 

Balance as of the end of the period

 

 

 

 

 

 1

 

 

 

 

 

 1

 

Total stockholders' deficit

 

 

 

 

$

(1,612)

 

 

 

 

$

(18,636)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 

 

 

 

2019

 

2018

 

 

    

Shares

    

Amount

    

Shares

    

Amount

 

 

 

(In $ thousands, except share data)

 

Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of the beginning of the period

 

 

 —

 

$

 —

 

 

 —

 

$

 —

 

Balance as of the end of the period

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of the beginning of the period

 

 

49,710,104

 

 

50

 

 

29,030,757

 

 

29

 

Issuance of common stock upon RSU conversion

 

 

18,765

 

 

 —

 

 

17,832

 

 

 —

 

Shares issued for exercise of stock options

 

 

35,207

 

 

 —

 

 

 —

 

 

 —

 

Balance as of the end of the period

 

 

49,764,076

 

 

50

 

 

29,048,589

 

 

29

 

Treasury Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of the beginning of the period

 

 

(33,801)

 

 

(352)

 

 

(33,801)

 

 

(352)

 

Balance as of the end of the period

 

 

(33,801)

 

 

(352)

 

 

(33,801)

 

 

(352)

 

Additional Paid-In Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of the beginning of the period

 

 

 

 

 

325,130

 

 

 

 

 

274,584

 

Shares issued for exercise of stock options

 

 

 

 

 

11

 

 

 

 

 

 —

 

Payroll tax withheld for RSU releases

 

 

 

 

 

(2)

 

 

 

 

 

 —

 

Share-based compensation expense

 

 

 

 

 

1,896

 

 

 

 

 

2,053

 

Balance as of the end of the period

 

 

 

 

 

327,035

 

 

 

 

 

276,637

 

Retained Earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of the beginning of the period

 

 

 

 

 

(316,983)

 

 

 

 

 

(265,308)

 

Net loss

 

 

 

 

 

(11,363)

 

 

 

 

 

(29,643)

 

Balance as of the end of the period

 

 

 

 

 

(328,346)

 

 

 

 

 

(294,951)

 

Accumulated Other Comprehensive Income (Loss), Net

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of the beginning of the period

 

 

 

 

 

 —

 

 

 

 

 

(6)

 

Net unrealized gain on investments

 

 

 

 

 

 1

 

 

 

 

 

 7

 

Balance as of the end of the period

 

 

 

 

 

 1

 

 

 

 

 

 1

 

Total stockholders' deficit

 

 

 

 

$

(1,612)

 

 

 

 

$

(18,636)

 

 

See notes to condensed consolidated financial statements.

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Neos Therapeutics, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 

 

    

2019

    

2018

    

Cash Flows From Operating Activities:

 

 

 

 

 

 

 

Net loss

 

$

(11,363)

 

$

(29,643)

 

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

 

 

 

 

 

 

 

Share-based compensation expense

 

 

1,896

 

 

2,053

 

Depreciation and amortization of property and equipment

 

 

1,049

 

 

850

 

Amortization of patents and other intangible assets

 

 

1,052

 

 

869

 

Changes in fair value of earnout, derivative and warrant liabilities

 

 

(644)

 

 

(349)

 

Amortization of senior debt discounts

 

 

696

 

 

427

 

Amortization of short-term investment purchase discounts

 

 

(58)

 

 

(106)

 

(Gain) loss on sale of equipment

 

 

(2)

 

 

 1

 

Other adjustments

 

 

 —

 

 

(47)

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

7,657

 

 

(4,306)

 

Inventories

 

 

(2,007)

 

 

(981)

 

Other assets

 

 

2,221

 

 

2,251

 

Accounts payable

 

 

(6,174)

 

 

(5,400)

 

Accrued expenses

 

 

(2,134)

 

 

13,184

 

Operating lease liabilities

 

 

(49)

 

 

 —

 

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

 

(7,860)

 

 

(21,197)

 

 

 

 

 

 

 

 

 

Cash Flows From Investing Activities:

 

 

 

 

 

 

 

Purchases of short-term investments

 

 

(7,193)

 

 

(17,904)

 

Sales and maturities of short-term investments

 

 

2,758

 

 

26,743

 

Capital expenditures

 

 

(365)

 

 

(814)

 

Intangible asset expenditures

 

 

(55)

 

 

(28)

 

 

 

 

 

 

 

 

 

Net cash (used in) provided by investing activities

 

 

(4,855)

 

 

7,997

 

 

 

 

 

 

 

 

 

Cash Flows From Financing Activities:

 

 

 

 

 

 

 

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

 

 

11

 

 

 —

 

Payments made on borrowings

 

 

(8,015)

 

 

(451)

 

Payment of payroll taxes withheld for releases of restricted stock units

 

 

(2)

 

 

 —

 

 

 

 

 

 

 

 

 

Net cash used in financing activities

 

 

(8,006)

 

 

(451)

 

 

 

 

 

 

 

 

 

Decrease in cash and cash equivalents

 

 

(20,721)

 

 

(13,651)

 

 

 

 

 

 

 

 

 

Cash and Cash Equivalents:

 

 

 

 

 

 

 

Beginning

 

 

46,478

 

 

31,969

 

Ending

 

$

25,757

 

$

18,318

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Noncash Transactions:

 

 

 

 

 

 

 

Acquired equipment under finance lease

 

 

406

 

 

105

 

Finance lease liability from purchase of equipment

 

$

406

 

$

105

 

Supplemental Cash Flow Information:

 

 

 

 

 

 

 

Interest paid

 

$

3,510

 

$

4,116

 

 

See notes to condensed consolidated financial statements.

 

 

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Neos Therapeutics, Inc. and Subsidiaries

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1. Organization and nature of operations

 

Neos Therapeutics, Inc., a Delaware corporation, and its subsidiaries (the “Company”) is a fully integrated pharmaceutical company. The Company has developed a broad, proprietary modified-release drug delivery technology that enables the manufacture of single and multiple ingredient extended-release (“XR”) pharmaceuticals in patient- and caregiver-friendly orally disintegrating tablet (“ODT”) and oral suspension dosage forms. The Company has a pipeline of extended-release pharmaceuticals including three products approved by the U.S. Food and Drug Administration (the “FDA”) for the treatment of attention deficit hyperactivity disorder (“ADHD”). Adzenys XR-ODT was approved by the FDA in January 2016 and launched commercially in May 2016. The Company received approval from the FDA for Cotempla XR-ODT, its methylphenidate XR-ODT for the treatment of ADHD in patients 6 to 17 years old, in June 2017, and launched commercially in September 2017. Also, the Company received approval from the FDA for Adzenys ER oral suspension (“Adzenys ER”) in September 2017 and launched this product in February 2018. In addition, the Company manufactures and markets a generic Tussionex (hydrocodone and chlorpheniramine) (“generic Tussionex”), extended-release oral suspension for the treatment of cough and upper respiratory symptoms of a cold. In addition to its marketed products, the Company is developing NT0502, its product candidate for the treatment of sialorrhea and NT-0400, its XR-ODT product candidate for nausea and vomiting.

 

 

Note 2. Summary of significant accounting policies

 

Basis of presentation:  The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), for interim information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), for reporting on Form 10-Q and Article 10 of Regulation S-X.  Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes necessary for a complete presentation of financial position, results of operations, and cash flows.  In the opinion of management, all adjustments (consisting of normal, recurring adjustments) necessary for a fair presentation of results of operations for and financial condition as of the end of the interim period have been included.  Results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results for the year ending December 31, 2019 or any period thereafter.  The audited consolidated financial statements as of and for the year ended December 31, 2018 included information and footnotes necessary for such presentation and were included in the Neos Therapeutics, Inc. Annual Report on Form 10-K filed with the SEC on March 18, 2019. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2018.

 

Principles of consolidation: At June 30, 2019 and December 31, 2018 and for the three and six months ended June 30, 2019 and 2018, the consolidated financial statements include the accounts of the Company and its four wholly-owned subsidiaries. All significant intercompany transactions have been eliminated.

 

Use of estimates:  The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates.

 

Liquidity:  During 2018 and the three and six months ended June 30, 2019, the Company incurred operating losses and used cash to fund operations. Management intends to achieve profitability through revenue growth from its currently marketed pharmaceutical products. The Company does not anticipate it will be profitable until such time as revenues from Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER increase substantially over current levels.  In November 2018, the Company completed an offering of its common stock and restructured its outstanding debt, which reduced and possibly could delay the amount of principal payable in cash. Accordingly, management has performed the review required for going concern accounting and believes the Company presently has sufficient liquidity to continue to operate for the next twelve months after the filing of this Report on Form 10-Q.

 

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Cash equivalents: The Company invests its available cash balances in bank deposits and money market funds. The Company considers highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. Management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held. The Company’s primary objectives for investment of available cash are the preservation of capital and the maintenance of liquidity.

 

Short-term investments:  Short-term investments, if any, consist of debt securities that have original maturities greater than three months but less than or equal to one year and are classified as available-for-sale securities. Such securities are carried at estimated fair value, with any unrealized holding gains or losses reported, net of material tax effects reported, as accumulated other comprehensive income or loss, which is a separate component of stockholders’ equity (deficit). Realized gains and losses, and declines in value judged to be other-than-temporary, if any, are included in other income in the consolidated results of operations. A decline in the market value of any available-for-sale security below cost that is deemed to be other-than-temporary results in a reduction in fair value charged to earnings in that period, and a new cost basis for the security is established. Dividend and interest income are recognized in other income when earned. The cost of securities sold is calculated using the specific identification method. The Company places all investments with government agencies, or corporate institutions whose debt is rated as investment grade. The Company classifies all available-for-sale marketable securities with maturities greater than one year from the balance sheet date, if any, as non-current assets.

 

Inventories: Inventories are measured at the lower of cost (first in, first out) or net realizable value. Inventories have been reduced by an allowance for excess and obsolete inventories. Cost elements include material, labor and manufacturing overhead. Inventories consist of raw materials, work in process and finished goods.

 

Until objective and persuasive evidence exists that regulatory approval has been received and future economic benefit is probable, pre-launch inventories are expensed into research and development. Manufacturing costs for the production of Adzenys XR-ODT incurred after the January 27, 2016 FDA approval date, for the production of Cotempla XR-ODT incurred after June 30, 2017, following the FDA approval date of June 19, 2017, and for the production of Adzenys ER incurred after September 30, 2017, following the FDA approval date of September 15, 2017, are being capitalized into inventory.

 

Derivative liabilities: The Company evaluates its debt and equity issuances to determine if those contracts or embedded components of those contracts qualify as derivatives requiring separate recognition in the Company’s financial statements. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as a liability and the change in fair value is recorded in other income (expense) in the consolidated results of operations. In circumstances where there are multiple embedded instruments that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected within twelve months of the balance sheet date.

 

When the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption and are classified in interest expense in the consolidated results of operations.

 

Intangible assets:  Intangible assets subject to amortization, which principally include proprietary modified-release drug delivery technology, the costs to acquire the rights to Tussionex Abbreviated New Drug Application and patents, are recorded at cost and amortized over the estimated lives of the assets, which primarily range from 10 to 20

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years. The Company estimates that the patents it has filed have a future beneficial value. Therefore, costs associated with filing for its patents are capitalized. Once the patent is approved and commercial revenue realized, the costs associated with the patent are amortized over the useful life of the patent. If the patent is not approved, the costs will be expensed. For new product candidates, patent applications and related expenses are expensed as incurred.

 

Revenue recognition:  Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. The Company makes estimates of the net sales price, including estimates of variable consideration (e.g., savings offers, prompt payment discounts, product returns, wholesaler fees, wholesaler chargebacks and estimated rebates) to be incurred on the selling price of the respective product sales, and recognizes the estimated amount as revenue when it transfers control of the product to its customers (e.g., upon delivery). Variable consideration is determined using either an expected value or a most likely amount method. The estimate of variable consideration is also subject to a constraint such that some or all of the estimated amount of variable consideration will only be included in the transaction price to the extent that it is probable that a significant reversal of revenue (in the context of the contract) will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Estimating variable consideration and the related constraint will require the use of significant management judgment and other market data. The Company provides for prompt payment discounts, wholesaler fees and wholesaler chargebacks based on customer contractual stipulations. The Company analyzes recent product return history and other market data obtained from its third party logistics providers (“3PLs”) to determine a reliable return rate. Additionally, management analyzes historical savings offers and rebate payments based on patient prescriptions dispensed for Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER and information obtained from third party providers to determine these respective variable considerations.

 

The Company sells its generic Tussionex, Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER to a limited number of pharmaceutical wholesalers, all subject to rights of return. Pharmaceutical wholesalers buy drug products directly from manufacturers. Title to the product passes upon delivery to the wholesalers, when the risks and rewards of ownership are assumed by the wholesaler (freight on board destination). These wholesalers then resell the product to retail customers such as food, drug and mass merchandisers.

 

The Company views its operations and manages its business in one operating segment, which is the development, manufacturing and commercialization of pharmaceuticals.

 

Disaggregation of revenue

 

The following table disaggregates the Company’s net product sales by product:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six months ended

 

 

 

June 30, 

 

June 30, 

 

 

    

2019

    

2018

 

2019

    

2018

    

 

 

    (in thousands)

 

Adzenys XR-ODT

 

$

7,241

 

$

6,516

 

$

13,898

 

$

11,508

 

Cotempla XR-ODT

 

 

6,513

 

 

4,342

 

 

12,286

 

 

7,989

 

Adzenys ER

 

 

146

 

 

(28)

 

 

331

 

 

175

 

Generic Tussionex

 

 

1,743

 

 

533

 

 

3,762

 

 

2,420

 

 

 

$

15,643

 

$

11,363

 

$

30,277

 

$

22,092

 

 

 

Net product sales

 

Net product sales represent total gross product sales less gross to net sales adjustments. Gross to net sales adjustments for branded Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER include savings offers, prompt payment discounts, wholesaler fees, estimated rebates to be incurred on the selling price of the respective product sales and estimated allowances for product returns.

 

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Gross to net sales adjustments for generic Tussionex include prompt payment discounts, estimated allowances for product returns, wholesaler fees, estimated government rebates and estimated chargebacks to be incurred on the selling price of generic Tussionex related to the respective product sales.

 

The Company recognizes total gross product sales less gross to net sales adjustments as revenue based on shipments from 3PLs to the Company’s wholesaler customers.

 

Savings offers for branded products

 

The Company offers savings programs for Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER to patients covered under commercial payor plans in which the cost of a prescription to such patients is discounted. The Company records the amount of redeemed savings offers based on information from third-party providers against the estimated discount recorded as accrued expenses. The estimated discount is recorded as a gross to net sales adjustments at the time revenue is recognized.

 

Prompt payment discounts

 

Prompt payment discounts are based on standard programs with wholesalers and are recorded as a discount allowance against accounts receivable and as a gross to net sales adjustments at the time revenue is recognized.

 

Wholesale distribution fees

 

Wholesale distribution fees are based on definitive contractual agreements for the management of the Company’s products by wholesalers and are recorded as accrued expenses and as a gross to net sales adjustment at the time revenue is recognized.

 

Rebates

 

The Company’s branded Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER are subject to commercial managed care and government managed Medicare and Medicaid programs whereby discounts and rebates are provided to participating managed care organizations and federal and/or state governments. Calculations related to rebate accruals of branded products are estimated based on information from third-party providers.

 

The Company’s generic Tussionex product is subject to state government-managed Medicaid programs whereby discounts and rebates are provided to participating state governments. Generic Tussionex government rebates are estimated based upon rebate payment data available from sales of the Company’s generic Tussionex product over the past three years.

 

Estimated rebates are recorded as accrued expenses and as a gross to net sales adjustment at the time revenue is recognized. Historical trends of estimated rebates will be regularly monitored, which may result in adjustments to such estimates in the future.

 

Product returns

 

Wholesalers’ contractual return rights are limited to defective product, product that was shipped in error, product ordered by customer in error, product returned due to overstock, product returned due to dating or product returned due to recall or other changes in regulatory guidelines. The return policy for expired product allows the wholesaler to return such product starting six months prior to expiry date to twelve months post expiry date. Estimated returns are recorded as accrued expenses and as a gross to net sales adjustments at the time revenue is recognized.

 

The Company analyzed recent branded product return history and other market data obtained from the Company’s 3PLs, as well as data available from sales of its branded products, to determine a reliable return rate for branded Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER. Generic Tussionex product returns were estimated based upon return data available from sales of the Company’s generic Tussionex product over the past three years.

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Wholesaler chargebacks for generic product

 

The Company’s generic Tussionex products are subject to certain programs with wholesalers whereby pricing on products is discounted below wholesaler list price to participating entities. These entities purchase products through wholesalers at the discounted price, and the wholesalers charge the difference between their acquisition cost and the discounted price back to the Company. Estimated chargebacks are recorded as a discount allowance against accounts receivable and as a gross to net sales adjustments at the time revenue is recognized based on information provided by third parties.

 

Due to estimates and assumptions inherent in determining the amount of returns, rebates and chargebacks, the actual amount of returns, claims for rebates and chargebacks may be different from the estimates, at which time reserves would be adjusted accordingly. Wholesale distribution fees and the allowance for prompt pay discounts are recorded at the time of shipment and such fees and allowances are recorded in the same period that the related revenue is recognized.

 

Research and development costs:  Research and development costs are charged to operations when incurred and include salaries and benefits, facilities costs, overhead costs, raw materials, laboratory and clinical supplies, clinical trial costs, contract services, fees paid to regulatory authorities for review and approval of the Company’s product candidates and other related costs.

 

Advertising costs: Advertising costs are comprised of print and electronic media placements that are expensed as incurred. There were no advertising costs recognized during the three and six months ended June 30, 2019. The Company recognized advertising costs of $0.2 million and $0.4 million during the three and six months ended June 30, 2018, respectively.

 

Share-based compensation: Share-based compensation awards, including grants of stock options, restricted stock, restricted stock units (“RSUs”) and modifications to existing stock options, are recognized in the statement of operations based on their fair values. Compensation expense related to stock-based awards is recognized on a straight-line basis, based on the grant date fair value, over the requisite service period of the award, which is generally the vesting term. The fair value of the Company’s stock-based awards to employees and directors is estimated using the Black-Scholes option pricing model, which requires the input of subjective assumptions, including (1) the expected stock price volatility, (2) the expected term of the award, (3) the risk-free interest rate and (4) expected dividends.

 

For performance-based stock awards, compensation expense is recognized on a straight-line basis, based on the grant date fair value, over the performance period or through the vesting date, whichever is longer. Management monitors the probability of achievement of the performance conditions and adjusts stock-based compensation expense, if necessary.

 

After the closing of the Company’s IPO, the Company’s board of directors has determined the fair value of each share of underlying common stock based on the closing price of the Company’s common stock as reported by the NASDAQ Global Market on the date of grant.

 

Under ASU No. 2017-09 guidance for accounting for share-based payments, the Company has elected to continue estimating forfeitures at the time of grant and, if necessary, revise the estimate in subsequent periods if actual forfeitures differ from those estimates. Ultimately, the actual expense recognized over the vesting period will only be for those options that vest.

 

Paragraph IV litigation costs: Legal costs incurred by the Company in the enforcement of the Company’s intellectual property rights, are charged to expense as incurred.

 

Income taxes:  Income taxes are accounted for using the liability method, under which deferred taxes are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax laws that will be in effect when the differences are expected to reverse.

 

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Management evaluates the Company’s tax positions in accordance with guidance on accounting for uncertainty in income taxes. Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not that the position will be sustained upon examination. As of June 30, 2019 and December 31, 2018, the Company has unrecognized tax benefits associated with uncertain tax positions in the consolidated financial statements. These uncertain tax positions were netted against net operating losses (NOLs) with no separate reserve for uncertain tax positions required.

 

Deferred tax assets should be reduced by a valuation allowance if current evidence indicates that it is considered more likely than not that these benefits will not be realized. In evaluating the objective evidence that historical results provide, the Company considered that three years of cumulative operating losses was significant negative evidence outweighing projections for future taxable income. Therefore, at June 30, 2019 and December 31, 2018, the Company determined that it is more likely than not that the deferred tax assets will not be realized. Accordingly, the Company has recorded a valuation allowance to reduce deferred tax assets to zero. The Company may not ever be able to realize the benefit of some or all of the federal and state loss carryforwards, either due to ongoing operating losses or due to ownership changes, which limit the usefulness of the loss carryforwards.

 

Recent accounting pronouncements: In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The standard is effective for public entities for the fiscal years ending after December 15, 2020, with early adoption permitted for the removed disclosures and delayed adoption permitted for the new disclosures. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. The Company is currently evaluating the impact of adopting ASU 2018-13 on its consolidated financial statements.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a write-down. The standard is effective for public entities for the fiscal years ending after December 15, 2020, with early adoption permitted through a modified retrospective approach. The Company is currently evaluating the impact of adopting ASU 2016-13 on its consolidated financial statements.

 

In February 2018, the FASB issued ASU No. 2018-02, Income Statement -Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the TCJA, and requires certain disclosures about stranded tax effects. ASU 2018-02 is effective for entities for fiscal years beginning after December 15, 2018 with early adoption permitted, and shall be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the corporate income tax rate in the TCJA is recognized. This standard became effective for the Company on January 1, 2019. The adoption of this standard did not have a material impact on the Company’s consolidated results of operations or financial position.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (the “New Lease Standard”). The New Lease Standard supersedes the lease guidance under FASB Accounting Standards Codification ("ASC") Topic 840, Leases (“Prior GAAP”), resulting in the creation of FASB ASC Topic 842, Leases. Under the new guidance, lessees are required to recognize in the statement of financial position the following for all finance and operating leases (with the exception of short-term leases) at the commencement date: 1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and 2) a right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

 

In January, July and December 2018, the FASB issued additional amendments to the new lease guidance relating to, transition, and clarification. The July 2018 amendment, ASU No. 2018-11, Leases (Topic 842): Targeted

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Improvements, provides an optional transition method that allows entities to elect to apply the standard using the modified retrospective transition method, which did not require the Company to adjust comparative periods.

 

The Company adopted this standard on the effective date of January 1, 2019 and elected to use the modified retrospective transition method approach at transition. Therefore, no adjustments are made to amounts in prior period financial statements.

 

In addition, the Company elected the following practical expedients:

 

1)

the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allows the Company to carry forward the historical lease classification;

 

2)

the land easements practical expedient, which allows the Company to carry forward the accounting treatment for land easements on existing agreements;

 

3)

the short-term lease practical expedient, which allows the Company to exclude short-term leases from recognition in the unaudited consolidated balance sheets; and

 

4)the bifurcation of lease and non-lease components practical expedient, which does not require the Company to bifurcate lease and non-lease components for all classes of assets.

 

The adoption of this accounting standard resulted in the recording of Operating lease ROU assets and Operating lease liabilities of $3.4 million and $4.3 million, respectively, as of January 1, 2019. The difference between the operating lease assets and liabilities was recorded as an adjustment to deferred rent for $0.9 million relating to real estate leases. The adoption of ASU 2016-02 had no impact on Accumulated Deficit.

 

The Company implemented additional internal controls to identify lease contracts and enable the preparation of financial information related to the New Lease Standard. See Note 9 for additional information.

 

From time to time, additional new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

 

 

 

 

Note 3. Net loss per share

 

Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and common share equivalents outstanding for the period. Common stock equivalents are only included when their effect is dilutive. Potentially dilutive securities, which include warrants, outstanding stock options under the stock option plans and shares issuable in future periods, such as RSU awards, have been excluded from the computation of diluted net loss per share as they would be anti-dilutive. For all periods presented, there is no difference in the number of shares used to compute basic and diluted shares outstanding due to the Company’s net loss position. Restricted stock is considered legally issued and outstanding on the grant date, while RSUs are not considered legally issued and outstanding until the RSUs vest. Once the RSUs vest, equivalent common shares will be issued or issuable to the grantee and therefore the RSUs are not considered for inclusion in total common shares issued and outstanding until vested.

 

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The following potentially dilutive securities outstanding as of June 30, 2019 and 2018 were excluded from consideration in the computation of diluted net loss per share of common stock for the three and six months ended June 30, 2019 and 2018, respectively, because including them would have been anti-dilutive:

 

 

 

 

 

 

 

 

 

June 30, 

 

    

2019

    

2018

    

Series C Redeemable Convertible Preferred Stock Warrants (as converted)

 

70,833

 

70,833

 

Stock options outstanding

 

4,528,342

 

3,576,062

 

RSUs outstanding

 

55,626

 

159,064

 

 

 

Note 4. Fair value of financial instruments

 

The Company records financial assets and liabilities at fair value. The carrying amounts of certain financial assets and liabilities including cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued liabilities, approximated their fair value due to their short-term maturities. The remaining financial instruments were reported on the Company’s condensed consolidated balance sheets at amounts that approximate current fair values based on market based assumptions and inputs.

 

As a basis for categorizing inputs, the Company uses a three tier fair value hierarchy, which prioritizes the inputs used to measure fair value from market based assumptions to entity specific assumptions as follows:

 

Level 1:         Unadjusted quoted prices for identical assets in an active market.

 

Level 2:         Quoted prices in markets that are not active or inputs that are observable either directly or indirectly for substantially the full-term of the asset.

 

Level 3:         Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. They reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset.

 

The following table presents the hierarchy for the Company’s financial instruments measured at fair value on a recurring basis for the indicated dates:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value as of June 30, 2019

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

25,007

 

$

750

 

$

 —

 

$

25,757

Short-term investments

 

 

 —

 

 

4,494

 

 

 —

 

 

4,494

Total financial assets

 

$

25,007

 

$

5,244

 

$

 —

 

$

30,251

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnout liability

 

$

 —

 

$

 —

 

$

37

 

$

37

Derivative liability (see Note 8)

 

 

 —

 

 

 —

 

 

1,373

 

 

1,373

Total financial liabilities

 

$

 —

 

$

 —

 

$

1,410

 

$

1,410

 

17

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