10-Q
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540

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended June 30, 2022

OR

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

For the transition period from ____________ to ______________

Commission File Number: 001-39864

 

BETTER THERAPEUTICS, INC.

 

 

Delaware

85-3472546

( State or other jurisdiction of

incorporation or organization)

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

548 Market St. #49404

San Francisco, CA

94101

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (415) 887-2311

 

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

 

BTTX

 

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

As of August 5, 2022, the registrant had 23,743,037 shares of common stock, $0.001 par value per share, outstanding.

 

 

 


 

Table of Contents

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

2

 

 

 

Item 1.

Financial Statements (Unaudited)

2

 

Condensed Consolidated Balance Sheets

2

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

3

 

Condensed Consolidated Statements of Stockholders' Equity (Deficit)

4

 

Condensed Consolidated Statements of Cash Flows

5

 

Notes to Condensed Consolidated Financial Statements

6

Item 2.

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

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

26

 

 

 

PART II.

OTHER INFORMATION

27

 

 

 

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

64

Item 3.

Defaults Upon Senior Securities

64

Item 4.

Mine Safety Disclosures

64

Item 5.

Other Information

64

Item 6.

Exhibits

65

Signatures

66

 

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

 

BETTER THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

December 31,

 

ASSETS

 

2022

 

 

2021

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

29,685

 

 

$

40,566

 

Prepaid expenses

 

 

2,380

 

 

 

4,409

 

Other current assets

 

 

72

 

 

 

276

 

Total current assets

 

 

32,137

 

 

 

45,251

 

 

 

 

 

 

 

 

Capitalized software development costs, net

 

 

4,364

 

 

 

5,077

 

Property and equipment, net

 

 

115

 

 

 

82

 

Other long-term assets

 

 

487

 

 

 

548

 

Total Assets

 

$

37,103

 

 

$

50,958

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,088

 

 

$

1,523

 

Accrued payroll

 

 

2,074

 

 

 

1,352

 

Other accrued expenses

 

 

1,196

 

 

 

1,858

 

Current portion of long-term debt

 

 

1,783

 

 

 

 

Total current liabilities

 

 

6,141

 

 

 

4,733

 

 

 

 

 

 

 

 

Long-term debt, net of current portion and debt issuance costs

 

 

12,908

 

 

 

9,505

 

Total liabilities

 

 

19,049

 

 

 

14,238

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Common stock, $0.0001 par value per share, 200,000,000 shares authorized as of
   June 30, 2022 and December 31, 2021 and
23,732,970 and 23,602,718 shares
   issued and outstanding as of June 30, 2022 and December 31, 2021,
   respectively

 

 

2

 

 

 

2

 

Additional paid-in capital

 

 

109,385

 

 

 

108,461

 

Accumulated deficit

 

 

(91,333

)

 

 

(71,743

)

Total Stockholders' Equity

 

 

18,054

 

 

 

36,720

 

Total Liabilities and Stockholders’ Equity

 

$

37,103

 

 

$

50,958

 

 

The accompanying notes are an integral part of these Financial Statements.

2


 

BETTER THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

4,241

 

 

$

5,038

 

 

$

7,914

 

 

$

6,416

 

Sales and marketing

 

 

1,683

 

 

 

564

 

 

 

3,727

 

 

 

607

 

General and administrative

 

 

3,675

 

 

 

872

 

 

 

7,303

 

 

 

2,439

 

Total operating expenses

 

 

9,599

 

 

 

6,474

 

 

 

18,944

 

 

 

9,462

 

Loss from operations

 

 

(9,599

)

 

 

(6,474

)

 

 

(18,944

)

 

 

(9,462

)

Interest expense, net

 

 

(329

)

 

 

(1

)

 

 

(646

)

 

 

(2

)

Change in fair value of SAFEs

 

 

 

 

 

(2,821

)

 

 

 

 

 

(5,313

)

Gain on loan forgiveness

 

 

 

 

 

647

 

 

 

 

 

 

647

 

Loss before provision (benefit) from income taxes

 

 

(9,928

)

 

 

(8,649

)

 

 

(19,590

)

 

 

(14,130

)

Provision (benefit) from income taxes

 

 

 

 

 

1

 

 

 

 

 

 

(150

)

Net loss

 

 

(9,928

)

 

 

(8,650

)

 

 

(19,590

)

 

 

(13,980

)

Cumulative preferred dividends allocated to Series A Preferred Shareholders

 

 

 

 

 

(394

)

 

 

 

 

 

(782

)

Net loss attributable to common shareholders, basic and diluted

 

$

(9,928

)

 

$

(9,044

)

 

$

(19,590

)

 

$

(14,762

)

Net loss per share attributable to common shareholders, basic and diluted

 

$

(0.42

)

 

$

(0.84

)

 

$

(0.83

)

 

$

(1.38

)

Weighted-average shares used in computing net loss per share

 

 

23,592,995

 

 

 

10,730,818

 

 

 

23,498,978

 

 

 

10,707,996

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these Financial Statements.

3


 

BETTER THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share data)

(Unaudited)

 

 

 

Common Stock

 

 

Additional Paid-in

 

 

Accumulated

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance as of December 31, 2021

 

 

23,602,718

 

 

$

2

 

 

$

108,461

 

 

$

(71,743

)

 

$

36,720

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(9,662

)

 

 

(9,662

)

Issuance of common stock

 

 

5,882

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Share based compensation

 

 

 

 

 

 

 

 

366

 

 

 

 

 

 

366

 

Balance as of March 31, 2022

 

 

23,608,600

 

 

$

2

 

 

$

108,828

 

 

$

(81,405

)

 

$

27,425

 

Net Loss

 

 

 

 

 

 

 

 

 

 

 

(9,928

)

 

 

(9,928

)

Issuance of common stock

 

 

124,370

 

 

 

 

 

 

145

 

 

 

 

 

 

145

 

Share based compensation

 

 

 

 

 

 

 

 

412

 

 

 

 

 

 

412

 

Balance as of June 30, 2022

 

 

23,732,970

 

 

$

2

 

 

$

109,385

 

 

$

(91,333

)

 

$

18,054

 

 

 

 

Common Stock

 

 

Additional Paid-in

 

 

Accumulated

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance as of December 31, 2020, as adjusted

 

 

11,146,510

 

 

$

1

 

 

$

24,649

 

 

$

(31,408

)

 

$

(6,758

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(5,330

)

 

 

(5,330

)

Forfeiture of restricted stock

 

 

(444

)

 

 

 

 

 

 

 

 

 

 

 

 

Share based compensation

 

 

 

 

 

 

 

 

34

 

 

 

 

 

 

34

 

Balance as of March 31, 2021, as adjusted

 

 

11,146,066

 

 

$

1

 

 

$

24,683

 

 

$

(36,738

)

 

$

(12,054

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(8,650

)

 

 

(8,650

)

Forfeiture of restricted stock

 

 

(51,818

)

 

 

 

 

 

 

 

 

 

 

 

-

 

Share based compensation

 

 

 

 

 

 

 

 

28

 

 

 

 

 

 

28

 

Balance as of June 30, 2021, as adjusted

 

 

11,094,248

 

 

$

1

 

 

$

24,711

 

 

$

(45,388

)

 

$

(20,676

)

 

The accompanying notes are an integral part of these Financial Statements.

4


 

BETTER THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

 

Six months ended
June 30,

 

 

 

2022

 

 

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net loss

 

$

(19,590

)

 

$

(13,980

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

1,314

 

 

 

542

 

Change in fair value of SAFEs

 

 

 

 

 

5,313

 

Share based compensation expense

 

 

778

 

 

 

62

 

Deferred income taxes

 

 

 

 

 

(152

)

Loss on write-off of property and equipment

 

 

9

 

 

 

 

Gain on loan forgiveness

 

 

 

 

 

(647

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

2,294

 

 

 

(1,308

)

Accounts payable

 

 

(435

)

 

 

890

 

Accrued expenses and other liabilities

 

 

60

 

 

 

1,181

 

Net cash used in operating activities

 

 

(15,570

)

 

 

(8,099

)

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Purchase of property and equipment

 

 

(69

)

 

 

 

Capitalized internal-use software costs

 

 

(388

)

 

 

(581

)

Net cash used in investing activities

 

 

(457

)

 

 

(581

)

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Proceeds from issuance of SAFE notes

 

 

 

 

 

10,675

 

Proceeds from exercise of common stock options

 

 

21

 

 

 

 

Proceeds from the issuance of shares under the employee stock purchase plan

 

 

125

 

 

 

 

Proceeds from the issuance of long-term debt

 

 

5,000

 

 

 

 

Net cash provided by financing activities

 

 

5,146

 

 

 

10,675

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

(10,881

)

 

 

1,995

 

Cash and cash equivalents, beginning of period

 

 

40,566

 

 

 

123

 

Cash and cash equivalents, end of period

 

$

29,685

 

 

$

2,118

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

462

 

 

$

 

Cash paid for taxes

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these Financial Statements.

5


 

BETTER THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Description of Business and Summary of Significant Accounting Policies

Description of Business

Better Therapeutics, Inc. (“we”, “us”, “the Company”, or “Better”), a Delaware corporation, is a prescription digital therapeutics company developing nutritional cognitive behavioral therapy ("nCBT") to address the root causes of cardiometabolic diseases. We are developing a platform of FDA-regulated, software-based, prescription digital therapeutics ("PDTs") for treating diabetes, heart disease, and other cardiometabolic conditions that share lifestyle behaviors as common root causes. Our PDTs deliver a novel form of cognitive behavioral therapy that enables changes in neural pathways of the brain so that lasting changes in behavior become possible. Addressing the underlying causes of these diseases has the potential to dramatically improve patient health and lower healthcare costs. Our clinical development candidates are intended to treat cardiometabolic diseases, including type 2 diabetes ("T2D"), hypertension, hyperlipidemia, non-alcoholic fatty liver disease ("NAFLD"), non-alcoholic steatohepatitis ("NASH") and chronic kidney disease ("CKD"). Our lead product candidate for the treatment of patients with T2D, BT-001, completed a first-in-class randomized, controlled clinical trial of a prescription digital therapeutic for the treatment of in July 2022. The trial met both its primary and secondary endpoints showing statistically significant and clinically meaningful, durable decreases in blood sugar, when compared to a control group receiving standard of care. In addition, exploratory data revealed a host of cardiometabolic improvements as well as lower medication utilization compared to the control group.

On October 28, 2021, Mountain Crest Acquisition Corp. II, a Delaware corporation ("MCAD") merged with and into former Better Therapeutics, Inc. ("Legacy BTX") with Legacy BTX surviving as a wholly-owned subsidiary of the acquiring company with the new name Better Therapeutics, Inc. MCAD consummated the acquisition of all the issued and outstanding shares of Legacy BTX. Accordingly, for accounting purposes, the financial statements of the combined entity represent a continuation of the financial statements of Better with the business combination being treated as the equivalent of Legacy BTX issuing stock for the net assets of MCAD, accompanied by a recapitalization. The net assets of MCAD are stated at fair value with no goodwill or other intangible assets recorded. Operations prior to the merger are those of Legacy BTX.

As a result of the Business Combination, the shares and corresponding capital amounts and loss per share related to Legacy BTX's outstanding convertible preferred stock and common stock prior to the Business Combination have been retroactively restated to reflect the exchange ratio established in the Merger Agreement. For additional information on the Business Combination, refer to Note 2 of these financial statements.

We are a remote, "fully distributed" company, and do not have offices.

Basis of Presentation

The financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments consisting of normal recurring accruals considered necessary for fair presentation have been included. Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ended December 31, 2022. Accordingly, these interim financial statements should be read in conjunction with the audited financial statements and accompanying notes for the years ended December 31, 2021 and 2020.

Reclassification

Certain prior year amounts have been reclassified for consistency with the current period presentation. An adjustment has been made to the Statement of Operations and Comprehensive Loss for the three and six months ended June 30, 2021 to reclassify $142 and $297 thousand of cost of sales into research and development expense to align with industry standards, respectively. This change in classification does not affect previously reported net loss in the Statement of Operations and Comprehensive Loss.

6


BETTER THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

Emerging Growth Company Status

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued after the enactment of the JOBS Act until such time as those standards apply to private companies. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this extended transition period and, as a result, we do not adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies until required by private company accounting standards.

Liquidity and Capital Resources

The Company is in the development stage and our activities have consisted principally of raising capital and performing research and development. Since inception we have incurred significant losses from operations. As of June 30, 2022, we had cash of $29.7 million and an accumulated deficit of $91.3 million. We incurred a net loss of $19.6 million and used $15.6 million of cash in operating activities during the six months ended June 30, 2022. Our primary use of cash is to fund operating expenses, which consist of research and development expenses related to our lead product candidate, BT-001, preclinical programs and general and administrative expenses. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.

We have incurred negative cash flows from operating activities and investing activities and significant losses from operations in the past. We expect to incur substantial expenses in the foreseeable future for the development and potential commercialization of our product candidates and ongoing internal research and development programs. At this time, we cannot reasonably estimate the nature, timing or aggregate amount of costs for our development, potential commercialization, and internal research and development programs. However, in order to complete our planned product development, and to complete the process of obtaining regulatory authorization or clearance for our product candidates, as well as to build the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize our product candidates, if approved, we will require substantial additional funding in the future. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us, or at all. If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would be adversely affected. Under our current operating plan, we believe we have sufficient capital to fund our operations into the first quarter of 2023. These factors raise substantial doubt regarding the Company's ability to continue as a going concern.

Significant Risks and Uncertainties

The Company is subject to those risks common in its industry and also those risks common to early-stage companies including, but not limited to, the possibility of not being able to successfully develop or market its products, technological obsolescence, competition, dependence on key personnel, the successful protection of its proprietary technologies, compliance with government regulations, and the possibility of not being able to obtain additional financing when needed.

At this time, there remains uncertainty relating to the ongoing COVID-19 pandemic and the impact of related responses. Any impact of COVID-19 on our business, results of operations and financial condition will largely depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions, the ultimate impact on financial markets and the global economy, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.

7


BETTER THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make certain estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the financial statements, as well as the reported amounts of revenue and expenses during the periods presented. The estimates and assumptions used in the accompanying financial statements are based upon management’s evaluation of the relevant facts and circumstances. Such estimates, judgments, and assumptions include estimated costs for capitalized internal-use software, fair values of stock-based awards, valuation allowance for deferred tax assets and fair value of SAFEs. Actual results could be different from these estimates. To the extent there are material differences between these estimates, judgments, or assumptions and actual results, our financial statements will be affected.

Net Loss Per Share Attributable to Common Stockholders

Basic and diluted net loss per share attributable to common stock is presented in conformity with the two-class method required for participating securities. Under the two-class method, the net loss attributable to common stock is not allocated to the preferred stock as the holders of our convertible preferred stock did not have a contractual obligation to share in our losses. Under the two-class method, net loss is attributed to common stock and participating securities based on their participation rights. Basic net loss per share attributable to common stock is computed by dividing the net loss attributable to common stock by the weighted-average number of shares of common stock outstanding during the period. Cumulative dividends attributable to participating securities are subtracted from net loss in determining net loss attributable to common stockholders. As we have reported net losses for all periods presented, all potentially dilutive securities are anti-dilutive and, accordingly, basic net loss per share equals diluted net loss per share.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which modifies lease accounting for lessees to increase transparency and comparability by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, and ASU No. 2018-11, Leases (Topic 842), Targeted Improvements, which affect certain aspects of the previously issued guidance. In December 2018, the FASB issued ASU No. 2018-20, Narrow-Scope Improvements for Lessor, Leases (Topic 842), which provides guidance on sales tax and other taxes collected from lessees. In December 2019, the FASB issued ASU No. 2019-01, Codification Improvements to Topic 842, Leases, which affect certain aspects of the previously issued guidance. Amendments include an additional transition method that allows entities to apply the new standard on the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings, as well as a new practical expedient for lessors.

We adopted ASC 842 on January 1, 2022. The adoption of this guidance did not have any impact on our financial statements.

Note 2. Business Combination

On April 6, 2021, the Company entered into a merger agreement with MCAD, a special purpose acquisition company. In connection with the merger agreement, MCAD entered into subscription agreements (the “Subscription Agreements”) dated as of April 6, 2021, with certain institutional and accredited investors, pursuant to which, among other things, MCAD agreed to issue and sell, in a private placement immediately prior to the closing of the Business Combination, an aggregate of 5.0 million shares of Common Stock for $10.00 per share (the “PIPE Shares”).

On October 28, 2021, pursuant to the terms of the merger agreement, we completed the merger with MCAD. We raised $59 million in funding upon the completion of the merger with MCAD. Under the merger Agreement, MCAD acquired all of the outstanding shares of Legacy BTX in exchange for 15.2 million shares of MCAD. In connection with the merger, MCAD was renamed Better Therapeutics, Inc.

8


BETTER THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

We accounted for the business combination as a reverse recapitalization, which is the equivalent of Legacy BTX issuing stock for the net assets of MCAD, accompanied by a recapitalization, with MCAD treated as the acquired company for accounting purposes. The determination of MCAD as the “acquired” company for accounting purposes was primarily based on the fact that subsequent to the business combination, Legacy BTX has a majority of the voting power of the combined company, Legacy BTX will comprise all of the ongoing operations of the combined entity, a majority of the governing body of the combined company and Legacy BTXs' senior management will comprise all of the senior management of the combined company. The net assets of MCAD were stated at historical cost with no goodwill or other intangible assets recorded. Reported results from operations included herein prior to the business combination are those of Legacy BTX. The shares and corresponding capital amounts and loss per share related to Legacy BTXs' outstanding redeemable convertible preferred stock, redeemable convertible common stock and common stock prior to the business combination have been retroactively restated to reflect the exchange ratio established in the business combination of .9475.

In connection with the business combination, we incurred underwriting fees and other costs considered direct and incremental to the transaction totaling $16.7 million consisting of legal, accounting, financial advisory and other professional fees.

PIPE Financing (Private Placement)

Concurrent with the execution of the Business Combination Agreement, we entered into subscription agreement with MCAD. Pursuant to the Subscription Agreements, each PIPE Investor subscribed for and purchased, and MCAD issued and sold to such investors an aggregate of 5 million shares of MCAD Common Stock for a purchase price of $10.00 per share, for aggregate gross proceeds of $50.0 million (the PIPE Financing).

We received $9,485 million of MCAD cash and cash held in trust for net proceeds of $42,761. In addition, we also assumed $43 thousand of prepaid assets and $245 thousand of accrued liabilities upon the closing of the business combination.

Note 3. Debt

On May 9, 2020 (the “Origination Date”), the Company received $640 thousand in aggregate loan proceeds (the “PPP Loan”) from Celtic Bank Corporation (the “Lender”) pursuant to the Paycheck Protection Program established under the CARES Act (the Coronavirus Aid, Relief, and Economic Security Act) of 2020. Payments of principal and interest were deferred for the first ten months following the Origination Date, and the PPP Loan was maturing in two years after the Origination Date. Following the deferral period, the Company was required to make payments of principal and interest accrued under the PPP Loan in monthly installments of $36 thousand and taking into consideration any portion of the PPP Loan that may be forgiven prior to that time. The PPP Loan bore interest at 1%. On December 30, 2020, the Company applied for loan forgiveness under the CARES Act and received approval of loan forgiveness in May 2021. As a result, the Company recorded a gain on loan forgiveness on the statements of operations and comprehensive loss and removed the balance from long-term debt on the balance sheet in the second quarter of 2021.

9


BETTER THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

On August 18, 2021, we entered into a $50.0 million secured term loan agreement with Hercules Capital, Inc. (“Hercules Capital”). The term loan has a maturity date of August 1, 2025, which can be extended to February 1, 2026, and is secured by substantially all of our assets. Payments due for the term loan are interest-only until March 1, 2023 (subject to extension to September 1, 2023 or September 1, 2024 upon the achievement of certain milestones), after which principal shall be repaid in equal monthly installments. Interest is payable monthly in arrears. The outstanding principal bears interest at the greater of (a) 8.95% or (b) 8.95% plus the prime rate minus 3.25%. Prepayment of the outstanding principal is permitted under the secured term loan agreement and subject to certain prepayment fees. The Company incurred $518 thousand of debt issuance costs related to the borrowings under the secured term loan agreement. Debt issuance costs are being amortized through the maturity date of the secured loan and are reported as direct reduction of long-term debt on the balance sheet. In addition, we will be required to pay an end of term charge of the greater of (a) $893 thousand or (b) 5.95% of the aggregate outstanding principal upon repayment of the loan. The end of term charge is being accrued as additional interest expense using the effective interest method over the term of the loan. The secured term loan agreement contains customary representations, warranties, non-financial covenants, and events of default. We are permitted to borrow the loans in four tranches based on the completion of certain milestones which include, as set forth more fully in the secured term loan agreement: (i) $15.0 million upon the closing of the Business Combination, (ii) $10.0 million when we achieve certain positive clinical trial results sufficient to submit a de-novo classification request with respect to BT-001 and have initiated a second pivotal trial prior to September 15, 2022, (iii) $10.0 million when we have received FDA approval for such marketing of BT-001 for the improvement of glycemic control in people with T2D and received, prior to March 15, 2023, net cash proceeds of at least $40.0 million dollars from equity financings, and (iv) $15.0 million on or before June 15, 2023, subject to Hercules Capital's approval. In October 2021, we borrowed $10.0 million under our secured term loan agreement. In May 2022, we borrowed $5.0 million under our secured term loan agreement. As of June 30, 2022 and December 31, 2021 the outstanding debt balance, net of unamortized debt issuance costs was $14.7 million and $9.5 million, respectively. As of June 30, 2022 the interest rate was 10.45% and there was $127 thousand of accrued interest in other accrued liabilities.

Note 4. SAFE Agreements

Beginning in 2020, the Company issued Simple Agreements for Future Equity ("SAFEs") to fund its operations. The SAFEs included a provision allowing for cash redemption upon the occurrence of a change of control, the occurrence of which is outside the control of the Company. Therefore, the SAFEs were classified as marked-to-market liabilities, pursuant to ASC 480, in other long-term liabilities.

The SAFEs were marked to fair value as of June 30, 2021 resulting in a change in fair value reported as a loss of $2.8 million and $5.3 million for the three and six months ended June 30, 2021.

On October 28, 2021 in connection with the business combination all SAFEs were converted to common stock.

Note 5. Fair Value Measurements

The Company measures and reports certain financial instruments as assets and liabilities at fair value on a recurring basis.

The Company’s SAFE agreements were historically recorded at fair value in our balance sheet. The fair value of the Company’s SAFE agreements was based on significant inputs not observable in the market which cause the instrument to be classified as Level 3 measurements within the fair value hierarchy. We measured financial assets and liabilities at fair value at each reporting period using a fair value hierarchy that required the use of observable inputs and minimized the use of unobservable inputs. We define fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company assessed these assumptions and estimates on an on-going basis as additional data impacting the assumptions and estimates were obtained. Changes in the fair value of the SAFE agreements were recognized within the statement of operations and comprehensive loss. The fair value of the Company’s SAFE agreements was zero as of June 30, 2022 and December 31, 2021, respectively. As of June 30, 2022 and December 31, 2021, the Company did not have any other financial assets or liabilities measured at fair value.

10


BETTER THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

Note 6. Net Loss Per Share Attributable to Common Stockholders

Series Seed Preferred Stock, Series A Preferred Stock, and common stock are participating securities in the calculation of loss per share as they participate in undistributed earnings on an as-if-converted basis. Basic and diluted earnings per share was the same for each period presented as the inclusion of all potential common stock outstanding would have been anti-dilutive.

The following table sets forth the computation of basic and diluted loss (in thousands, except for share and per share amounts):

 

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net loss

 

$

(9,928

)

 

$

(8,650

)

 

$

(19,590

)

 

$

(13,980

)

Less: Cumulative preferred dividends allocated to Series A preferred stockholders

 

 

 

 

 

(394

)

 

 

 

 

 

(782

)

Net loss attributable to common stockholders, basic and diluted

 

$

(9,928

)

 

$

(9,044

)

 

$

(19,590

)

 

$

(14,762

)

Weighted-average common stock outstanding

 

 

23,655,680

 

 

 

11,109,052

 

 

 

23,630,523

 

 

 

11,102,081

 

Less: weighted-average shares of common stock subject to vesting

 

 

(62,685

)

 

 

(378,235

)

 

 

(131,545

)

 

 

(394,086

)

Weighted-average shares of common stock outstanding used in the calculation of basic and diluted net loss per share attributable to shareholders

 

 

23,592,995

 

 

 

10,730,818

 

 

 

23,498,978

 

 

 

10,707,996

 

Loss per share attributable to common shareholders, basic and diluted

 

$

(0.42

)

 

$

(0.84

)

 

$

(0.83

)

 

$

(1.38

)

 

The following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding, as they would be anti-dilutive:

 

 

Three and Six Months Ended
June 30,

 

 

 

2022

 

 

2021

 

SAFE agreements

 

 

 

 

 

3,013,815

 

Options to purchase common stock

 

 

2,718,290

 

 

 

227,125

 

 

 

 

2,718,290

 

 

 

3,240,940

 

 

Note 7. Share-Based Compensation

In August 2020, we adopted the Better Therapeutics, Inc. 2020 Stock Option and Grant Plan (the “2020 Plan”) to grant equity-based incentives to officers, directors, consultants and employees. The equity-based incentives include Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock Awards, Unrestricted Stock Awards, and Restricted Stock Units. A total of 807 thousand shares of our common stock have been reserved for issuance pursuant to the plan.

In October 2021, we adopted the Better Therapeutics Inc. 2021 Stock Option and Incentive Plan (the "2021 Plan") to grant equity based incentive to officers, directors, consultants and employees. The equity-based incentives include, Incentive Stock Options, Non-Qualified Stock Options, Stock appreciation rights, Restricted Stock Awards, Restricted Stock Units, Unrestricted Stock Awards, Cash-based Awards and Dividend Equivalent Rights. A total of 3.6 million shares of common stock were initially reserved for issuance. Additionally, on January 1, 2022 and each January 1 thereafter, the number of shares of Common Stock reserved and available for issuance under the Plan shall be cumulatively increased by five percent (5%) of the number of shares of Common Stock issued and outstanding on the immediately preceding December 31, or such lesser number of shares as approved by the Administrator (the “Annual Increase”). On January 1, 2022 the Company added 1.2 million shares to the plan for a total reserved for issuance of 4.8 million shares.

11


BETTER THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

In October 2021, we adopted the Better Therapeutics, Inc. 2021 Employee Stock Purchase Plan (the "ESPP") to provide eligible employees with opportunities to purchase shares of the Company's common stock. A total of 280 thousand shares of common stock were initially been reserved for issuance. Additionally on January 1, 2022 and each January 1 thereafter, the number of shares of Common Stock reserved for issuance under the ESPP shall be cumulatively increased by the lesser of (i) 560 thousand shares of Common stock, (ii) one percent (1%) of the number of shares of Common Stock issued and outstanding on the immediately preceding December 31, or (iii) such lesser number of shares of Common Stock as determined by the Administrator. On January 1, 2022 the Company added 236 thousand shares to the plan for a total reserved for issuance of 516 thousand shares.

Stock Options

Stock options granted generally vest over four years with 25% of the option shares vesting one year from the vesting commencement date and then ratably on a monthly basis over the following 36 months. Options generally expire 10 years from the date of grant. Stock option activity under the Plans for the periods presented is as follows:

 

 

 

Options Outstanding

 

 

 

Shares Subject
to Options
Outstanding

 

 

Weighted-
Average
Exercise
Price

 

 

Weighted
Average
Remaining
Contractual
Life
(Years)

 

 

Aggregate
Intrinsic
Value

 

Balance as of December 31, 2021

 

 

1,476,475

 

 

$

9.35

 

 

 

9.4

 

 

 

 

Granted

 

 

1,515,413

 

 

 

2.20

 

 

 

 

 

 

 

Exercised

 

 

(49,231

)

 

 

0.50