Outlook Therapeutics Inc

1. Organization and Description of Business

Outlook Therapeutics, Inc. (“Outlook” or the “Company”) was incorporated in New Jersey on January 5, 2010, started operations in July 2011, reincorporated in Delaware by merging with and into a Delaware corporation in October 2015 and changed its name to “Outlook Therapeutics, Inc.” in November 2018. The Company is a biopharmaceutical company focused on developing and commercializing ONS-5010, an ophthalmic formulation of bevacizumab for use in retinal indications. The Company is based in Iselin, New Jersey.

In the fourth quarter of calendar 2023, the Company agreed to conduct an additional adequate and well-controlled clinical trial following discussions with the U.S. Food and Drug Administration (“FDA”) in support of the Company’s Biologics License Application (“BLA”) for ONS-5010. In December 2023, the Company submitted a Special Protocol Assessment (“SPA”) to the FDA for this study (NORSE EIGHT) seeking confirmation that, if successful, it will address the FDA’s requirement for a second adequate and well-controlled clinical trial to support its planned resubmission of the ONS-5010 BLA. In January 2024, the Company received confirmation that the FDA has reviewed and agreed upon the NORSE EIGHT trial protocol pursuant to the SPA and that, if the NORSE EIGHT trial is successful, it would satisfy the FDA’s requirement for a second adequate and well-controlled clinical trial to address fully the clinical deficiency identified in the Complete Response Letter (“CRL”). The first subject was enrolled in NORSE EIGHT in January 2024. In addition, through a Type A meeting and additional interactions, the Company has identified the approaches needed to resolve the chemistry, manufacturing and controls (“CMC”) comments in the CRL.

Separately, in October 2022 the Company submitted a Marketing Authorization Application (“MAA”), for ONS-5010 with the European Medicines Agency (“EMA”). On December 22, 2022, the Company’s MAA was validated for review by the EMA. The formal review process of the MAA by the EMA’s Committee for Medicinal Products for Human Use (“CHMP”) is now underway with an estimated decision date expected in the first half of calendar 2024. ONS-5010 is the Company’s sole product candidate in active development.

2. Liquidity

The Company has incurred recurring losses and negative cash flows from operations since its inception and has an accumulated deficit of $479,096,425 as of December 31, 2023. As of December 31, 2023, the Company had $37,666,716 of principal, accrued interest and exit fees due under an unsecured convertible promissory note issued in December 2022 (the “December 2022 Note”), maturing on April 1, 2024. As a result, there is substantial doubt about the Company’s ability to continue as a going concern. The accompanying unaudited interim consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The unaudited interim consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

In January 2024, the Company entered into a securities purchase agreement with the investors named therein, pursuant to which the Company agreed to sell and the investors agreed to purchase shares of common stock and accompanying warrants to purchase shares of common stock in a private placement (the "Private Placement”), for gross proceeds of up to $60,000,000 at closing, plus up to an additional $99,000,000 upon full cash exercise of the warrants. In addition, in January 2024, the Company entered into a securities purchase agreement with Syntone Ventures, LLC (“Syntone”), pursuant to which the Company agreed to sell and Syntone agreed to purchase shares of common stock and accompanying warrants to purchase shares of common stock in a private placement (the “Syntone Private Placement” and together with the Private Placement, the “Private Placements”), for gross proceeds of up to $5,000,000 at closing. Concurrently with the Private Placements, the Company entered into an amendment to the December 2022 Note (the “Note Amendment”), which, among other things, would extend the maturity of the December 2022 Note to July 1, 2025. Both the Private Placements and the Note Amendment are subject to satisfaction of certain closing conditions, including various required stockholder approvals and, with respect to the Syntone Private Placement, certain regulatory approvals. The Private Placements will not close, the shares of common stock and warrants will not be issued and the proceeds of the Private Placements will not be received by the Company unless and until the closing conditions are satisfied. Similarly, the Note Amendment will not

be effective unless the relevant conditions are satisfied. Therefore, there can be no assurance that the Private Placements and the Note Amendment will be successful. See Note 12 for additional information on the Private Placements and the Note Amendment.

Management does not believe that the existing cash and cash equivalents as of December 31, 2023 are sufficient to fund the Company’s operations through one year from the Form 10-Q filing date. However, management does believe that the existing cash and cash equivalents when combined with the expected proceeds from the Private Placements (subject to closing conditions being met and meeting the requirements for calling the associated warrants) are sufficient to support the Company’s operations through June 2025. If stockholders do not approve the Private Placements or the change in terms for the December 2022 Note at the upcoming annual meeting of stockholders, it would raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s consolidated financial statements do not include any adjustments that might be necessary if it is unable to continue as a going concern.

The Company’s future operations are highly dependent on a combination of factors, including (i) the timely and successful completion of additional financing discussed above; (ii) the Company’s ability to successfully begin marketing of its product candidates or complete revenue-generating partnerships with other companies; (iii) the success of its research and development; (iv) the development of competitive therapies by other biotechnology and pharmaceutical companies; and, ultimately, (v) regulatory approval and market acceptance of the Company’s proposed future products.

3. Basis of Presentation and Summary of Significant Accounting Policies

Basis of presentation

The accompanying unaudited interim consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).

In the opinion of management, the accompanying unaudited interim consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial position as of December 31, 2023 and its results of operations for the three months ended December 31, 2023 and 2022, cash flows for the three months ended December 31, 2023 and 2022, and stockholders’ (deficit) equity for the three months ended December 31, 2023 and 2022. Operating results for the three months ended December 31, 2023 are not necessarily indicative of the results that may be expected for the full year ending September 30, 2023. The unaudited interim consolidated financial statements presented herein do not contain all of the required disclosures under GAAP for annual consolidated financial statements. The accompanying unaudited interim consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and related notes as of and for the year ended September 30, 2023 included in the Company’s Annual Report on Form 10-K filed with the SEC on December 22, 2023.

Use of estimates

The preparation of the unaudited interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Due to the uncertainty of factors surrounding the estimates or judgments used in the preparation of the unaudited interim consolidated financial statements, such as the current macroeconomic environment, including as a result of inflation, high interest rates or ongoing overseas conflict, actual results may materially vary from these estimates. Estimates and assumptions are periodically reviewed, and the effects of revisions are reflected in the unaudited interim consolidated financial statements in the period they are determined to be necessary.

Net loss per share

Basic and diluted net loss per common share is determined by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period.

For purposes of calculating diluted loss per common share, the denominator includes both the weighted average common shares outstanding and the number of common stock equivalents if the inclusion of such common stock equivalents would be dilutive. Potentially dilutive securities include warrants, performance-based stock options and units, stock options and non-vested restricted stock unit (“RSU”) awards using the treasury stock method. For all periods presented, there is no difference in the number of shares used to compute basic and diluted shares due to the Company’s loss.

The following table sets forth the computation of basic loss per share and diluted loss per share:

The following potentially dilutive securities (in common stock equivalents) have been excluded from the computation of diluted weighted-average shares outstanding as of December 31, 2023 and 2022, as they would be antidilutive:

Recently issued accounting pronouncements

In November 2023, the FASB issued ASU 2023-07,Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07, which is applicable to entities with a single reportable segment and will primarily require enhanced disclosures about significant segment expenses and enhanced disclosures in interim periods. The guidance in ASU 2023-07 will be applied retrospectively and is effective for annual reporting periods in fiscal years beginning after December 15, 2023 and interim reporting periods in fiscal years beginning after December 31, 2024, with early adoption permitted. The Company is currently evaluating the impact that the adoption of ASU 2023-07 will have on its consolidated financial statements and disclosures.

In December 2023, the FASB issued ASU 2023-09,Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 which is intended to improve income tax disclosure requirements by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) the disaggregation of income taxes paid by jurisdiction. The guidance makes several other changes to the income tax disclosure requirements. The guidance in ASU 2023-09 will be effective for annual reporting periods in fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact that the adoption of ASU 2023-09 will have on its consolidated financial statements and disclosures.

4. Fair Value Measurements

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

The following table presents the Company’s liabilities that are measured at fair value on a recurring basis:

The table presented below is a summary of changes in the fair value of the Company’s Level 3 valuation for the warrant liability and unsecured convertible promissory note for the three months ended December 31, 2023:

As further described in Note 7, the Company elected the fair value option to account for the December 2022 Note. The fair value of the December 2022 Note is estimated using a binomial lattice model, which evaluates the payouts under hold,

convert or call decisions. Significant estimates in the binomial lattice model include the Company’s stock price, volatility, risk-free rate of return, and credit-adjusted discount rate.

The fair value of the December 2022 Note as of December 31, 2023 was estimated using a binomial lattice model with the following assumptions:

The warrants issued in connection with the convertible senior secured notes originally issued pursuant to that certain Note and Warrant Purchase Agreement dated December 22, 2017 are classified as liabilities on the accompanying unaudited interim consolidated balance sheets as the warrants include cash settlement features at the option of the holders under certain circumstances. The warrant liability is revalued each reporting period with the change in fair value recorded in the accompanying consolidated statements of operations until the warrants are exercised or expire. The fair value of the warrant liability is estimated using the Black-Scholes option pricing model using the following assumptions:

5.** Equity Method Investment**

In connection with the execution of a stock purchase agreement with Syntone Ventures LLC, the United States-based affiliate of Syntone Technologies Group Co. Ltd. (“Syntone PRC”) on May 22, 2020, the Company and Syntone PRC entered into a joint venture agreement pursuant to which they agreed to form a People’s Republic of China (“PRC”) joint venture, Beijing Syntone Biopharma Ltd (“Syntone JV”), that is 80% owned by Syntone PRC and 20% owned by the Company. As the Company can exert significant influence over, but does not control, Syntone JV’s operations through voting rights or representation on Syntone JV’s board of directors, the Company accounts for this investment using the equity method of accounting. Upon formation of Syntone JV in April 2021, the Company entered into a royalty-free license with Syntone JV for the development, commercialization and manufacture of ONS-5010 in the greater China market, which includes Hong Kong, Taiwan and Macau.

The Company made the initial investment of $900,000 in June 2020 and is committed to making capital contributions to Syntone JV of approximately $2,100,000, based upon the development plan contemplated in the license agreement. The maximum exposure to a loss as a result of the Company’s involvement in Syntone JV is limited to the initial investment and the future capital contributions totaling approximately $2,100,000.

6. Accrued Expenses

Accrued expenses consists of:

7. Debt

Debt consists of:

December 2022 Note

On December 22, 2022, the Company entered into a Securities Purchase Agreement and issued the December 2022 Note with a face amount of $31,820,000 to Streeterville Capital, LLC (the “Lender”), the holder of the Company’s unsecured promissory note issued in November 2021 (the “November 2021 Note”). The December 2022 Note has an original issue discount of $1,820,000. The Company received net proceeds of $18,052,461 upon the closing on December 28, 2022 after deducting the Lender’s transaction costs in connection with the issuance and a full payment of the remaining outstanding principal and accrued interest on the November 2021 Note. The November 2021 Note was cancelled upon repayment. See below for additional disclosures relating to November 2021 Note.

The December 2022 Note bears interest at 9.5% per annum and matures on April 1, 2024. The December 2022 Note contains customary covenants, including a restriction on the Company’s ability to pledge certain of the Company’s assets, subject to certain exceptions, without the Lender’s consent. Beginning on April 1, 2023, the Lender will have the right to convert the December 2022 Note at the Conversion Price (as defined below). The principal amount and conversion price of the December 2022 Note are subject to adjustment upon certain triggering events. In addition, the Company has the right to convert all or any portion of the outstanding balance under the December 2022 Note into shares of common stock at the Conversion Price if certain conditions have been met at the time of conversion, including if at any time after the six-month anniversary of the closing date, the daily volume-weighted average price of the common stock on Nasdaq equals or exceeds $2.50 per share (subject to adjustments for stock splits and stock combinations) for a period of 30 consecutive trading days. Payments may be made by the Company (i) in cash, (ii) in shares of common stock, with the number of shares being equal to the portion of the applicable payment amount divided by the Conversion Price (as defined below), or (iii) a combination of cash and shares of common stock. Any payments made by the Company in cash, including prepayments or repayment at maturity, will be subject to an additional fee of 7.5%. Upon the occurrence of certain events described in the December 2022 Note, including, among others, the Company’s failure to pay amounts due and payable under the December 2022 Note, events of insolvency or bankruptcy, failure to observe covenants contained in the Securities Purchase Agreement and the December 2022 Note, breaches of representations and warranties in the Securities Purchase Agreement, and the occurrence of certain transactions without the Lender’s consent (each such event, a “Trigger Event”), the Lender shall have the right, subject to certain exceptions, to increase the balance of the December 2022 Note by 10% for a Major Trigger Event (as defined in the December 2022 Note) and 5% for a Minor Trigger Event (as defined in the December 2022 Note). If a Trigger Event is not cured withinten (10) trading days of written notice thereof from the Lender, it will result in an event of default (such event, an “Event of Default”). Following an Event of Default, the Lender

may accelerate the December 2022 Note such that all amounts thereunder become immediately due and payable, and interest shall accrue at a rate of 22% annually until paid. Under the December 2022 Note, “Conversion Price” means, prior to a Major Trigger Event, $2.00 per share (subject to adjustment for stock splits and stock combinations), and following a Major Trigger Event, the lesser of (i) $2.00 per share (subject to adjustment for stock splits and stock combinations), and (ii)90% multiplied by the lowest closing bid price of the Company’s common stock in thethree trading days prior to the date on which the conversion notice is delivered. If the Conversion Price is below $0.1756 per share, the Company will be required to satisfy a conversion notice from the Lender in cash. Subject to certain exceptions, while the December 2022 Note is outstanding, the Lender will have a consent right on any future variable rate transactions or any debt and a 10% participation right in any future debt or equity financings.

In December 2023, the Company extended the maturity of the December 2022 Note from January 1, 2024 to April 1, 2024. The Company incurred a $475,000 extension fee, which was expensed in the three months ended December 31, 2023 and included in general and administrative expense in the unaudited interim consolidated statement of operations. In January 2024, the Company entered into the Note Amendment, which would further extend the maturity of the December 2022 Note to July 1, 2025. The Note Amendment is subject to satisfaction of certain closing conditions, including various required stockholder approvals. The Note Amendment will not be effective unless the relevant conditions are satisfied. Therefore, there can be no assurance that the Note Amendment will be successful. See Note 12 for additional information on the Note Amendment.

The Company elected to account for the December 2022 Note at fair value (Note 4) and was not required to bifurcate the conversion option as a derivative and as a result the original issue discount of $1,820,000 and debt issuance costs were written off upon election to fair value and accounted for as interest. During the three months ended December 31, 2022 the Company recognized $2,074,964 of interest expense related to the December 2022 Note related to original issue discount of $1,820,000 and other third party debt issuance costs of $254,964 as the Company elected the fair value option.

November 2021 Note

On November 16, 2021, the Company received $10,000,000 in net proceeds from the issuance of the November 2021 Note with a face amount of $10,220,000. Debt issuance costs totaling $820,000 were recorded as debt discount and were deducted from the principal. The debt discount was amortized as a component of interest expense over the term of the underlying debt using the effective interest method. The November 2021 Note bore interest at a rate of 9.5% per annum compounding daily and was set to mature on January 1, 2023. The Company could prepay all or a portion of the November 2021 Note at any time by paying 105% of the outstanding balance elected for pre-payment.

As discussed above, the November 2021 Note was cancelled using proceeds from the December 2022 Note issued to the same lender. The total repayment was $11,947,539, which represented 105% of the outstanding balance and included $1,158,609 of interest expense. The transaction has been accounted for as an extinguishment of the November 2021 Note. As a result, the Company recorded a loss on debt extinguishment of $577,659, which included $8,729 of unamortized debt discount, and prepayment fees of $568,930.

During the three months ended December 31, 2022, the Company recognized $454,866 of interest expense related to the November 2021 Note of which $190,775 was related to the amortization of debt discount.

8. Commitments and Contingencies

Litigation

On November 3, 2023, a securities class action lawsuit was filed against the Company and certain of its officers in the United States District Court for the District of New Jersey. The class action complaint alleges violations of the Securities Exchange Act of 1934, as amended, or the Exchange Act, in connection with allegedly false and misleading statements made by the Company related to the Company’s BLA during the period from December 29, 2022 through August 29,

2023. The complaint alleges, among other things, that the Company violated Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5 by failing to disclose that there was an alleged lack of evidence supporting ONS-5010 as a treatment for wet AMD and that we and/or our manufacturing partner had deficient CMC controls for ONS-5010, which remained unresolved at the time the Company’s BLA was re-submitted to the FDA and, as a result, the FDA was unlikely to approve the Company’s BLA, and that the Company’s stock price dropped when such information was disclosed. The plaintiffs in the class action complaint seek damages and interest, and an award of reasonable costs, including attorneys’ fees.

The pending lawsuit and any other related lawsuits are subject to inherent uncertainties, and the actual defense and disposition costs will depend upon many unknown factors. The outcome of the pending lawsuit and any other related lawsuits is necessarily uncertain. The Company could be forced to expend significant resources in the defense of the pending lawsuit and any additional lawsuits, and the Company may not prevail. In addition, the Company may incur substantial legal fees and costs in connection with such lawsuits. The Company currently is not able to estimate the possible cost to it from these matters, as the pending lawsuit is currently at an early stage, and the Company cannot be certain how long it may take to resolve the pending lawsuit or the possible amount of any damages that the Company may be required to pay. Such amounts could be material to the Company’s financial statements if it does not prevail in the defense of the pending lawsuit and any other related lawsuits, or even if it does prevail. The Company has not established any reserve for any potential liability relating to the pending lawsuit and any other related lawsuits. It is possible that the Company could, in the future, incur judgments or enter into settlements of claims for monetary damages.

Leases

Corporate office

In March 2021, the Company entered into athree-year term corporate office lease in Iselin, New Jersey that commenced on April 23, 2021.

Equipment leases

The Company has equipment leases, with terms between 12 and 36 months, recorded as finance leases. The equipment leases bear interest between 4.0% and 13.0% per annum.

Certain lease agreements contain provisions for future rent increases. Payments due under the lease contracts include minimum payments that the Company is obligated to make under the non-cancelable initial terms of the leases as the renewal terms are at the Company’s option. Lease expense is recorded as research and development or general and administrative based on the use of the leased asset.

The components of lease cost for the three months ended December 31, 2023 and 2022 are as follows:

Amounts reported in the unaudited interim consolidated balance sheets for leases where the Company is the lessee are as follows:

Other information related to leases for the three months ended December 31, 2023 and 2022 are as follows:

Future minimum lease payments under non-cancelable leases as of December 31, 2023 are as follows for the years ending September 30:

9. Common Stock and Stockholders’ Equity

Common stock

On March 29, 2023, following receipt of stockholder approval at the Company’s 2023 annual meeting of stockholders, the number of authorized shares of common stock under the Company’s Certificate of Incorporation was increased from 325,000,000 shares to 425,000,000 shares.

In December 2022, in a registered direct equity offering to certain institutional and accredited investors, including GMS Ventures and Investments (“GMS Ventures”), the Company’s largest stockholder, the Company issued 28,460,831 shares of common stock at a purchase price per share of $0.8784 for $23,208,679 in net proceeds after payment of placement agent fees and other offering costs. GMS Ventures purchased an aggregate of 14,230,418 shares of common stock in the registered direct equity offering. In connection with the registered direct equity offering, the Company issued to M.S. Howells & Co., the placement agent, warrants to purchase up to an aggregate of 515,755 shares of common stock at an exercise price of $1.05 per share, which warrants have athree-year term.

H.C. Wainwright & Co. At-the-Market Offering Agreement

On March 26, 2021, the Company entered into an At-the-Market Offering Agreement with H.C. Wainwright & Co., as sales agent (“Wainwright”) (the “Wainwright ATM Agreement” or the “Wainwright ATM Offering”), under which the Company may issue and sell shares of its common stock having an aggregate offering price of up to $40,000,000 from time to time through Wainwright. The Company incurred financing costs of $197,654, which were capitalized and are being reclassified to additional paid in capital on a pro rata basis when the Company sells common stock under the Wainwright ATM Offering.

Under the Wainwright ATM Agreement, the Company paid Wainwright a commission equal to 3.0% of the aggregate gross proceeds of any sales of common stock under the Wainwright ATM Agreement. The Company terminated the Wainwright ATM Agreement effective May 15, 2023. As a result, the Company wrote off unamortized deferred costs under the Wainwright ATM Agreement effective as of the termination date.

During the three months ended December 31, 2022, the Company sold 895,391 shares of common stock under the Wainwright ATM Offering and generated $1,089,105 in net proceeds. The Company paid fees to Wainwright and other issuance costs of $38,799.

BTIG, LLC At-the-Market Offering Agreement

On May 16, 2023, the Company entered into an At-the-Market Sales Agreement with BTIG, LLC (“BTIG”) as sales agent (the “BTIG ATM Agreement” or the “BTIG ATM Offering”), under which the Company may issue and sell shares of its common stock having an aggregate offering price of up to $100,000,000 from time to time through BTIG. The Company incurred financing costs of $353,688, which were capitalized and are being reclassified to additional paid in capital on a pro rata basis when the Company sells common stock under the BTIG ATM Offering. As of December 31, 2023, $331,512 of such deferred costs are included in other assets on the unaudited interim consolidated balance sheets.

Under the BTIG ATM Agreement, the Company pays BTIG a commission equal to 3.0% of the aggregate gross proceeds of any sales of common stock under the BTIG ATM Agreement. The offering of common stock pursuant to the BTIG ATM Agreement will terminate upon the earlier of (i) the sale of all common stock subject to the BTIG ATM Agreement or (ii) termination of the BTIG ATM Agreement in accordance with its terms.

No shares of common stock were sold under the BTIG ATM Offering during the three months ended December 31, 2023.

Common stock warrants

As of December 31, 2023, shares of common stock issuable upon the exercise of outstanding warrants were as follows:

10. Stock-Based Compensation

2011 Equity Incentive Plan

The Company’s 2011 Equity Compensation Plan (the “2011 Plan”) provided for the Company to sell or issue restricted common stock, RSUs, performance-based awards (“PSUs”), cash-based awards or to grant stock options for the purchase of common stock to officers, employees, consultants and directors of the Company. The 2011 Plan was administered by the board of directors or, at the discretion of the board of directors, by a committee of the board. As of December 31, 2023, PSUs representing 2,470 shares of the Company’s common stock were outstanding under the 2011 Plan. Effective with the December 2015 adoption of the 2015 Equity Incentive Plan, (the “2015 Plan”), no future awards under the 2011 Plan will be granted.

2015 Equity Incentive Plan

In December 2015, the Company adopted the 2015 Plan. The 2015 Plan provides for the grant of stock options, stock appreciation rights, restricted stock awards, RSU awards, performance stock awards and other forms of equity compensation to Company employees, directors and consultants. The aggregate number of shares of common stock authorized for issuance pursuant to the Company’s 2015 Plan is 42,265,841. As of December 31, 2023,15,389,080 shares remained available for grant under the 2015 Plan.

Stock options and RSUs are granted under the Company’s 2015 Plan and generally vest over a period ofone tofour years from the date of grant and, in the case of stock options, have a term of 10 years. The Company recognizes the grant date fair value of each option and RSU over its vesting period.

The Company recorded stock-based compensation expense in the following expense categories of its unaudited interim consolidated statements of operations for the three months ended December 31, 2023 and 2022:

Stock options

As of December 31, 2023 options to purchase common stock of the Company outstanding under the 2015 Plan were as follows:

The aggregate intrinsic value represents the total amount by which the fair value of the common stock subject to options exceeds the exercise price of the related options.

The weighted average grant date fair value of the options awarded to employees for the three months ended December 31, 2023 and 2022 was $0.26 and $0.99 per option, respectively. The fair value of the options was estimated on the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:

As of December 31, 2023, there was $7,989,001 of unrecognized compensation expense that is expected to be recognized over a weighted-average period of 1.9 years.

Performance-based stock options

The Company granted certain officers of the Company option awards whose vesting is contingent upon meeting company-wide performance goals. The performance stock options were granted “at-the-money” and have a term of 10 years.

The fair value of each option grant under the performance share option plan was estimated on the date of grant using the same option valuation model used for non-statutory options above. Compensation expense for performance-based stock options is only recognized when management determines it is probable that the awards will vest.

A summary of the activity under the performance share option plan as of December 31, 2023 and changes during the three months then ended are presented below.

The weighted average grant date fair value of the performance stock options awarded during the three months ended December 31, 2022, was $0.91 per option. As of December 31, 2023, the Company assessed that the performance conditions related to the performance options granted were not probable of achievement. The assessment was based on the relevant facts and circumstances and therefore no compensation costs were recognized. The fair value of the options was estimated on the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:

Performance-based stock units

The Company has issued PSUs, which generally have aten-year term from the date of grant. Upon exercise, the PSU holder receives common stock or cash at the Company’s discretion.

The following table summarizes the activity related to PSUs during the three months ended December 31, 2023:

11. Related-Party Transactions

MTTR - strategic partnership agreement (ONS-5010)

In February 2018, the Company entered into a strategic partnership agreement with MTTR to advise on regulatory, clinical and commercial strategy and assist in obtaining approval of ONS-5010.

In November 2018, the board of directors of the Company appointed Mr. Terry Dagnon as Chief Operations Officer and Mr. Jeff Evanson as Chief Commercial Officer. Both Mr. Dagnon and Mr. Evanson initially provided services to the Company pursuant to the February 2018 strategic partnership agreement with MTTR, as amended. Mr. Dagnon and Mr. Evanson were both principals in MTTR. Both Mr. Dagnon and Mr. Evanson were compensated directly by MTTR for services provided to the Company as the Company's Chief Operations Officer and Chief Commercial Officer, respectively, pursuant to the strategic partnership agreement until such agreement, as amended, was terminated effective March 19, 2020. The Company began compensating Mr. Dagnon and Mr. Evanson directly as consultants effective March 19, 2020 pursuant to their respective consulting agreements with the Company, which became effective March 19, 2020 following stockholder approval of the share issuances contemplated therein.

On January 27, 2020, the Company entered into a termination agreement and mutual release with MTTR to terminate the strategic partnership agreement. Pursuant to the agreement, the Company agreed (x) to issue to the four principals of MTTR (who include two of its named executive officers, Messrs. Dagnon and Evanson) an aggregate of 7,244,739 shares of its common stock, subject to stockholder approval, (y) to enter into consulting agreements with each of the four principals setting forth the terms of his respective compensation arrangement, and (z) to pay MTTR a one-time settlement fee of $110,000 upon effectiveness of the agreement. The restricted stock compensation expense was accelerated during the year ended September 30, 2022 as a result of the Company achieving certain performance conditions related to the Company’s BLA submission and the corresponding repurchase rights lapsing.

Concurrently, the Company also entered into consulting agreements directly with each of the four principals of MTTR setting forth the terms of his respective compensation arrangement, as well as providing for certain transfer restrictions and repurchase rights applicable to the shares of common stock to be issued pursuant hereto. The termination agreement and the consulting agreements became effective upon stockholder approval of the share issuance on March 19, 2020.

On December 21, 2021, the Company entered into employment agreements with each of Mr. Dagnon and Mr. Evanson, which superseded and replaced their prior consulting agreements. Pursuant to their new employment agreements, each of Mr. Dagnon and Mr. Evanson will receive abase salary of$450,000 and a discretionary annual cash bonus with atarget amount equal to 50% of his respective base salary. In connection with their entry into the employment agreements, each of Mr. Dagnon and Mr. Evanson received a grant of 800,000 options to purchase common stock, one quarter of which will vest on the first anniversary of the grant and the remainder of which will vest in monthly installments over the succeeding three years, subject to their continued service through each vesting date. In addition, each of Mr. Dagnon and Mr. Evanson received a performance grant of 200,000 options to purchase common stock, which will vest upon the Company’s achievement of certain milestones. An aggregate of 200,000 performance-based stock options vested as a result of achieving the performance condition related to the Company’s BLA submission.

Mr. Dagnon transitioned from Chief Operations Officer to Senior Advisor on December 6, 2023, as part of the Company's strategic organizational realignment program.

During the three months ended December 31, 2023 and 2022, MTTR and its four principals under the strategic partnership agreement and the subsequent individual consulting agreements earned an aggregate of$60,000 and$58,069, respectively, which includes monthly consulting fees and expense reimbursement. There wereno amounts payable to the former MTTR principals at December 31, 2023 and September 30, 2023.

12. Subsequent Events

Private Placement

Securities Purchase Agreement

On January 22, 2024, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with the institutional and accredited investors named therein (the “Investors”), pursuant to which the Company agreed to issue and sell to the Investors, and the Investors agreed to purchase, in the Private Placement an aggregate of$60,000,000 in shares (the “Shares”) of the Company’s common stock, par value$0.01 per share, and, for each Share issued in the Private Placement, accompanying warrants to purchase up toone and a half shares of common stock (the “Warrants” and, together with the Shares, the “Securities”). The purchase price per Share and accompanying Warrant will be equal to the lower of (a)$0.35 and (b) the Market Price of the common stock as of the Closing (as defined below) (the “Per Share Price”). “Market Price” means the lower of (i) the closing price of the common stock on the Nasdaq Capital Market as of the trading day immediately preceding Closing (the “Pricing Date”) and (ii) the volume weighted average price (“VWAP”) of the common stock on the Nasdaq Capital Market over the five trading days prior to the Closing (but in no event lower than$0.07 per share).

The Warrants will have a per share exercise price equal to 110% of the Per Share Price, subject to proportional adjustments in the event of stock splits or combinations or similar events (such as the reverse stock split to be implemented prior to Closing as discussed below). The Warrants will be exercisable only for cash, except in limited circumstances, at any time after the date of issuance (the “Issue Date”) and will expire five years from the Issue Date. A holder of Warrants may not exercise the Warrant if the holder, together with its affiliates, would beneficially own more than a specified percentage of the outstanding common stock (4.99%,9.99% or 19.99%, as applicable), immediately after giving effect to such exercise (the “Beneficial Ownership Limitation”), which may be increased or decreased at the holders’ option (not to exceed 19.99%), effective 61 days after written notice to the Company. In addition, the Company may require the holders to cash exercise the Warrants under certain circumstances as follows: (i) if the VWAP of the common stock equals or exceeds $1.00 per share (subject to adjustment in the event of stock splits, combinations or similar events, such as the reverse stock split to be implemented prior to Closing as discussed below) for 30 consecutive days (the “Stock Price Condition”) at any time after the Company publicly announces topline data from its NORSE EIGHT clinical trial evidencing satisfaction of the trial’s primary endpoints (the “NORSE EIGHT Announcement”), upon the consent of a majority of the members of the Company’s Board of Directors (the “Board”), the Company may require the holders to exercise up to 20% of the aggregate number of Warrants issued to such holder on the Issue Date; and (ii) the Company may require up to the remainder of the Warrants be exercised (A) if the Stock Price Condition is satisfied at any time after the Company publicly announces approval from the FDA of its BLA for ONS-5010, upon the consent of a majority of the members of the Board or (B) if the Stock Price Condition is satisfied at any time after the NORSE EIGHT Announcement, upon the unanimous consent of the members of the Company’s Board of Directors present at duly called meeting.

The closing of the Private Placement (the “Closing”) is conditioned on (i) the filing of an amendment to the Company’s certificate of incorporation to increase the number of authorized shares of common stock by at least a number of shares sufficient to issue the Shares and the shares of common stock issuable upon exercise of the Warrants (the “Warrant Shares”), (ii) the implementation of a reverse stock split of the common stock, and (iii) stockholder approval of the issuance of the Securities in the Private Placement. The Company intends to seek to obtain approval of each of the foregoing at its 2024 annual meeting of stockholders (collectively, the “Stockholder Approval”). The Private Placement will not close, the Securities will not be issued, and the proceeds of the Private Placement will not be received by the Company unless and until the Stockholder Approval is obtained and the reverse stock split is implemented. The Company anticipates receiving gross proceeds of $60,000,000 at the Closing and may receive up to an additional $99,000,000 of gross proceeds upon cash exercise of the Warrants, in each case before deducting placement agent fees and offering expenses. Bank of America Securities and BTIG acted as co-placement agents in connection with the financing.

The Securities Purchase Agreement may be terminated if the Stockholder Approval is not obtained by April 15, 2024 or if Closing has not occurred prior to the 15th trading day following receipt of Stockholder Approval.

Syntone Private Placement

Purchase Agreement

In addition, on January 22, 2024, the Company entered into a securities purchase agreement (the “Syntone Purchase Agreement”) with Syntone, pursuant to which Syntone agreed to purchase $5,000,000 of shares of common stock (the “Syntone Shares”) and, for each Syntone Share issued under the Syntone Purchase Agreement, accompanying warrants to purchase up toone and a half shares of common stock (the “Syntone Warrants”) on substantially the same terms as those set forth in the Securities Purchase Agreement and the Warrants, subject to receipt of certain regulatory approvals (the “Syntone Private Placement” and, together with the Private Placement, the “Private Placements”), in addition to the closing conditions noted above.

December 2022 Note Amendment

On January 22, 2024, the Company entered into the Note Amendment with the December 2022 Lender. Pursuant to the Note Amendment, the Lender agreed, subject to the satisfaction of certain conditions, to the following conditional amendments (collectively, the “Conditional Amendments”): (i) a reduction in the initial conversion price with respect to $15,000,000 in aggregate principal amount of the Note to the price per share in an issuance of equity securities by the Company resulting in aggregate gross proceeds of at least $25,000,000 (a “Qualified Offering”) (which the Company expects to result in a reduction of the initial conversion price such that it equals the Per Share Price in the Private Placement) (the “Conversion Price Adjustment”), which would apply to conversions on or after April 1, 2024; (ii) an extension of the maturity date of the Note to July 1, 2025; (iii) an extension fee of 7.5% of the outstanding balance of the Note, which amount will be calculated and added to the outstanding balance on the date a Qualified Offering is completed; (iv) an increase of the rate at which interest will accrue on the Note from 9.5% to the prime rate (as published in the Wall Street Journal) plus 3% (subject to a floor of 9.5%); and (v) an obligation of the Company to repay at least $3,000,000 of the outstanding balance of the Note for each calendar quarter beginning with the second quarter of 2024 (subject to adjustment for conversions by the Lender and to payment of an exit fee as set forth in the December 2022 Note and continuing until it is repaid in full.