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EX-31.2 - EX-31.2 - BioPharmX Corpbpmx-20170731ex3123e3e35.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 July 31, 2017

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. 001-37411

 

BIOPHARMX CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

 

59-3843182

(State or Other Jurisdiction of Incorporation or Organization)

 

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

 

 

 

1505 Adams Drive, Suite D, Menlo Park, California

 

94025

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: 650-889-5020

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting, or a emerging growth company.

 

 

 

 

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 ☒

 

As of August 31, 2017, there were outstanding 79,669,835 shares of the registrant’s common stock, $0.001 par value.

 

 

 

 

 


 

BIOPHARMX CORPORATION

 

Form 10-Q

 

Table of Contents

 

 

 

 

PART I  — Financial Information

 

    

    

 

Item 1 

Condensed Consolidated Financial Statements (unaudited)

3

 

Condensed Consolidated Balance Sheets as of July 31, 2017 and January 31, 2017

3

 

Condensed Consolidated Statement of Operations and Comprehensive Loss for the three and six months ended July 31, 2017 and 2016

4

 

Condensed Consolidated Statement of Cash Flows for the six months ended July 31, 2017 and 2016

5

 

Notes to Condensed Consolidated Financial Statements

6

Item 2 

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

16

Item 3 

Qualitative and Quantitative Disclosures About Market Risk

21

Item 4 

Controls and Procedures

21

 

 

 

PART II  — Other Information

 

 

 

 

Item 1 

Legal Proceedings

21

Item 1A 

Risk Factors

21

Item 2 

Unregistered Sales of Equity Securities and Use of Proceeds

56

Item 3 

Defaults Upon Senior Securities

56

Item 4 

Mine Safety Disclosures

56

Item 5 

Other Information

56

Item 6 

Exhibits

57

 

 

 

SIGNATURES 

59

 

 

2


 

PART I

 

FINANCIAL INFORMATION

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

BioPharmX Corporation

Condensed Consolidated Balance Sheets (unaudited)

(in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

July 31, 

 

January 31, 

 

 

    

2017

    

2017

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,465

 

$

6,501

 

Accounts receivable, net

 

 

 2

 

 

 4

 

Inventories

 

 

20

 

 

38

 

Prepaid expenses and other current assets

 

 

469

 

 

284

 

Total current assets

 

 

4,956

 

 

6,827

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

124

 

 

120

 

Other assets

 

 

154

 

 

154

 

Total assets

 

$

5,234

 

$

7,101

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

2,370

 

$

2,551

 

Accrued expenses and other current liabilities

 

 

1,473

 

 

1,176

 

Total current liabilities

 

 

3,843

 

 

3,727

 

 

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

 

 

Warrant liability

 

 

242

 

 

403

 

Total liabilities

 

 

4,085

 

 

4,130

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Series A convertible preferred stock, $0.001 par value; 10,000,000 shares authorized; 1,515 issued and outstanding as of July 31, 2017 and January 31, 2017

 

 

1,515

 

 

1,515

 

Common stock, $0.001 par value; 450,000,000 shares authorized; 79,669,835 and 67,719,577 shares issued and outstanding as of July 31, 2017 and January 31, 2017, respectively

 

 

80

 

 

68

 

Additional paid-in capital

 

 

53,330

 

 

46,026

 

Accumulated deficit

 

 

(53,776)

 

 

(44,638)

 

Total stockholders' equity

 

 

1,149

 

 

2,971

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

5,234

 

$

7,101

 

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

 

3


 

BioPharmX Corporation

Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)

(in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

 

July 31, 

 

July 31, 

 

 

 

2017

 

2016

 

2017

 

2016

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Revenues, net

 

$

17

 

$

19

 

$

36

 

$

52

 

Cost of goods sold

 

 

 9

 

 

17

 

 

20

 

 

37

 

Gross margin

 

 

 8

 

 

 2

 

 

16

 

 

15

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

2,413

 

 

2,973

 

 

5,354

 

 

5,146

 

Sales and marketing

 

 

586

 

 

895

 

 

1,383

 

 

2,002

 

General and administrative

 

 

1,280

 

 

1,169

 

 

2,583

 

 

2,362

 

Total operating expenses

 

 

4,279

 

 

5,037

 

 

9,320

 

 

9,510

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(4,271)

 

 

(5,035)

 

 

(9,304)

 

 

(9,495)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of warrant liability

 

 

525

 

 

 —

 

 

161

 

 

 —

 

Other income

 

 

 5

 

 

 1

 

 

 6

 

 

 2

 

Loss before income taxes

 

 

(3,741)

 

 

(5,034)

 

 

(9,137)

 

 

(9,493)

 

Provision for income taxes

 

 

 —

 

 

 —

 

 

 1

 

 

 2

 

Net loss and comprehensive loss

 

$

(3,741)

 

$

(5,034)

 

$

(9,138)

 

$

(9,495)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share

 

$

(0.05)

 

$

(0.18)

 

$

(0.13)

 

$

(0.35)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in computing basic and diluted net loss per share

 

 

74,357,000

 

 

28,674,000

 

 

71,069,000

 

 

27,459,000

 

 

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

 

4


 

BioPharmX Corporation

Condensed Consolidated Statements of Cash Flows (unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Six months ended

 

 

 

July 31, 

 

 

 

2017

 

2016

 

Cash flows from operating activities:

    

 

 

    

 

 

 

Net loss

 

$

(9,138)

 

$

(9,495)

 

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

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

951

 

 

697

 

Depreciation expense

 

 

24

 

 

33

 

Amortization expense

 

 

 

 

15

 

Change in fair value of warrant liability

 

 

(161)

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

 2

 

 

 6

 

Inventories

 

 

18

 

 

(12)

 

Prepaid expenses and other assets

 

 

(185)

 

 

(155)

 

Accounts payable

 

 

(181)

 

 

1,639

 

Accrued expenses and other liabilities

 

 

297

 

 

82

 

Net cash used in operating activities

 

 

(8,373)

 

 

(7,190)

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(28)

 

 

(21)

 

Net cash used in investing activities

 

 

(28)

 

 

(21)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

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

 

 

6,355

 

 

3,583

 

Proceeds from exercises of stock options

 

 

10

 

 

25

 

Net cash provided by financing activities

 

 

6,365

 

 

3,608

 

Net decrease in cash and cash equivalents

 

 

(2,036)

 

 

(3,603)

 

Cash and cash equivalents at beginning of period

 

 

6,501

 

 

4,039

 

Cash and cash equivalents at end of period

 

$

4,465

 

$

436

 

 

 

 

 

 

 

 

 

 

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

 

5


 

BIOPHARMX CORPORATION

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Description of Business

 

BioPharmX Corporation (the “Company”) is incorporated under the laws of the state of Delaware and originally incorporated on August 30, 2010 in Nevada under the name Thompson Designs, Inc. The Company has one wholly-owned subsidiary, BioPharmX, Inc., a Nevada corporation. The Company is a specialty pharmaceutical company focused on utilizing its proprietary drug delivery technologies to develop and commercialize novel prescription and over-the-counter, or OTC, products that address large markets in dermatology and women’s health. The Company’s objective is to develop products that treat health or age-related conditions that (1) are not presently being addressed or treated at all or (2) are currently treated with drug therapies or drug delivery approaches that are suboptimal. The Company’s strategy is designed to bring new products to market by identifying optimal delivery mechanisms and/or alternative applications for FDA-approved active pharmaceutical ingredients, or APIs, and biological materials, while, in appropriate circumstances, reducing the time, cost and risk typically associated with new product development by repurposing drugs with demonstrated safety profiles and, when applicable, taking advantage of the regulatory approval pathway under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act. The Company believes these approaches may reduce drug development risk and could reduce the time and resources it spends during development.  Its current platform technologies include innovative delivery mechanisms for antibiotics, biologic materials and molecular iodine (I2).

Since the Company’s inception, substantially all of the Company’s efforts have been devoted to developing its product candidates, including conducting preclinical and clinical trials, and providing general and administrative support for its operations. The Company commercially launched its breast health supplement at the end of 2014, although to-date the Company has not generated significant revenue from product sales. The Company is not dependent on sales to any one customer. The Company has financed its operations primarily through the sale of equity and convertible debt securities.  In April and July 2017, the Company raised net proceeds of $4.4 million and $1.9 million, respectively, in registered direct offerings.

 

Basis of Presentation and Principles of Consolidation

 

These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting and include the accounts of the Company and its subsidiary. Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended January 31, 2017, filed on April 21, 2017. The condensed consolidated balance sheet as of January 31, 2017, included herein, was derived from the audited consolidated financial statements as of that date.

 

The unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary and have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Company’s statement of financial position as of July 31, 2017 and January 31, 2017, and the Company’s results of operations and its cash flows for the three and six months ended July 31, 2017 and 2016.  The results for the three and six months ended July 31, 2017 are not necessarily indicative of the results to be expected for the year ending January 31, 2018 or any future period.

 

Use of Estimates

 

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

6


 

 

Inventories

 

Inventories are stated at the lower of cost or net realizable value. Cost is determined using the standard cost method which approximates actual cost on a first-in, first-out basis. Market value is determined as the lower of replacement cost or net realizable value. The Company regularly reviews inventory quantities in consideration of actual loss experiences, projected future demand and remaining shelf life to record a provision for inventory, which may have become obsolete or are in excess of anticipated demand or net realizable value. If future demand or market conditions for the products are less favorable than forecasted, the Company may be required to record additional write-downs, which would negatively affect its results of operations in the period when the write-downs were recorded.

The Company must order components for its products and build inventory in advance of product shipments. The Company has a purchase commitment relating to the manufacturing of VI2OLET finished product (iodine supplement tablets), which is non-cancelable as detailed in Note 5. The Company assesses its purchase commitment based on demand forecasts and establishes a liability for quantities deemed in excess of these forecasts.

Impairment of Long-Lived Assets

 

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. When such an event occurs, management determines whether there has been an impairment by comparing the anticipated undiscounted future net cash flows to the related asset’s carrying value. If an asset is considered impaired, the asset is written down to fair value, which is determined based either on discounted cash flows or appraised value, depending on the nature of the asset. The Company did not identify any impairment losses for the three and six months ended July 31, 2017.

 

Advertising Expenses

 

The Company expenses the costs of advertising, including promotional expenses, as incurred. Advertising expenses were approximately $4,000 and $59,000 for the three months ended July 31, 2017 and 2016, respectively. Advertising expenses were approximately $19,000 and $278,000 for the six months ended July 31, 2017 and 2016, respectively.

 

Net Loss per Share

 

Basic net loss per share attributable to common stockholders is calculated based on the weighted-average number of shares of the Company’s common stock outstanding during the period. The weighted-average shares outstanding for the three and six months ended July 31, 2017 and 2016 excludes 193,333 shares of unvested common stock. Diluted net loss per share attributable to common stockholders is calculated based on the weighted-average number of shares of the Company’s common stock outstanding and other dilutive securities outstanding during the period. The potential dilutive shares of common stock resulting from the assumed exercise of outstanding stock options, warrants, the assumed conversion of preferred stock and release of restrictions on common stock are determined under the treasury stock method.

 

As of July 31, 2017 and 2016, approximately 57,142,000 and 10,002,000 potentially dilutive securities, respectively, were excluded from the computation of diluted loss per share because their effect on net loss per share would be anti-dilutive.

 

Warrant Liability

 

The Company accounts for certain of its warrants as derivative liabilities based on provisions relating to cash settlement options.  The Company recorded a liability for the fair value of the warrants at the time of issuance, and at each reporting date the warrants are revalued to the instrument’s fair value. The fair value of the warrants are estimated using the Black-Scholes pricing model. This liability is subject to fair value re-measurement until the warrants are exercised or expired, and any change in fair value is recognized as other income or expense in the condensed consolidated statements of operations and comprehensive loss.

7


 

Summary of Significant Accounting Policies

 

These unaudited interim condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual financial statements and notes thereto contained in the Annual Report on Form 10-K for the fiscal year ended January 31, 2017. There have been no significant changes in the Company’s significant accounting policies for the three and six months ended July 31, 2017, as compared to the significant accounting policies described in the Annual Report on Form 10-K for the fiscal year ended January 31, 2017.

 

Recent Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases, which requires entities to recognize assets and liabilities for leases with lease terms greater than twelve months. The new guidance also requires quantitative and qualitative disclosures regarding the amount, timing and uncertainty of cash flows arising from leases. The standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted upon issuance. The Company is in the process of evaluating the impact of adoption of this standard on its condensed consolidated financial statements.

 

In May 2014, as part of its ongoing efforts to assist in the convergence of US GAAP and International Financial Reporting Standards, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in US GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance. The ASU provides alternative methods of initial adoption and is effective for annual and interim periods beginning after December 15, 2017. The FASB has issued several updates to the standard which i) defer the original effective date, while allowing for early adoption (ASU 2015-14); ii) clarify the application of the principal versus agent guidance (ASU 2016-08); iii) clarify the guidance on inconsequential and perfunctory promises and licensing (ASU 2016-10); and clarify the guidance on certain sections of the guidance providing technical corrections and improvements (ASU 2016-10). In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606) Narrow-Scope Improvements and Practical Expedients”, to address certain narrow aspects of the guidance including collectability criterion, collection of sales taxes from customers, noncash consideration, contract modifications and completed contracts. This issuance does not change the core principle of the guidance in the initial topic issued in May 2014. The Company is currently evaluating the impact that this standard will have on our condensed consolidated financial statements

 

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This amendment gives guidance and reduces diversity in practice with respect to certain types of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements.  

The Company has reviewed other recent accounting pronouncements and concluded they are either not applicable to the business, or no material effect is expected on the consolidated financial statements as a result of future adoption.  

2. GOING CONCERN

 

The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern and will continue to conduct operations for the foreseeable future and realize assets and discharge liabilities in the ordinary course of operations. As of July 31, 2017, the Company had cash and cash equivalents of $4.5 million and working capital of $1.1 million.

 

The Company has incurred recurring losses and negative cash flows from operations since inception and has funded its operating losses through the sale of common stock, preferred stock, warrants to purchase common stock and the

8


 

issuance of convertible notes. The Company incurred a net loss of $3.7 million and $5.0 million for the three months ended July 31, 2017 and 2016, respectively, and had an accumulated deficit of $53.8 million as of July 31, 2017.  Net loss for the six months ended July 31, 2017 and 2016 was $9.1 million and $9.5 million, respectively.

The Company has a limited operating history and its prospects are subject to risks, expenses and uncertainties frequently encountered by companies in its industry. The Company continues its research and development efforts for its product candidates, which will require significant funding. If the Company is unable to obtain additional financing in the future or research and development efforts require higher than anticipated capital, there may be a negative impact on the financial viability of the Company.  The Company plans to increase working capital by managing its cash flows and expenses and raising additional capital through either private or public equity or debt financing. There can be no assurance that such financing will be available or on terms which are favorable to the Company. While management of the Company believes that it has a plan to fund ongoing operations, there is no assurance that its plan will be successfully implemented. Failure to generate sufficient cash flows from operations, raise additional capital through one or more financings, or reduce certain discretionary spending could have a material adverse effect on the Company’s ability to achieve its intended business objectives. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not contain any adjustments that might result from the resolution of any of the above uncertainties.

3. FAIR VALUE MEASUREMENTS

 

The Company recognizes and discloses the fair value of its assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). Each level of input has different levels of subjectivity and difficulty involved in determining fair value.

 

·

Level 1—Inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the reporting date.

 

·

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

 

·

Level 3— Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

 

As of July 31, 2017 and January 31, 2017, the Company held $1.4 million and $5.5 million, respectively, in money market funds, which are classified as Level 1 within the fair value hierarchy. No unrealized gains or losses are recorded in connection with these amounts. 

 

The fair value of the warrant liability was classified as a Level 3 liability, as the Company uses unobservable inputs to value it.  The table below presents the activity within Level 3 of the fair value hierachy (in thousands):

 

 

 

 

 

    

Warrant Liability

Balance as of January 31, 2017

$

403

Change in fair value of warrants

 

364

Balance as of April 30, 2017

 

767

Change in fair value of warrants

 

(525)

Balance as of July 31, 2017

$

242

 

 

9


 

4. BALANCE SHEET DETAILS

 

 

 

 

 

 

 

 

 

 

 

July 31, 

 

January 31, 

 

   

    

2017

    

2017

 

   

 

(in thousands)

 

Inventories:

 

 

 

 

 

 

 

Work in process

 

$

8

 

$

23

 

Finished goods

 

 

8

 

 

 8

 

Channel inventory

 

 

4

 

 

 7

 

   

 

$

20

 

$

38

 

 

 

 

5. COMMITMENTS AND CONTINGENCIES

 

Commitments

 

The following table summarizes the Company’s commitments as of July 31, 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Total

    

2018

    

2019

    

2020

    

2021

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease

 

$

256

 

$

256

 

$

 

$

 

$

 

 

Purchase commitment

 

 

1,053

 

 

264

 

 

263

 

 

263

 

 

263

 

 

Total

 

$

1,309

 

$

520

 

$

263

 

$

263

 

$

263

 

 

 

On December 14, 2016, the Company signed a lease for 12,066 square feet of office and laboratory space in Menlo Park, California. The lease expires in December 2017. Rent expense for the three months ended July 31, 2017 and 2016 was approximately $154,000 and $86,000, respectively. Rent expense for the six months ended July 31, 2017 and 2016 was approximately $299,000 and $172,000, respectively.

The purchase commitment relates to the manufacturing of VI2OLET finished product (iodine supplement tablets) and is non-cancelable. The Company assesses its purchase commitments based on demand forecasts and establishes a liability for quantities deemed in excess of these forecasts. During the year ended January 31, 2017, the Company recorded a charge of approximately $343,000 as its demand forecast indicated such inventory was deemed excess. The Company continues to pursue additional channel distribution expansion for VI2OLET by way of partnerships and/or sublicense with women’s health and/or consumer companies.  The expected increase in demand generated from these partnerships is included in the Company’s demand forecast. If the Company is unsuccessful in securing such partnerships or sublicensee, it is possible that a loss contingency related to the excess purchase commitments will be required to record additional write-downs, which would negatively affect its results of operations in the period when the write-downs were recorded.

Legal Proceedings

 

The Company is not a party to any material legal proceeding that the Company believes is likely to have a material adverse effect on its consolidated financial position or results of operations. From time to time the Company may be subject to legal proceedings and claims in the ordinary course of business. These claims, even if not meritorious, could result in the expenditure of significant financial resources and diversion of management efforts.

 

Indemnification

 

The Company enters into standard indemnification arrangements in the ordinary course of business. Pursuant to these arrangements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third-party with respect to the Company’s technology. The term of these indemnification agreements is generally perpetual. The maximum potential amount of future payments the Company could be required to make under these agreements is not determinable because it involves claims that may be made against the Company in the future, but have not yet been made.

 

10


 

The Company has entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct of the individual. The Company has not incurred costs to defend lawsuits or settle claims related to these indemnification agreements. No liability associated with such indemnifications has been recorded to date.

 

License Agreement

 

In March 2013, the Company entered into an amended and restated collaboration and license agreement with Iogen LLC, which provides the Company with a license to certain rights to label, market, and resell the finished inventory and ongoing manufacturing of the Iogen molecular iodine technology for future product formulation development and commercialization. New formulation patents developed by the Company will be solely owned by the Company. The agreement gives the Company a perpetual, fully paid-up, exclusive license to make, have made, use, sell and offer for sale and import products.

 

Pursuant to the terms of the license, the Company must pay:

 

·

a fee for the exclusive license to the IP.

 

·

30% of net profit associated with direct commercialization of an OTC product or 30% of net royalties received from any sub-licensee.

 

·

a royalty of 3% of net sales for the first 24 months of commercialization and 2% of net sales thereafter for a prescription iodine tablet developed and commercialized under the license.

 

·

a royalty of 3% of net sales for the first 12 months of commercialization for other products developed and commercialized under the license and 2% of net sales thereafter until expiration of applicable patents covering such products and 1% thereafter.

 

·

a fixed royalty fee for the protection and indemnification of licensed intellectual property right (“IP rights”) for the prescription product developed, marketed and sold from newly developed formulations as long as the patents are valid and cover the prescription product.

 

·

a fixed royalty fee for the protection and indemnification of licensed IP rights for the other products utilizing the molecular iodine technology developed, marketed and sold from newly developed formulations as long as the patents are valid and cover the prescription product.

 

No royalties have been paid as of July 31, 2017.

 

6. CONVERTIBLE REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY 

 

Common Stock

 

Pursuant to a subscription agreement dated October 24, 2014, Korea Investment Partners Overseas Expansion Platform Fund (“KIP”), an existing stockholder, agreed to purchase 1,081,081 shares of common stock from the Company at a price of $1.85 per share in a private placement (the “KIP private placement”) upon the earlier to occur of (i) the Company receiving revenues from VI2OLET of $2,000,000 or (ii) receipt by the Company of approval to list on any tier of the NYSE or Nasdaq stock market at a market price of at least $3.70 per share. In addition, KIP has previously informed the Company of its intention to complete the KIP private placement even if the Company’s stock price was not at least $3.70 per share. As of the date of this report, this private placement has not closed, and the Company does not expect the private placement to close. As consideration for Ping Wang’s service as a director of the Company (Mr. Wang is no longer a director of the Company), 290,000 shares of the Company’s common stock were issued, of which 96,667 shares vested immediately and 193,333 shares will vest immediately upon completion of the $2.0 million investment. The Company does not expect these shares to vest.

In December 2015, the Company sold 4,100,000 shares of common stock at a price per share of $1.43 resulting in net proceeds of $5.5 million in a private placement to investment funds managed by Franklin Advisers. For a period of

11


 

five years, Franklin Advisers has the right to purchase up to an aggregate of 20% of the securities offered by the Company in any subsequent private placement.

In April 2016, the Company issued 3,600,000 shares of common stock at a price per share of $1.195 resulting in net proceeds of $3.6 million and warrants to purchase 1,952,000  shares of common stock in a public offering. These warrants have an exercise price of $1.20 per share and expire on April 1, 2021. As of July 31, 2017, all of these warrants were outstanding.

In August 2016, the Company issued 2,423,077 shares of common stock at a price per share of $0.65 resulting in net proceeds of $1.3 million in a private offering.

On August 17, 2016, the Company issued a secured convertible promissory note (“Secured Note”) in the principal amount of $1.0 million.  The Secured Note included a term to maturity of 36 months and an interest rate of 10% per annum.  On August 17, 2016, the Company issued an unsecured convertible promissory note (“Unsecured Note”) in the principal amount of $0.5 million.  The Unsecured Note included a term to maturity of 6 months and an interest rate of 10% per annum.  Both the Secured Note and Unsecured Note (together, “Notes”) were convertible into the Company’s common stock at a conversion price of $0.80 per share.  Upon issuance of the Notes, debt discounts of approximately $88,000 resulting from a beneficial conversion feature and debt issuance costs of approximately $16,000 were recorded and expensed to interest expense when converted to common stock.  Pursuant to the conversion features included in the Notes, the Notes’ principal amount and unpaid accrued interest automatically converted into 1,926,711 shares of common stock immediately prior to the completion of the Company’s public offering on November 28, 2016.

In September 2016, the Company issued 1,550,000 shares of common stock at a price per share of $0.60 resulting in net proceeds of $0.8 million and warrants to purchase 1,286,501 shares of common stock in a registered direct offering.  These warrants have an exercise price of $0.80 per share and expire in five years. As of July 31, 2017, all of these warrants were outstanding. For a period of eighteen months, investors in this offering have the right to purchase up to 50% of the securities offered by the Company in any subsequent financing.

In November 2016, the Company issued 31,489,429 shares of common stock at a price per share of $0.35, 1,515 shares of Series A convertible preferred stock at a price per share of $1,000 and warrants to purchase 31,499,725 shares of common stock in a public offering resulting in net proceeds of $10.6 million. In December 2016, the underwriters exercised their option to purchase an additional 1,390,676 shares of common stock to cover over-allotments resulting in net proceeds of $0.4 million. As of July 31, 2017, all of these warrants were outstanding.

 

In April 2017, the Company issued 6,410,258 shares of common stock at a price per share of $0.78 resulting in net proceeds of $4.4 million and warrants to purchase 3,365,385 shares of common stock in a registered direct offering. These warrants have an exercise price of $0.90 per share and expire in five years.  As of July 31, 2017, all of these warrants were outstanding.

 

In July 2017, the Company issued 5,500,000 shares of common stock at a price per share of $0.36 resulting in net proceeds of $1.9 million in a registered direct offering.  For a period of two months, certain investors in this offering have the right to purchase up to 5% of the securities offered by the Company in any public offering of common stock.

 

Series A Convertible Redeemable Preferred Stock

 

In March and April 2015, the Company amended certain of the warrants issued in connection with the Series A preferred stock financing to reduce the exercise price of such warrants from $3.70 to $2.50 per share with a corresponding increase in the number of shares of common stock exercisable under the warrants so that the aggregate exercise value of such warrants remained the same. As of January 31, 2017, certain holders had exercised such warrants for an aggregate of 564,662 shares of common stock for an aggregate cash exercise price of  $1,411,655.  The Company recorded a charge for the incremental fair value of $436,000 in other expense related to the amended warrants in the first quarter of fiscal year 2016. The fair value of the warrants exercised was computed as of the date of modification using the following assumptions: dividend rate of 0%, risk-free rate of 1.6%, contractual term of four to five years and expected volatility of 85.9%.  As of July 31, 2017, of the warrants issued in connection with the Series A preferred stock financing, warrants to purchase 1,661,055 shares of common stock remain outstanding.

 

Pursuant to the Certificate of Elimination filed with the Secretary of State of the State of Delaware on March 17, 2016, all shares of Series A preferred stock previously designated were returned to the status of authorized but unissued

12


 

shares of preferred stock, without designation as to series or rights, preferences, privileges or limitations. As of July 31, 2017 and January 31, 2017, there were 10,000,000 shares of Series A convertible redeemable preferred stock authorized and none were outstanding.

 

Series A Convertible Preferred Stock

In November 2016, the Company issued 1,515 shares of Series A convertible preferred stock (“Preferred Stock”), which included warrants to purchase 3,246,429 shares of common stock. The Preferred Stock had a purchase price of $1,000 per share and are convertible into common stock at a conversion rate of $0.35 per share.  For the first 18 months after issuance, the Preferred Stock are immediately convertible at the option of the holder up to the holder’s pro rata share of 19.99% of the Company’s common stock outstanding at the time of conversion.  After the first 18 months after issuance, the ownership limitation expires and, at the option of the holder, the Preferred Stock can be converted into common stock. The Preferred Stock contained a beneficial conversion feature valued at $0.1 million, which was recorded as a deemed dividend at the time of issuance, which was considered to be the earliest time of conversion. As of July 31, 2017, all the Preferred Stock and related warrants remain outstanding.

Warrants

 

In addition to the warrants issued in conjunction with the Series A preferred stock subscription agreements, the Company issued warrants on May 15, 2014, to a service provider for 316,395 shares of common stock at an exercise price of $2.035 per share, which were valued at $99,000 and expensed. As of July 31, 2017, all of these warrants were still outstanding. On May 14, 2014, the Company also issued warrants valued at $105,000 for 343,559 shares of common stock at an exercise price of $1.85 per share to a qualified investor as a part of his convertible loan package. These warrants expire five years after the date of issuance.  These warrants were immediately exercisable, and in June 2015, a portion of the warrants were exercised for 54,054 shares of common stock.  As of July 31, 2017, warrants exercisable for 289,505 shares of common stock remain outstanding.

 

In connection with the offering completed in June 2015, warrants to purchase 109,091 shares of common stock were issued to the underwriters at the public offering price of $2.75 per share.  These warrants expire five years after the date of issuance.  As of July 31, 2017, all of these warrants were outstanding.

 

In connection with the sale of common stock in April 2016, warrants to purchase 1,952,000 shares of common stock were issued at an exercise price of $1.20 per share.  As of July 31, 2017, all of these warrants were outstanding.

 

In connection with the sale of common stock in September 2016, warrants to purchase 1,286,501 shares of common stock were issued at an exercise price of $0.80 per share.  As of July 31, 2017, all of these warrants were outstanding. These warrants included a cash settlement option requiring the Company to record a liability for the fair value of the warrants at the time of issuance and at each reporting period with any change in the fair value reported as other income or expense.  At the time of issuance, approximately $566,000 was recorded as a warrant liability.  To value the warrant liability, the Company used the Black-Scholes pricing model with the following assumptions: risk-free interest rate of 1.1%, contractual term of 5 years, expected volatility of 95.8% and a dividend rate of 0%.  As of July 31, 2017, the fair value of the warrant liability was approximately $242,000 and was included as a long-term liability.

 

In connection with the sale of common stock in November 2016, warrants to purchase 31,499,725 shares of common stock were issued at exercise prices ranging from $0.33 to $0.44 and expire five to seven years from the date of exercisability.  As of July 31, 2017, all of these warrants were outstanding.

Equity Incentive Plan

 

On July 5, 2016, the Company adopted the 2016 Equity Incentive Plan (“2016 Plan”), which permits the Company to grant equity awards to directors, officers, employees and consultants. In connection with the adoption of the 2016 Plan, the Company ceased to grant equity awards under its 2014 Equity Incentive Plan (“2014 Plan”), which was adopted on January 23, 2014. All grants and awards under the 2014 Plan, including stock options previously issued under BioPharmX, Inc.’s 2011 Equity Incentive Plan that were substituted with stock options issued under the 2014 Plan, remain in effect in accordance with their terms. Stock options generally vest in one to four years and expire ten years from the date of grant.  In March 2017, the 2016 Plan was amended and the shares reserved for issuance was increased by 20,000,000 shares to a total of 24,000,000 shares.  The 2014 Plan and 2016 Plan are referred to collectively as the “Plans.”

13


 

 

The following table summarizes the Company’s stock option activities under the Plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

Remaining

 

Aggregate

 

 

 

Available for

 

 

 

Exercise

 

Contractual

 

Intrinsic

 

 

    

Grant

    

Shares

    

Prices

    

Life

    

Value

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Balance at February 1, 2017

 

252,379

 

6,465,829

 

$

0.77

 

8.77

 

$

238

 

Shares authorized for issuance

 

20,000,000

 

 —

 

 

 

 

 

 

 

 

 

Granted

 

(5,095,000)

 

5,095,000

 

$

0.73

 

 

 

 

 

 

Balance at April 30, 2017

 

15,157,379

 

11,560,829

 

$

0.75

 

9.16

 

$

2,062

 

Granted

 

(50,000)

 

50,000

 

$

0.46

 

 

 

 

 

 

Exercised

 

 —

 

(40,000)

 

$

0.25

 

 

 

 

 

 

Cancelled and expired under the 2014 Plan

 

 —

 

(62,000)

 

$

1.62

 

 

 

 

 

 

Cancelled under the 2016 Plan

 

28,000

 

(28,000)

 

$

0.62

 

 

 

 

 

 

Balance at July 31, 2017

 

15,135,379

 

11,480,829

 

$

0.75

 

8.93

 

$

22

 

Vested and exercisable

 

 

 

3,273,177

 

$

0.90

 

7.63

 

$

15

 

Vested and expected to vest

 

 

 

10,316,469

 

$

0.76

 

8.87

 

$

22

 

 

Inducement Grants

 

The Company has also awarded inducement option grants to purchase common stock to new employees outside of the 2016 Plan as permitted under Section 711(a) of the NYSE MKT Company Guide. Such options vest at the rate of 25% of the shares on the first anniversary of the commencement of such employee’s employment with the Company, and then one forty-eighth (1/48) of the shares monthly thereafter subject to such employee’s continued service.  The following table summarizes the Company’s inducement grant stock options:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Average

 

Remaining

 

 

 

 

 

 

 

 

Exercise

 

Contractual

 

Aggregate

 

 

    

Shares

    

Prices

    

Life

    

Intrinsic Value

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Balance at July 31, 2017

 

660,000

 

$

1.44

 

8.22

 

$

 —

 

Vested and exercisable

 

286,041

 

$

1.44

 

8.20

 

$

 —

 

Vested and expected to vest

 

619,577

 

$

1.44

 

8.22

 

$

 —

 

 

There was no activity related to these inducement grant stock options during the quarters ended April 30, 2017 and July 31, 2017.

 

The following table summarizes significant ranges of outstanding and exercisable options as of July 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options Outstanding

 

Options Vested and Exercisable

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

Weighted

 

 

 

Weighted

 

 

 

 

 

Remaining

 

Average

 

Number

 

Average

 

 

 

Number

 

Contractual

 

Exercise

 

Vested and

 

Exercise

 

Range of Exercise Prices

    

Outstanding

    

Life (in Years)

    

Prices

    

Exercisable

    

Prices

 

$0.20 - $0.35

 

618,108

 

6.20

 

$

0.31

 

555,606

 

$

0.32

 

$0.36 - $0.65

 

4,283,667

 

9.13

 

$

0.53

 

1,313,834

 

$

0.59

 

$0.66 - $1.09

 

5,649,054

 

9.37

 

$

0.76

 

680,094

 

$

0.86

 

$1.10 - $1.85

 

1,490,000

 

7.61

 

$

1.67

 

909,684

 

$

1.69

 

$1.86 - $3.00

 

100,000

 

7.75

 

$

3.00

 

100,000

 

$

3.00

 

 

 

12,140,829

 

8.89

 

$

0.79

 

3,559,218

 

$

0.95

 

 

The total intrinsic value of stock options exercised during each of the three and six months ended July 31, 2017 was approximately $4,000.  The total intrinsic value of stock options exercised during the three and six months ended July 31, 2016 was approximately $5,000 and $39,000, respectively. 

14


 

 

7. STOCK-BASED COMPENSATION

 

The following table summarizes the stock-based compensation expenses included in the condensed consolidated statement of operations and comprehensive loss (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the six months ended

 

 

 

July 31, 

 

July 31, 

 

 

    

2017

    

2016

    

2017

    

2016

 

Research and development

 

$

158

 

$

129

 

$

266

 

$

205

 

Sales and marketing

 

 

109

 

 

98

 

 

191

 

 

182

 

General and administrative

 

 

299

 

 

197

 

 

494

 

 

310

 

Total

 

$

566

 

$

424

 

$

951

 

$

697

 

 

The Company estimates the fair value of stock options granted using the Black-Scholes pricing model. This model also requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. For employee grants, the fair value is amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. As of July 31, 2017, total compensation costs related to unvested, but not yet recognized, stock-based awards was $4.1 million, net of estimated forfeitures. This cost will be amortized on a straight-line basis over a weighted average remaining period of 2.98 years and will be adjusted for subsequent changes in estimated forfeitures.

 

Valuation Assumptions

 

During the three and six months ended July 31, 2017, the grant date fair value of stock options granted was $0.41 and $0.56 per share, respectively.  The following assumptions were used to calculate the estimated fair value of awards granted to employees and non-employees for the periods ended:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

For the six months ended

 

 

 

 

July 31, 

 

 

July 31, 

 

 

 

    

2017

    

2016

    

 

2017

    

2016

 

    

Expected volatility

 

96.7%

 

97.0% - 98.6%

 

 

95.5% - 96.8%

 

97.0% - 98.6%

 

 

Expected term in years

 

9.9

 

6.5

 

 

6.0 - 9.9

 

6.5

 

 

Risk-free interest rate

 

2.29%

 

1.14% - 1.28%

 

 

1.80% - 2.29%

 

1.14% - 1.28%

 

 

Expected dividend yield

 

 —

 

 —

 

 

 —

 

 —

 

 

 

Expected Term

 

The expected term represents the period that the Company’s stock-based awards are expected to be outstanding. For awards granted subject only to service vesting requirements, the Company utilizes the simplified method for estimating the expected term of the stock-based award, instead of historical exercise data.

 

Expected Volatility

 

The Company uses the historical volatility of the price of shares of common stock of selected public companies, including the Company’s stock price, in the biotechnology sector due to its limited trading history.

 

Risk-Free Interest Rate

 

The Company bases the risk-free interest rate used in the Black-Scholes pricing model upon the implied yield curve currently available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term used as the assumption in the model.

 

Expected Dividend

 

The Company has never paid dividends on its shares of common stock and currently does not intend to do so and, accordingly, the dividend yield percentage is zero for all periods.

15


 

 

8. INCOME TAXES

 

The Company evaluates its ability to recover deferred tax assets, in full or in part, by considering all available positive and negative evidence, including past operating results and its forecast of future taxable income on a jurisdictional basis. The Company bases its estimate of current and deferred taxes on the tax laws and rates that are currently in effect in the appropriate jurisdiction. Changes in laws or rates may affect the tax provision as well as the amount of deferred tax assets or liabilities.

 

Current tax laws impose substantial restrictions on the utilization of net operating loss and credit carry-forwards in the event of an “ownership change,” as defined by the Internal Revenue Code. If there should be an ownership change, the Company’s ability to utilize its carry-forwards could be limited.

 

As of July 31, 2017 and January 31, 2017, the Company has not recorded any liability for unrecognized tax benefits related to uncertain tax positions. The 2010 to 2017 tax years remain open for examination by the federal and state authorities.

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This Quarterly Report on Form 10-Q and other written reports and oral statements made from time to time by the Company may contain so-called “forward-looking statements,” all of which are subject to risks and uncertainties. One can identify these forward-looking statements by their use of words such as “expect,” “plan,” “will,” “may,” “anticipate,” “believe,” “estimate,” “should,” “intend,” “forecast,” “project” the negative or plural of these words, and other comparable terminology. One can identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address the Company’s growth strategy, financial results and product and development programs. One must carefully consider any such statement and should understand that many factors could cause actual results to differ from the Company’s forward-looking statements. These factors include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed and actual future results may vary materially. The Company does not assume the obligation to update any forward-looking statement. One should carefully evaluate such statements in light of factors described in the Company’s filings with the SEC, especially the Company’s Annual Report on Form 10-K and the Company’s Quarterly Reports on Form 10-Q. In various filings, the Company has identified important factors that could cause actual results to differ from expected or historic results. One should understand that it is not possible to predict or identify all such factors. Consequently, the reader should not consider any such list to be a complete list of all potential risks or uncertainties.

 

The following discussion is presented on a consolidated basis and analyzes our financial condition and results of operations for the three and six months ended July 31, 2017 and 2016. Unless the context indicates or suggests otherwise, reference to “we”, “our”, “us” and the “Company” in this section refers to the consolidated operations of BioPharmX Corporation, as defined in Note 1 —Description of Business.

 

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, is intended to help the reader understand our results of operations and financial condition. MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes to the financial statements and other disclosures included in this Quarterly Report on Form 10-Q. Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles and are presented in U.S. dollars.

 

Overview

 

We are a specialty pharmaceutical company focused on utilizing our proprietary drug delivery technologies to develop and commercialize novel prescription and over‑the‑counter, or OTC, products that address large markets in dermatology and women’s health. Our objective is to develop products that treat health or age‑related conditions that: (1) are not presently being addressed or treated or (2) are currently treated with drug therapies or drug delivery approaches that are sub‑optimal. Our strategy is designed to bring new products to market by identifying optimal delivery mechanisms and/or alternative applications for United States Food and Drug Administration, or FDA, approved active pharmaceutical ingredients, or APIs, and biological materials, while, in appropriate circumstances, reducing the

16


 

time, cost and risk typically associated with new product development by repurposing drugs with demonstrated safety profiles and, when applicable, taking advantage of the regulatory approval pathway under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, or FDC Act. Section 505(b)(2) permits an applicant for a new product, such as a new or improved formulation or a new use of an approved product, to rely in part on literature and/or the FDA’s findings of safety and/or effectiveness for a similar previously-approved product.  We believe these approaches may reduce drug development risk and could reduce the time and resources we spend during development. Our current platform technologies include innovative delivery mechanisms for antibiotics, biological materials and molecular iodine (I2).

Since inception, we have developed our product candidates, including conducting preclinical and clinical trials, and providing general and administrative support for these operations. We recently presented comprehensive BPX01 Phase 2b clinical data and expect our BPX01 Phase 3 clinical trial to begin later this year.  We began shipping VI2OLET through online stores in December 2014. We continue to pursue additional channel distribution expansion for VI2OLET by way of partnerships and/or sublicensing opportunities with women’s health and/or consumer companies to provide broader access to consumers. To date, we have generated a de minimis amount of revenue from product sales while we focus on product acceptance and partnering opportunities.

In April 2017, we raised net proceeds of $4.4 million in a registered direct offering of 6,410,258 shares of common stock and warrants to purchase up to 3,365,385 shares of our common stock.  In July 2017, we raised net proceeds of $1.9 million in a registered direct offering of 5,500,000 shares of our common stock.

 

Critical Accounting Policies

 

Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States, or GAAP. GAAP requires the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our condensed consolidated financial statements.

 

Our significant accounting policies are summarized in Note 1 of our audited consolidated financial statements, which are included in our Annual Report on Form 10-K for the year ended January 31, 2017. While all of these significant accounting policies impact our financial condition and results of operations, we view the revenue recognition, inventory, warrant liability and stock-based compensation policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause an effect on our results of operations, financial position or liquidity for the periods presented in this report.

 

Going Concern

 

The accompanying condensed consolidated financial statements have been prepared assuming we will continue as a going concern, meaning we will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. As of July 31, 2017, we had cash and cash equivalents of $4.5 million and working capital of $1.1 million. In April and July 2017, we raised net proceeds of $4.4 million and $1.9 million, respectively, in registered direct offerings.  

 

We have incurred recurring losses and negative cash flows from operations since inception and have funded our operating losses through the sale of common stock in public and private offerings and the issuance of convertible notes, Series A convertible preferred stock and warrants. We incurred a net loss available to common stockholders of $3.7 million and $5.0 million for the three months ended July 31, 2017 and 2016, respectively, and had an accumulated deficit of $53.8 million as of July 31, 2017.  Net loss for the six months ended July 31, 2017 and 2016, was $9.1 million and $9.5 million, respectively.

 

17


 

We have a limited operating history and our prospects are subject to risks, expenses and uncertainties frequently encountered by companies in our industry. To date, we have generated a de minimis amount of revenue from the sale of VI2OLET, our iodine dietary supplement. We continue our research and development efforts for our product candidates, which will require significant funding. If we are unable to obtain additional financing in the near‑term or research and development efforts require higher than anticipated capital, there may be a negative impact on our financial viability. We plan to increase working capital by managing our cash flows and expenses and raising additional capital through either private or public equity or debt financing. We also continue to pursue additional channel distribution expansion for VI2OLET through partnerships with women’s health companies to provide broader access to consumers. Risks include, but are not limited to, the uncertainty of availability of additional financing and the uncertainty of achieving future profitability.  We have an effective shelf registration statement on file with the SEC to allow us to sell up to $79.0 million of our securities from time to time prior to February 2019, subject to regulatory limitations. For example, pursuant to General Instruction I.B.6 of Form S-3, in no event will we sell securities pursuant to the shelf registration statement with a value of more than one third of the aggregate market value of our common stock held by non-affiliates in any 12 month period, so long as the aggregate market value of our common stock held by non-affiliates is less than $75.0 million. Based on this calculation, we are currently ineligible to sell securities pursuant to our effective registration statement on Form S-3.  There can be no assurance that such financing will be available or on terms which are favorable to us. While our management believes that we have a plan to fund ongoing operations, there is no assurance that our plan will be successfully implemented. Failure to generate sufficient cash flows from operations, raise additional capital through one or more financings, or reduce certain discretionary spending could have a material adverse effect on our ability to achieve our intended business objectives. These factors raise substantial doubt about our ability to continue as a going concern. The condensed consolidated financial statements do not contain any adjustments that might result from the resolution of any of the above uncertainties.

Results of Operations

 

Three and six months ended July 31, 2017 and 2016

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended July 31, 

 

Six months ended July 31, 

 

2017

    

2016

    

Change

    

%

    

2017

    

2016

    

Change

    

%

 

($ in thousands)

 

 

 

($ in thousands)

 

 

 

$

17

 

$

19

 

$

(2)

 

(11)

%

$

36

 

$

52

 

$

(16)

 

(31)

%

 

We recognize revenue on a sell-through basis if we do not have sufficient historical information to estimate product returns, pricing discounts or other concessions. If sufficient historical information is available, we recognize revenue upon shipment, net of reserves. The fluctuation in revenues in the second quarter and first six months of fiscal year 2018 compared to the prior year periods was primarily due to the timing of revenue recognized using the sell-through basis.

 

Cost of Goods Sold

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended July 31, 

 

Six months ended July 31, 

 

2017

    

2016

    

Change

    

%

    

2017

    

2016

    

Change

    

%

 

($ in thousands)

 

 

 

($ in thousands)

 

 

 

$

9

 

$

17

 

$

(8)

 

(47)

%

$

20

 

$

37

 

$

(17)

 

(46)

%

 

Cost of goods sold includes direct costs related to the sale of VI2OLET, our iodine dietary supplement, write-downs of excess and obsolete inventories and amortization of our intangible assets. The decrease in cost of goods sold in the second quarter and first six months of fiscal year 2018 compared to the prior year periods was primarily related to the decrease in recognized revenue related to our product.

 

18


 

Research and Development Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended July 31, 

 

Six months ended July 31, 

 

2017

    

2016

    

Change

    

%

    

2017

    

2016

    

Change

    

%

 

($ in thousands)

 

 

 

($ in thousands)

 

 

 

$

2,413

 

$

2,973

 

$

(560)

 

(19)

%  

$

5,354

 

$

5,146

 

$

208

 

 4

%

 

Research and development expenses primarily include headcount-related costs, stock-based compensation and both internal and external research and development expenses. Research and development expenses are expensed as incurred. Research and development expenses decreased $0.6 million for the second quarter of fiscal year 2018 compared to the prior year period primarily due to decreased clinical studies and product development costs, partially offset by higher headcount-related expenses.  Research and development expenses increased $0.2 million for the first half of fiscal year 2018 compared to the prior year period primarily due to increased clinical studies and product development costs in the first quarter of fiscal year 2018.  In June 2017, we announced the results of our Phase 2b clinical study for BPX01.

 

Sales and Marketing Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended July 31, 

 

Six months ended July 31, 

 

2017

    

2016

    

Change

    

%

    

2017

    

2016

    

Change

    

%

 

($ in thousands)

 

 

 

($ in thousands)

 

 

 

$

586

 

$

895

 

$

(309)

 

(35)

%  

$

1,383

 

$

2,002

 

$

(619)

 

(31)

%

 

Sales and marketing expenses primarily include headcount-related costs, stock-based compensation, costs related to establishing our corporate brand and efforts related to promoting VI2OLET and the market development related to our acne drug candidate, BPX01. Sales and marketing expenses are expensed as incurred.  Sales and marketing expenses decreased $0.3 million for the second quarter of fiscal year 2018 compared to the prior year period and decreased $0.6 million for the first half of fiscal year 2018 compared to the pior year period primarily due to decreased advertising and promotional activities related to VI2OLET, partially offset by higher costs related to the market development activities of BPX01.

 

General and Administrative Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended July 31, 

 

Six months ended July 31, 

 

2017

    

2016

    

Change

    

%

    

2017

    

2016

    

Change

    

%

 

($ in thousands)

 

 

 

($ in thousands)

 

 

 

$

1,280

 

$

1,169

 

$

111

 

 9

%  

$

2,583

 

$

2,362

 

$

221

 

 9

%

 

General and administrative expenses primarily include headcount-related costs, stock-based compensation and costs of our executive, finance and other administrative functions. General and administrative expenses increased $0.1 million for the second quarter of fiscal year 2018 compared to the prior year period and $0.2 million for the first half of fiscal year 2018 compared to the prior year period primarily due to higher stock-based compensation costs.

 

Change in Fair Value of Warrant Liability