SEELOS THERAPEUTICS, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-K)

Overview

We are a clinical-stage biopharmaceutical company focused on achieving efficient
development of products that address significant unmet needs in Central Nervous
System ("CNS") disorders and other rare disorders.



Impact of COVID-19

In March 2020, we began taking precautionary measures to protect the health and
safety of our employees and contractors and further assessing the actual and
potential impact of the coronavirus ("COVID-19") pandemic on our business,
financial condition and operations. COVID-19 infections have been reported
throughout the United States, along with other jurisdictions in which our
suppliers, partners and collaborators operate. In addition, COVID-19 has caused
disruption and volatility in the global capital markets, and has led to an
economic slowdown. Certain national, provincial, state and local governmental
authorities have issued proclamations and/or directives aimed at minimizing the
spread of COVID-19 and additional, more restrictive proclamations and/or
directives may be issued in the future. Before the COVID-19 outbreak, most of
our employees worked remotely. Up until the fourth quarter of 2021, we had not
experienced any significant delays with our past or ongoing clinical trials for
SLS-002, nor our start up activities for clinical trials for SLS-005. During the
fourth quarter of 2021 and through the issuance of this report, we have
experienced a slowdown in patient enrollment primarily due to staffing issues at
our study sites related to the spike in COVID-19 cases due to the Omicron
variant. Additionally, the pandemic has not materially affected our liquidity as
we maintain our resources in the form of cash.



In addition, although we do not currently expect the preventative measures taken
to date to have a material adverse impact on our business for the first quarter
of 2022, the continued impact of the COVID-19 pandemic on our business,
financial condition and results of operations is unknown and will depend on
future developments and risks, which are highly uncertain and cannot be
predicted. These developments and risks include, among others, the duration and
severity of the COVID-19 pandemic, the emergence or spread of new COVID-19
variants, the impact on the capital markets, the impact on our partners and the
regulatory agencies that oversee our sector and any additional preventative and
protective actions that governmental authorities, or we, may implement, any of
which may result in an extended period of business disruption, including
potential delays in commencing future clinical trials, or in completing
enrollment for any clinical trials we may commence or in the FDA or other
regulatory agencies conducting in-person inspections or accommodations for
alternatives to in-person inspections. Any resulting financial impact cannot be
reasonably estimated at this time, but the COVID-19 pandemic may force us to
make adjustments to our business, our plans and our timeline for developing
assets, including our programs. In addition, the pandemic is currently not
anticipated to have a material adverse impact on our business, financial
condition and results of operations, including our ability to raise additional
capital, although, if the pandemic continues at its current rate into the middle
of 2022, it could have a material adverse impact on our business. See Part I,
Item 1A, Risk Factors, for an additional discussion of risks related to
COVID-19.



On January 24, 2019, our company (which was formerly named "Apricus Biosciences,
Inc."), completed a business combination with Seelos Therapeutics, Inc., a
Delaware corporation ("STI"), in accordance with the terms of the Agreement and
Plan of Merger and Reorganization (the "Merger Agreement") entered into on July
30, 2018. Pursuant to the Merger Agreement, (i) a former subsidiary of ours
merged with and into STI, with STI (renamed "Seelos Corporation") continuing as
a wholly-owned subsidiary of ours and the surviving corporation of the merger
and (ii) our company was renamed "Seelos Therapeutics, Inc." (the "Merger").



Our business model is to advance multiple late-stage therapeutic candidates with
proven mechanisms of action that address large markets with unmet medical needs
and for which there is a strong economic and scientific rationale for
development.



55

Our product development pipeline is as follows:

                                          Development
  Product            Indication              Phase             Development Status

SLS-002 Acute Suicidal Phase II Open Patient Completed

 Intranasal    Ideation and Behavior                      enrollment and 

announced the

  Racemic         (ASIB) in Major                       initial topline 

part 1 data

  Ketamine      Depressive Disorder                     of the proof-of-concept study on
                       (MDD)                               May 17, 2021 and initiated
                                                            enrollment of Part 2 of a
                                                          registration directed study

  SLS-005       Amyotrophic Lateral          Phase      Startup activities completed; on
IV Trehalose      Sclerosis (ALS)           II/III       February 28, 2022, we announced
                                                        dosing of the first participants
                                                           in the registrational study

                   Spinocerebellar           Phase
                    Ataxia (SCA)            IIb/III       Startup 

activities initiated

                Sanfilippo Syndrome        Phase II      Obtaining natural 

historical data

SLS-004 Parkinson’s disease Pre-IND Ongoing preclinical studies

                        (PD)

Genetical therapy

  SLS-006       Parkinson's Disease          Phase       Considering studies to advance
                        (PD)                II/III           into late stage trials
  Partial
  Dopamine
  Agonist

  SLS-007       Parkinson's Disease         Pre-IND         Preclinical study ongoing
                        (PD)
  Peptide
 Inhibitor



Lead Programs

Our lead programs are currently SLS-002 for the potential treatment of Acute
Suicidal Ideation and Behavior ("ASIB") in patients with Major Depressive
Disorder ("MDD") and SLS-005 for the potential treatment of Amyotrophic Lateral
Sclerosis ("ALS") and Spinocerebellar Ataxia ("SCA"). SLS-005 for the potential
treatment of Sanfilippo Syndrome currently requires additional natural history
data, which is being considered.



SLS-002 is intranasal racemic ketamine with two investigational new drug
applications ("INDs"). The lead program is focused on the treatment of ASIB in
MDD. SLS-002 was originally derived from a Javelin Pharmaceuticals,
Inc./Hospira, Inc. program with 16 clinical studies involving approximately 500
subjects. SLS-002 addresses an unmet need for an efficacious drug to treat
suicidality in the United States. Traditionally, anti-depressants have been used
in this setting but many of the existing treatments are known to contribute to
an increased risk of suicidal thoughts in some circumstances, and if and when
they are effective, it often takes weeks for the full therapeutic effect to be
manifested. We believe there is a large opportunity in the United States and
European markets for products in this space. Based on information gathered from
the databases of the Agency for Healthcare Research and Quality, there were
approximately 1,000,000 visits to emergency rooms for suicide attempts in 2013
in the United States alone. Experimental studies suggest ketamine has the
potential to be a rapid, effective treatment for refractory depression and
suicidality.



The clinical development program for SLS-002 includes two parallel healthy
volunteer studies (Phase I). We announced interim data from our Phase I study of
SLS-002 during the quarterly period ended March 31, 2020. As a result, in March
2020, we completed a Type C meeting with the U.S. Food and Drug Administration
("FDA") and received guidance to conduct a Phase II proof of concept ("PoC")
study of SLS-002 for ASIB in patients with MDD, to support the further clinical
development of this product candidate, together with nonclinical data under

development.



56







As a result of the Type C meeting and the Fast Track designation for SLS-002 for
the treatment of ASIB in patients with MDD, we believe we are well positioned to
pursue the FDA's expedited programs for drug development and review.



On June 23, 2020, we announced the final safety data from our Phase I
pharmacokinetics/pharmacodynamics study of intranasal racemic ketamine (SLS-002)
as well as the planned design of a Phase II double blind, placebo-controlled PoC
study for ASIB in subjects with MDD. We initiated this PoC study in two parts:
Part 1 was an open-label study of 17 subjects, and is being followed by Part 2,
which is a double blind, placebo-controlled study of approximately 120 subjects.
On January 15, 2021, we announced dosing of the first subjects in Part 1 of the
PoC study. On March 5, 2021, we announced the completion of open-label
enrollment of subjects in Part 1 of the PoC study. On May 17, 2021, we announced
positive topline data from Part 1 of the POC study, the open-label cohort, of
our study of SLS-002 (intranasal racemic ketamine), demonstrating a significant
treatment effect and a well-tolerated safety profile for ASIB in patients with
MDD. This study enrolled 17 subjects diagnosed with MDD requiring psychiatric
hospitalization due to significant risk of suicide with a baseline score of ? 28
points on the Montgomery-Åsberg Depression Rating Scale ("MADRS"), a score of 5
or 6 on MADRS Item-10, a score of ? 15 points on the Sheehan-Suicidality
Tracking Scale (S-STS) total score and a history of previous suicide attempt(s),
as confirmed on the Columbia Suicide Severity Rating Scale (C-SSRS) with a
history of at least one actual attempt, or if the attempt was interrupted or
aborted, is judged to have been serious in intent. SLS-002 demonstrated a 76.5%
response rate (response meaning 50% reduction from baseline) in the primary
endpoint on MADRS twenty-four hours after first dose, with a mean reduction in
total score from 39.4 to 14.5 points.



On July 6, 2021, we announced dosing of the first subject in Part 2 of the
planned registration directed study. Based on feedback from a Type C meeting
with the FDA in June 2021, we are planning to increase the subjects in Part 2 to
increase the sample size and power to support a potential marketing application.



SLS-005 is IV trehalose, a protein stabilizer that crosses the
blood-brain-barrier and activates autophagy and the lysosomal pathway. Based on
preclinical and in vitro studies, there is a sound scientific rationale for
developing trehalose for the treatment of ALS, SCA and other indications such as
Sanfilippo Syndrome. Trehalose is a low molecular weight disaccharide (0.342
kDa) that protects against pathological processes in cells. It has been shown to
penetrate muscle and cross the blood-brain-barrier. In animal models of several
diseases associated with abnormal cellular protein aggregation, it has been
shown to reduce pathological aggregation of misfolded proteins as well as to
activate autophagy pathways through the activation of Transcription Factor EB
("TFEB"), a key factor in lysosomal and autophagy gene expression. Activation of
TFEB is an emerging therapeutic target for a number of diseases with pathologic
accumulation of storage material.



Trehalose 90.5 mg/mL IV solution has demonstrated promising clinical potential
in prior Phase II clinical development for oculopharyngeal muscular dystrophy
("OPMD") and spinocerebellar ataxia type 3 ("SCA3"), also known as Machado
Joseph disease, with no significant safety signals to date and encouraging
efficacy results. Pathological accumulation of protein aggregates within cells,
whether in the CNS or in muscle, eventually leads to loss of function and
ultimately cell death. Prior preclinical studies indicate that this platform has
the potential to prevent mutant protein aggregation in other devastating
PolyA/PolyQ diseases.



57







We own three United States patents for parenteral administration of trehalose
for patients with OPMD and SCA3, all of which are expected to expire in 2034. In
addition, Orphan Drug Designation ("ODD") for OPMD and SCA3 has been secured in
the United States and in the European Union ("EU"). In February 2019, we assumed
a collaborative agreement, turned subsequently into a research grant, with Team
Sanfilippo Foundation ("TSF"), a nonprofit medical research foundation founded
by parents of children with Sanfilippo Syndrome. On April 30, 2020, we were
granted ODD for SLS-005 in Sanfilippo Syndrome from the FDA. SLS-005 was
previously granted ODD from the FDA and European Medicines Agency for SCA3 and
OPMD as well as Fast Track designation for OPMD. On August 25, 2020, we were
issued U.S. patent number 10,751,353 titled "COMPOSITIONS AND METHODS FOR
TREATING AN AGGREGATION DISEASE OR DISORDER" which relates to trehalose
(SLS-005). The issued patent covers the method of use for trehalose (SLS-005)
formulation for treating a disease or disorder selected from any one of the
following: spinal and bulbar muscular atrophy, dentatombral-pallidoluysian
atrophy, Pick's disease, corticobasal degeneration, progressive supranuclear
palsy, frontotemporal dementia or parkinsonism linked to chromosome 17. On May
15, 2020, we were granted Rare Pediatric Disease Designation ("RPDD") for
SLS-005 in Sanfilippo Syndrome from the FDA. RPDD is an incentive program
created under the Federal Food, Drug, and Cosmetic Act to encourage the
development of new therapies for the prevention and treatment of certain rare
pediatric diseases. On May 27, 2021, we announced that we were granted ODD for
SLS-005 in ALS from the European Medicines Agency. In December 2020, we
announced the selection of SLS-005 for the Healey ALS platform trial led by
Harvard Medical School, Massachusetts. The Healey ALS platform trial is designed
to study multiple potential treatments for ALS simultaneously. The platform
trial model aims to greatly accelerate the study access, reduce costs and
shorten development timelines. On February 28, 2022, we announced the dosing of
the first participants in the Healey ALS platform trial. In November 2021, we
announced the FDA acceptance of an IND and grant of Fast Track designation for
SLS-005 for the treatment of SCA. We have begun the start up activities for

a
Phase IIb/III study for SCA.

Additionally, we are developing several preclinical programs, most of which have
well-defined mechanisms of action, including SLS-004, licensed from Duke
University, and SLS-007, licensed from The Regents of the University of
California, for the potential treatment of Parkinson's Disease ("PD"), SLS-008,
targeted at chronic inflammation in asthma, atopic dermatitis and orphan
indications such as pediatric esophagitis, SLS-010 in narcolepsy and related
disorders and SLS-012, an injectable therapy for post-operative pain management.



Strategy and Ongoing Programs

SLS-002: The clinical development program for SLS-002 includes two parallel
healthy volunteer studies (Phase I). Following these Phase I studies, we
completed a Type C meeting with the FDA in March 2020 and received guidance to
conduct a Phase II PoC study of SLS-002 for ASIB in subjects with MDD. We
released topline data for Part 1 of our open-label study on May 17, 2021. We
initiated enrollment in Part 2 of the registration directed study on July 6,
2021.



SLS-005is undergoing startup activities for clinical studies in ALS and SCA. In
December 2020, we announced the selection of SLS-005 for the Healey ALS platform
trial led by Harvard Medical School, Massachusetts. The Healey ALS platform
trial is designed to study multiple potential treatments for ALS simultaneously.
The platform trial model aims to greatly accelerate the study access, reduce
costs, and shorten development timelines. On February 28, 2022, we announced
dosing of the first participants in the Healey ALS platform trial. In November
2021, we announced the FDA acceptance of an IND and grant of Fast Track
designation for SLS-005 for the treatment of SCA. We have begun the start up
activities for a Phase IIb/III study for SCA. We are continuing to consider
trials in Sanfilippo Syndrome and are seeking more natural history data based on
the guidance from regulatory agencies.



58







SLS-004 is an all-in-one lentiviral vector, targeted for gene editing through
DNA methylation within intron 1 of the synuclein alpha ("SNCA") gene responsible
for expressing alpha-synuclein protein. SLS-004, when delivered to dopaminergic
neurons derived from human induced pluripotent stem cells of a PD patient,
modified the expression on alpha-synuclein ("?-synuclein") and exhibited
reversal of the disease-related cellular-phenotype characteristics of the
neurons. The role of mutated SNCA in PD pathogenesis and the need to maintain
the normal physiological levels of ?-synuclein protein emphasize the yet unmet
need to develop new therapeutic strategies, such as SLS-004, targeting the
regulatory mechanism of ?-synuclein expression. On May 28, 2020, we announced
the initiation of a preclinical study of SLS-004 in PD through an all-in-one
lentiviral vector targeting the SNCA gene. We are constructing a bimodular viral
system harboring an endogenous ?-synuclein transgene and inducible regulated
repressive CRISPR/Cas9-unit to achieve constitutive activation and inducible
suppression of PD-related pathologies. On July 7, 2021, we announced positive in
vivo data demonstrating down-regulation of SNCA mRNA and protein expression
under this study.



SLS-006 is a true partial dopamine agonist, originally developed by Wyeth
Pharmaceuticals, Inc., with previous clinical studies on 340 subjects in various
Phase I and Phase II studies. It is a potent D2/D3 agonist/antagonist that has
shown promising efficacy with statistical significance in Phase II studies in
early-stage PD patients and an attractive safety profile. Moreover, it has also
shown synergistic effect with reduced doses of L-DOPA. We are considering
studies to advance the product candidate into late-stage trials.



SLS-007 is a rationally designed peptide-based approach, targeting the
nonamyloid component core ("NACore") of ?-synuclein to inhibit the protein from
aggregation. Recent in vitro and cell culture research has shown that SLS-007
has the ability to stop the propagation and seeding of ?-synuclein aggregates.
We will evaluate the potential for in vivo delivery of SLS-007 in a PD
transgenic mice model. The goal will be to establish in vivo
pharmacokinetics/pharmacodynamics and target engagement parameters of SLS-007, a
family of anti-?-synuclein peptidic inhibitors. On June 25, 2020, we announced
the initiation of a preclinical study of SLS-007 in PD delivered through an
adeno associated viral ("AAV") vector targeting the non-amyloid component core
of ?-synuclein. We have initiated an in vivo preclinical study of SLS-007 in
rodents to assess the ability of two specific novel peptides, S62 and S71,
delivered via AAV1/2 viral vector, to protect dopaminergic function in the
preformed ?-synuclein fibril rodent model of PD. Production of AAV1/2 vectors
encoding each of the two novel peptides incorporating hemagglutinin tags has
already been completed. This preclinical study is designed to establish the in
vivo pharmacokinetic and pharmacodynamic profiles and target engagement
parameters of SLS-007.



We intend to become a leading biopharmaceutical company focused on neurological
and psychiatric disorders, including orphan indications. Our business strategy
includes:

· advance SLS-002 in ASIB in MDD and post-traumatic stress disorder;

· advance SLS-004 to DP;

· advance SLS-005 in ALS, ACS and Sanfilippo syndrome;

· advancing SLS-007 in PD as monotherapy; and

acquisition of synergistic assets in the CNS therapeutic space through licensing and

   partnerships.




We also have two legacy product candidates: a product candidate in the United
States for the treatment of erectile dysfunction, which we in-licensed from
Warner Chilcott Company, Inc., now a subsidiary of Allergan plc; and a product
candidate which has completed a Phase IIa clinical trial for the treatment of
Raynaud's Phenomenon, secondary to scleroderma, for which we own worldwide

rights.



59







Results of Operations

Operating Expense

Operating expenses for the years ended December 31, 2021 and 2020 was as follows (in thousands, except percentages):

                                                                       Year Ended December 31,
                                        Year Ended December 31,               2021 vs 2020
                                        2021              2020           $ Change       % Change
Operating expense
   Research and development        $     46,649      $     10,984     $      35,665          325%
   General and administrative            15,020             7,775            7,245            93%
      Total operating expense      $     61,669      $     18,759     $      42,910          229%

Research and development costs

Research and development ("R&D") costs are expensed as they are incurred and
include the cost of compensation and related expenses, as well as expenses for
third parties who conduct R&D on our behalf. The $35.7 million increase in R&D
expense during the year ended December 31, 2021, as compared to the same period
in 2020, is detailed as follows (in thousands, except percentages):



                                                                       Year Ended December 31,
                                        Year Ended December 31,               2021 vs 2020
                                        2021              2020           $ Change       % Change
Research and development
expenses
   License payments                $     18,140      $        193     $      17,947           n/a
   Clinical trial expenses               17,382             4,868           12,514           257%
   Manufacturing expenses                 5,592             1,792             3,800          212%
   Employee compensation                  3,370             1,828            1,542            84%
   Contract consulting expenses           1,454             1,837            (383)           -21%
   Other research and                       711               466              245            53%
development expenses
Total research and development     $     46,649      $     10,984     $      35,665          325%
expenses


The $35.7 million increase in R&D expense during the year ended December 31,
2021, as compared to the same period in 2020, resulted primarily from an
increase in license fees of approximately $17.9 million, clinical trial costs of
approximately $12.5 million, and manufacturing costs to support increased
clinical activity of $3.8 million. These increases were partially offset by a
decrease in external consulting costs of approximately $0.4 million.

General and administrative expenses

General and administrative ("G&A") costs include expenses for personnel,
finance, legal, business development and investor relations. G&A expenses
increased by $7.2 million during the year ended December 31, 2021, as compared
to the same period in 2020. This increase was primarily due to non-cash
stock-based compensation of approximately $6.0 million, of which $4.9 million
relates to vesting of a performance stock unit award in the fourth quarter of
2021, and additional costs including, but not limited to, legal fees costs of
approximately $0.5 million during the year ended December 31, 2021. This
increase was partially offset by decreases in investor relations costs during
the year ended December 31, 2021 of $0.1 million.



60





Other Income and Expense

Other income and expense for the years ended December 31, 2021 and 2020 was as
follows (in thousands):

                                                    Year Ended December 31,
                                                   2021                 2020              $   Change
Other income (expense)
   Interest income                          $             113   $               45   $               68
   Interest expense                                   (1,598)                (164)              (1,434)
   Change in fair value of derivative                   (369)                    -                (369)

responsibility

   Change in fair value of convertible                    230                    -                  230

Remarks

   Net loss on extinguishment of debt                 (2,387)                    -              (2,387)
   Gain on forgiveness of debt                            149                    -                  149
   Change in fair value of warrant                      (517)                (223)                (294)

Passives

     Total other income (expense)           $         (4,379)   $            (342)   $          (4,037)




Interest Income



Interest income was $113,000 and $45,000 for the years ended December 31, 2021
and 2020, respectively. The increase in interest income was primarily related to
higher average cash balances during the year ended December 31, 2021 compared to
the year ended December 31, 2020.



Interest Expense

Interest charges were $1.6 million and $0.2 million for the years ended December 31, 2021 and 2020, respectively. The increase is attributable to the issuance of convertible bonds in December 2020.

Change in fair value of derivative liability

Change in fair value of derivative liability was $0.4 million for the years
ended December 31, 2021. This change is due to the revaluation of the embedded
derivative resulting from our license agreement with iX Biopharma Europe Ltd.,
which is required to be revalued at each reporting period, with changes in

fair
value reflected in earnings.

Change in fair value of convertible bonds

Change in fair value of convertible notes was $0.2 million and $0 for the years
ended December 31, 2021 and 2020, respectively. This change is due to our 2021
convertible notes issued in November 2021 and December 2021, which have been
accounted for under the fair value option and are revalued at each reporting
period, with changes in fair value reflected in earnings.

Net loss on extinguishment of debt

Net loss on extinguishment of debt was $2.4 million and $0 for the years ended
December 31, 2021 and 2020, respectively. This loss was primarily due to the
termination agreement with Lind Global Asset Management II, LLC ("Lind"),
whereby we issued Lind 406,250 shares with a fair value of $1.4 million, as well
as losses on extinguishments recognized on other principal payments on our 2020
convertible notes during the period.



Gain on Forgiveness of Debt

The gain on debt forgiveness was $149,000 and $0 for the years ended December 31, 2021 and 2020, respectively. This gain is due to the cancellation of our outstanding PPP loan, which we received in June 2021.

61

Change in fair value of warrant liability

The fair value of warrant liability was $0.4 million and $1.0 million at
December 31, 2021 and 2020, respectively. The change in fair value of warrant
liabilities of $0.5 million during the year ended December 31, 2021 is due to
revaluation of the Series A warrants during such period. The change in fair
value of warrant liabilities of $0.2 million during the year ended December 31,
2020 was due to revaluation of the Series A and Series B warrants during such
period.

Liquidity, capital resources and financial situation

We have generated limited revenues, incurred operating losses since inception,
and we expect to continue to incur significant operating losses for the
foreseeable future and may never become profitable. As of December 31, 2021, we
had $78.7 million in cash and an accumulated deficit of $141.2 million. We have
historically funded our operations through the issuance of convertible notes
(the "Notes") (see Note 9 to our consolidated financial statements), the sale of
common stock (see Note 6 to our consolidated financial statements) and the
exercise of warrants (see Note 10 to our consolidated financial statements).



On November 23, 2021, we entered into a Securities Purchase Agreement (the
"Securities Purchase Agreement") with Lind Global Asset Management V, LLC ("Lind
V") pursuant to which, among other things, on November 23, 2021 (the "Closing
Date"), we issued and sold to Lind V, in a private placement transaction (the
"Private Placement"), in exchange for the payment by Lind V of $20.0 million,
(1) a convertible promissory note (the "2021 Note") in an aggregate principal
amount of $22.0 million (the "Principal Amount"), which will bear no interest
until the first anniversary of the issuance of the First Note and will
thereafter bear interest at a rate of 5% per annum, and mature on November 23,
2024 (the "Maturity Date"), and (2) 534,759 shares (the "2021 Closing Shares")
of our common stock.

At the first anniversary of the Closing Date, we shall have the option, at our
sole discretion, to issue to Lind V a convertible promissory note (the "Second
Note") in the principal amount of $11.0 million in exchange for the payment by
Lind V of $10.0 million. At the earlier of (i) the two-year anniversary of the
Closing Date, or (ii) the successful readout for SLS-005 in ALS, and subject to
the mutual agreement of us and Lind V, we shall issue to Lind V a convertible
promissory note (the "Third Note") in the principal amount of $11.0 million in
exchange for the payment by Lind V of $10.0 million. In the event of the filing
of a new drug application with the U.S. Food & Drug Administration for either
SLS-002 or SLS-005, and subject to the mutual agreement of us and Lind V, we
shall issue to Lind a convertible promissory note (the "Fourth Note") in the
principal amount of $11.0 million in exchange for the payment by Lind V of $10.0
million. The Second Note, the Third Note and the Fourth Note, if issued, would
be in substantially the same form as the 2021 Note. See Note 9 to our
consolidated financial statements for further discussion.



On December 2, 2021, we entered into two separate securities purchase agreements
with certain accredited investors on substantially the same terms as the
Securities Purchase Agreement, pursuant to which we sold, in private placement
transactions, in exchange for the payment by the accredited investors of an
aggregate of $201,534, (i) convertible promissory notes (the "December 2021
Notes") in an aggregate principal amount of $221,688, which will bear no
interest and mature on December 2, 2024, and (ii) an aggregate of 5,388 shares
of our common stock. These notes have substantially the same terms as the 2021
Note.



On May 24, 2021, we completed an underwritten public offering pursuant to which
we sold 22,258,066 shares of our common stock at a price to the public of $3.10
per share, which included the exercise in full by the underwriter of its option
to purchase up to 2,903,226 additional shares of common stock. The net proceeds
to us from the offering were $64.5 million, after deducting underwriting
discounts and commissions and other estimated offering expenses payable by us
(see Note 6 to our consolidated financial statements). We used $7.3 million of
the net proceeds from the offering for the partial repayment of the Notes (as
defined below).

62

On January 28, 2021, we completed an underwritten public offering pursuant to
which we sold 17,530,488 shares of our common stock at a price to the public of
$2.05 per share, which included the exercise in full by the underwriter of its
option to purchase up to 2,286,585 additional shares of common stock. The net
proceeds to us from the offering were approximately $33.5 million, after
deducting underwriting discounts and commissions and other estimated offering
expenses payable by us. We used $3.8 million of the net proceeds from the
offering for the partial repayment of the Notes.



On December 11, 2020, we entered into a Securities Purchase Agreement (the "Lind
Securities Purchase Agreement") with Lind Global Asset Management II, LLC (the
"Investor") pursuant to which, among other things, on December 11, 2020, we
issued and sold to the Investor, in a private placement transaction, in exchange
for the payment by the Investor of $10,000,000, (1) a convertible promissory
note (the "2020 Note") in an aggregate principal amount of $12,000,000 (the
"Principal Amount"), which did not bear interest and was to mature on December
11, 2022 (the "Maturity Date"), and (2) 975,000 shares (the "2020 Closing
Shares") of our common stock. At any time following June 11, 2021, and from time
to time before the Maturity Date, the Investor had the option to convert any
portion of the then-outstanding Principal Amount of the 2020 Note into shares of
common stock at a price per share of $1.60, subject to adjustment for stock
splits, reverse stock splits, stock dividends and similar transactions (the
"Conversion Price"). Prior to June 11, 2021, we had the right to prepay up to
sixty-six and two-thirds percent (662/3%) of the then-outstanding Principal
Amount of the 2020 Note with no penalty. Subject to certain exceptions, we were
required to direct proceeds from any subsequent debt financings (including
subordinated debt, convertible debt or mandatorily redeemable preferred stock
but other than purchase money debt or capital lease obligations or other
indebtedness incurred in the ordinary course of business) to repay the 2020
Note, unless waived by the Investor in advance. The 2020 Note began amortizing
in June 2021 and was to amortize in eighteen monthly installments equal to the
quotient of (i) the then-outstanding Principal Amount of the 2020 Note, divided
by (ii) the number of months remaining until the Maturity Date. All amortization
payments were to be payable solely in cash, plus a 2% premium. On June 14, 2021,
we and the Investor entered into an Acknowledgment and Termination Agreement,
pursuant to which we agreed to issue to the Investor an aggregate of 406,250
additional shares of our common stock (the "Lind Shares") and to pay the
Investor the remaining principal amount of $790,804 (the "Final Payment") in
full satisfaction of our remaining obligations to the Investor under the 2020
Note. We issued the Lind Shares and made the Final Payment to the Investor, and
the Lind Securities Purchase Agreement and the 2020 Note terminated, effective
June 15, 2021.



On December 17, 2020, we entered into three separate securities purchase
agreements with certain accredited investors on substantially the same terms as
the Lind Securities Purchase Agreement (the "December 17 SPAs"), pursuant to
which we sold, in private placement transactions, in exchange for the payment by
the accredited investors of an aggregate of $1,138,023, (1) convertible
promissory notes (the "December 17 Notes") in an aggregate principal amount of
$1,365,628, which did not bear interest and was to mature on December 17, 2022,
and (2) an aggregate of 110,956 shares of our common stock. On December 18,
2020, we entered into an additional securities purchase agreement with an
accredited investor on substantially the same terms as the Lind Securities
Purchase Agreement (the "December 18 SPA" and, together with the December 17
SPAs, the "Subsequent Securities Purchase Agreements"), pursuant to which we
sold, in a private placement transaction, in exchange for the payment by the
accredited investor of $269,373, (1) a convertible promissory note (the
"December 18 Note" and, together with the December 17 Notes, the "Subsequent
Notes," and, together with the Note, the "Notes") in an aggregate principal
amount of $323,247, which did not bear interest and was to mature on December
18, 2022, and (2) 26,263 shares of our common stock. The Subsequent Securities
Purchase Agreements were entered into with certain accredited investors pursuant
to the right to participate in future offerings provided to the accredited
investors in connection with the registered direct offering we completed in
September 2020. The Subsequent Securities Purchase Agreements had substantially
the same terms as the Lind Securities Purchase Agreement, and the Subsequent
Notes had substantially the same terms as the Note. In connection with the
Subsequent Securities Purchase Agreements, we repaid $1.4 million of principal
amount of the Note on January 8, 2021. On July 7, 2021, we and the holder of the
December 18 Note (the "December 18 Note Holder") entered into an Acknowledgement
and Termination Agreement, pursuant to which: (i) the December 18 Note Holder
agreed to return to us $42,777 in cash (the "Repayment") previously paid by us
to the December 18 Note Holder as a payment against our obligations under the
December 18 Note, and (ii) we agreed to issue to the December 18 Note Holder an
aggregate of 43,664 additional shares of our common stock (the "December 18 Note
Shares") in full satisfaction of our remaining obligations to the December 18
Note Holder under the December 18 Note. The December 18 Note Holder paid us the
Repayment and we issued the December Note Shares, and the December 18 SPA and
the December 18 Note terminated, effective July 7, 2021.



63

On September 4, 2020, we entered into a Securities Purchase Agreement with
certain institutional investors (the "September 2020 Securities Purchase
Agreement"), pursuant to which we issued and sold an aggregate of 8,865,000
shares of common stock in a registered direct offering, resulting in total gross
proceeds of approximately $6.4 million, after deducting the placement agent's
fees and offering expenses (see Note 6 to our consolidated financial
statements). We also agreed to issue to the investors unregistered warrants to
purchase up to 6,648,750 shares of common stock in a concurrent private
placement (the "September 2020 Warrants"). The September 2020 Warrants have an
exercise price of $0.84 per share of common stock, will be exercisable six
months from the date of issuance and will expire on March 9, 2026. The combined
purchase price for one share and one warrant to purchase half of a share of
common stock in the offerings was $0.79.



On May 4, 2020, we qualified for and received a loan pursuant to the Paycheck
Protection Program, a program implemented by the U.S. Small Business
Administration under the Coronavirus Aid, Relief, and Economic Security Act,
from a qualified lender (the "PPP Lender"), for an aggregate principal amount of
approximately $147,000 (the "PPP Loan"). The PPP Loan bore interest at a fixed
rate of 1.0% per annum, with the first six months of interest deferred, had a
term of two years and was unsecured and guaranteed by the U.S. Small Business
Administration. The principal amount of the PPP Loan was subject to forgiveness
under the Paycheck Protection Program upon our request to the extent that the
PPP Loan proceeds are used to pay expenses permitted by the Paycheck Protection
Program, including payroll costs, covered rent and mortgage obligations and
covered utility payments incurred by us. We applied for and received full
forgiveness of the PPP Loan with respect to those covered expenses and recorded
a gain on forgiveness of debt during the year ended December 31, 2021.



On March 16, 2020, we completed an underwritten public offering pursuant to
which we sold 7,500,000 shares of our common stock at a price to the public of
$0.60 per share. The net proceeds to us from this offering were approximately
$4.0 million, after deducting underwriting discounts and commissions and other
offering expenses payable by us.



On February 13, 2020, we completed an underwritten public offering, pursuant to
which we sold 6,666,667 shares of our common stock at a price to the public of
$0.75 per share. On February 19, 2020, we sold an additional 999,999 shares of
our common stock at a price to the public of $0.75 per share pursuant to the
full exercise of the underwriters' option to cover over-allotments. The net
proceeds to us from this offering were approximately $5.0 million, after
deducting underwriting discounts and commissions and other offering expenses
payable by us.



During the years ended December 31, 2021 and 2020, we received approximately
$7.3 million and $45 thousand, respectively, in proceeds from the exercise of
warrants to purchase approximately 7.4 million and 154 thousand shares of our
common stock, respectively.

We expect to use the net proceeds from the above transactions primarily for
general corporate purposes, which may include financing our normal business
operations, developing new or existing product candidates, and funding capital
expenditures, acquisitions and investments. In addition, pursuant to the amended
and restated license agreement with Stuart Weg, M.D., we made an additional cash
payment of $0.2 million to Stuart Weg in January 2022. We believe that in order
for us to meet our obligations arising from normal business operations for the
next twelve months, we will require additional capital in the form of equity,
debt or both. Without additional capital, our ability to continue to operate
will be limited. Our accompanying audited consolidated financial statements do
not include any adjustments to the recoverability and classification of recorded
asset amounts and classification of liabilities that might be necessary should
we not be able to continue as a going concern.



We currently have an effective shelf registration statement on Form S-3 filed
with the SEC. We may use the shelf registration statement on Form S-3 to offer
from time to time any combination of debt securities, common and preferred stock
and warrants, and, as of the date hereof, a total of $95.1 million of securities
remains available for issuance pursuant to the shelf registration statement.



The accompanying audited consolidated financial statements have been prepared
assuming we will continue to operate as a going concern, which contemplates the
realization of assets and settlement of liabilities in the normal course of
business, and do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or the amounts and
classifications of liabilities that may result from uncertainty related to our
ability to continue as a going concern.



64

Our future liquidity and capital funding needs will depend on many factors, including:

•    our ability to raise additional funds to finance our operations;
•    our ability to maintain compliance with the listing requirements of The

Nasdaq Capital Market; • the outcome, costs and timing of any clinical trial results for our

     or future product candidates;
•    potential litigation expenses;
•    the emergence and effect of competing or complementary products or product

candidates;

• our ability to maintain, expand and defend the reach of our

     property portfolio, including the amount and timing of any payments we may
     be required to make, or that we may receive, in connection with the
     licensing, filing, prosecution, defense and enforcement of any patents or
     other intellectual property rights;
•    our ability to retain our current employees and the need and ability to

hire additional management, scientific and medical staff; • the terms and timing of any collaboration, license or other agreement

     that we have or may establish;
•    the trading price of our common stock;
•    our ability to secure a development partner for our product candidate in
     the United States for the treatment of ED; and
•    our ability to increase the number of authorized shares outstanding to
     facilitate future financing events.

We may need to raise substantial additional funds, and if we do so, we may do so
through one or more of the following: issuance of additional debt, equity, or
both and/or the completion of a licensing or other commercial transaction for
one or more of our product candidates. If we are unable to maintain sufficient
financial resources, our business, financial condition and results of operations
will be materially and adversely affected. This could adversely affect future
development and business activities, operations and business plans, such as
future clinical studies and/or other future ventures. There can be no assurance
that we will be able to obtain the needed financing on acceptable terms or at
all. Additionally, equity or convertible debt financings may have a dilutive
effect on the holdings of our existing stockholders. No assurances can be given
that we will be able to obtain additional financing.

Cash flow summary

The following table summarizes selected items in our consolidated statements of
cash flows (in thousands):

                                                       Year ended December 31,
                                                      2021                2020

Net cash (used in) provided by operations

Net cash used in operating activities ($48,995) ($20,913)

   Net cash provided by financing activities             112,067            

26,314

Net increase (decrease) in cash                $          63,072   $       

   5,401


Operating Activities



Cash used in operating activities of $49.0 million in the year ended December
31, 2021 was primarily due to the net loss of $66.0 million and changes in
operating assets and liabilities of $1.4 million, which was partially offset by
$8.3 million in stock compensation expense and $5.6 million in non-cash research
and development expense of licenses acquired.



Cash used in operating activities of $20.9 million in the year ended December
31, 2020 was primarily due to the net loss of $19.1 million and changes in
operating assets and liabilities of $4.5 million, which was partially offset by
$2.0 million in stock compensation expense.



65





Investing Activities

No cash was used for investing activities during the years ended December 31, 2021 or 2020.

Financing Activities

Cash provided by financing activities of $112.1 million in the year ended
December 31, 2021 was mainly due to the product of our May 2021 and
January 2021 public offerings, as well as proceeds from the issuance and sale of the 2021 Note and 2021 Closing Shares.

Cash provided by financing activities of $26.3 million in the year ended
December 31, 2020 was primarily due to the proceeds from the exercise of
warrants, the proceeds from the issuance and sale of the 2020 Note and the 2020
Closing Shares, the issuance and sale of common stock pursuant to the September
2020 Securities Purchase Agreement, the PPP Loan, and proceeds from our February
2020 and March 2020 public offerings.



Contractual Obligations



We have entered into long-term agreements with certain manufacturers and
suppliers that require us to make contractual payment to these organizations.
Further, we have entered into certain material contracts with contract research
organizations for our SLS-002, SLS-005, and other clinical programs, which
include varying cancellation fees in the event we delay or cancel our studies
with them. We expect to enter into additional collaborative research, contract
research, manufacturing, and supplier agreements in the future, which may
require up-front payments and long-term commitments of cash.

Recent accounting pronouncements

See Note 1 to our Consolidated Financial Statements for a discussion of recent accounting pronouncements and their effect, if any, on us.

Critical accounting estimates and policies

The preparation of financial statements in accordance with United States
generally accepted accounting principles ("GAAP") requires management to make
estimates and assumptions that affect the amounts reported in our consolidated
financial statements and accompanying notes. Management bases its estimates on
historical experience, market and other conditions, and various other
assumptions it believes to be reasonable. Although these estimates are based on
management's best knowledge of current events and actions that may impact us in
the future, the estimation process is, by its nature, uncertain given that
estimates depend on events over which we may not have control. If market and
other conditions change from those that we anticipate, our consolidated
financial statements may be materially affected. In addition, if our assumptions
change, we may need to revise our estimates, or take other corrective actions,
either of which may also have a material effect in our consolidated financial
statements. We review our estimates, judgments, and assumptions used in our
accounting practices periodically and reflect the effects of revisions in the
period in which they are deemed to be necessary. We believe that these estimates
are reasonable; however, our actual results may differ from these estimates.

We believe that the following critical accounting policies and estimates involve a higher degree of inherent uncertainty and require our most significant judgments:

66

Accumulated research and development expenses

Research and development costs are expensed as incurred and include salaries and
benefits; costs paid to third-party contractors to perform research, conduct
clinical trials, develop and manufacture pre-approval drug materials and
delivery devices. Clinical trial costs are a significant component of research
and development expenses and include costs associated with third-party
contractors. Invoicing from third-party contractors for services performed can
lag several months. We accrue the costs of services rendered in connection with
third-party contractor activities based on our estimate of management fees, site
management and monitoring costs and data management costs. Differences between
actual clinical trial costs from estimated clinical trial costs have not been
material and are adjusted for in the period in which they become known.



Stock Based Compensation

Stock based compensation expense includes charges related to options awards to
employees and directors. The estimated grant date fair value of stock options
granted to employees and directors is calculated based upon the closing stock
price of our common stock on the date of the grant and recognized as stock-based
compensation expense over the expected service period, which is typically
approximated by the vesting period.



We estimate the fair value of each option award on the date of grant using the
Black-Scholes option pricing model. The Black-Scholes option pricing model
requires us to estimate our dividend yield rate, expected volatility and
risk-free interest rate over the life of the option. The use of estimates on
these factors may cause the fair value of the option to be under or
overestimated (see Note 11 to our consolidated financial statements for the
current estimates used in the Black-Scholes option pricing model).

Valuation of Warrant Liabilities

Our outstanding Series A Warrants are classified as liabilities in the
accompanying consolidated balance sheets as they contain provisions that are
considered outside of our control, such as requiring us to maintain active
registration of the shares underlying such warrants. The warrants were recorded
at fair value using the Black-Scholes option pricing model. The fair value of
these warrants is re-measured at each financial reporting period with any
changes in fair value being recognized as a component of other income (expense)
in the accompanying consolidated statements of operations.

Valuation of Convertible Securities

Our outstanding Note and December 2021 Notes are accounted for under the fair
value option in the accompanying consolidated balance sheets, as permitted under
Accounting Standards Codification Topic 825, Financial Instruments. The
convertible notes were recorded at fair value using a Monte-Carlo simulation
model. The convertible notes are re-measured at each financial reporting period
with any changes in fair value being recognized as a component of other income
(expense) in the accompanying consolidated statements of operations.

© Edgar Online, source Previews