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 September 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 November 8, 2022, the registrant had 23,744,260 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

65

Item 3.

Defaults Upon Senior Securities

65

Item 4.

Mine Safety Disclosures

65

Item 5.

Other Information

65

Item 6.

Exhibits

66

Signatures

67

 

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

 

BETTER THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

ASSETS

 

(unaudited)

 

 

(audited)

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

22,305

 

 

$

40,566

 

Prepaid expenses

 

 

1,123

 

 

 

4,409

 

Other current assets

 

 

62

 

 

 

276

 

Total current assets

 

 

23,490

 

 

 

45,251

 

 

 

 

 

 

 

 

Capitalized software development costs, net

 

 

4,121

 

 

 

5,077

 

Property and equipment, net

 

 

122

 

 

 

82

 

Other long-term assets

 

 

488

 

 

 

548

 

Total Assets

 

$

28,221

 

 

$

50,958

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,255

 

 

$

1,523

 

Accrued payroll

 

 

2,477

 

 

 

1,352

 

Other accrued expenses

 

 

2,451

 

 

 

1,858

 

Current portion of long-term debt

 

 

3,129

 

 

 

 

Total current liabilities

 

 

9,312

 

 

 

4,733

 

 

 

 

 

 

 

 

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

 

 

11,657

 

 

 

9,505

 

Total liabilities

 

 

20,969

 

 

 

14,238

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Common stock, $0.0001 par value per share, 200,000,000 shares authorized as of
   September 30, 2022 and December 31, 2021 and
23,744,063 and 23,602,718 shares
   issued and outstanding as of September 30, 2022 and December 31, 2021,
   respectively

 

 

2

 

 

 

2

 

Additional paid-in capital

 

 

109,988

 

 

 

108,461

 

Accumulated deficit

 

 

(102,738

)

 

 

(71,743

)

Total Stockholders' Equity

 

 

7,252

 

 

 

36,720

 

Total Liabilities and Stockholders’ Equity

 

$

28,221

 

 

$

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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

5,477

 

 

$

6,667

 

 

$

13,391

 

 

$

13,082

 

Sales and marketing

 

 

1,557

 

 

 

552

 

 

 

5,284

 

 

 

1,159

 

General and administrative

 

 

3,962

 

 

 

1,776

 

 

 

11,265

 

 

 

4,215

 

Total operating expenses

 

 

10,996

 

 

 

8,995

 

 

 

29,940

 

 

 

18,456

 

Loss from operations

 

 

(10,996

)

 

 

(8,995

)

 

 

(29,940

)

 

 

(18,456

)

Interest expense, net

 

 

(406

)

 

 

 

 

 

(1,052

)

 

 

(3

)

Change in fair value of SAFEs

 

 

 

 

 

(3,466

)

 

 

 

 

 

(8,779

)

Gain on loan forgiveness

 

 

 

 

 

 

 

 

 

 

 

647

 

Loss before provision (benefit) from income taxes

 

 

(11,402

)

 

 

(12,461

)

 

 

(30,992

)

 

 

(26,591

)

Provision (benefit) from income taxes

 

 

3

 

 

 

 

 

 

3

 

 

 

(150

)

Net loss

 

 

(11,405

)

 

 

(12,461

)

 

 

(30,995

)

 

 

(26,441

)

Cumulative preferred dividends allocated to Series A Preferred Shareholders

 

 

 

 

 

(403

)

 

 

 

 

 

(1,185

)

Net loss attributable to common shareholders, basic and diluted

 

$

(11,405

)

 

$

(12,864

)

 

$

(30,995

)

 

$

(27,626

)

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

 

$

(0.48

)

 

$

(1.20

)

 

$

(1.32

)

 

$

(2.58

)

Weighted-average shares used in computing net loss per share

 

 

23,693,154

 

 

 

10,752,790

 

 

 

23,533,290

 

 

 

10,723,091

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(11,405

)

 

 

(11,405

)

Issuance of common stock

 

 

11,093

 

 

 

 

 

 

6

 

 

 

 

 

 

6

 

Share based compensation

 

 

 

 

 

 

 

 

597

 

 

 

 

 

 

597

 

Balance as of September 30, 2022

 

 

23,744,063

 

 

$

2

 

 

$

109,988

 

 

$

(102,738

)

 

$

7,252

 

 

 

 

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

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(12,461

)

 

 

(12,461

)

Share based compensation

 

 

 

 

 

 

 

 

23

 

 

 

 

 

 

23

 

Balance as of September 30, 2021, as adjusted

 

 

11,094,248

 

 

$

1

 

 

$

24,734

 

 

$

(57,849

)

 

$

(33,114

)

 

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

4


 

BETTER THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

 

Nine months ended
September 30,

 

 

 

2022

 

 

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net loss

 

$

(30,995

)

 

$

(26,441

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

2,008

 

 

 

1,068

 

Change in fair value of SAFEs

 

 

 

 

 

8,779

 

Share based compensation expense

 

 

1,375

 

 

 

85

 

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

 

 

3,560

 

 

 

(1,972

)

Accounts payable

 

 

(268

)

 

 

2,843

 

Accrued expenses and other liabilities

 

 

1,718

 

 

 

1,470

 

Net cash used in operating activities

 

 

(22,593

)

 

 

(14,967

)

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Purchase of property and equipment

 

 

(92

)

 

 

(18

)

Capitalized internal-use software costs

 

 

(728

)

 

 

(581

)

Net cash used in investing activities

 

 

(820

)

 

 

(599

)

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Proceeds from issuance of SAFE notes

 

 

 

 

 

18,675

 

Proceeds from exercise of common stock options

 

 

27

 

 

 

 

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

 

 

5,152

 

 

 

18,675

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

(18,261

)

 

 

3,109

 

Cash and cash equivalents, beginning of period

 

 

40,566

 

 

 

123

 

Cash and cash equivalents, end of period

 

$

22,305

 

 

$

3,232

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

(870

)

 

$

 

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 a novel form of cognitive behavioral therapy ("CBT") to address the root causes of cardiometabolic diseases. We are developing a proprietary platform of FDA-regulated, software-based, prescription digital therapeutics ("PDTs") for treating cardiometabolic conditions that share lifestyle behaviors as common root causes. Our clinically validated PDTs are intended to be prescribed by physicians and reimbursed by payers like traditional medicines. The CBT delivered by our PDTs is designed to enable 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, BT-001, completed a first-in-class randomized, controlled clinical trial of a prescription digital therapeutic for the treatment of patients with T2D 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. In October 2022, the U.S. Food and Drug Administration ("FDA") notified us that our de novo classification request seeking marketing authorization for BT-001, was accepted for substantive review, making it one step closer to potentially being the first validated, prescription solution to make CBT available to T2D patients 18 and older at scale, from their digital devices.

We initiated a real world evidence program to evaluate the long-term effectiveness and healthcare utilization changes associated with the use of BT-001 for the treatment of T2D. The randomized, controlled, multi-site studies are expected to enroll patients for a treatment period of at least 12 months. Change in A1c and healthcare resource utilization will be evaluated and compared to usual care. Interim study results are expected to be reported in 2023, once a sufficient number of patients have completed an incremental 180 days of treatment. The study is expected to generate evidence supporting payer coverage and reimbursement.

The Company completed enrollment in a first ever clinical study evaluating the feasibility of our digitally delivered CBT to reduce fatty liver and improve liver disease biomarkers as a potential treatment for NAFLD and NASH. The single arm interventional cohort study has completed enrollment of 22 adult patients from two specialized liver treatment clinics based in Arizona. We expect to announce top-line results in the fourth quarter of 2022.

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 nine months ended September 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 nine months ended September 30, 2021 to reclassify $201 and $498 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 September 30, 2022, we had cash of $22.3 million and an accumulated deficit of $102.7 million. We incurred a net loss of $31.0 million and used $22.6 million of cash in operating activities during the nine months ended September 30, 2022. Our primary use of cash is to fund operating expenses, which consist predominantly of research and development expenses related to our lead product candidate, BT-001, real world evidence 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, ongoing internal research and development programs and general and administrative activities. At this time, we cannot reasonably estimate the nature, timing or aggregate amount of costs for our development, potential commercialization, internal research and development programs and general and administrative activities. 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 through 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 and useful lives 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.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

 

Note 2. Business Combination

On April 6, 2021, the Company entered into a merger agreement with Mountain Crest Acquisition Corp. II, ("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 (as defined below), an aggregate of 5.0 million shares of Common Stock for $10.00 per share (the “PIPE Shares”).

8


BETTER THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

On October 28, 2021, pursuant to the terms of the merger agreement, MCAD merged with and into former Better Therapeutics, Inc, ("Legacy BTX"), (the "Business Combination"), with Legacy BTX surviving as a wholly owned subsidiary of MCAD with the new name Better Therapeutics, Inc. 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.

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, 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. We did not initiate a second pivotal trial prior to September 15, 2022 that was required under the secured term loan agreement, and as a result, the associated borrowing is no longer available to the Company. As of September 30, 2022 and December 31, 2021 the outstanding debt balance, net of unamortized debt issuance costs was $14.8 million and $9.5 million, respectively. As of September 30, 2022 the interest rate was 11.20% and there was $143 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 September 30, 2021 resulting in a change in fair value reported as a loss of $3.5 million and $8.8 million for the three and nine months ended September 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