10-Q 1 bpmx-20190731x10q.htm 10-Q bpmx_Current_Folio_10Q

 

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, 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 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.)

 

 

 

115 Nicholson Lane, San Jose, California

 

95134

(Address of principal executive offices)

 

(Zip Code)

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

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

BPMX

The NYSE American, LLC

 

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting, 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 ☒

As of August 31, 2019, there were outstanding 14,187,583 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, 2019 and January 31, 2019

3

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended July 31, 2019 and 2018

4

 

Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended July  31, 2019 and 2018

5

 

Condensed Consolidated Statements of Cash Flows for the six months ended July 31, 2019 and 2018

6

 

Notes to Condensed Consolidated Financial Statements

7

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

55

Item 3 

Defaults Upon Senior Securities

55

Item 4 

Mine Safety Disclosures

56

Item 5 

Other Information

56

Item 6 

Exhibits

56

 

 

 

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, 

 

 

    

2019

    

2019

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

3,290

 

$

3,069

 

Prepaid expenses and other

 

 

483

 

 

316

 

Total current assets

 

 

3,773

 

 

3,385

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

202

 

 

148

 

Operating lease right-of-use asset, net

 

 

1,069

 

 

 —

 

Other

 

 

121

 

 

121

 

Total assets

 

$

5,165

 

$

3,654

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

937

 

$

1,363

 

Accrued expenses and other

 

 

1,081

 

 

934

 

Total current liabilities

 

 

2,018

 

 

2,297

 

 

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

 

 

Non-current operating lease liability

 

 

891

 

 

 —

 

Other

 

 

44

 

 

59

 

Total liabilities

 

 

2,953

 

 

2,356

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Series A convertible preferred stock, $0.001 par value; 10,000,000 shares authorized; none issued and outstanding as of July 31, 2019 and January 31, 2019

 

 

 —

 

 

 —

 

Common stock, $0.001 par value; 450,000,000 shares authorized; 14,187,583 and 8,732,612 shares issued and outstanding as of July 31, 2019 and January 31, 2019, respectively

 

 

14

 

 

 9

 

Additional paid-in capital

 

 

87,001

 

 

79,823

 

Accumulated deficit

 

 

(84,803)

 

 

(78,534)

 

Total stockholders' equity

 

 

2,212

 

 

1,298

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

5,165

 

$

3,654

 

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, 

 

 

 

 

2019

 

2018

 

2019

 

2018

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Revenues, net

 

$

 —

 

$

24

 

$

 —

 

$

42

 

 

Cost of goods sold

 

 

 —

 

 

13

 

 

 —

 

 

20

 

 

Gross margin

 

 

 —

 

 

11

 

 

 —

 

 

22

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

1,375

 

 

2,730

 

 

3,574

 

 

5,057

 

 

Sales and marketing

 

 

169

 

 

566

 

 

433

 

 

1,167

 

 

General and administrative

 

 

1,116

 

 

1,182

 

 

2,293

 

 

2,628

 

 

Total operating expenses

 

 

2,660

 

 

4,478

 

 

6,300

 

 

8,852

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(2,660)

 

 

(4,467)

 

 

(6,300)

 

 

(8,830)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of warrant liability

 

 

 2

 

 

23

 

 

11

 

 

(43)

 

 

Other income, net

 

 

12

 

 

34

 

 

22

 

 

63

 

 

Loss before provision for income taxes

 

 

(2,646)

 

 

(4,410)

 

 

(6,267)

 

 

(8,810)

 

 

Provision for income taxes

 

 

 —

 

 

 —

 

 

 2

 

 

 2

 

 

Net loss and comprehensive loss

 

$

(2,646)

 

$

(4,410)

 

$

(6,269)

 

$

(8,812)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share

 

$

(0.22)

 

$

(0.58)

 

$

(0.58)

 

$

(1.19)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in computing basic and diluted net loss per share

 

 

12,245,000

 

 

7,653,000

 

 

10,862,000

 

 

7,425,000

 

 

 

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

 

4

BioPharmX Corporation

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

 

Three and Six Months Ended July 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Total

 

 

 

Common Stock

 

Paid-in

 

Accumulated

 

Stockholders'

 

 

    

Shares

    

Amount

    

Capital

    

Deficit

    

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of February 1, 2019

 

8,732,612

 

$

 9

 

$

79,823

 

$

(78,534)

 

$

1,298

 

Issuance of common stock due to exercise of options

 

1,667

 

 

 —

 

 

 4

 

 

 —

 

 

 4

 

Issuance of common stock, net of issuance costs of $0.4 million

 

1,745,800

 

 

 1

 

 

3,553

 

 

 —

 

 

3,554

 

Stock-based compensation expense

 

 —

 

 

 —

 

 

191

 

 

 —

 

 

191

 

Net and comprehensive loss

 

 —

 

 

 —

 

 

 —

 

 

(3,623)

 

 

(3,623)

 

Balance as of April 30, 2019

 

10,480,079

 

 

10

 

 

83,571

 

 

(82,157)

 

 

1,424

 

Issuance of common stock, net of issuance costs of $0.2 million

 

3,707,504

 

 

 4

 

 

3,253

 

 

 —

 

 

3,257

 

Stock-based compensation expense

 

 —

 

 

 —

 

 

177

 

 

 —

 

 

177

 

Net and comprehensive loss

 

 —

 

 

 —

 

 

 —

 

 

(2,646)

 

 

(2,646)

 

Balance as of July 31, 2019

 

14,187,583

 

$

14

 

$

87,001

 

$

(84,803)

 

$

2,212

 

 

Three and Six Months Ended July 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Total

 

 

 

Common Stock

 

Paid-in

 

Accumulated

 

Stockholders'

 

 

    

Shares

    

Amount

    

Capital

    

Deficit

    

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of February 1, 2018

 

6,402,500

 

$

6

 

$

66,344

 

$

(61,278)

 

$

5,072

 

Cumulative-effect adjustment from adoption of new accounting pronouncement

 

 —

 

 

 —

 

 

 —

 

 

 2

 

 

 2

 

Issuance of common stock due to exercise of options

 

406

 

 

 1

 

 

 —

 

 

 —

 

 

 1

 

Issuance of common stock due to exercise of warrants

 

1,257,843

 

 

 1

 

 

6,960

 

 

 —

 

 

6,961

 

Stock-based compensation expense

 

 —

 

 

 —

 

 

593

 

 

 —

 

 

593

 

Net and comprehensive loss

 

 —

 

 

 —

 

 

 —

 

 

(4,402)

 

 

(4,402)

 

Balance as of April 30, 2018

 

7,660,749

 

 

 8

 

 

73,897

 

 

(65,678)

 

 

8,227

 

Issuance of common stock due to exercise of options

 

222

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Stock-based compensation expense

 

 —

 

 

 —

 

 

446

 

 

 —

 

 

446

 

Net and comprehensive loss

 

 —

 

 

 —

 

 

 —

 

 

(4,410)

 

 

(4,410)

 

Balance as of July 31, 2018

 

7,660,971

 

$

 8

 

$

74,343

 

$

(70,088)

 

$

4,263

 

 

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

 

5

 

BioPharmX Corporation

Condensed Consolidated Statements of Cash Flows (unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Six months ended

 

 

 

July 31, 

 

 

 

2019

 

2018

 

Cash flows from operating activities:

    

 

 

    

 

 

 

Net loss

 

$

(6,269)

 

$

(8,812)

 

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

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

368

 

 

1,039

 

Depreciation expense

 

 

30

 

 

33

 

Change in fair value of warrant liability

 

 

(11)

 

 

43

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

(167)

 

 

(304)

 

Accounts payable

 

 

(426)

 

 

150

 

Accrued expenses and other liabilities

 

 

(75)

 

 

(93)

 

Net cash used in operating activities

 

 

(6,550)

 

 

(7,944)

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(30)

 

 

(4)

 

Net cash used in investing activities

 

 

(30)

 

 

(4)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

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

 

 

6,811

 

 

 —

 

Proceeds from exercises of common stock warrants

 

 

 —

 

 

6,961

 

Proceeds from exercises of stock options

 

 

 4

 

 

 1

 

Payments on financing lease obligation

 

 

(14)

 

 

(9)

 

Net cash provided by financing activities

 

 

6,801

 

 

6,953

 

Net increase (decrease) in cash and cash equivalents

 

 

221

 

 

(995)

 

Cash and cash equivalents as of beginning of period

 

 

3,069

 

 

7,576

 

Cash and cash equivalents as of end of period

 

$

3,290

 

$

6,581

 

 

 

 

 

 

 

 

 

Non-cash investing activities:

 

 

 

 

 

 

 

Property and equipment acquired through finance lease

 

 

54

 

 

61

 

 

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

 

6

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 the dermatology market. Its focus is to develop products that treat dermatologic conditions that are not being adequately addressed or those where current therapies and approaches are suboptimal. Its strategy is to bring new products to market by identifying optimal delivery mechanisms and/or alternative applications for United States Food and Drug Administration (FDA) approved or well characterized active pharmaceutical ingredients  (APIs). The Company aims to reduce the time, cost and risks typically associated with new product development by utilizing APIs 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. 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. The Company’s approach is to identify the limitations of current treatment options and work to develop novel products using its proprietary HyantX™ topical drug delivery system.

The Company commercially launched its iodine breast health supplement, VI2OLET, in December 2014. In November 2018, the Company divested the rights to develop, manufacture, market and sell its molecular iodine technology, including VI2OLET. This divestiture resulted in a de minimis loss in the fourth quarter of fiscal year 2019, which is included in general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss. All tangible and intangible assets related to VI2OLET, including but not limited to existing customer and vendor arrangements, were included in this divestiture.

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 has financed its operations primarily through the sale of equity and convertible notes. 

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. 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, 2019, filed on March 14, 2019. The condensed consolidated balance sheet as of January 31, 2019, 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, 2019 and January 31, 2019, and the Company’s results of operations for the three and six months ended July 31, 2019 and 2018 and cash flows for the six months ended July 31, 2019 and 2018. The results for the three and six months ended July 31, 2019 are not necessarily indicative of the results to be expected for the year ending January 31, 2020 or any future period.

7

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.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation. Accounts receivable have been included in prepaid expenses and other current assets in the condensed consolidated balance sheets. The amount for the prior period has been reclassified to be consistent with the current year presentation and has no impact on previously reported total assets, total stockholders’ equity or net loss. 

Reverse Stock Split

On April 25, 2019, the Company effected a 1-for-25 reverse stock split of its common stock. As a result of the reverse stock split, every twenty-five shares of the Company’s pre-reverse split outstanding common stock was combined and reclassified into one share of common stock. Par value per share remained unchanged at $0.001 per share.  Proportionate voting rights and other rights of common stockholders were not affected by the reverse stock split. No fractional shares were issued in connection with the reverse stock split; stockholders who would otherwise hold a fractional share of common stock received cash in an amount equal to the product obtained by multiplying (i) the closing  price of the Company’s common stock on the last trading day prior to the effective date of the reverse stock split, by (ii) the number of shares of the Company’s common stock held by the stockholder that would otherwise have been exchanged for the fractional share interest. All stock options and warrants outstanding and common stock reserved for issuance under the Company’s equity incentive plans immediately prior to the reverse stock split were adjusted by dividing the number of affected shares of common stock by 25 and, as applicable, multiplying the exercise price by 25, as a result of the reverse stock split. All of the share numbers, share prices and exercise prices have been adjusted on a retroactive basis as if such 1-for-25 reverse stock split occurred on the first day of the first period presented. Certain amounts in the notes to the financial statements may be slightly different than previously reported due to rounding of fractional shares as a result of the reverse stock split.

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 either of the three or six months ended July 31, 2019 or 2018.

Net Loss per Share

Basic net loss per share 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, 2019 and 2018 excludes 7,733 shares of unvested restricted 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.

As of July 31, 2019 and 2018, approximately 6,484,000 and 7,365,000 of potentially dilutive securities, respectively, were excluded from the computation of diluted net loss per share because their effect on net loss per share would be anti-dilutive.

8

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.

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 consolidated financial statements and notes thereto contained in the Annual Report on Form 10-K for the fiscal year ended January 31, 2019. There have been no significant changes in the Company’s significant accounting policies for the three and six months ended July 31, 2019, except for the adoption of Accounting Standards Update 2016-02,  Leases, as discussed below, as compared to the significant accounting policies described in the Annual Report on Form 10-K for the fiscal year ended January 31, 2019.

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)  2016-02, Leases, and in July 2018, ASU No. 2018-11, Targeted Improvements, which requires entities to recognize assets and liabilities for leases with lease terms greater than twelve months. The Company adopted this standard as of February 1, 2019, and the Company’s leases are classified as operating leases and will continue to be classified as operating leases under the new accounting method. Adoption of the new standard resulted in the recording of an operating lease right-to-use asset of $1.2 million, which represents the present value of the remaining lease payments as of the date of adoption discounted using an incremental borrowing rate of 15%, and an operating lease liability of $1.3 million. The adoption did not have an impact on the Company’s condensed consolidated statement of operations and comprehensive loss or cash flows. See Note 9 for further information.

In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The amendment is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The Company adopted this update as of February 1, 2019 and the adoption did not have a material effect on its condensed consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which amended certain disclosure requirements over Level 1, Level 2 and Level 3 fair value measurements. The amendment is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted.  The Company is currently evaluating the impact of adopting this amendment, but does not anticipate it will have a material impact on its disclosures.              

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 condensed 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, 2019, the Company had cash and cash equivalents of $3.3 million and working capital of $1.8 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 issuance of convertible notes. The Company incurred a net loss of $2.6 million and $4.4 million for the three months

9

ended July 31, 2019 and 2018, respectively, and a net loss of $6.3 million and $8.8 million for the six months ended July 31, 2019 and 2018, respectively. The Company had an accumulated deficit of $84.8 million as of July  31, 2019. 

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 either entering into a strategic partnership or raising additional capital through private or public equity or debt financing. There can be no assurance that such financing or partnerships 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 raise additional capital through one or more financings, enter into a strategic partnership 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, 2019 and January 31, 2019, the Company held $2.8 million and $2.5 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 hierarchy (in thousands):

 

 

 

 

    

Warrant Liability

Balance as of February 1, 2019

$

11

Change in fair value of warrants

 

(9)

Balance as of April 30, 2019

 

 2

Change in fair value of warrants

 

(2)

Balance as of July 31, 2019

$

 —

 

The warrant liability is included in long-term liabilities on the condensed consolidated balance sheets.

 

 

10

4. BALANCE SHEET DETAILS

 

 

 

 

 

 

 

 

July 31, 

 

January 31, 

 

2019

    

2019

 

 

(in thousands)

Accrued expenses and other current liabilities:

 

 

 

 

 

Research and development

$

377

 

$

399

Compensation

 

345

 

 

371

Operating lease liability - current portion

 

260

 

 

 —

Other

 

99

 

 

164

 

$

1,081

 

$

934

 

 

 

5. COMMITMENTS AND CONTINGENCIES

Commitments

 The Company is party to an agreement with a contract research organization (CRO) to conduct the Phase 2 clinical trial for BPX04, a topical antibiotic for the treatment of rosacea. The actual amounts owed under the agreement and the timing of those obligations depend on various factors, including the rate of patient enrollment, any protocol amendments and other factors relating to the clinical trial. As of July  31, 2019,  all liability amounts were recorded, excluding any potential amendments to the agreement. The Company can terminate the agreement at any time and any amounts incurred through the termination date would be due to the CRO.

The Company entered into an agreement with a contract development and manufacturing organization to complete development needed to prepare BPX04 for Phase 3 testing. The development activities will be completed in several phases. If the Company had to terminate this agreement, depending on the reason, the termination fee could be as high as $0.5 million, or an amount equal to services incurred as of the date of termination.  

 

See Note 9 for discussion regarding the Company’s operating and financing lease commitments.  

 

Legal Proceedings

 

The Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. In addition, the Company may receive letters alleging infringement of patents or other intellectual property rights. The Company is not a party to any material legal proceeding, nor is it aware of any pending or threatened litigation that the Company believes is likely to have a material adverse effect on its business, results of operations, cash flows or financial condition should such litigation be resolved unfavorably. 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.

The Company has entered into indemnification agreements with its directors, officers and certain of its medical advisors that may require the Company to indemnify its directors, officers and such medical advisors against liabilities that may arise by reason of their status or service in these roles, 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.

11

6. STOCKHOLDERS’ EQUITY 

Common Stock

In March 2019, the Company issued 1,745,800 shares of common stock at a price per share of $0.09 resulting in net proceeds of $3.6 million in a registered direct offering.

On May 16, 2019, the Company entered into a Capital on Demand TM Sales Agreement (Sales Agreement) with JonesTrading Institutional Services LLC, as agent (JonesTrading), pursuant to which the Company may offer and sell, from time to time through JonesTrading, shares of the Company’s common stock, par value $0.001 per share (the Common Stock), having an aggregate offering price of up to $8.5 million. As of July 31, 2019, the Company had sold an aggregate of 3,707,504 shares of Common Stock pursuant to the terms of such Sales Agreement for aggregate net proceeds of $3.3 million. 

 

Warrants

A summary of warrants outstanding as of July 31, 2019 is as follows:

 

 

 

 

 

 

 

 

 

Total

 

Price per Share

 

Expiration Date

Warrants related to September to November 2014 financing

 

54,303

 

$ 92.50

 

September 2019 - November 2019

Warrants related to June 2015 financing

 

4,363

 

$ 68.75

 

June 2020

Warrants related to April 2016 financing

 

70,581

 

$ 30.00

 

April 2021

Warrants related to September 2016 financing (1)

 

51,466

 

$ 18.75

 

September 2021 to March 2022

Warrants related to November 2016 financing

 

1,216,230

 

$ 8.75

 

November 2024

Warrants related to November 2016 financing

 

35,818

 

$10.938

 

November 2022

Warrants related to November 2016 financing

 

7,926

 

$ 8.25

 

November 2022

Warrants related to April 2017 financing

 

32,053

 

$ 22.50

 

October 2022

Warrants related to October 2017 financing

 

153,848

 

$ 7.50

 

October 2022

Warrants related to November 2017 financing

 

2,277,412

 

$ 5.00

 

November 2022

Warrants related to November 2018 financing (2)

 

1,066,670

 

$ 4.10

 

May/June 2021

 

 

4,970,670

 

 

 

 


(1)

In connection with the sale of common stock in September 2016, warrants to purchase 51,466 shares of common stock were issued at an exercise price of $18.75 per share. 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, 2019, the fair value of the warrant liability was immaterial and was included in other long-term liabilities.

(2)

On November 20, 2018, the Company entered into agreements with holders of certain of its warrants to purchase common stock with an exercise price per share of $6.25 originally issued on November 24, 2017 (Existing Warrants), whereby the holders and the Company agreed that the holders would cash exercise up to 1,066,670 shares of common stock underlying such Existing Warrants at a reduced price of $3.50, and the Company would issue new warrants to such holders to purchase up to an aggregate of 1,066,670 shares of common stock (New Warrants). The New Warrants are exercisable after the six-month anniversary of their issuance and terminate on the 30-month anniversary following their issuance. The New Warrants have an exercise price per share of $4.10. The Company recorded a charge for the incremental fair value of approximately $874,000 in the other expense line item in the consolidated statements of operations and comprehensive loss. The fair value of the warrants exercised was computed as of the date of exercise using the following assumptions: risk-free interest rate of 2.51%, contractual term of 6 months, expected volatility of 78.4% and a dividend rate of 0%.

12

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 were increased by 800,000 shares to a total of 960,000 shares of common stock.  In August 2018, the 2016 Plan was amended and the shares reserved for issuance were increased by 2,000,000 shares to a total of 2,960,000 shares of common stock. The 2014 Plan and 2016 Plan are referred to collectively as the “Plans.”

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

Remaining

 

Aggregate

 

 

 

Available for

 

 

 

Exercise

 

Contractual

 

Intrinsic

 

 

    

Grant

    

Shares

    

Prices

    

Life

    

Value

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Balance as of February 1, 2019

 

2,107,575

 

917,945

 

$

9.02

 

7.92

 

$

23

 

Granted

 

(16,720)

 

16,720

 

$

3.21

 

 

 

 

 

 

Exercised

 

 —

 

(1,667)

 

$

2.50

 

 

 

 

 

 

Canceled and expired under the 2014 Plan

 

 —

 

(28,480)

 

$

28.27

 

 

 

 

 

 

Canceled under the 2016 Plan

 

69,180

 

(69,180)

 

$

8.84

 

 

 

 

 

 

Balance as of April 30, 2019

 

2,160,035

 

835,338

 

$

8.27

 

8.35

 

$

 —

 

Granted

 

(877,100)

 

877,100

 

$

0.80

 

 

 

 

 

 

Canceled and expired under the 2014 Plan

 

 —

 

(6,340)

 

$

13.06

 

 

 

 

 

 

Canceled under the 2016 Plan

 

224,654

 

(224,654)

 

$

4.18

 

 

 

 

 

 

Balance as of July 31, 2019

 

1,507,589

 

1,481,444

 

$

4.44

 

8.62

 

$

 —

 

Vested and exercisable

 

 

 

350,050

 

$

10.76

 

5.55

 

$

 —

 

Vested and expected to vest

 

 

 

1,204,454

 

$

4.94

 

8.39

 

$

 —

 

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 American 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 option awards:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Average

 

Remaining

 

 

 

 

 

 

 

 

Exercise

 

Contractual

 

Aggregate

 

 

    

Shares

    

Prices

    

Life

    

Intrinsic Value

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Balance as of February 1, 2019

 

31,000

 

$

17.86

 

6.6

 

$

 —

 

Canceled

 

(6,000)

 

$

38.75

 

 

 

 

 

 

Balance as of April 30, 2019

 

25,000

 

$

12.85

 

7.92

 

$

 —

 

Canceled

 

(750)

 

$

27.25

 

 

 

 

 

 

Balance as of July 31, 2019

 

24,250

 

$

12.40

 

5.69

 

$

 —

 

Vested and exercisable

 

13,917

 

$

18.09

 

3.59

 

$

 —

 

Vested and expected to vest

 

21,628

 

$

13.33

 

5.34

 

$

 —

 

 

13

The following table summarizes significant ranges of outstanding and exercisable options as of July 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$0.44 - $0.84

 

767,300

 

9.89

 

$

0.79

 

24,241

 

$

0.84

 

$0.85 - $4.00

 

144,390

 

6.65

 

$

2.54

 

108,038

 

$

2.52

 

$4.01 - $10.50

 

435,535

 

8.42

 

$

5.67

 

91,181

 

$

6.53

 

$10.51- $18.50

 

118,378

 

4.66

 

$

16.96

 

100,591

 

$

16.93

 

$18.51 - $28.50

 

20,250

 

2.95

 

$

23.68

 

20,250

 

$

23.68

 

$28.51 - $75.00

 

19,841

 

4.23

 

$

48.17

 

19,666

 

$

48.25

 

 

 

1,505,694

 

8.57

 

$

4.57

 

363,967

 

$

11.04

 

There were no stock options exercised during the three months ended July 31, 2019. The total intrinsic value of stock options exercised was less than $1,000 during the six months ended July 31, 2019. The total intrinsic value of stock options exercised during the three and six months ended July 31, 2018 was approximately $1,000 and $2,000, respectively.  

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, 

 

 

    

2019

    

2018

    

2019

    

2018

 

Research and development

 

$

85

 

$

159

 

$

188

 

$

359

 

Sales and marketing

 

 

12

 

 

112

 

 

33

 

 

241

 

General and administrative

 

 

80

 

 

175

 

 

147

 

 

439

 

Total

 

$

177

 

$

446

 

$

368

 

$

1,039

 

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, 2019, total compensation costs related to unvested, but not yet recognized, stock-based awards was $1.2 million, net of estimated forfeitures. This cost will be amortized on a straight-line basis over a weighted average remaining period of 2.6 years and will be adjusted for subsequent changes in estimated forfeitures.

Valuation Assumptions

During the three and six months ended July 31, 2019, the weighted average grant date fair value of stock options granted was $0.42 and $0.44 per share, respectively. The following assumptions were used to calculate the estimated fair value of awards granted for the periods ended:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

For the six months ended

 

 

 

 

July 31, 

 

 

July 31, 

 

 

 

    

2019

    

2018

    

 

2019

    

2018

 

    

Expected volatility

 

68.6% - 70.8%

 

 —

 

 

68.3% - 70.8%

 

84.0%

 

 

Expected term in years

 

4.0

 

 —

 

 

4.0

 

4.0

 

 

Risk-free interest rate

 

1.88%

 

 —

 

 

1.88% - 2.51%

 

2.43%

 

 

Expected dividend yield

 

 —

 

 —

 

 

 —

 

 —

 

 

14

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.

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. The Company has not conducted a formal net operating loss carryforward analysis.

As of July 31, 2019 and January 31, 2019, the Company has not recorded any liability for unrecognized tax benefits related to uncertain tax positions. The 2010 to 2019 tax years remain open for examination by the federal and state authorities.

9. LEASES

On October 30, 2018, the Company signed a lease for 11,793 square feet of office and laboratory space in San Jose, California. The lease commenced in December 2018 and will terminate in December 2023. The lease requires payment of maintenance, utilities, taxes, insurance and other operating expenses associated with the leased space.

Effective February 1, 2019, the Company adopted ASU No. 2016-02,  Leases, as amended, which resulted in the recording of an operating lease right-to-use asset of $1.2 million and corresponding short-term and long-term liabilities of $0.3 million and $1.0 million, respectively. The right-to-use asset and corresponding liability for the facility lease have been measured at the present value of the future minimum lease payments. Lease expense is recognized on a straight-line basis over the lease term and was approximately $93,000 and $160,000 for the three months ended July 31, 2019 and 2018, respectively, and approximately $186,000 and $320,000 for the six months ended July 31, 2019 and 2018, respectively. Cash paid for amounts included in the measurement of operating lease liability for the three and six months ended July 31, 2019 was approximately $91,000 and $156,000, respectively, and was included in net cash used in operating activities in the statement of cash flows.

15

The future minimum payments under the Company’s operating lease as of July 31, 2019 are as follows (in thousands):