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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to__________
Commission file number 001-38815
soly-20190930_g1.jpg
Soliton, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware36-4729076
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
5304 Ashbrook Drive
Houston, Texas
77081
(Address of Principal Executive Offices)(Zip Code)
844-705-4866
(Registrant's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockSOLYThe NASDAQ Stock Market LLC
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X ] No [   ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [ X  ] No [   ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer [   ] Accelerated Filer [   ] Non-Accelerated Filer [ X ] Smaller Reporting Company [ X ] Emerging Growth Company [ X ]
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. [   ]
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockSOLYThe NASDAQ Stock Market LLC
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [   ] No [ X ]
The number of shares of the Company's outstanding common stock as of November 1, 2019 was 16,932,184.




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Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SOLITON, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
ASSETSSeptember 30,
2019
December 31,
2018
Current assets:
Cash and cash equivalents$8,505,960  $133,435  
Restricted cash202,681    
Total cash8,708,641  133,435  
Prepaid expenses and other current assets198,272  10,533  
Total current assets8,906,913  143,968  
Deferred direct issuance costs - offering  276,560  
Property and equipment, net of accumulated depreciation907,309  1,014,240  
Intangible assets, net of accumulated amortization89,521  84,942  
Other assets23,283  23,283  
Total assets$9,927,026  $1,542,993  
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable$887,992  $2,737,836  
Accrued liabilities1,838,474  1,863,874  
Dividends payable  4,613,260  
Accrued interest  133,804  
Accrued interest - related party  1,162,719  
Convertible notes payable, net  1,784,976  
Convertible notes payable - related party  8,422,000  
Notes payable, net  293,568  
Notes payable - related party, net  65,479  
Deferred rent - current portion7,493  7,106  
Total current liabilities2,733,959  21,084,622  
Deferred rent10,920  16,256  
Total liabilities2,744,879  21,100,878  
Commitments and contingencies (Note 5)
Stockholders’ equity (deficit):
  Series A preferred stock, $0.001 par value, liquidation value of $1,999,997, 416,666 shares designated, issued and outstanding at December 31, 2018
  417  
  Series B preferred stock, $0.001 par value, liquidation value of $14,000,641, 2,118,100 shares designated, issued and outstanding at December 31, 2018
  2,118  
  Common stock, $0.001 par value, 100,000,000 authorized, 16,405,062 shares issued and outstanding at September 30, 2019 and 1,998,056 shares issued and outstanding at December 31, 2018
16,405  1,998  
  Additional paid-in capital59,934,012  22,568,857  
  Accumulated deficit(52,768,270) (42,131,275) 
      Total stockholders’ equity (deficit)7,182,147  (19,557,885) 
         Total liabilities and stockholders’ equity$9,927,026  $1,542,993  
See accompanying notes to the unaudited condensed financial statements
3

Table of Contents
SOLITON, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2019201820192018
Revenue$  $  $  $  
Operating expenses:
Research and development2,430,503  1,717,113  3,660,236  3,804,015  
Sales and marketing33,166  109,565  136,845  178,115  
Depreciation and amortization73,347  30,028  146,095  90,321  
General and administrative1,763,597  794,991  5,719,568  2,078,191  
Total operating expenses4,300,613  2,651,697  9,662,744  6,150,642  
Loss from operations(4,300,613) (2,651,697) (9,662,744) (6,150,642) 
Other (expense) income:
Interest expense  (327,978) (822,858) (747,492) 
Interest income5,716  1,054  8,826  2,760  
Total other (expense) income5,716  (326,924) (814,032) (744,732) 
Net loss(4,294,897) (2,978,621) (10,476,776) (6,895,374) 
Dividend to series A and B preferred stockholders  (320,000) (160,219) (960,000) 
Net loss attributable to common stockholders$(4,294,897) $(3,298,621) $(10,636,995) $(7,855,374) 
Net loss per common share, basic and diluted$(0.27) $(1.74) $(0.83) $(4.23) 
Weighted average number of common shares outstanding, basic and diluted
15,994,002  1,898,056  12,877,047  1,855,190  
See accompanying notes to the unaudited condensed financial statements
4

Table of Contents
SOLITON, INC.
CONDENSED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY (DEFICIT)
(UNAUDITED)
Series A
Preferred Stock
Series B
Preferred Stock
Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Total
SharesParSharesParSharesPar
Balance, December 31, 2018416,666  $417  2,118,100  $2,118  1,998,056  $1,998  $22,568,857  $(42,131,275) $(19,557,885) 
Stock-based compensation—  —  —  —  —  —  512,045  —  512,045  
Debt discount on convertible notes and notes payable – issuance of warrants—  —  —  —  —  —  145,974  —  145,974  
Payment of deferred direct issuance costs—  —  —  —  —  —  (186,029) —  (186,029) 
Issuance of common shares for extinguishment of preferred shares(416,666) (417) (2,118,100) (2,118) 2,534,766  2,535  —  —    
Issuance of common shares for extinguishment of convertible debt—  —  —  —  6,825,391  6,825  11,778,162  —  11,784,987  
Issuance of common shares for extinguishment of dividends payable—  —  —  —  954,696  955  4,772,525  —  4,773,480  
Issuance of common shares from IPO, net of costs—  —  —  —  2,172,591  2,173  9,871,494  —  9,873,667  
Issuance of common shares for accelerated vesting—  —  —  —  127,500  127  (127) —    
Accrued preferred dividends—  —  —  —  —  —  —  (160,219) (160,219) 
Net loss—  —  —  —  —  —  —  (3,208,345) (3,208,345) 
Debt forgiveness—  —  —  —  —  —  434,065  —  434,065  
Balance, March 31, 2019        14,613,000  14,613  49,896,966  (45,499,839) 4,411,740  
Stock-based compensation—  —  —  —  —  —  686,029  —  686,029  
Issuance of common shares from PIPE deal, net of costs—  —  —  —  675,000  675  8,641,276  —  8,641,951  
Issuance of common shares—  —  —  —  405,715  406  (406) —    
Net loss—  —  —  —  —  —  —  (2,973,534) (2,973,534) 
Balance, June 30, 2019        15,693,715  15,694  59,223,865  (48,473,373) 10,766,186  
Stock-based compensation—  —  —  —  —  —  661,726  —  661,726  
Issuance of common shares for extinguishment of convertible debt—  —  —  —  273,034  273  47,508  —  47,781  
PIPE deal costs—  —  —  —      1,351  —  1,351  
Issuance of common shares—  —  —  —  438,313  438  (438) —    
Net loss—  —  —  —  —  —  —  (4,294,897) (4,294,897) 
Balance, September 30, 2019  $  —    $  16,405,062  $16,405  $59,934,012  $(52,768,270) $7,182,147  
See accompanying notes to the unaudited condensed financial statements
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Table of Contents
Series A
Preferred Stock
Series B
Preferred Stock
Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Total
SharesParSharesParSharesPar
Balance, December 31, 2017416,666  $417  2,118,100  $2,118  1,820,556  $1,821  $21,031,388  $(31,536,339) $(10,500,595) 
Stock-based compensation—  —  —  —  —  —  145,553  —  $145,553  
Accrued preferred dividends—  —  —  —  —  —  —  (320,000) $(320,000) 
Net loss—  —  —  —  —  —  —  (1,351,665) $(1,351,665) 
Balance, March 31, 2018416,666  417  2,118,100  2,118  1,820,556  1,821  21,176,941  (33,208,004) (12,026,707) 
Stock-based compensation—  —  —  —  —  —  201,690  —  $201,690  
Warrants—  —  —  —  —  —  103,006  —  $103,006  
Issuance of common shares—  —  —  —  77,500  77  (77) —  $  
Accrued preferred dividends—  —  —  —  —  —  —  (320,000) $(320,000) 
Net loss—  —  —  —  —  —  —  (2,565,089) $(2,565,089) 
Balance, June 30, 2018416,666  417  2,118,100  2,118  1,898,056  1,898  21,481,560  (36,093,093) $(14,607,100) 
Stock-based compensation—  —  —  —  —  —  313,963  —  $313,963  
Accrued preferred dividends—  —  —  —  —  —  —  (320,000) $(320,000) 
Net loss—  —  —  —  —  —  —  (2,978,621) $(2,978,621) 
—  —  —  —  —  —  —  (320,000) $(320,000) 
Balance, September 30, 2018416,666  $417  2,118,100  $2,118  1,898,056  $1,898  $21,795,523  $(39,391,714) $(17,591,758) 
See accompanying notes to the unaudited condensed financial statements
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SOLITON, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended
September 30,
20192018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss$(10,476,776) $(6,895,374) 
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization146,095  90,321  
Stock-based compensation1,859,800  661,205  
Impairment of intangible assets  19,138  
Amortization of debt discount664,953  44,921  
Deferred rent(4,949) (1,510) 
Changes in operating assets - (Increase)/Decrease:
Prepaid expenses and other current assets(187,739) (7,643) 
Changes in operating liabilities - Increase/(Decrease):
Accounts payable(1,599,844) 1,322,260  
Accrued liabilities408,663  339,275  
Non-convertible accrued interest - non-related and related party10,617  79,988  
Convertible accrued interest - related party145,667  621,114  
NET CASH USED IN OPERATING ACTIVITIES:(9,033,513) (3,726,305) 
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for the purchase of property and equipment(39,164) (16,008) 
Payments for acquisition of intangibles(4,579) (11,152) 
NET CASH USED IN INVESTING ACTIVITIES:(43,743) (27,160) 
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of non-convertible notes payable - related party and non-related party(985,000)   
Payment of non-convertible notes payable accrued interest - related party and non-related party(20,038)   
Proceeds from the issuance of non-convertible notes payable - non-related party300,000    
Proceeds from initial public offering9,714,198    
Proceeds from private investment in public equity offering8,643,302    
Loan from non-related party  1,978,000  
Deferred financing issuance costs  (163,760) 
Proceeds from convertible notes payable - related party  2,397,000  
   Payment of deferred direct issuance costs - proposed offering  (278,212) 
NET CASH PROVIDED BY FINANCING ACTIVITIES:17,652,462  3,933,028  
Net increase in cash8,575,206  179,563  
Cash, beginning of period133,435  18,412  
Cash, end of period$8,708,641  $197,975  
Supplemental cash flow disclosures:
Cash paid for interest (non-convertible notes payable - related and non-related party)$20,038  $  
Non-cash financing activities:
Accrued preferred dividends$160,219  $960,000  
Warrants debt discount on convertible notes$  $103,006  
Capital contributions - debt forgiveness$434,065  $  
Issuance of common stock for extinguishment of convertible note payable - related party and non-related party
$10,400,000  $  
Issuance of common stock for extinguishment of convertible note payable accrued interest - related party and non-related party
$1,432,768  $  
Issuance of common stock for extinguishment of dividends payable$4,773,480  $  
Issuance of common stock for extinguishment of preferred stock A and preferred stock B$2,535  $  
Debt discount on convertible notes and notes payable – issuance of warrants$145,974  $  
Deferred direct issuance costs - offering$276,560  $  
See accompanying notes to the unaudited condensed financial statements
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SOLITON, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1 - Description of the Business and Summary of Significant Accounting Policies