SOLENO THERAPEUTICS INC - FORM 8-K - EX-99.2 - EXHIBIT 99.2 - July 24, 2017

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Exhibit 99.2
 
Soleno Therapeutics, Inc. (formerly known as Capnia, Inc.)
Unaudited Pro Forma Condensed Consolidated Financial Statements
 
On July 18, 2017, Soleno Therapeutics, Inc. (formerly known as Capnia, Inc.) (the “Company”) completed the sale of stock of its 100% owned subsidiary, NeoForce, Inc. ("NFI") primarily related to the Company’s portfolio of neonatology resuscitation products (the "Disposition") pursuant to a Stock Purchase Agreement (the “Purchase Agreement”), dated July 18, 2017, with NeoForce Holdings, Inc. ("Holdings"), a 100% owned subsidiary of Flexicare Medical Limited, a privately held United Kingdom company, for $720,000, plus the Company will also receive proceeds for the total outstanding accounts receivable and inventory held by NFI at the date of sale, as it is collected or sold, respectively. The Disposition was completed in accordance with the Purchase Agreement between the Company and Holdings, dated July 18, 2017.
 
The following unaudited pro forma condensed consolidated financial statements give effect to the Disposition, the receipt of proceeds from the Disposition, and the other assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed consolidated financial statements. These adjustments are based upon information and assumptions available at the time of the filing of this financial information on Form 8-K.
 
The unaudited pro forma financial information is based on financial statements prepared in accordance with U.S. generally accepted accounting principles, which are subject to change and interpretation. The unaudited pro forma condensed consolidated financial statements were based on and derived from the Company’s historical consolidated financial statements, adjusted for those amounts which were determined to be directly attributable to the Disposition, factually supportable, and with respect to the Unaudited Pro Forma Condensed Consolidated Statements of Operations, expected to have a continuing impact on the consolidated results. Actual adjustments, however, may differ materially from the information presented.
 
The unaudited pro forma financial information is based upon available information and assumptions that management considers to be reasonable, and such assumptions have been made solely for purposes of developing such unaudited pro forma financial information for illustrative purposes in compliance with the disclosure requirements of the Securities and Exchange Commission. The unaudited pro forma financial information is not necessarily indicative of the financial position or results of operations that would have actually occurred had the Disposition occurred on the dates indicated. In addition, these unaudited pro forma condensed consolidated financial statements should not be considered to be indicative of the future financial performance and results of operations of the Company.
 
The unaudited pro forma condensed consolidated balance sheet as of March 31, 2017 gives effect to the Disposition and adjustments as if it occurred on the date of the balance sheet.
 
The unaudited pro forma condensed consolidated statements of operations for the fiscal years ended December 31, 2016 and three months ended March 31, 2016 and 2017, give effect to the Disposition and adjustments as if they had occurred on January 1, 2016 and carried forward through to the latest period presented.
 
The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the Company’s historical audited consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2016 and its Quarterly Reports on Form 10-Q for the three months ended March 31, 2016 and 2017.
 
The unaudited condensed consolidated pro forma financial statements are prepared in accordance with Article 11 of Regulation S-X.
 
 













Soleno Therapeutics, Inc. (formerly known as Capnia, Inc.)
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of March 31, 2017
(in thousands)
 
 
As Reported
 
Sale of NFI (a)
 
Proceeds from Sale
 
Pro Forma
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
10,539

 
$
—

 
$
671

(b)
$
11,210

 
Accounts receivable
110

 
62

 
—

 
49

 
Receivable from sale of NFI
—

 
—

 
237

(c)
237

 
Restricted cash
35

 
—

 
—

 
35

 
Inventory
855

 
170

 
—

 
685

 
Prepaid expenses and other current assets
261

 
—

 
—

 
261

 
  Total current assets
$
11,800

 
$
232

 
$
909

 
$
12,477

Long-term assets
 
 
 
 
 
 
 
 
Property and equipment, net
93

 
42

 
—

 
51

 
Other assets
126

 
—

 
—

 
126

 
Goodwill
718

 
718

 
—

 
—

 
Other intangible assets, net
21,128

 
311

 
—

 
20,817

 
  Total assets
$
33,865

 
$
1,303

 
$
909

 
$
33,471

 
 
 
 
 
 
 
 
 
Liabilities and stockholders' equity
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
Accounts payable
935

 
23

 
—

 
913

 
Accrued compensation and other current liabilities
1,237

 
128

 
—

 
1,108

 
  Total current liabilities
2,172

 
151

 
—

 
2,021

 
 
 
 
 
 
 
 
 
Long-term liabilities
 
 
 
 
 
 
 
 
Series A warrant liability
291

 
—

 
—

 
291

 
Series C warrant liability
58

 
—

 
—

 
58

 
Other liabilities
1,201

 
81

 
—

 
1,120

 
  Total long-term liabilities
1,549

 
81

 
—

 
1,468

 
  Total liabilities
3,721

 
232

 
—

 
3,489

 
 
 
 
 
 
 
 
 
Stockholders' equity
 
 
 
 
 
 
 
Common stock
47

 
—

 
—

 
47

Series B Convertible Preferred
—

 
—

 
—

 
—

Additional paid-in-capital
131,296

 
1,197

 
—

 
130,098

Accumulated deficit
(101,199
)
 
(277
)
 
909

 
(100,013
)
 
  Total stockholders' equity
30,144

 
920

 
909

 
30,133

 
  Total liabilities and stockholders' equity
$
33,865

 
$
1,303

 
$
909

 
$
33,471

 
 
 
 
 
 
 
 
 







Soleno Therapeutics, Inc. (formerly known as Capnia, Inc.)
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the Year Ended December 31, 2016
(in thousands)
 
As Reported
 
Sale of NFI
 
Pro Forma
 
 
 
 
 
 
Product revenue
$
1,451

 
$
1,058

(d)
$
393

Cost of product revenue
1,509
 
515
(d)
994
Gross profit
(58
)
 
543

(d)
(601
)
 
 
 
 
 
 
Expenses
 
 
 
 
 
Research and development
5,185
 
147
(d)
5,038
Sales and marketing
1,631
 
252
(d)
1,379
General and administrative
6,736
 
355
(d)
6,381
Total expenses
13,552
 
754
(d)
12,798
Operating loss
$
(13,610
)
 
$
(211
)
(d)
$
(13,399
)
 
 
 
 
 
 
Interest and other income (expense)
 
 
 
 
 
Other expense
(7)
 
—

 
(7)
Change in fair value of warrants liabilities
1,667
 
—

 
1,667
Cease-use expense
(93)
 
—

 
(93)
Other income
1,567
 
—

 
1,567
Net loss before provision for Income Taxes
(12,043
)
 
(211
)
(d)
(11,832
)
Provision for Income Taxes
(22)
 
—

 
(22)
Net loss after provision for Income Taxes
(12,065
)
 
(211
)
(d)
(11,854
)
Loss on extinguishment of convertible preferred stock
3,651

 
 
 
3,651

 
 
 
 
 
 
Net loss applicable to common stockholders
$
(15,716
)
 
$
(211
)
 
$
(15,505
)
 
 
 
 
 
 
Basic and diluted net loss per share applicable to common stockholders
$
(1.01
)
 
 
 
$
(1.00
)
 
 
 
 
 
 
Weighted-average common shares outstanding
 
 
 
 
 
used to calculate net loss per
 
 
 
 
 
common share:
 
 
 
 
 
Basic and diluted
15,507,484

 
 
 
15,507,484

 
 
 
 
 
 













Soleno Therapeutics, Inc. (formerly known as Capnia, Inc.)
Unaudited Pro Forma Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 2016
(in thousands)



 
As Reported
 
Sale of NFI
 
Pro Forma
 
 
 
 
 
 
Product revenue
$
447

 
$
322

(d)
$
125

Cost of product revenue
461
 
194
(d)
266
Gross profit
(14
)
 
127

(d)
(141
)
 
 
 
 
 
 
Expenses
 
 
 
 
 
Research and development
1,772
 
29
(d)
1,743
Sales and marketing
538
 
51
(d)
487
General and administrative
1,939
 
90
(d)
1,849
Total expenses
4,249
 
170
(d)
4,079
Operating loss
4,263

 
(43
)
 
(4,220
)
 
 
 
 
 
 
Interest and other income (expense)
 
 
 
 
 
Change in fair value of warrants liabilities
1,170

 
—

 
1,170

Cease-use expense
(94
)
 
—

 
94

Other expense
(2
)
 
—

 
(2
)
Interest and other income (expense), net
1,074

 
—

 
1,074

Net loss
$
(3,189
)
 
(43
)
(d)
(3,146
)
 
 
 
 
 
 
Net loss per common share:
 
 
 
 
 
    Basic and diluted
$
(0.22
)
 
 
 
$
(0.21
)
 
 
 
 
 
 
Weighted-average common shares outstanding
used to calculate net loss per
 
 
 
 
 
common share:
 
 
 
 
 
    Basic and diluted
14,796,119

 
 
 
14,796,119

 
 
 
 
 
 














Soleno Therapeutics, Inc. (formerly known as Capnia, Inc.)
Condensed Consolidated Statements of Operations
for the three months ended March 31, 2017
(in thousands)
 
As Reported
 
Sale of NFI
 
Pro Forma
 
 
 
 
 
 
Product revenue
$
265

 
$
217

(d)
$
48

Cost of product revenue
209
 
125
(d)
85
Gross profit
56
 
92
(d)
(36
)
 
 
 
 
 
 
Expenses
 
 
 
 
 
Research and development
994
 
60
(d)
934
Sales and marketing
114
 
61
(d)
53
General and administrative
1,158
 
102
(d)
1,056
Total expenses
2,266
 
223
(d)
2,043
Operating loss
(2,210
)
 
131

(d)
2,079

 
 
 
 
 
 
Interest and other income (expense)
 
 
 
 
 
Interest Income
1
 
 
 
1
Other Expense
(602
)
 
 
 
(602
)
Change in fair value of warrants liabilities
(69
)
 
 
 
(69
)
Cease-use expense
(7
)
 
 
 
(7
)
Interest and other income (expense), net
(677
)
 
—

 
(677
)
Net loss
$
(2,887
)
 
$
(131
)
(d)
$
(2,756
)
 
 
 
 
 
 
Basic and diluted net loss per share applicable to common stockholders
$
(0.11
)
 
 
 
$
(0.11
)
 
 
 
 
 
 
Weighted-average common shares outstanding
used to calculate net loss per
 
 
 
 
 
common share:
 
 
 
 
 
Basic and diluted
26,853,433

 
 
 
26,853,433

 
 
 
 
 
 




















Soleno Therapeutics, Inc. (formerly known as Capnia, Inc.)
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

1.  
Basis of Presentation
The unaudited proforma condensed consolidated statements of operations for the year ended December 31, 2016 were derived from the historical audited consolidated financial statements for the year ended December 31, 2016 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The unaudited pro forma condensed consolidated balance sheet as of March 31, 2017 and the unaudited pro forma condensed consolidated statement of operations for the three months ended March 31, 2016 and 2017 were derived from the unaudited condensed consolidated financial statements included in the Company’s Quarterly Report on Form 10-Q as of and for the three months ended March 31, 2016 and 2017.

2.
Disposition of NFI
On July 18, 2017, Soleno Therapeutics, Inc. (the “Company”) completed the sale of stock of its 100% owned subsidiary, NeoForce, Inc. ("NFI") primarily related to the Company’s portfolio of neonatology resuscitation products (the "Disposition")pursuant to a Stock Purchase Agreement (the “Purchase Agreement”), dated as of July 18, 2017, with NeoForce Holdings, Inc. ("Holdings") for $720,000 and adjustments for inventory and the current cash balances held at NFI. The Company will also receive proceeds for the total outstanding accounts receivable and inventory held by NFI at the date of sale, as it is collected or sold, respectively. The Disposition was completed in accordance with the Purchase Agreement between the Company and Holdings, dated July 18, 2017.

Transaction costs consisting of legal, tax, accounting and other professional fees, employee severance payments and other costs are approximately $69 thousand; and the net book value of assets being transferred in the Disposition was $1.1 million as of March 31, 2017.

3.
Pro Forma Adjustments
The unaudited pro forma condensed consolidated balance sheet as of March 31, 2017 reflects the following adjustments:
 
(a)
Represents the amounts of NFI assets and liabilities which were sold or transferred to Holdings as if the Disposition had occurred on March 31, 2017.

(b)
Reflects the proceeds received at closing from the Disposition. The sale price of $720,000 was reduced by (1) approximately $69,000 for estimated transaction expenses assumed to be paid at closing and increased by $20,000, representing $20,000 of the maximum of $100,000 saleable inventory for purposes of this calculation.

(c)
Reflects the proceeds receivable from the sale of NFI for the remaining saleable inventory of $110,841 and accounts receivable of $126,565 to be received by the Company as sold or collected, respectively.
  
The unaudited pro forma condensed consolidated statements of operations for the three months ended March 31, 2016 and 2017 and the year ended December 31, 2016 reflect the following adjustments:
 
(d)
The elimination of operating results of NFI business in the unaudited condensed consolidated statements of operations for the Company for the three months ended March 31, 2016 and 2017 and the year ended December 31, 2016, as if the Disposition had occurred on January 1, 2016.


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