UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 8-K/A

(Amendment No. 2)

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): December 30, 2019

 

 

NeuroBo Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Registrant’s telephone number, including area code: (617) 313‑7331

Gemphire Therapeutics Inc.

P.O. Box 130235

Ann Arbor, MI 48113

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8‑K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐         Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐         Soliciting material pursuant to Rule 14a‑12 under the Exchange Act (17 CFR 240.14a‑12)

☐         Pre-commencement communications pursuant to Rule 14d‑2(b) under the Exchange Act (17 CFR 240.14d‑2(b))

☐         Pre-commencement communications pursuant to Rule 13e‑4(c) under the Exchange Act (17 CFR 240.13e‑4(c))

Securities registered pursuant to Section 12(b) of the Act:

 

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b‑2 of the Securities Exchange Act of 1934 (§240.12b‑2 of this chapter).

Emerging growth company  ☒

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

 

 

 

 

EXPLANATORY NOTE

On December 31, 2019, NeuroBo Pharmaceuticals, Inc., formerly known as Gemphire Therapeutics, Inc. (the “Company”), filed a Current Report on Form 8‑K  (the “Form 8‑K”) to report the completion on December 30, 2019 of the Company’s business combination with the private entity formerly known as NeuroBo Pharmaceuticals, Inc. (“NeuroBo”), in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of July 24, 2019, as amended on October 29, 2019, by and among the Company, NeuroBo and GR Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company (“Merger Sub”), pursuant to which, among other matters, Merger Sub merged with and into NeuroBo, with NeuroBo continuing as a wholly-owned subsidiary of the Company and the surviving corporation of the merger.

This Amendment No. 2 to the Form 8‑K amends and supplements Item 9.01 to include the financial information described in Item 9.01 below.  Except as stated in this Explanatory Note, no other information contained in the Form 8‑K, as amended by Amendment No. 1 to the Form 8‑K (filed on January 7, 2020), is changed.

Item 9.01.          Financial Statements and Exhibits.

(a)         Financial Statements of Business Acquired.

Reference is made to the Proxy Statement, which included the audited financial statements of NeuroBo as of and for the years ended December 31, 2018 and 2017, which are incorporated herein by reference in satisfaction of the Item 9.01(a) requirements for such information pursuant to General Instruction B.3 of Form 8‑K.

The unaudited interim financial statements of NeuroBo, including NeuroBo’s unaudited condensed consolidated balance sheet as of September 30, 2019, NeuroBo’s condensed consolidated balance sheet derived from audited financial statements as of December 31, 2018, unaudited condensed consolidated statements of operations for the nine months ended September 30, 2019 and 2018, unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 2019 and 2018 and the notes related thereto are filed as Exhibit 99.2 to this report and incorporated herein by reference.

(b)         Pro Forma Financial Information

The unaudited pro forma condensed combined financial information of the Company, including the unaudited pro forma condensed combined balance sheet as of September 30, 2019, the unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2019, the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2018 and the notes related thereto, is filed as Exhibit 99.3 to this report and incorporated herein by reference.

(d)         Exhibits

 

±    All schedules (or similar attachments) have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. NeuroBo Pharmaceuticals, Inc. will furnish copies of any schedules to the U.S. Securities and Exchange Commission upon request.

@   Management contract or compensatory plan or arrangement.

*     Previously filed as exhibits to the Form 8‑K (filed on December 31, 2019)

**   Previously filed as an exhibit to Amendment No. 1 to the Form 8‑K (filed on January 7, 2020)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

Exhibit 99.2

 

 

 

Unaudited Interim Financial Statements of NeuroBo Pharmaceuticals

 

 

Condensed Consolidated Balance Sheet

(in thousands except per share amounts)

 

 

See accompanying notes to unaudited interim condensed consolidated financial statements

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(in thousands except share and per share amounts)

 

 

See accompanying notes to unaudited interim condensed consolidated financial statements

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Deficit

Nine Months Ended September 30, 2019

(Unaudited)

(in thousands except share amounts)

 

 

Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders' Deficit

Nine Months Ended September 30, 2018

(Unaudited)

(in thousands except share amounts)

 

 

See accompanying notes to unaudited interim condensed consolidated financial statements

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

See accompanying notes to unaudited interim condensed consolidated financial statements

Notes to unaudited interim condensed consolidated financial statements

 

1. Organization and description of business

 

NeuroBo Pharmaceuticals, Inc. and subsidiary (the "Company" or "NeuroBo") is a clinical-stage biotechnology company focused on developing novel, plant-based pharmaceuticals to treat neurodegenerative disorders. NeuroBo is currently focused on the development of a treatment for Painful Diabetic Neuropathy, or PDN, with its lead product candidate, NB-01, expected to commence Phase 3 clinical development as a first-line, disease modifying treatment for PDN in the first half of 2020. NeuroBo's second product candidate, NB-02, is in development for the treatment of Alzheimer's Disease ("AZ") and other tauopathies, which are neurodegenerative diseases associated with the pathological accumulation of a protein known as tau in the human brain.

 

The Company was incorporated in the state of Delaware on July 25, 2017 but commenced significant operations in 2018. Those operations have consisted principally of performing research and development activities, clinical development and raising capital. The Company's activities are subject to significant risks and uncertainties, including failing to secure additional funding before sustainable revenues and profit from operations are achieved.

 

On July 24, 2019, Gemphire Therapeutics (“Gemphire”) and NeuroBo Pharmaceuticals, Inc. entered into a definitive agreement (the “Merger Agreement”), which was amended on October 29, 2019. The merger closed on December 30, 2019, whereby NeuroBo merged with a wholly-owned subsidiary of Gemphire in an all-stock transaction (the “Merger”). Upon completion of the Merger, Gemphire changed its name to NeuroBo Pharmaceuticals, Inc., and changed its ticker symbol on the Nasdaq Capital Market to "NRBO". The merged company will focus on the development of NeuroBo's clinical-stage drug candidates for the treatment of neurodegenerative diseases.

 

The condensed consolidated financial statements of the Company include its fully owned South Korean subsidiary, NeuroBo Co., LTD. All significant intercompany accounts and transactions have been eliminated in the preparation of the condensed financial statements.

 

Going Concern

 

From its inception through September 30, 2019, the Company has devoted substantially all of its efforts to drug discovery and development and conducting clinical trials. The Company has a limited operating history and the sales and income potential of the Company's business and market are unproven. Successful transition to attaining profitable operations is dependent upon achieving a level of revenues adequate to support the Company's cost structure. As of September 30, 2019 and December 31, 2018, the Company had $21.1 million and $2.8 million, respectively, in cash. The Company has experienced net losses and negative cash flows from operating activities since its inception and had an accumulated deficit of $23.5 million and $15.6 million, respectively, as of September 30, 2019 and December 31, 2018.

 

To date, the Company has raised capital principally through the issuance of convertible notes and private placements of redeemable convertible preferred stock. The Company has raised a total of $16.8 million from the issuance of Series A redeemable convertible preferred stock through December 31, 2018, and $24.2 million from the issuance of Series B redeemable convertible preferred stock in May and June 2019.

 

The Company will need to continue to raise a substantial amount of funds until it is able to generate revenues to fund its development activities. As a result, the Company believes that there is substantial doubt about its ability to continue as a going concern for one year after the date these condensed consolidated financial statements are released.

 

The determination as to whether the Company can continue as a going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company expects to continue to incur net losses and negative cash flows from operations into the foreseeable future. Successful transition to attaining profitable operations is dependent upon achieving a level of revenues adequate to support the Company's cost structure. The Company has incurred net losses since inception and has relied on its ability to fund its operations through debt and equity financings. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared assuming that the Company will

continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of the Company's assets and the satisfaction of liabilities in the normal course of business.

 

The Company believes that its existing cash will be sufficient to fund its operations into the third quarter of 2020. The Company plans to continue to fund its losses from operations and capital funding needs through a combination of equity offerings, debt financings, or other sources, potentially including collaborations, licenses and other similar arrangements. There can be no assurance that the Company will be able to obtain any sources of financing on acceptable terms, or at all. To the extent that the Company can raise additional funds by issuing equity securities, the Company's stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact the Company's ability to conduct its business.

 

2. Basis of presentation and summary of significant accounting policies

 

Basis of presentation and consolidation principles

 

The accompanying financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP).

 

On August 11, 2019 the Company's board of directors and stockholders approved an amendment to the restated certificate of incorporation to effect a ten thousand-for-one (10,000-for-1) stock split of the Company's common stock, options for common stock, and convertible preferred stock. The par value and the authorized shares of the common and convertible preferred stock were adjusted accordingly as a result of the stock split. All issued and outstanding common stock, options for common stock, and convertible preferred stock, as well as the exercise price of each option for common stock and the conversion price for convertible preferred stock, have been retroactively adjusted to reflect this stock split for all periods presented. All of the share and per share amounts have been adjusted, on a retroactive basis, to reflect this ten thousand-for-one (10,000-for-1) stock split.

 

Unaudited interim financial statements

 

The accompanying interim condensed consolidated balance sheet as of September 30, 2019, the condensed consolidated statements of operations and cash flows for the nine months ended September 30, 2018 and 2019 and the condensed consolidated statement of convertible preferred stock and stockholders' deficit for the nine months ended September 30, 2018 and September 30, 2019 and the related condensed consolidated footnote disclosures are unaudited and should be read in conjunction with the Company’s audited financial statements provided in the S-4. In management's opinion, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company's financial position as of September 30, 2019 and its results of operations and cash flows for the nine months ended September 30, 2018 and 2019 in accordance with U.S. GAAP. The results for the nine months ended September 30, 2019 are not necessarily indicative of the results expected for the full fiscal year or any other interim period.

 

Use of estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses, and related disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of expenses during the reporting period. The most significant estimates in Company's condensed consolidated financial statements relate to accrued expenses, and the fair value of stock-based compensation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgements about the carrying values of assets and liabilities. Actual results could differ from those estimates. Changes in estimates are reflected in reported results in the period in which they become known.

 

Net loss per share

 

Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding for the period, without consideration for potentially dilutive securities if their effect is antidilutive. Diluted net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding for the period determined using the treasury- stock and if-converted methods. Dilutive common stock equivalents are comprised of convertible preferred stock, convertible notes payable, and options outstanding under the Company's stock option plan. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding as inclusion of the potentially dilutive securities would be antidilutive.

 

Potentially dilutive securities not included in the calculation of diluted net loss per share because to do so would be anti-dilutive are as follows (in common stock equivalent shares):

 

 

Fair Value of common stock

 

In the absence of a public trading market, and as a development stage company with no significant revenues, the Company believes that it is appropriate to consider a range of factors to determine the fair value of the common stock at each grant date. In determining the fair value of its common stock, the Company uses methodologies, approaches, and assumptions consistent with the American Institute of Certified Public Accountants' (AICPA) Audit and Accounting Practice Aid Series: Valuation of Privately Held Company Equity Securities Issued as Compensation (the "AICPA Practice Guide"). The valuations of NeuroBo common stock were prepared using a hybrid method, which used market approaches to estimate the enterprise value of NeuroBo. The hybrid method is a probability-weighted expected return method ("PWERM"), where the equity value in one or more of the scenarios is calculated using an option pricing method, or ("OPM"). The PWERM is a scenario-based methodology that estimates the fair value of common stock based upon an analysis of future values for NeuroBo, assuming various outcomes. The common stock value is based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes available as well as the rights of each class of stock. The future value of the common stock under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value for the common stock. A discount for lack of marketability of the common stock is then applied to arrive at an indication of value for the common stock. The OPM treats common stock and preferred stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company's securities changes. Under this method, the common stock has value only if the funds available for distribution to stockholders exceeded the value of the preferred stock liquidation preferences at the time of the liquidity event, such as a strategic sale or a merger. In addition, the Company considered various objective and subjective factors, along with input from an independent third-party valuation firm. The factors included (1) the achievement of technical and operational milestones by the Company; (2) the status of strategic relationships with collaborators; (3) the significant risks associated with the Company's stage of development; (4) capital market conditions for life science companies, particularly similarly situated, privately held, early-stage life science companies; (5) the Company's available cash, financial condition, and results of operations; (6) the most recent sales of the Company's preferred stock to the extent they were with outside parties; and (7) the preferential rights of the outstanding preferred stock.

 

Leases

 

In the first quarter of 2019, the Company adopted Accounting Standards Update  (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). The Company assesses its contracts at inception to determine whether the contract

contains a lease, including evaluation of whether the contract conveys the right to control an explicitly or  implicitly identified asset for a period of time. The Company has recognized right-of-use assets and lease liabilities that represent the net present value of future operating lease payments utilizing a discount rate corresponding to the Company’s incremental borrowing rate and amortizing over the remaining terms of the leases. For operating leases of a short-term nature, i.e., those with a term of less than twelve months, the Company recognizes lease payments as an expense on a straight-line basis over the remaining lease term. See the Recently Adopted Accounting Pronouncements below for additional information related to the adoption of this guidance.

 

Recent accounting pronouncements

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its condensed consolidated financial position or results of operations upon adoption.

 

In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718) Improvements to Nonemployee Share-Based Payment Accounting ("ASU 2018-07"). This new guidance expands the scope of ASC 718, Compensation—Stock Compensation (ASC 718) to include share-based payments granted to nonemployees in exchange for goods or services used or consumed in an entity's own operations and supersedes the guidance in ASC 505-50, Equity-Based Payments to Non-Employees (ASC 505-50). Equity-classified nonemployee awards are measured on the grant date, rather than on the earlier of (1) the performance commitment date or (2) the date at which the nonemployee's performance is complete. Awards to nonemployees are measured by estimating the fair value of the equity instruments to be issued, rather than the fair value of the goods or services received or the fair value of the equity instruments issued, whichever can be measured more reliably. Entities may use the expected term to measure nonemployee options or elect to use the contractual term as the expected term, on an award-by-award basis. The Company adopted ASU 2018-07 in the first quarter of 2019. There was no impact on the Company's financial statements as a result of the adoption of this guidance.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”) which establishes new accounting and disclosure requirements for leases. ASU No. 2016-02 requires lessees to classify most leases as either finance or operating leases and to initially recognize a lease liability and right-of-use asset ("ASU 2016-02"). The Company adopted ASU 2016-02 in the first quarter of 2019 using the effective date approach to recognize and measure leases as of the adoption date. The Company has elected to utilize the available practical expedient to not separate lease components from non-lease components as well as the package of practical expedients that allows the Company not to reassess (1) whether any expired or existing contracts as of the adoption date are or contain a lease, (2) lease classification for any expired or existing leases as of the adoption date and (3) initial direct costs for any existing leases as of the adoption date. The Company also made an accounting policy election to recognize lease payment as an expense on a straight-line basis over the lease term for the short-term leases.

 

3. Balance Sheet Details

 

Other current assets consist of the following (in thousands):

 

 

Accrued expenses consist of the following (in thousands):

 

 

 

4. Common Stock and Redeemable Convertible Preferred Stock

 

Common Stock

 

As of September 30, 2019, and December 31, 2018, 50,000,000 and 45,800,000 shares, respectively, of common stock were authorized for issuance and 4,520,000 shares were issued and outstanding. The voting, dividend, and liquidation rights of the holders of the common stock are subject to and qualified by the rights, powers, and preferences of the holders of the Preferred Stock. The holders of the common stock are entitled to one vote for each share of common stock held at all meetings of stockholders.

 

Common Stock Reserved for Future Issuance

 

Common stock reserved for future issuance is as follows:

 

 

Preferred Series A and B Financing (in thousands except share amounts)

 

In April 2018, the Company sold and issued in a private placement 4,200,000 shares of Series A redeemable convertible preferred stock at $4.00 per share, raising $16,800 in gross proceeds and during May and June 2019, the Company sold and issued preferred stock at $8.00 per share, raising $24,240 in gross proceeds.

 

5. Convertible Promissory Notes (in thousands except share amounts)

 

In February 2018, the Company received a total of $500 from the issuance of convertible promissory notes (the "Convertible Notes") from the Company's current stockholders. The Convertible Notes have an original maturity date of December 31, 2022. The lenders have the option to convert all of the then-unpaid note balance including principal and accrued but unpaid interest into common stock, at a conversion price of $0.40 per share after the earlier of (A) the closing of a firmly underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of common stock for the account of the Company in the United States of America or similar registration in the Republic of Korea, or (B) January 1, 2020. On October 23, 2019, the lenders entered into agreements with NeuroBo pursuant to which the Convertible Notes converted into NeuroBo common stock at the closing of the Merger at a conversion price equal to $0.40 per share.

 

The Convertible Notes accrue interest at a rate of 5.00% per annum. The Company recorded related interest expense of $19 and $16 for the nine months ended September 30, 2019 and September 30, 2018, respectively.

 

The fair value of the common stock, as determined using an option pricing model consistent with the AICPA Practice Guide, was in excess of the conversion price of the Convertible Notes. Accordingly, the Company recorded a $401 beneficial conversion feature, based on the intrinsic value of the conversion feature, which resulted in a debt discount with a corresponding amount to additional paid in capital. The debt discount is being amortized over the life of the note using the effective interest method as an additional interest expense. The Company recorded interest expense of $26 and $12 for the nine months ended September 30, 2019 and September 30, 2018, respectively, related to the amortization of the debt discount.

 

On October 15, 2019, JK Biopharma Solutions, Inc. entered into assignment agreements with The E&Healthcare Investment Fund II, The E&Healthcare Investment Fund No.6 and The E&Healthcare Investment Fund No.7, shareholders of the Company, to transfer $200 of the $400 in aggregate principal amount of Convertible Notes owned by JK Biopharma Solutions, Inc. pursuant to the assignment agreements. The E&Healthcare Investment Fund II received $116 in principal amount of Convertible Notes, The E&Healthcare Investment Fund No.6 received $32 in principal amount of Convertible Notes and The E&Healthcare Investment Fund No.7 received $52 in principal amount of Convertible Notes.

 

6. Stock-Based Compensation (in thousands except share amounts)

 

2018 Stock Plan

 

In December 2018, the Company adopted the NeuroBo Pharmaceuticals, Inc. 2018 Stock Plan (the "Plan"). The Plan provides for the grant of stock options, restricted stock and other equity awards of the Company's common stock to employees, officers, consultants, and directors. Options expire within a period of not more than ten years from the date of grant. Options were granted to three non-employee consultants in January 2019 with both service and performance conditions. The options with service conditions vest quarterly over a period between one year and fifteen months.

 

The maximum aggregate number of shares of stock to be reserved under the Plan is ten percent (10%) of the outstanding shares of common stock, at any given point in time, on a fully diluted basis. As of September 30, 2019, 1,310,377 shares were allocated to the Plan; 840,000 shares were reserved for the exercise of outstanding stock options and 470,377 shares were reserved for future issuance.

 

A summary of the Company's stock option activity is as follows (in thousands, expect share and per share data):

 

 

The aggregate intrinsic values of options outstanding, vested and exercisable were calculated as the difference between the exercise price of the options and the estimated fair value of the Company's common stock of $3.29 per share as of September 30, 2019.

 

The fair values of the stock options granted under the Plan during 2019 were estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:

 

 

Risk-free interest rate.  The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the expected term of the awards.

 

Expected volatility.   Since the Company is not yet a public company and does not have a trading history for its common stock, the expected volatility assumption is based on volatilities of a peer group of similar companies whose share prices are publicly available. The peer group was developed based on companies in the biotechnology industry. The Company will continue to apply this process until enough historical information regarding the volatility of its own stock price becomes available.

 

Expected term.  The expected term represents the period that options are expected to be outstanding. Because the Company does not have historical exercise behavior, it determines the expected life assumption for employee grants using the simplified method which is an average of the contractual term of the option and its vesting period. For non-employee option grants, the Company estimates the expected term of the option to be equal to the contractual term of the option based on the accounting guidance.

 

Expected dividend yield.  The Company bases the expected dividend yield assumption on the fact that it has never paid cash dividends and has no present intention to pay cash dividends, therefore, the Company used an expected dividend yield of zero.

 

Stock-based compensation expense recognized for all equity awards has been reported in the condensed consolidated statements of operations as follows (in thousands):

 

 

No stock options were issued to employees for the nine months ended September 30, 2019, accordingly, the table above includes only stock-based compensation expense for non-employees. The weighted-average grant date fair value of option grants for the nine months ended September 30, 2019 was $0.57 per share. As of September 30, 2019, the total compensation expense related to non-vested options not yet recognized was $226 and is expected to be recognized over a weighted average term of 0.4 years.

 

7. Commitments and Contingencies

 

Operating Leases (in thousands)

 

In April 2018, the Company entered a non-cancelable operating lease for its headquarters in Boston, MA (the “Boston Lease”) expected to end in May 2019. The lease was subsequently amended, and the term was extended to August 2019 with an option to extend the term on a month-to-month basis. The Company exercised the option and extended the lease term on a month-to-month basis through January 15, 2020. The lease is subject to base lease payments and additional charges for common costs related to usage of shared space. Due to its short-term nature, the

Company recognizes lease payments as an expense on a straight-line basis over the remaining lease term. For the nine months ended September 30, 2019, the Boston Lease expense was $93. For the nine months ended September 30, 2018, the Boston Lease expense was $41.

 

In May 2019, the Company entered a non-cancelable operating lease for its new facility in Korea (the “Korea Lease”). The initial lease term is five years with an option to renew for an additional five-year term. The lease commenced on July 2, 2019 and expires on July 1, 2024. The operating lease is subject to a deposit, base rent payments and additional charges for utilities and other common costs. In the third quarter of 2019, the Company recognized a right-of-use asset of $126 as well as a lease liability of $20 in other current liabilities and $106 in other non-current liabilities in conjunction with the commencement of the lease. The Company’s lease liability represents the net present value of future lease payments utilizing a discount rate of 10%, which corresponds to the Company’s incremental borrowing rate. As of September 30, 2019, the weighted average remaining lease term was 4.8 years. For the nine months ended September 30, 2019, the Company recorded non-cash expense of $5 related to the Korea Lease. During the nine months ended September 30, 2019, the Company made cash payments of $8 for amounts included in the measurement of lease liabilities.

 

In September 2019, as amended, the Company entered a non-cancelable operating lease for its new corporate headquarters located in Boston, Massachusetts (“New Boston Lease”). The agreement, effective January 16, 2020, has a two-year term, and rental costs of $49 per month. No assets and liabilities were recognized for the New Boston Lease at September 30, 2019.

 

The following table reconciles the undiscounted lease liabilities to the total lease liabilities recognized on the unaudited condensed consolidated balance sheet as of September 30, 2019 (in thousands):

 

 

 

 

Future minimum lease payments at December 31, 2018 were as follows:

 

 

Xiehecheng Cultivation Service Agreement

 

On September 1, 2018, the Company entered into a cultivation service agreement with Xiehecheng Chinese Herm Limited Corporation for the cultivation of two plants used to manufacture the Company's lead clinical asset, NB-01.

 

As of September 30, 2019, future minimum payments under the agreement, which is cancellable annually at the end of each research year, are as follows (in thousands):

 

 

Advisory Agreement (in thousands)

 

On October 16, 2018, the Company entered into an agreement with Consilium Partners LLC for advisory services related to a certain type of transaction that would require the Company to pay the investment bank a success fee of $600 less 50% of fees paid under the advisory service agreement through the success date. Additionally, the investment bank is eligible for additional compensation based on certain metrics inherent in such transaction. As of September 30, 2019, the Company has accrued a success fee of $485.

 

Contingencies

 

From time to time, the Company may be subject to various claims and suits arising in the ordinary course of business. The Company does not expect that the resolution of these matters will have a material adverse effect on its financial position or results of operations.

 

8. Subsequent events

 

Except as described below, the Company has concluded that no subsequent event has occurred that requires disclosure.

 

On November 20, 2019 the Company exercised its lease option on the Boston Lease to extended the lease term on a month-to-month basis through January 15, 2020.

 

On November 20, 2019 the Company amended its New Boston Lease to amend the effective date to January 16, 2020.

 

On December 17, 2019, the Company removed John Brooks as the Company’s CEO.  Effective December 17, 2019, the Company terminated the consulting agreement with Healthcare Capital LLC pursuant to which Mr. Brooks was engaged to serve as the Company’s CEO.

 

On December 30, 2019, the Company completed its business combination with Gemphire Therapeutics Inc. (“Gemphire”), in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of July 24, 2019, as amended on October 29, 2019, by and among the Company, Gemphire and GR Merger Sub, Inc. (Merger Sub), a Delaware corporation and a wholly owned subsidiary of Gemphire, pursuant to which, among other matters, Merger Sub merged with and into the Company, with the Company continuing as a wholly-owned subsidiary of Gemphire and the surviving corporation of the merger (“the Merger”).  Upon completion of the Merger, Gemphire changed its name to NeuroBo Pharmaceuticals, Inc. (and changed its ticker symbol on the Nasdaq Capital Market to "NRBO”), and the Company changed its name to NeuroBo Therapeutics, Inc.

 

On December 30, 2019, in connection with the Merger, the Company, Grand Rapids Holders’ Representative, LLC, as representative of Gemphire’s stockholders prior to the Merger, and Computershare Inc. and Computershare Trust Company, N.A. as the rights agent, entered into a Contingent Value Rights Agreement (the “CVR Agreement”). For a description of the terms and conditions of the CVR Agreement, refer to “Agreements Related to the Merger—CVR Agreement” in the Company’s prospectus/definitive proxy statement filed with the U.S. Securities and Exchange Commission on November 6, 2019.

 

On January 13, 2020, each of the Company’s six non-employee directors was granted an option to purchase 60,000 shares of common stock, which vests in a series of 36 equal monthly installments, subject to the director’s continuous service through each monthly vesting date, and will vest in full upon the consummation of a Corporate Transaction (as defined in the 2019 Equity Incentive Plan).

 

Exhibit 99.3

Unaudited Pro Forma Condensed Combined Financial Statements

 

 

On December 30, 2019, NeuroBo Pharmaceuticals, Inc., formerly known as Gemphire Therapeutics Inc. (the “Company”), completed its business combination with the private entity formerly known as NeuroBo Pharmaceuticals, Inc. (“NeuroBo”), in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of July 24, 2019, as amended on October 29, 2019 (the “Merger Agreement”), by and among the Company, NeuroBo and GR Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company (“Merger Sub”), pursuant to which, among other matters, Merger Sub merged with and into NeuroBo, with NeuroBo continuing as a wholly owned subsidiary of the Company and the surviving corporation of the merger (the “Merger”).

The following unaudited pro forma combined balance sheet data assume that the Merger took place on September 30, 2019 and combines the historical balance sheets of the Company and NeuroBo as of such date. The following unaudited pro forma condensed combined statement of operations for the year ended December 31, 2018 and the nine months ended September 30, 2019 assumes that the Merger took place as of January 1, 2018 and combines the historical results of the Company and NeuroBo for the year ended December 31, 2018 and the nine months ended September 30, 2019, respectively.

The unaudited pro forma condensed combined financial information was prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of Article 11 of SEC Regulation S-X. The historical financial statements of the Company and NeuroBo have been adjusted to give pro forma effect to events that are (i) directly attributable to the transaction, (ii) factually supportable, and (iii) with respect to the unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the combined company's results.

The following unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting under U.S. GAAP. For accounting purposes, NeuroBo is considered to be acquiring the Company and the Merger is expected to be accounted for as an asset acquisition. NeuroBo is considered the accounting acquirer even though the Company was the issuer of the common stock in the Merger. To determine the accounting for this transaction under U.S. GAAP, a company must assess whether an integrated set of assets and activities should be accounted for as an acquisition of a business or an asset acquisition. The guidance requires an initial screen test to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single asset or group of similar assets. If that screen is met, the set is not a business. In connection with the acquisition of the Company, substantially all the fair value is concentrated in in-process research and development (“IPR&D”) and, as such, the acquisition is expected to be treated as an asset acquisition.

The Company's assets and liabilities will be measured and recognized at their relative fair values allocation as of the transaction date with any value associated with IPR&D being expensed as there is no alternative future use, and combined with the assets, liabilities and results of operations of NeuroBo after the consummation of the Merger.

The unaudited pro forma condensed combined financial information is based on the assumptions and adjustments that are described in the accompanying notes. The accounting for the transaction as an asset acquisition is dependent upon the valuation of the IPR&D and the final calculation of net working capital for the Company. Accordingly, the pro forma adjustments are preliminary, subject to further revision as additional information becomes available and additional analyses are performed and have been made solely for the purpose of providing unaudited pro forma condensed combined financial information. Differences between these preliminary estimates and the final accounting, expected to be completed after the closing of the Merger, will occur and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial information and the combined company's future results of operations and financial position. In addition, differences between the preliminary and final amounts will likely occur as a result of the amount of cash used for the Company's operations and other changes in the Company's assets and liabilities.

The unaudited pro forma condensed combined financial information does not give effect to the potential impact of current financial conditions, regulatory matters, operating efficiencies or other savings or expenses that may be associated with the integration of the two companies. The unaudited pro forma condensed combined financial information is preliminary and has been prepared for illustrative purposes only and is not necessarily indicative of the financial position or results of operations in future periods or the results that actually would have been realized had the

Company and NeuroBo been a combined company during the specified periods. The actual results reported in periods following the Merger may differ significantly from those reflected in the unaudited pro forma condensed combined financial information presented herein for a number of reasons, including, but not limited to, differences in the assumptions used to prepare this pro forma financial information.

The unaudited pro forma condensed combined financial information, including the notes thereto, should be read in conjunction with the separate historical financial statements of the Company and NeuroBo, and their respective management's discussion and analysis of financial condition and results of operations included in the Company’s prospectus/definitive proxy statement filed with the U.S. Securities and Exchange Commission on November 6, 2019.  The Company’s audited statement of operations for the year ended December 31, 2018 is derived from the Company's Annual Report on Form 10-K for the year ended December 31, 2018. The Company’s unaudited financial statements for the nine months ended September 30, 2019 are derived from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019.

Accounting rules require evaluation of certain assumptions, estimates, or determination of financial statement classifications which are completed during the measurement period as defined in current accounting standards. The accounting policies of the Company may materially vary from those of NeuroBo. During preparation of the unaudited pro forma condensed combined financial information, management has performed a preliminary analysis and is not aware of any material differences, and accordingly, this unaudited pro forma condensed combined financial information assumes no material differences in accounting policies. Following the acquisition, management will conduct a final review of the Company’s accounting policies in order to determine if differences in accounting policies require adjustment or reclassification of the Company's results of operations or reclassification of assets or liabilities to conform to NeuroBo’s accounting policies and classifications. As a result of this review, management may identify differences that, when conformed, could have a material impact on these unaudited pro forma condensed combined financial statements.

Given NeuroBo’s history of net losses and full valuation allowance, management assumed a statutory tax rate of 0%. Therefore the pro forma adjustments to the statement of operations resulted in no additional income tax adjustment to the pro forma financials.

Unaudited Pro Forma Condensed Combined Balance Sheet

September 30, 2019

(in thousands)

 

 

See accompanying notes to the unaudited pro forma condensed combined financial statements