Edge Therapeutics, Inc. (Form: 10-Q, Received: 11/06/2015 08:23:40)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

☐	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from____________ to_____________

Commission file number 001-37568

Edge Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

Delaware		26-4231384
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

200 Connell Drive, Suite 1600, Berkeley Heights, NJ 07922

(Address of principal executive offices)

(800) 208-3343

(Registrant’s telephone number)

(Former name, former address and former fiscal year, if changed since last report)

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 ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒

Smaller Reporting Company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s Common Stock, par value $0.00033 per share, outstanding as of October 31, 2015 was 28,810,845.

Table of Contents

Edge Therapeutics, Inc.

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2015

INDEX

			Page
Part I —	Financial Information		1

	Item 1.	Financial Statements (Unaudited):	1

		Balance Sheets	1

		Statements of Operations	2

		Statements of Cash Flows	3

		Notes to Financial Statements	4

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20

	Item 4.	Controls and Procedures	20

Part II —	Other Information		21

	Item 1.	Legal Proceedings	21

	Item 1A.	Risk Factors	21

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21

	Item 3.	Defaults Upon Senior Securities	21

	Item 4.	Mine Safety Disclosures	21

	Item 5.	Other Information	22

	Item 6.	Exhibits	22

Index

PART 1. FIN ANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EDGE THERAPEUTICS, INC.

Balance Sheets

	September 30, 2015			December 31, 2014
ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	52,879,907		$	13,728,972
Prepaid expenses and other current assets		339,203			307,629
Deferred issuance costs		2,378,217			1,405,396
Total current assets		55,597,327			15,441,997

Property and equipment, net		2,781,885			1,443,982
Other assets		104,240			160,682

Total assets	$	58,483,452		$	17,046,661

LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
LIABILITIES
Current liabilities:
Accounts payable	$	2,644,987		$	2,045,782
Accrued expenses		3,590,222			1,582,162
Short term debt		2,214,934			265,265
Total current liabilities		8,450,143			3,893,209

Noncurrent liability:
Warrant liability		3,726,043			1,671,106
Long term debt		3,686,084			2,527,686

Convertible preferred stock, 26,000,000 shares authorized at September 30, 2015

Series C-2 - 12,500,000 shares authorized, 12,043,006 shares issued and outstanding (liquidation preference $72,184,822 at September 30, 2015)		54,402,094			-
Series C-1 - 4,000,000 shares authorized, 3,558,890 shares issued and outstanding (liquidation preference $21,810,953 at September 30, 2015 and $20,819,976 at December 31, 2014)		15,653,284			14,660,944
Series C - 5,500,000 shares authorized, 4,697,314 shares issued and outstanding (liquidation preference $26,211,433 at September 30, 2015 and $25,128,853 at December 31, 2014)		18,943,183			17,861,076
Series B-1 - 500,000 shares authorized at September 30, 2015 and December 31, 2014, 359,935 Series B-1 shares issued and outstanding (liquidation preference $629,886 at September 30, 2015 and December 31, 2014)		477,191			477,191
Series B - 2,500,000 shares authorized, 2,415,116 shares issued and outstanding (liquidation preference $3,018,895 at September 30, 2015 and December 31, 2014)		2,991,979			2,991,979
Series A - 1,000,000 shares authorized, 864,500 shares issued and outstanding (liquidation preference $864,500 at September 30, 2015 and December 31, 2014)		797,219			797,219

STOCKHOLDERS' (DEFICIT) EQUITY
Common stock, $0.00033 par value, 38,500,000 shares and 35,000,000 shares authorized at September 30, 2015 and December 31, 2014 , respectively, 1,688,475 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively		770			770
Additional paid-in capital		3,550,961			1,984,399
Accumulated deficit		(54,195,499	)		(29,818,918	)
Total stockholders' (deficit) equity		(50,643,768	)		(27,833,749	)

Total liabilities and stockholders' (deficit) equity	$	58,483,452		$	17,046,661

See accompanying notes to the financial statements.

Index

EDGE THERAPEUTICS, INC.

Statements of Operations

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014

Operating expenses:
Research and development expenses	$	6,507,972		$	2,418,915		$	12,574,455		$	5,636,021
General and administrative expenses		1,976,888			1,141,434			5,052,983			3,540,804

Total operating expenses		8,484,860			3,560,349			17,627,438			9,176,825

Loss from operations		(8,484,860	)		(3,560,349	)		(17,627,438	)		(9,176,825	)

Other income (expense):
Warrant remeasurement		(1,433,502	)		89,293			(1,879,823	)		183,817
Interest income		1,333			895			2,810			2,592
Interest expense		(213,021	)		(47,972	)		(615,047	)		(47,972	)

Loss before income taxes		(10,130,050	)		(3,518,133	)		(20,119,498	)		(9,038,388	)

Benefit for income taxes		-			-			-			-

Net loss		(10,130,050	)		(3,518,133	)		(20,119,498	)		(9,038,388	)

Cumulative dividend on Series C , C-1 and C-2 convertible preferred stock		(1,827,568	)		(364,666	)		(4,257,083	)		(1,082,107	)

Net loss attributable to common stockholders	$	(11,957,618	)	$	(3,882,799	)	$	(24,376,581	)	$	(10,120,495	)

Loss per share attributable to common stockholders basic and diluted	$	(7.08	)	$	(2.30	)	$	(14.44	)	$	(5.99	)

Weighted average common shares outstanding basic and diluted		1,688,475			1,688,475			1,688,475			1,688,475

See accompanying notes to the financial statements.

Index

EDGE THERAPEUTICS, INC.

Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30,
	2015			2014
Cash flows from operating activities:
Net loss	$	(20,119,498	)	$	(9,038,388	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		1,566,562			1,030,215
Warrant remeasurement		1,879,823			(183,817	)
Depreciation expense		38,360			23,474
Amortization of debt discount		79,400			8,822
Non-cash interest expense		28,667			1,596
Changes in assets and liabilities:
Other receivable		-			459,018
Prepaid expenses and other assets		78,814			170,315
Accounts payable		(126,415	)		704,471
Accrued expenses		1,604,432			(6,361	)

Net cash used in operating activities		(14,969,855	)		(6,830,655	)

Cash flows from investing activities:
Purchases of property and equipment		(799,424	)		(265,150	)

Net cash used in investing activities		(799,424	)		(265,150	)

Cash flows from financing activities:
Proceeds from issuance of debt		3,000,000			3,000,000
Payments for deferred issuance costs		(474,357	)		(796,791	)
Payments for debt issuance costs		-			(159,136	)
Proceeds from issuance of preferred stock, net of issuance costs		52,394,571			-

Net cash provided by financing activities		54,920,214			2,044,073

Net increase (decrease) in cash		39,150,935			(5,051,732	)
Cash and cash equivalents at beginning of period		13,728,972			7,858,169

Cash and cash equivalents at end of period	$	52,879,907		$	2,806,437

Supplemental disclosure of cash flow information:
Cash paid for:
Interest	$	412,717		$	-

Supplemental cash flow information:
Deferred issuance costs included in accrued expenses and accounts payable	$	552,410		$	768,300
Non-cash financing costs	$	175,114		$	-
Accrued capital expenditures included in accrued expenses	$	576,839		$	365,981

See accompanying notes to the financial statements.

Index

Edge Therapeutics, Inc.

Notes to Financial Statements (Unaudited)

Note 1 - Nature of Operations

Edge Therapeutics, Inc. (the “Company”) is a clinical-stage biotechnology company that discovers, develops and seeks to commercialize novel, hospital-based therapies capable of transforming treatment paradigms in the management of acute, life-threatening neurological conditions. The Company’s product candidates utilize its proprietary, programmable, biodegradable polymer-based development platform (the Precisa ^TM development platform), a novel delivery mechanism that enables targeted and sustained drug exposure and avoids the dose-limiting side effects associated with the current standard of care.

From the Company’s inception, it has devoted substantially all of its efforts to business planning, engaging regulatory, manufacturing and other technical consultants, acquiring operating assets, planning and executing clinical trials and raising capital. The Company’s future operations are highly dependent on a combination of factors, including (i) the success of its research and development; (ii) the development of competitive therapies by other biotechnology and pharmaceutical companies, and, ultimately; (iii) regulatory approval and market acceptance of the Company’s proposed future products.

On September 21, 2015, the Company effected a reverse stock split of the Company’s common stock at a ratio of 1-for-1.3681 shares. The par value and authorized shares of common stock and convertible preferred stock were not adjusted as a result of the reverse stock split. All issued and outstanding common stock, options and warrants to purchase common stock and per share amounts contained in the financial statements have been retroactively adjusted to reflect the reverse stock split for all periods presented. The financial statements have also been retroactively adjusted to reflect adjustments to the conversion price for each series of convertible preferred stock effected in connection with the reverse stock split.

On October 6, 2015, the Company completed an initial public offering (the “IPO”) of 8,412,423 shares of its common stock which included 1,097,272 shares of common stock issued upon the exercise in full by the underwriters of their over-allotment option at a price of $11.00 per share for aggregate gross proceeds of $92.5 million. The Company received approximately $83.2 million in net proceeds after deducting underwriting discounts and commissions and other offering costs of approximately $9.3 million. Immediately prior to the closing of the IPO, all of the outstanding shares of convertible preferred stock, including shares for accrued dividends, automatically converted into 18,566,856 shares of common stock at the applicable conversion ratio then in effect. As of October 31, 2015, there were no shares of preferred stock outstanding. In connection with the IPO, the Company amended and restated its Seventh Amended and Restated Certificate of Incorporation to change the authorized capital stock to 75,000,000 shares designated as common stock and 5,000,000 shares designated as preferred stock, all with a par value of $0.00033 per share.

Note 2 - Summary of Significant Accounting Policies

(A)	Unaudited Interim Financial Statements:

The interim balance sheet at September 30, 2015, and the statements of operations for the three and nine months ended September 30, 2015 and 2014, and cash flows for the nine months ended September 30, 2015 and 2014 are unaudited. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), and following the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments that are necessary for a fair statement of its financial information. The results of operations for the nine months ended September 30, 2015 are not necessarily indicative of the results to be expected for the year ending December 31, 2015 or for any other future annual or interim period. The balance sheet as of December 31, 2014 included herein was derived from the audited consolidated financial statements as of that date. These financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in the prospectus dated September 30, 2015 that forms a part of the Company’s Registration Statement on Form S-1, filed with the SEC pursuant to Rule 424 promulgated under the Securities Act of 1933, as amended.

Index

(B)	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 and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(C)	Significant risks and uncertainties:

The Company’s operations are subject to a number of factors that may affect its operating results and financial condition. Such factors include, but are not limited to: the results of clinical testing and trial activities of the Company’s product candidates, the Company’s ability to obtain regulatory approval to market its products, competition from products manufactured and sold or being developed by other companies, the price of, and demand for, Company products if approved for sale, the Company’s ability to negotiate favorable licensing or other manufacturing and marketing agreements for its products, and the Company’s ability to raise capital.

The Company currently has no commercially approved products and there can be no assurance that the Company’s research and development programs will be successfully commercialized. Developing and commercializing a product requires significant time and capital and is subject to regulatory review and approval as well as competition from other biotechnology and pharmaceutical companies. The Company operates in an environment of rapid change and is dependent upon the continued services of its employees and consultants and obtaining and protecting its intellectual property.

(D)	Cash equivalents and concentration of cash balance:

The Company considers all highly liquid securities with an original maturity of less than three months to be cash equivalents. The Company’s cash and cash equivalents in bank deposit accounts, at times, may exceed federally insured limits.

(E)	Research and development:

Costs incurred in connection with research and development activities are expensed as incurred. These costs include licensing fees to use certain technology in the Company’s research and development projects as well as fees paid to consultants and various entities that perform certain research and testing on behalf of the Company.

Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data, such as patient enrollment, clinical site activations or information provided by vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred.

(F)	Stock-based compensation:

The Company measures employee stock-based awards at grant-date fair value and recognizes employee compensation expense on a straight-line basis over the vesting period of the award.

Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions, including the fair value of the Company’s common stock, and for stock options, the expected life of the option, and expected stock price volatility. The Company used the Black-Scholes option pricing model on a retrospective basis to value its stock option awards. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different for future awards.

The expected life of stock options was estimated using the “simplified method,” as the Company has no historical information to develop reasonable expectations about future exercise patterns and employment duration for its stock options grants. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. For stock price volatility, the Company uses comparable public companies as a basis for its expected volatility to calculate the fair value of options grants. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the option.

Index

The estimation of the number of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts are recognized as an adjustment in the period in which estimates are revised.

(G)	Net loss per common share:

Basic and diluted net loss per common share is determined by dividing net loss attributable to common stockholders by the weighted average common shares outstanding during the period. For all periods presented, the common shares underlying the preferred stock, common stock options and warrants have been excluded from the calculation because their effect would be anti-dilutive. Therefore, the weighted average shares outstanding used to calculate both basic and diluted loss per common share are the same.

The following potentially dilutive securities have been excluded from the computations of diluted weighted average shares outstanding as they would be anti-dilutive:

	As of September 30,
	2015		2014

Stock options to purchase Common Stock		4,227,022		2,445,690
Convertible preferred stock to purchase Common Stock		17,497,815		6,093,754
Warrants to purchase Common Stock		99,401		99,401
Warrants to purchase Series C Preferred Stock		338,536		338,536
Warrants to purchase Series C-1 Preferred Stock		332,484		78,596
Total		22,495,258		9,055,977

(H)	Deferred costs:

Deferred offering costs, which primarily consist of direct incremental legal and accounting fees relating to the IPO are capitalized. The deferred offering costs will be offset against IPO proceeds upon the consummation of the IPO. Debt issuance costs are amortized using the effective interest rate method and amortized to interest expense over the term of the debt. Debt issuance costs are reflected as other assets in the consolidated balance sheets. These offering costs will be charged to equity in connection with the closure of our IPO. See note 9.

(I)	Recently adopted standards:

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, “Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” The new standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This standard is effective for annual reporting periods beginning after December 15, 2015, and interim periods within those fiscal years. The impact of adoption will be the presentation of debt on the Company’s balance sheet.

In June 2014, the FASB issued ASU No. 2014-10, “Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation.” The new standard eliminates the concept of a development stage entity (“DSE”) from US GAAP. Therefore, the current incremental reporting requirements for a DSE, including inception-to-date information, will no longer apply. This standard is effective for annual reporting periods beginning after December 15, 2014. Pursuant to ASU No. 2014-10, the Company has elected to early adopt this guidance and as a result, no longer discloses inception-to-date information.

Index

Note 3 – Fair Value of Financial Instruments

	Fair Value Measurements at Reporting Date Using
	Total		Quoted Prices in Active Markets (Level 1)		Quoted Prices in Inactive Markets (Level 2)		Significant (Level 3)
As of September 30, 2015: (unaudited)
Cash and cash equivalents	$	52,879,907	$	52,879,907	$	-	$	-
Warrant Liability	$	3,726,043	$	-	$	-	$	3,726,043

As of December 31, 2014:
Cash and cash equivalents	$	13,728,972	$	13,728,972	$	-	$	-
Warrant Liability	$	1,671,106	$	-	$	-	$	1,671,106

There were no transfers between Levels 1, 2, or 3 during 2015 or 2014.

Level 3 instruments consist of the Company’s Series C and Series C-1 convertible preferred stock warrant liability and common stock warrant liability. The fair values of the outstanding warrants were measured using the Black-Scholes option-pricing model (Note 8). Inputs used to determine estimated fair value of the warrant liabilities include the estimated fair value of the underlying stock at December 31, 2014 and the IPO price at September 30, 2015, the estimated term of the warrants, risk-free interest rates, expected dividends and the expected volatility of the underlying stock. The significant unobservable inputs used in the fair value measurement of the warrant liabilities were the fair value of the underlying stock at December 31, 2014 and the IPO price at September 30, 2015 and the estimated term of the warrants. Generally, increases (decreases) in the fair value of the underlying stock and estimated term would result in a directionally similar impact to the fair value measurement.

	Warrant Liability
Fair value as of December 31, 2014	$	1,671,106
Fair value of warrants issued		175,114
Change in fair value		1,879,823
Fair value as of September 30, 2015	$	3,726,043

Note 4 – Accrued Expenses

Accrued expenses and other liabilities consist of the following:

	September 30,		December 31,
	2015		2014
	(unaudited)
Accrued research and development costs	$	1,819,629	$	471,267
Accrued professional fees		420,891		318,649
Accrued compensation		819,714		600,000
Accrued other		493,399		149,738
Deferred rent		36,589		42,508
Total	$	3,590,222	$	1,582,162

Note 5 - Stock Options

The Company has three equity compensation plans: the 2010 Equity Incentive Plan, the 2012 Equity Incentive Plan and the 2014 Equity Incentive Plan (the “Plans”). Originally, the Company was able to grant up to 548,206 and 1,096,411 shares of Common Stock as qualified and nonqualified stock options under the 2010 Equity Incentive Plan and the 2012 Equity Incentive Plan, respectively. Nonqualified stock options (“NQs”) may be granted to service providers. Incentive stock options (“ISOs”) may be granted only to employees. In 2013, the Company’s stockholders approved an increase to 1,279,146 shares authorized for issuance under the 2010 Equity Incentive Plan. In 2014, the Board approved an increase to 1,350,412 shares authorized for issuance under the 2010 Equity Incentive Plan.

Index

In 2014, the Company’s stockholders approved the 2014 Equity Incentive Plan pursuant to which the Company may grant up to 1,827,351 shares as qualified and nonqualified options (the “Plan Limit”). However, on January 1, 2015 and each January 1 ^st thereafter prior to the termination of the plan, the Plan Limit was and shall be increased by the lesser of (x) 4% of the number of shares of Common Stock outstanding as of the immediately preceding December 31 ^st and (y) such lesser number as the Board may determine in its discretion. On January 1, 2015 the Plan Limit was increased to 1,894,890 shares. No options were granted in 2014 under this Plan.

Pursuant to the terms of the Plans, ISOs have a term of ten years from the date of grant or such shorter term as may be provided in the option agreement. Unless specified otherwise in an individual option agreement, ISOs generally vest over a four year term and NQs generally vest over a three or four year term. In the case of an ISO granted to an option holder who, at the time the ISO is granted, owns, directly or indirectly, stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, the term of the ISO is five years from the date of grant or such shorter term as may be provided in the option agreement. Unless terminated by the Board, the Plans shall continue to remain effective for a term of ten years or until such time as no further awards may be granted and all awards granted under the Plans are no longer outstanding.

The Company’s stock-based compensation expense was recognized in operating expense as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014

Stock Based Compensation
Research and development	$	273,782	$	142,753	$	702,322	$	457,377
General and administrative		338,096		137,237		864,240		572,838
Total	$	611,878	$	279,990	$	1,566,562	$	1,030,215

The fair value of options and warrants granted during the three and nine months ended September 30, 2015 and 2014 was estimated using the Black-Scholes option valuation model utilizing the following assumptions:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	Weighted Average			Weighted Average			Weighted Average			Weighted Average

Volatility		79.80	%		75.00	%		79.80	%		75.54	%
Risk-Free Interest Rate		1.59	%		1.88	%		1.74	%		1.96	%
Expected Term in Years		6.08			5.95			6.08			5.78
Dividend Rate		0.00	%		0.00	%		0.00	%		0.00	%
Fair Value of Option on Grant Date	$	7.51		$	4.68		$	5.22		$	5.35

The following table summarizes the number of options outstanding and the weighted average exercise price:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Options outstanding at December 31, 2014		2,445,713		$	3.13
Granted		1,822,609			7.56
Exercised		-			-
Forfeited		(30,640	)		7.98
Expirations		(10,660	)		8.28
Options outstanding at September 30, 2015		4,227,022		$	5.00		8.36	$	25,377,366
Vested and expected to vest at September 30, 2015		4,121,868		$	4.94		8.33	$	24,969,093
Exercisable at September 30, 2015		1,799,999		$	2.94		7.32	$	14,501,041

Index

At September 30, 2015 there was approximately $9,846,902 of unamortized stock compensation expense, which is expected to be recognized over a remaining average vesting period of 1.56 years.

Note 6 - Convertible Preferred Stock

The Company sold Convertible Preferred Stock as follows:

Issue Date	Series		Number of Shares		Price per Share		Proceeds (in thousands)		Common Stock Conversion Price		Common shares on conversion		Offer Costs (in thousands)
2009		A		390,486	$	1.00	$	390	$	1.37		285,422	$	25
2010		A		474,014	$	1.00	$	474	$	1.37		346,476	$	43
2011		B		2,333,000	$	1.25	$	2,916	$	1.71		1,705,284	$	27
2011 ⁽¹⁾		B		82,116	$	1.25	$	103	$	1.71		60,021		---
2012		B-1		359,935	$	1.75	$	630	$	2.39		263,091	$	153
2013		C		4,631,505	$	3.85	$	17,831	$	5.27		3,385,355	$	2,747
2013 ⁽²⁾		C		65,809	$	3.85	$	253	$	5.27		48,102		---
2014		C-1		3,558,890	$	4.65	$	16,549	$	6.36		2,601,337	$	2,022
2015		C-2		12,043,006	$	4.65	$	56,000	$	6.36		8,802,723	$	3,783

(1)	Conversion of $100,000 NJEDA Note plus accrued interest of $2,645.

(2)	Conversion of $250,000 promissory note plus accrued interest of $3,365.

Offering costs associated with each issuance were recorded against such proceeds.

Preferred Stock Warrants

In connection with our preferred stock sales and debt issuances we issued warrants to the placement agent and lender, for preferred stock. The warrants are recorded as liabilities with changes in fair value being recorded in the statement of operations and are calculated utilizing the Black-Scholes option pricing model. At the IPO date of October 6, 2015 these warrants become exercisable for shares of our common stock. These warrants are now exercisable for 671,020 shares of common stock at exercise prices ranging from $5.79 to $7.00 and expire at various dates through 2020.

Voting Rights

Holders of shares of Series A, Series B, Series B-1, Series C, Series C-1 and Series C-2 Convertible Preferred Stock are entitled to vote on as if converted to Common Stock basis, except that certain defined transactions require specific Series A, Series B, Series B-1, Series C, Series C-1 and Series C-2 stockholder approval pursuant to their respective rights.

Liquidation Preferences

The holders of shares of Series C, Series C-1 and Series C-2 Convertible Preferred Stock shall be entitled to receive, in preference to all other holders of Convertible Preferred Stock, 125% of the respective original purchase price of the shares of Series C, Series C-1 or Series C-2 Convertible Preferred Stock, plus all accrued and unpaid dividends, and second, the holders of shares of Series A, Series B and Series B-1 Convertible Preferred Stock shall be entitled to receive, in preference to the holders of the shares of Common Stock, the respective original purchase prices of the shares of Series A, Series B and Series B-1 Convertible Preferred Stock in proportion to the full preferential amount that all shares of the Series A, Series B and Series B-1 Convertible Preferred Stock are entitled to receive. The Convertible Preferred Stock is not redeemable.

Dividends

The holders of the Series C, Series C-1 and Series C-2 Convertible Preferred Stock are entitled to receive, when, as and if declared by the board, cumulative dividends at the rate of 8% of the original purchase price per annum. The Series C, Series C-1 and Series C-2 dividends accrue from the date of issuance and are payable semi-annually on January 1 and July 1 in cash or common stock at the Company’s option. In accordance with accounting literature, Series C, Series C-1 and Series C-2 dividends since the date of issuance have been accrued though no dividends have been declared by the Board through September 30, 2015.

The other series of Convertible Preferred Stock have no dividend requirement. If dividends were declared then preference is given in order to the Series B-1, Series B, and Series A. Such dividends shall only be payable when, and if declared and are not cumulative. Through September 30, 2015, the Company has not declared any dividends.

Index

Conversion Rights

The holders of shares of Series A, Series B, Series B-1, Series C, Series C-1 and Series C-2 Convertible Preferred Stock have the right to convert all or a portion of such shares at any time into shares of Common Stock. At the closing of the IPO, all of the outstanding shares of convertible preferred stock including shares for accrued dividends were automatically converted into 18,566,856 shares of common stock. See Note 9.

Note 7 – Commitments and Contingencies

Evonik

The Company entered into an agreement with SurModics Pharmaceuticals, Inc. in October 2010 for the exclusive worldwide licensing of certain technology, patent rights and know-how rights related to the production of EG-1962, the Company’s lead product candidate. This agreement was later transferred to Evonik Industries when it purchased substantially all the assets of SurModics Pharmaceuticals, Inc.

In exchange for the license, the Company agreed to make milestone payments totaling up to $14.75 million upon the achievement of certain development, regulatory and sales milestones detailed in the license agreement. In addition, the agreement calls for the Company to pay royalties based on a mid-single digit percentage of net sales. The agreement provides for the reduction of royalties in certain limited circumstances.

In September 2015, the Company and Evonik entered into Amendment No. 1 to the license agreement. This amendment clarified the Company’s obligations to pay Evonik certain royalty and milestone payments in respect of licensed product whether or not manufactured by Evonik and removed its obligation to negotiate exclusively with Evonik for Phase 3 and commercial supply of EG-1962. The term of the license agreement will continue until the expiration of the Company’s obligation to pay royalties to Evonik. Either party may terminate the license agreement due to material breach by the other party. Evonik may terminate the license agreement or convert it to a non-exclusive license, in either case upon giving the Company written notice, if the Company fails to use commercially reasonable efforts to hit certain specified development, regulatory and commercial milestones.

Employment Agreements

The Company has entered into employment agreements with each of its executives. The agreements generally provide for, among other things, salary, bonus and severance payments. The employment agreements provide for between 12 months and 18 months of severance benefits to be paid to an executive (as well as certain potential bonus, COBRA and equity award benefits), subject to the effectiveness of a general release of claims, if the executive terminates his employment for good reason or if the Company terminates the executive’s employment without cause. The continued provision of severance benefits is conditioned on each executive’s compliance with the terms of the Company’s Officer’s Confidentiality and Invention and Assignment Agreement as well as his release of claims.

Leases

Effective December 13, 2013 the Company entered into a 63 month lease for approximately 8,000 square feet of office space in Berkeley Heights, New Jersey.

Rent expense is recognized on a straight line basis where there is escalating payments, and was approximately $58,271 and $53,982 for the three months ended September 30, 2015 and 2014, respectively, and $149,371 and $173,679 for the nine months ended September 30, 2015 and 2014, respectively.

The following is a schedule by years of future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of September 30, 2015:

Year ended December 31,
2015 (remaining)	$	57,238
2016		232,350
2017		232,221
2018		236,307
2019 and after		39,498
Total minimum payments required	$	797,614

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Note 8 - Debt

On August 28, 2014, the Company entered into a loan and security agreement. The loan agreement provides funding for an aggregate principal amount of up to $10,000,000 in three separate term loans. The first term loan was funded on August 28, 2014 in the amount of $3,000,000 and matures on March 1, 2018. The terms of the loan agreement were amended following the completion of the Series C-1 preferred stock round of financing to allow for the drawdown of the second tranche of $3,000,000. This second tranche was funded on January 29, 2015. The Company elected not to draw the third tranche of $4.0 million, the availability of which expired on June 30, 2015. Initially, the loans bore interest at a rate per annum equal to the greater of (i) 10.45% or (ii) the sum of (a) 10.45% plus the prime rate (as reported in The Wall Street Journal ) minus 4.50%. On April 6, 2015, the second milestone event was met where the Company received gross cash proceeds in an amount greater than $55,000,000 which lowered the base interest rate on all loans to the greater of (i) 9.95% or (ii) the sum of (a) 9.95% plus (b) the prime rate (as reported in The Wall Street Journal ) minus 4.50%. The Company is required to make interest-only payments on each term loan through September 2015.

Commencing in October 2015, the loans will amortize in equal monthly installments of principal and interest over 30 months. On the maturity date or the date the loans otherwise become due, the Company must also pay additional interest equal to 1.5% of the total amounts funded under the loan agreement. In addition, if the Company prepays any of the term loans during the first year following the initial closing, the Company must pay a prepayment charge equal to 3% of the amount being prepaid, if the Company prepays any of the term loans during the second year following the initial closing, the Company must pay a prepayment charge equal to 2% of the amount being prepaid, and if the Company prepays any of the term loans after the second year following the initial closing, the Company must pay a prepayment charge of 1% of the amount being prepaid.

The term loans are secured by substantially all of our assets, other than intellectual property, which is the subject of a negative pledge. Under the loan agreement, the Company is subject to certain customary covenants that limit or restrict its ability to, among other things, incur additional indebtedness, grant any security interests, pay cash dividends, repurchase its common stock, make loans, or enter into certain transactions without prior consent. The lender under the agreement has the right to convert in an unregistered financing of the Company’s convertible preferred stock or other senior equity securities or instruments exercisable for the foregoing of up to $1,000,000 of the principal amount of any term loan advance for securities being issued in such financing on the same terms afforded to others participating in such financing and to invest up to $1,000,000 in that same subsequent unregistered financing on the same terms afforded to others participating in such financing. The lender did not exercise this conversion right but did exercise its right to participate in the Series C-2 preferred stock financing and invested $1.0 million in the Series C-2 Convertible Preferred Stock on April 6, 2015. The lender’s conversion and investment rights did not apply to the IPO.

Future principal payments on the note as of September 30, 2015 were as follows:

Year Ending in December 31:	(000's)
2015 remaining	$	534
2016		2,271
2017		2,513
2018		682
	$	6,000

The estimated fair value of the debt (categorized as a Level 2 liability for fair value measurement purposes) is determined using current market factors and the ability of the Company to obtain debt at comparable terms to those that are currently in place. The Company believes the estimated fair value at September 30, 2015 approximates the carrying amount.

Note 9- Subsequent Events

On October 6, 2015, the Company completed an IPO of 8,412,423 shares of its common stock which included 1,097,272 shares of common stock issued upon the exercise in full by the underwriters of their over-allotment option at a price of $11.00 per share for aggregate gross proceeds of $92.5 million. The Company received approximately $83.2 million in net proceeds after deducting underwriting discounts and commissions and other offering costs of approximately $9.3 million. Immediately prior to the closing of the IPO, all of the outstanding shares of convertible preferred stock, including shares for accrued dividends, automatically converted into 18,566,856 shares of common stock at the applicable conversion ratio then in effect. As of October 31, 2015, there were no shares of preferred stock outstanding. In connection with the IPO, the Company amended and restated its Seventh Amended and Restated Certificate of Incorporation to change the authorized capital stock to 75,000,000 shares designated as common stock and 5,000,000 shares designated as preferred stock, all with a par value of $0.00033 per share. The financial statements as of September 30, 2015, including share and per share amounts, do not give effect to the IPO.

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial information and the notes thereto included in our final prospectus for our initial public offering filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”), with the Securities and Exchange Commission (the “SEC”) on October 2, 2015 (the “Prospectus”). Except as otherwise indicated herein or as the context otherwise requires, references in this Quarterly Report on Form 10-Q to “Edge,” “the Company,” “we,” “us” and “our” refer to Edge Therapeutics, Inc.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations ,are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described under the heading “Risk Factors” contained in the Prospectus. In light of these risks, uncertainties and assumptions, actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements in this quarterly report and you should not place undue reliance on these forward-looking statements.

These forward-looking statements include, but are not limited to, statements about:

•

the accuracy of our estimates regarding expenses, future revenues and capital requirements;

•

our plans to develop and commercialize our product candidates;

•

our ability to complete our ongoing clinical trials and to advance our product candidates into additional clinical trials, including pivotal clinical trials, and successfully complete such clinical trials;

•

regulatory developments in the United States and foreign countries;

•

the performance of our third-party manufacturers and contract research organizations;

•

our ability to obtain and maintain intellectual property protection for our proprietary assets;

•

the size of the potential markets for our product candidates and our ability to serve those markets;

•

the rate and degree of market acceptance of our product candidates for any indication once approved;

•

our ability to obtain additional financing;

•

the success of competing products that are or become available for the indications that we are pursuing;

•

the loss of key scientific or management personnel;

•

our expectations regarding the time during which we will be an emerging growth company under the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”)

•

our use of the net proceeds from the IPO; and

•

other risks and uncertainties, including those listed under Part II, Item 1A. Risk Factors.

Index

Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

Overview

On October 6, 2015, we completed the IPO of our common stock. In connection with the IPO, we sold 8,412,423 shares of our common stock which included 1,097,272 shares of common stock issued upon the exercise in full by the underwriters of their over-allotment option at a price of $11.00 per share for aggregate gross proceeds of $92.5 million. We received approximately $83.2 million in net proceeds after deducting underwriting discounts and commissions and other offering costs of approximately $9.3 million. Immediately prior to the closing of the IPO, all of the outstanding shares of convertible preferred stock, including shares for accrued dividends, automatically converted into 18,566,856 shares of common stock at the applicable conversion ratio then in effect. As of October 31, 2015, there were no shares of preferred stock outstanding. In connection with the IPO, we amended and restated our Seventh Amended and Restated Certificate of Incorporation to change the authorized capital stock to 75,000,000 shares designated as common stock and 5,000,000 shares designated as preferred stock, all with a par value of $0.00033 per share.

We are a clinical-stage biotechnology company that discovers, develops and seeks to commercialize novel, hospital-based therapies capable of transforming treatment paradigms in the management of acute, life-threatening neurological conditions. We believe EG-1962, our lead product candidate, can fundamentally improve patient outcomes and transform the management of aneurysmal subarachnoid hemorrhage, or aSAH, which is bleeding around the brain due to a ruptured brain aneurysm. A single dose of EG-1962 delivers a high concentration of nimodipine, the current standard of care, directly to the brain with sustained drug exposure over 21 days. EG-1962 utilizes our proprietary, programmable, biodegradable polymer-based development platform, or our Precisa development platform, a novel delivery mechanism that enables targeted and sustained drug exposure while potentially avoiding the dose-limiting side effects associated with currently available formulations of nimodipine.

In April 2015, enrollment was completed in a Phase 1/2 safety and dose-escalation clinical trial of EG-1962 in North America, which we refer to as our NEWTON trial. The NEWTON trial met its primary and secondary endpoints of safety, tolerability, maximum tolerated dose (MTD) and pharmacokinetics. The results of the principal exploratory endpoint from the 90-day follow-up available for patients in the NEWTON trial cohorts demonstrated that 60% (27 of 45) of patients treated with EG-1962 experienced a favorable clinical outcome (a score of 6 − 8 on the extended Glasgow Outcome Scale, or GOSE) versus only 28% (5 of 18) of patients treated with the standard of care, oral nimodipine. Of the 45 patients treated with EG-1962, 90 days following treatment 27% (12 of 45) of patients across 17 sites achieved the highest clinical outcome score (GOSE = 8, Upper Good Recovery) versus only 6% (1 of 18) patients treated with the standard of care, oral nimodipine.

Based on End-of-Phase 2 correspondence from the U.S. Food and Drug Administration (“FDA”) received in late July 2015, we have determined the design and key elements of our planned Phase 3 clinical program for EG-1962 for the treatment of aSAH. Subject to submission and review by the FDA of a final protocol for the planned Phase 3 clinical trial, we expect to initiate the Phase 3 trial in mid-2016. Based on the results of the NEWTON trial, for a condition for which there is a substantial unmet medical need for better treatments, and the use of the FDA’s Section 505(b)(2) regulatory pathway, we believe this Phase 3 clinical trial, if successful, could form the basis of a new drug application submission to the FDA for EG-1962.

Our second product candidate, EG-1964, is being developed as a potential prophylactic treatment in the management of chronic subdural hematoma, or cSDH, to prevent recurrent bleeding on the surface of the brain. A cSDH is a liquefied hematoma that has accumulated on the surface of the brain in an area referred to as the subdural space and is often caused by minor head trauma. Following neurosurgical intervention to drain the hematoma, recurrent bleeding occurs in up to 30% of cSDH patients, requires repeat neurosurgical intervention and is associated with risks of serious complications, including death. There are currently no approved therapeutic treatments that reduce the risk of recurrent bleeding after cSDH. By way of a single administration at the time of the initial neurosurgical intervention, we believe EG-1964 will deliver a high concentration of aprotinin, a pancreatic trypsin inhibitor, directly to the brain with sustained drug exposure over 21 to 28 days. Aprotinin preserves the ability for blood to clot by inhibiting plasminogen, a naturally produced enzyme that breaks down blood clots, thereby limiting recurrent bleeding. If EG-1964 is approved by the FDA, we believe that EG-1964 can become the standard of care as a prophylactic treatment in the management of cSDH to prevent recurrent bleeding. We intend to submit an Investigation New Drug Application for EG-1964 in 2016 and initiate a Phase 1/2 trial thereafter.

Index

From our inception in 2009, we have devoted substantially all of our efforts to business planning, engaging regulatory, manufacturing and other technical consultants, acquiring operating assets, planning and executing clinical trials and raising capital.

We have never been profitable and have incurred net losses in each year since inception. Our net losses were $12.2 million for the year ended December 31, 2014 and $20.1 million for the nine months ended September 30, 2015. As of September 30, 2015, we had an accumulated deficit of approximately $54.2 million. Substantially all of our net losses resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. Our net losses may fluctuate significantly from quarter to quarter and year to year. We expect our expenses will increase substantially in connection with our ongoing activities as we:

•

conduct clinical trials of our initial product candidates, including the commencement of our Phase 3 program for EG-1962;

•

continue our research and development efforts;

•

conduct preclinical studies and initiate clinical trials for EG-1964 for the treatment of cSDH;

•

manufacture preclinical study and clinical trial materials and scale-up for commercial manufacturing capabilities;

•

hire additional clinical, quality control, technical and scientific personnel to conduct our clinical trials and to support our product development efforts;

•

seek regulatory approvals for our product candidates that successfully complete clinical trials;

•

maintain, expand and protect our intellectual property portfolio;

•

implement operational, financial and management systems; and

•

hire additional general and administrative personnel to support our operation as a public company.

We do not expect to generate any revenues from product sales until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years. We intend to initiate our Phase 3 program for EG-1962 for the treatment of aSAH in mid-2016. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution.

Furthermore, as a result of the IPO, we expect to incur additional costs associated with operating as a public company. Accordingly, we will seek to fund our operations through public or private equity or debt financings or other sources. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all and could be forced to relinquish valuable rights to our product candidates, or grant licenses on terms that are not favorable to us in strategic partnerships and alliances and licensing arrangements. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and ability to develop our product candidates.

As of September 30, 2015, we had $52.9 million in cash and cash equivalents.

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KEY COMPONENTS OF OUR STATEMENT OF OPERATIONS

Revenue

We have not generated any revenues from commercial product sales and do not expect to generate any such revenue in the near future. We may also generate revenue in the future from a combination of research and development payments, license fees and other upfront payments or milestone payments.

Research and Development

Research and development expenses include employee-related expenses, licensing fees to use certain technology in our research and development projects, costs of acquiring, developing and manufacturing clinical trial materials, as well as fees paid to consultants and various entities that perform certain research and testing on our behalf. Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or information provided by vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as prepaid or accrued expenses. Costs incurred in connection with research and development activities are expensed as incurred.

We expect our research and development expenses to increase for the foreseeable future as we continue to advance our product candidates through preclinical studies and clinical trials. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time-consuming. We anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the scientific and clinical success of each product candidate as well as ongoing assessments as to the commercial potential of our product candidates. Successful development of future product candidates from our research and development programs is highly uncertain and may not result in approved products. Completion dates and completion costs can vary significantly for each future product candidate and are difficult to predict. We will need to raise additional capital in the future in order to advance our various product candidates. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates or one or more of our other research and development initiatives. We also may seek collaborators for one or more of our current or future product candidates. If we are unable to raise capital as and when needed or enter into collaborations on acceptable terms, it may have a material adverse effect on our financial condition and our ability to pursue our business strategy.

Results of Operations

Comparison of the Three Months Ended September 30, 2015 and 2014

The following table summarizes the results of our operations for the three months ended September 30, 2015 and 2014:

	Three Months Ended September 30,						Increase (Decrease)
	2015			2014			$				%
	(in thousands)
Operating expenses:
Research and development expenses	$	6,508		$	2,419		$	4,089			169	%
General and administrative expenses		1,977			1,141			836			73	%
Total operating expenses		8,485			3,560			4,925			138	%
Loss from operations		(8,485	)		(3,560	)		(4,925	)		138	%
Warrant remeasurement		(1,434	)		89			(1,523	)		1711	%
Interest income (expense), net		(212	)		(47	)		(165	)	NM
Loss before income taxes		(10,131	)		(3,518	)		(6,613	)		188	%
Benefit for income taxes		-			-			-			-
Net loss	$	(10,131	)	$	(3,518	)	$	(6,613	)		188	%

Research and Development Expenses

Research and development expenses increased to $6.5 million in the three months ended September 30, 2015 from $2.4 million for the same period in 2014. The increase of $4.1 million in 2015 was primarily attributable to an increase in external expenses for the EG-1962 trial of $2.8 million and EG-1964 study of $0.3 million and additional internal R&D personnel costs of $0.6 million.

Index

General and Administrative Expenses

General and administrative expenses increased to $1.9 million in the three months ended September30, 2015 from $1.1 million for the same period in 2014. The $0.8 million increase was due primarily to increases in personnel costs of $0.1 million, stock based compensation of $0.2 million, facilities expense of $0.1 million and professional fees of $0.4 million.

Warrant Remeasurement

Warrant remeasurement expenses increased due to the change in fair value of the warrants in relation to the stock price.

Interest Income and Expense, net

Interest income and expense, net increased primarily due to interest expense for a venture financing loan beginning in August 2014.

Comparison of the Nine Months Ended September 30, 2015 and 2014

The following table summarizes the results of our operations for the nine months ended September 30, 2015 and 2014:

	Nine Months Ended September 30,						Increase (Decrease)
	2015			2014			$				%
	(in thousands)
Operating expenses:
Research and development expenses	$	12,574		$	5,636		$	6,938			123	%
General and administrative expenses		5,053			3,541			1,512			43	%
Total operating expenses		17,627			9,177			8,450			92	%
Loss from operations		(17,627	)		(9,177	)		(8,450	)		92	%
Warrant remeasurement		(1,880	)		184			(2,064	)		1122	%
Interest income (expense), net		(612	)		(45	)		(567	)	NM
Loss before income taxes		(20,119	)		(9,038	)		(11,081	)		123	%
Benefit for income taxes		-			-			-			-
Net loss	$	(20,119	)	$	(9,038	)	$	(11,081	)		123	%

Research and Development Expenses

Research and development expenses increased to $12.6 million in the nine months ended September 30, 2015 from $5.6 million for the same period in 2014. The increase of $6.9 million in 2015 was primarily attributable to the increased external expenses for the EG-1962 trial of $4.3 million, for the initiation of the EG-1964 development study of $0.5 million, additional internal R&D personnel costs of $1.3 million, stock based compensation of $0.2 million and professional fees of $0.5 million.

General and Administrative Expenses

General and administrative expenses increased to $5.1 million in the nine months ended September 30, 2015 from $3.5 million for the same period in 2014. The $1.5 million increase was due primarily to increases in personnel costs of $0.5 million, stock based compensation of $0.3 million, professional fees of $0.2 million, investor relations services and corporate marketing of $0.3 million, and rent and office expenses of $0.1 million.

Warrant Remeasurement

Warrant remeasurement expenses increased due to the change in fair value of the warrants in relation to the stock price.

Index

Interest Income and Expense, net

Interest income and expense, net increased primarily due to interest expense for a venture financing loan beginning in August 2014.

Liquidity and Capital Resources

Since our inception and through September 30, 2015, we have raised aggregate net proceeds of $93.9 million to fund our operations, primarily from $87.5 million sale of preferred stock and $6.0 million from a loan. As of September 30, 2015, we had total cash and cash equivalents of $52.9 million as compared to $13.7 million as of December 31, 2014. The $39.2 million increase in total cash was due primarily to raising net proceeds of $52.4 million from the sale of preferred stock and to a $3.0 million increase from the loan offset by funding of operations, which mainly consisted of research and development activities and general and administrative expenses, including costs associated with the IPO.

In April 2015, we consummated the sale and issuance of 12,043,006 shares of Series C-2 Preferred Stock for net proceeds of approximately $52.4 million. In 2014, we consummated the sale and issuance of 3,558,890 shares of our Series C-1 Preferred Stock for net proceeds of approximately $14.9 million. In August 2014, we entered into a Loan and Security Agreement providing for up to $10 million in funding subject to certain conditions. In 2013, we consummated the sale and issuance of 4,631,505 shares of our Series C Preferred Stock for net proceeds of approximately $16.1 million and issued an additional 65,809 shares of our Series C Preferred Stock in satisfaction of a $0.3 million bridge loan.

On October 6, 2015, we completed an IPO of our common stock for aggregate gross proceeds of $92.5 million. We received approximately $83.2 million in net proceeds after deducting underwriting discounts and commissions and other offering costs of approximately $9.3 million.

Hercules Loan and Security Agreement

On August 28, 2014, we entered into a loan and security agreement with Hercules Technology Growth Capital, Inc. (“Hercules”). The loan agreement with Hercules provides funding for an aggregate principal amount of up to $10.0 million in three separate tranches. The first tranche was funded on August 28, 2014 in the amount of $3.0 million and matures on March 1, 2018. The second $3.0 million tranche was funded on January 29, 2015. We elected not to draw the third tranche of $4.0 million, the availability of which expired on June 30, 2015. Initially, the loans bore an interest at a rate per annum equal to the greater of (i) 10.45% or (ii) the sum of (a) 10.45% plus (b) the prime rate (as reported in The Wall Street Journal ) minus 4.50%. On April 6, 2015, the second milestone event was met which lowered the base interest rate on all loans to the greater of (i) 9.95% or (ii) the sum of (a) 9.95% plus (b) the prime rate (as reported in The Wall Street Journal ) minus 4.50%. We are required to make interest-only payments on each term loan through September 2015. Commencing in October 2015, the loans will amortize in equal monthly installments of principal and interest over 30 months. On the maturity date or the date the loans otherwise become due, we must also pay the lender under the agreement an additional charge equal to 1.5% of the total amounts funded under the loan agreement. In addition, if we prepay any of the term loans during the first year following the initial closing, we must pay a prepayment charge equal to 3% of the amount being prepaid, if we prepay any of the term loans during the second year following the initial closing, we must pay a prepayment charge equal to 2% of the amount being prepaid, and if we prepay any of the term loans after the second year following the initial closing, we must pay a prepayment charge of 1% of the amount being prepaid.

The term loans are secured by substantially all of our assets, other than intellectual property, which is the subject of a negative pledge. Under the loan agreement, we are subject to certain customary covenants that limit or restrict our ability to, among other things, incur additional indebtedness, grant any security interests, pay cash dividends, repurchase our common stock, make loans, or enter into certain transactions without the prior consent of Hercules.

Index

Cash flows

The following table shows a summary of our cash flows for each of the periods indicated (in thousands):

	Nine Months Ended September 30,
	2015			2014

Net cash used in operating activities	$	(14,970	)	$	(6,831	)
Net cash used in investing activities		(799	)		(265	)
Net cash provided by financing activities		54,920			2,044
Net increase (decrease) in cash	$	39,151		$	(5,052	)

Net Cash Used in Operating Activities

Net cash used in operating activities was $15.0 million and $6.8 million for the nine months ended September 30, 2015 and 2014, respectively. The increase in cash used in operating activities of $8.2 million was primarily due to an increase in our research and development expenses of $6.9 million and general and administrative expenses of $1.5 million.

Net Cash Used in Investing Activities

Net cash used in investing activities was $0.8 million and $0.3 million for the nine months ended September 30, 2015 and 2014, respectively, which in each period relates entirely to purchases of property and equipment.

Net Cash Provided by Financing Activities

Net cash provided by financing activities of $54.9 million for the nine months ended September 30, 2015 was primarily due to the proceeds from the issuance of preferred stock of $52.4 million and debt of $3.0 million less deferred offering costs of $0.5 million.

Net cash provided by financing activities of $2.0 million for the nine months ended September 30, 2014 was primarily due to the proceeds from the issuance of debt of $3.0 million less debt issuance costs and deferred offering costs of $1.0 million.

Operating Capital Requirements

We expect that our primary uses of capital will continue to be third-party clinical research and development services, compensation and related expenses, laboratory and related supplies, legal and other regulatory expenses and general overhead costs. We believe that the estimated net proceeds from our IPO, together with our existing cash and cash equivalents as of September 30, 2015, will be sufficient to meet our anticipated cash requirements for at least the next 12 months. During that time, we expect our expenses will increase substantially as we fund Phase 3 clinical development of EG-1962, IND enabling activities related to EG-1964 and other development activities related to additional product candidates or additional routes of administration of or expanded indications for EG-1962.

Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially as a result of a number of factors. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Our future capital requirements are difficult to forecast and will depend on many factors, including:

•

the initiation, progress, timing, costs and results of the clinical trials for our product candidates to meet regulatory approval, particularly whether the FDA requires us to complete two Phase 3 trials for EG-1962 or changes to the anticipated design of our Phase 3 program, such as changes in the required control arm of any such trial;

•

the outcome of planned 2015 interactions with the FDA and other non-U.S. health authorities that may alter our proposed Phase 3 program for EG-1962 that is required to meet the standards of a marketing authorization approval in aSAH;

•

the clinical development plans we establish for these product candidates;

•

the number and characteristics of product candidates that we develop or may in-license;

•

the outcome, timing and cost of meeting regulatory requirements established by the FDA and comparable foreign regulatory authorities, including the potential for the FDA or comparable foreign regulatory authorities to require that we perform more studies than those that we currently expect;

Index

•

the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;

•

the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us or our product candidates;

•

the effect of competing technological and market developments;

•

the cost and timing of completion of commercial-scale outsourced manufacturing activities; and

•

the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products on our own.

Please see the section titled “Risk Factors” elsewhere in this report for additional risks associated with our substantial capital requirements.

Until such time, if ever, that we generate product revenue, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings and research collaboration and license agreements. We may be unable to raise capital or enter into such other arrangements when needed or on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed may have a negative impact on our financial condition and our ability to develop our product candidates.

Contractual Obligations and Commitments

The following is a summary of our contractual obligations as of the date indicated:

As of September 30, 2015	Total		Less than one year		1-3 Years		3-5 Years		More than 5 Years
	(in thousands)
Debt principal and interest	$	6,816	$	2,721	$	4,095	$	-	$	-

Operating lease obligations		797		231		566		-		-

Total contractual obligations	$	7,613	$	2,952	$	4,661	$	-	$	-

Purchase Commitments

We have no material non-cancelable purchase commitments with service providers as we have generally contracted on a cancelable, purchase order basis.

Milestone and Royalty-based Commitments

We have obligations to make future payments to Evonik that become due and payable upon the achievement of certain development, regulatory and commercial milestones. We have not included this commitment on our balance sheet or in the table above because the achievement of these milestones is not fixed and determinable.

Critical Accounting Polices and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We consider our critical accounting policies and estimates to be related to stock-based compensation and our warrant liability. There have been no material changes to our critical accounting policies and estimates during the nine months ended September 30, 2015 from those disclosed in the Prospectus.

Index

Off-balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission.

ITEM 3:

Quantitative and Qualitative Disclosure about Market Risk

The primary objectives of our investment activities are to ensure liquidity and to preserve principal, while at the same time maximizing the income we receive from our marketable securities without significantly increasing risk. As of September 30, 2015, we had cash equivalents of $52.9 million that were held in a non-interest-bearing money operating account and an institutional market fund. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. Due to the short-term maturities of our cash equivalents and the low risk profile of our investments, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our cash equivalents. To minimize the risk in the future, we intend to maintain our portfolio of cash equivalents and short-term investments in institutional market funds that are comprised of U.S. Treasury and Treasury backed repurchase agreements.

ITEM 4:

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2015. We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, or Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on their evaluation as of the end of September 30, 2015, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) identified in connection with the evaluation identified above that occurred during the quarter ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Index

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

We currently are not a party to any material litigation or other material legal proceedings.

ITEM 1A.

RISK FACTORS.

There have been no material changes from our risk factors as previously reported in the Prospectus.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Sales of Unregistered Securities

On October 6, 2015, we issued warrants to purchase 18,000 shares of our common stock at an exercise price of $12.10 per share in connection with services provided to us by Maxim Partners LLC, the placement agent for our offering of Series C-1 Preferred Stock in connection with the sale of stock in the IPO.

We deemed the issuance of the securities described in the paragraph above to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act, relative to transactions by an issuer not involving a public offering, to the extent an exemption from such registration was required. There were no underwriters employed in connection with the transaction set forth in this Item 2.

Use of Proceeds

On October 6, 2015, we issued and sold 8,412,423 shares of our Common Stock, including 1,097,272 shares of our Common Stock sold pursuant to the underwriters’ full exercise of their option to purchase additional shares, for aggregate gross offering proceeds of $92.5 million at a price to the public of $11.00 per share. All of the shares issued and sold in the IPO were registered under the Securities Act pursuant to a Registration Statement on Form S-1, as amended (File No. 333-206416), which was declared effective by the SEC on September 30, 2015 and a Registration Statement on Form S-1 (File No. 333-207217) filed pursuant to Rule 462(b) of the Securities Act. The IPO commenced on September 30, 2015 and did not terminate until the sale of all of the shares offered.

Leerink Partners LLC and Credit Suisse Securities (USA) LLC acted as joint book-running managers for the IPO, while Guggenheim Securities, LLC and JMP Securities LLC acted as co-managers.

The underwriting discounts and commissions in connection with the offering totaled approximately $6.5 million. We incurred additional costs of approximately $2.8 million in estimated offering expenses, which when added to the underwriting discounts and commissions paid by us, amounted to total fees and costs of approximately $9.3 million. Thus, the net offering proceeds to us, after deducting underwriting discounts and commissions and offering expenses, were approximately $83.2 million. No offering expenses were paid directly or indirectly to any of our directors or officers (or their associates) or persons owning ten percent or more of any class of our equity securities or to any other affiliates.

As of October 31, 2015, we have not used any of the net proceeds from the IPO. We intend to use our net proceeds from the IPO for the overall development of our product candidates. We will invest the net proceeds of the IPO in short-term, investment-grade, interest-bearing securities. There has been no material change in our planned use of the balance of the net proceeds from the IPO described in the Prospectus.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

Index

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS

A list of exhibits filed with this Quarterly Report on Form 10-Q or incorporated herein by reference is set forth in the Exhibit Index immediately following the signature page of this report and is incorporated into this Item 6 by reference.

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 thereunto duly authorized.

	Edge Therapeutics, Inc.

November 6, 2015	By: /s/ Brian A. Leuthner
	Brian A. Leuthner
	President and Chief Executive Officer
	(Principal Executive Officer)

November 6, 2015	By: /s/ Andrew J. Einhorn
	Andrew J. Einhorn
	Chief Financial Officer
	(Principal Financial Officer)

Index

Table of Contents

EXHIBIT INDEX

Exhibit Number		Exhibit Description

3.1		Eight Amended and Restated Certificate of Incorporation of Edge Therapeutics, Inc. ( filed as exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 6, 2015, and incorporated by reference herein )

3.2		Second Amended and Restated Bylaws of Edge Therapeutics, Inc. ( filed as exhibit 3.2 to the Company’s Current Report on Form 8-K filed on October 6, 2015, and incorporated by reference herein )

4.1		Warrant to Purchase 18,000 Shares of Common Stock issued to Maxim Partners LLC, dated as of October 6, 2015.

10.1	+	Amended and Restated Employment Agreement by and between Herbert J. Faleck and the Company dated as of August 11, 2015 (filed as exhibit 10.13 to the Company’s registration statement on Form S-1 (File No. 333- 206416) filed on August 14, 2015, and incorporated by reference herein ) .

10.2	+	Second Amended and Restated Employment Agreement by and between Dr. R. Loch Macdonald and the Company dated September 21, 2015 (filed as exhibit 10.14 to the Company’s Pre-Effective Amendment No. 1 to the registration statement on Form S-1 (File No. 333- 206416) filed on September 21, 2015, and incorporated by reference herein ) .

10.3	*	Amendment No. 1 to the License Agreement, effective as of September 21, 2015, by and between the Company and Evonik Corporation. (filed as exhibit 10.15 to the Company’s Pre-Effective Amendment No. 1 to the registration statement on Form S-1 (File No. 333- 206416) filed on September 21, 2015, and incorporated by reference herein ) .

31.1		Principal Executive Officer’s Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Principal Financial Officer’s Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1(1)		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2(1)		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

(1)	This certification is deemed not filed for purpose of section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.

+	Indicates management contract or compensatory plan.

*	Confidential Treatment has been granted with respect to certain portions of this Exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.

Exhibit 4.1

THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (“SECURITIES ACT”), AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.

Warrant No. W-6

Shares of Common Stock: 18,000

Date of Issuance: October 6, 2015

EDGE THERAPEUTICS, INC.

Common Stock Warrant

Edge Therapeutics, Inc. (the “ Company ”), for value received, hereby certifies that Maxim Partners LLC, or its registered assigns (the “ Registered Holder ”), is entitled, subject to the terms of this Common Stock Warrant (this “ Warrant ”) set forth below, to purchase from the Company, at any time after October 6, 2015 (the “ Commencement Date ”) and on or before October 6, 2020 (the “ Expiration Date ”), up to Eighteen Thousand (18,000) shares of Common Stock of the Company (the “ Warrant Stock ”), par value $0.00033 per share (the “ Common Stock ”), at a per share exercise price (the “ Exercise Price ”) equal to $12.10 per share (subject to adjustment as set forth in Section 2) .

1. Exercise .

(a) Method of Exercise . This Warrant may be exercised by the Registered Holder, in whole or in part, by delivering the form appended hereto as Exhibit A duly executed by such Registered Holder (the “ Exercise Notice ”), at the principal office of the Company, or at such other office or agency as the Company may designate in writing prior to the date of such exercise, accompanied by payment in full of the Exercise Price payable with respect to the number of shares of Warrant Stock purchased upon such exercise. The Exercise Price must be paid by cash, check or wire transfer in immediately available funds for the Warrant Stock being purchased by the Registered Holder, except as provided in Section 1(c).

(b) Effective Time of Exercise . Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which the Exercise Notice has been delivered to the Company (the “ Exercise Date ”) as provided in this Section 1. At such time, the person or persons in whose name or names any certificates for Warrant Stock shall be issuable upon such exercise as provided in Section 1(d) below shall be deemed to have become the holder or holders of record of the Warrant Stock represented by such certificates.

(c) Cashless Exercise . Notwithstanding any provisions herein to the contrary, in lieu of exercising this Warrant in the manner set forth in Section 1(a), the Registered Holder may elect to exercise this Warrant, or a portion hereof, and to pay for the Warrant Stock by way of cashless exercise (a “ Cashless Exercise ”). If the Registered Holder wishes to effect a cashless exercise, the Registered Holder shall deliver the Exercise Notice duly executed by such Registered Holder or by such Registered Holder’s duly authorized attorney, at the principal office of the Company, or at such other office or agency as the Company may designate in writing prior to the date of such exercise, in which event the Company shall issue to the Registered Holder the number of shares of Warrant Stock computed according to the following equation:

X = Y* (A-B)

; where

X = the number of shares of Warrant Stock to be issued to the Registered Holder.

Y = the Warrant Stock purchasable under this Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant Stock being exercised.

A = the Fair Market Value (defined below) of one share of Common Stock on the Exercise Date.

B = the Exercise Price (as adjusted pursuant to the provisions of this Warrant).

For purposes of this Section 1(c), the “Fair Market Value” of one share of Common Stock on the Exercise Date shall have one of the following meanings:

(1) if the Common Stock is traded on a national securities exchange, the Fair Market Value shall be deemed to be the average of the Closing Prices over a five trading day period ending on the Exercise Date. For the purposes of this Warrant, “Closing Price” means the final price at which one share of Common Stock is traded during any trading day; or

(2) if the Common Stock is traded over-the-counter, the Fair Market Value shall be deemed to be the average of the Closing Price over the five day period ending on the Exercise Date. If no Closing Price is reported for the Common Stock, the average of the bid and ask prices for the Common Stock as reported in the over the counter market will be used instead of the Closing Price; or

(3) if neither (1) nor (2) is applicable, the Fair Market Value shall be at the commercially reasonable price per share which the Company could obtain on the Exercise Date from a willing buyer for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by the Company’s Board of Directors.

For illustration purposes only, if this Warrant entitles the Registered Holder the right to purchase 100,000 shares of Warrant Stock and the Holder were to exercise this Warrant for 50,000 shares of Warrant Stock at a time when the Exercise Price was reduced to $1.00 and the Fair Market Value of each share of Common Stock was $2.00 on the Exercise Date, as applicable, the cashless exercise calculation would be as follows:

X = 50,000 ($2.00-$1.00)

$2.00

X = 25,000

Therefore, the number of shares of Warrant Stock to be issued to the Holder after giving effect to the cashless exercise would be 25,000 shares of Warrant Stock and the Company would issue the Holder a new Warrant to purchase 50,000 shares of Warrant Stock, reflecting the portion of this Warrant not exercised by the Holder. For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Warrant Stock issued in the cashless exercise transaction described pursuant to Section 1(c) shall be deemed to have been acquired by the Holder, and the holding period for the shares of Warrant Stock shall be deemed to have commenced, on the date of the Registered Holder’s acquisition of this Warrant.

(d) Delivery to Holder . As soon as practicable after the exercise of this Warrant in whole or in part, and in any event within three (3) business days thereafter (the “ Warrant Stock Delivery Date ”), the Company will cause to be issued in the name of, and delivered to, the Registered Holder, or as such Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may direct:

(i) a certificate or certificates for the number of shares of Warrant Stock to which such Registered Holder shall be entitled, and

(ii) in case such exercise is in part only, a new warrant or warrants of like tenor, calling in the aggregate on the face or faces thereof for the number of shares of Warrant Stock equal (giving effect to any adjustment therein) to the number of such shares called for on the face of this Warrant minus the number of such shares surrendered for exercise as provided in Section 1(a).

2. Anti-dilution Adjustments and Distributions. The number and kind of securities purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events, as follows:

(a) Splits, Dividends and Subdivisions . If the Company shall at any time or from time to time while this Warrant is outstanding, pay a dividend or make a distribution on its Common Stock in shares of Common Stock , subdivide its outstanding shares of Common Stock into a greater number of shares or combine its outstanding shares of Common Stock into a smaller number of shares, then the number of Warrant Shares purchasable upon exercise of this Warrant in effect immediately prior to the date upon which such change shall become effective shall be proportionally adjusted by the Company so that the Holder thereafter exercising this Warrant shall be entitled to receive the number of shares of Common Stock or other Common Stock which the Holder would have received if this Warrant had been fully exercised immediately prior to such event. Such adjustments shall be made successively whenever any event listed above shall occur.

(b) Recapitalization, Reclassification or Reorganization . If any recapitalization, reclassification or reorganization of the Common Stock of the Company (other than a change in par value or a subdivision or combination as provided for in Section 2(a) above) shall be effected in such a manner (including, without limitation, in connection with a consolidation or merger in which the Company is the continuing corporation), that holders of Common Stock shall be entitled to receive stock, securities, or other assets or property (a “Reorganization”), then, as a condition of such Reorganization, lawful and adequate provisions shall be made by the Company whereby the Holder hereof shall thereafter have the right to purchase and receive upon exercise hereof (in lieu of the shares of the Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby) such shares of stock, securities or other assets or property as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such Common Stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby. In the event of any Reorganization, appropriate provision shall be made by the Company with respect to the rights and interests of the Holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Exercise Price and of the number of Warrant Shares) shall thereafter be applicable, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The provisions of this Section 2(b) shall similarly apply to successive Reorganizations.

(c) Distributions . In case the Company shall fix a payment date for the making of a distribution to all holders of Common Stock of evidences of indebtedness or assets (other than dividends or distributions referred to in Section 2(a) hereof), or subscription rights or warrants, the Holder shall be entitled to receive upon exercise hereof, simultaneous with the holders of Common Stock , said assets or evidences of indebtedness so distributed, or of such subscription rights or warrants, that the Holder would have received if this Warrant had been fully exercised immediately prior to such event. In the event that the Company implements a shareholder rights plan, such rights plan shall provide that upon exercise of this Warrant the Holder will receive, in addition to the Common Stock issuable upon such exercise, the rights issued under such rights plan (as if the Holder had exercised this Warrant prior to implementing the rights plan and notwithstanding the occurrence of an event causing such rights to separate from the Common Stock at or prior to the time of exercise). Any distribution of rights or warrants pursuant to a shareholder rights plan complying with the requirements set forth in the immediately preceding sentence of this paragraph shall not constitute a distribution of rights or warrants for the purposes of this Section 2(c).

(d) Notice of Adjustments . With each adjustment pursuant to this Section 2, the Company shall deliver a certificate signed by its chief financial or executive officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, the Exercise Price and the number of Warrant Shares purchasable hereunder after giving effect to such adjustment.

3. Transfers .

(a) Unregistered Security . The holder of this Warrant acknowledges that this Warrant has not been registered under the Securities Act and agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this Warrant or any Warrant Stock (or Common Stock) issued upon its exercise in the absence of (i) an effective registration statement under the Securities Act as to this Warrant or such Warrant Stock (or Common Stock) and registration or qualification of this Warrant or such Warrant Stock (or Common Stock) under any applicable U.S. federal or state securities law then in effect or (ii) an opinion of counsel, reasonably satisfactory to the Company, that such registration and qualification are not required.

(b) Transferability . Subject to the provisions of Section 3(a) hereof, this Warrant and all rights hereunder are transferable, in whole or in part on and after the Commencement Date; provided, however, that subject to the provisions of Section 3(a) hereof, this Warrant and all rights hereunder are transferable, in whole or in part immediately upon issuance to (i) any entity controlling, controlled by or under common control of the Registered Holder, or (ii) to any successor, officer, manager or member of the Registered Holder (or to any officer, manager or member of any successor to the Registered Holder) by surrendering this Warrant with a properly executed assignment (in the form of Exhibit B hereto) at the principal office of the Company.

(c) Warrant Register . The Company will maintain a register containing the names and addresses of the Registered Holders of this Warrant. Until any transfer of this Warrant is made in the warrant register, the Company may treat the Registered Holder of this Warrant as the absolute owner hereof for all purposes. Any Registered Holder may change such Registered Holder’s address as shown on the warrant register by written notice to the Company requesting such change.

4. Registration Rights.

(a) Provided that the Common Stock underlying the Warrant Stock (the “ Registrable Securities ”) have not been registered or are not otherwise freely tradable without restriction pursuant to Rule 144 promulgated under the Securities Act, if at any time after the Company’s initial public offering under the Securities Act, the Company proposes to register any of its securities under the Securities Act (other than by a registration in connection with an acquisition in a manner which would not permit registration of the securities for sale to the public, or a registration on Form S-8 or Form S-4, or any successor forms thereto), then the Company will at such time give prompt written notice to the Registered Holder of its intention to do so. Upon the written request or request via electronic mail of the Registered Holder, made within ten (10) days after the receipt of such notice, to include any of the Registrable Securities in such registration, the Company will, subject to the terms of this Warrant, use its commercially reasonable best efforts to effect the registration under the Securities Act of the Registrable Securities but in no event later than 180 days from the date of such request . The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 4(a) before the effective date of such registration, whether or not the Registered Holder has elected to include Registrable Securities in such registration. In connection with any offering involving an underwriting of shares of the Company’s capital stock pursuant to this Section 4(a), the Company shall not be required to include any of the Registered Holder’s Registrable Securities in such underwriting unless the Registered Holder accepts the terms of the underwriting as agreed upon between the Company and its underwriters or if the Registered Holder has not provided the information necessary to be included in the registration statement.

(b) Commencing one (1) year after the Company has been subject to the requirements of Section 12 or Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Registered Holder is entitled to one “demand” registration right. Upon receipt of such demand request by the Company from the Registered Holder, the Company shall file a registration statement on Form S-3 (“Form S-3”) or, if Form S-3 is not available, on any other appropriate form, including Form S-1 and cause such registration statement to become effected (as defined in Section 4(d)) in an expeditious manner.

(c) Registration of Registrable Securities under this Section 4 shall be on such appropriate registration form: (i) as shall be selected by the Company, and (ii) as shall permit the public disposition of such Registrable Securities in accordance with this Section 4. The Company agrees to include in any such registration statement all information which the requesting holders of Registrable Securities shall reasonably request, which is required to be contained therein. The Company will pay all Registration Expenses in connection with each registration of Registrable Securities pursuant to this Section 4, excluding underwriting discounts and commission and fees and expenses of counsel to the Registered Holders.

(d) A registration requested pursuant to this Section 4 shall not be deemed to have been effected: (i) unless a registration statement with respect thereto has become effective or (ii) if, after it has become effective, such registration is interfered with by any stop order, injunction or other order or requirement of the Securities and Exchange Commission (the “ SEC ”) or other governmental agency or court of competent jurisdiction for any reason, other than by reason of some act or omission by a holder of Registrable Securities.

5. Termination . This Warrant (and the right to purchase securities upon exercise hereof) shall terminate at 5:00 p.m., Eastern Time, on the Expiration Date.

6. Notices of Certain Transactions . In case:

(a) the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right,

(b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company, or

then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation, winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other stock or securities at the time deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up) are to be determined. Failure to send such notice shall not act to invalidate any such transaction.

7. Reservation of Stock . The Company covenants that at all times it will have authorized, reserve and keep available, solely for the issuance and delivery upon the exercise of this Warrant, such shares of Warrant Stock and other stock, securities and property, as from time to time shall be issuable upon the exercise of this Warrant. The Company covenants that all Warrant Stock that may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue). The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the shares of Warrant Stock upon the exercise of the purchase rights under this Warrant by the Registered Holder. The Company will take all such reasonable action as may be necessary to assure that such Warrant Stock may be issued as provided herein without violation of any applicable law or regulation.

8. Replacement of Warrants . Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required) in an amount reasonably satisfactory to the Company, or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor.

9. Notices . Any notice required or permitted by this Warrant shall be in writing and shall be deemed duly given upon receipt, when delivered personally or by courier, overnight delivery service, confirmed facsimile or electronic mail, or 48 hours after being deposited in the regular mail as certified or registered mail (airmail if sent internationally) with postage prepaid, addressed (a) if to the Registered Holder, to the address of the Registered Holder most recently furnished in writing to the Company and (b) if to the Company, to the address set forth on the signature page of this Warrant or as subsequently modified by written notice to the Registered Holder.

10. No Rights as Stockholder . Until the exercise of this Warrant, the Registered Holder of this Warrant shall not have or exercise any rights by virtue hereof as a stockholder of the Company.

11. No Fractional Shares . No fractional shares of Common Stock will be issued in connection with any exercise hereunder. In lieu of any fractional shares which would otherwise be issuable, the Company shall round the amount of Warrant Stock issuable to the nearest whole share.

12. Consent, Amendment or Waiver . Any term of this Warrant may be amended or waived upon written consent of the Company and the Registered Holders of a majority of the Warrant Stock issuable upon the issued and outstanding Warrants.

13. Headings . The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning of any provision of this Warrant.

14. Governing Law . This Warrant and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of New York, without giving effect to principles of conflicts of law.

15. Representations and Warranties of the Company . This Warrant has been entered into by the Registered Holder in reliance upon the following representations and covenants of the Company as of the Date of Issuance:

(a) Authorization . The Warrant has been duly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company enforceable in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies.

(b) Valid Issuance . The Warrant Stock is duly authorized and reserved for issuance, and when issued and delivered in accordance with the terms of this Warrant will be duly and validly issued, fully paid and nonassessable.

(c) No Conflict . The execution and delivery of this Warrant do not, and the consummation of the transactions contemplated hereby will not, conflict with, or result in any violation of, breach or default (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or to a loss of a material benefit, under, any provision of the Eighth Amended and Restated Certificate of Incorporation (the “ Restated Certificate ”) or Second Amended and Restated Bylaws of the Company or any order, decree, statute, law, ordinance, rule, listing requirement or regulation applicable to the Company, its properties or assets, which conflict, violation, default or right would have a material adverse effect on the business, properties, prospects, financial condition or operations of the Company.

16. No Impairment . The Company will not, by amendment of its Restated Certificate of Incorporation or through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will (subject to Section 12 above) at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Registered Holder of this Warrant against impairment.

[Remainder of page intentionally left blank]

IN WITNESS WHEREOF, the parties have executed this Warrant as of the date first above written.

	EDGE THERAPEUTICS, INC.

	By:	/s/ Brian A. Leuthner
		Name: Brian A. Leuthner
		Title: President & Chief Executive Officer

Exhibit A

WARRANT EXERCISE FORM

[To be executed only upon exercise of Warrant]

To EDGE THERAPEUTICS, INC.:

The undersigned registered holder of the within Warrant hereby irrevocably exercises the Warrant with respect to ________________________ Warrant Shares, at an exercise price per share of $[ ], and requests that the certificates for such Warrant Shares be issued in the name of, and delivered to:

The undersigned is hereby making payment for the Warrant Shares in the following manner: [check one]

☐	by cash in accordance with Section 1(a) of the Warrant

☐	via cashless exercise in accordance with Section 1(c) of the Warrant in the following manner:

The undersigned hereby represents and warrants that it is, and has been since its acquisition of the Warrant, the record and beneficial owner of the Warrant.

Dated:


Print or Type Name


(Signature must conform in all respects to name of holder as specified on the face of Warrant)


(Street Address)


(City) (State) (Zip Code)

Exhibit B

ASSIGNMENT FORM

[To be executed only upon transfer of Warrant]

For value received, the undersigned registered holder of the within Warrant hereby sells, assigns and transfers unto _____________________ [include name and addresses] the rights represented by the Warrant to purchase __________ shares of Common Stock of EDGE THERAPEUTICS, INC. to which the Warrant relates, and appoints _____________________ Attorney to make such transfer on the books of EDGE THERAPEUTICS, INC. maintained for the purpose, with full power of substitution in the premises.

Dated:
	(Signature must conform in all respects
	to name of holder as specified on the
	face of Warrant)


	(Street Address)


	(City) (State) (Zip Code)

Signed in the presence of:


	(Signature of Transferee)


	(Street Address)


	(City) (State) (Zip Code)

Signed in the presence of:

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)

AS ADOPTED PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Brian A. Leuthner, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Edge Therapeutics, Inc. for the period ended September 30, 2015;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: November 6, 2015	/s/ Brian A. Leuthner
	Brian A. Leuthner
	President and Chief Executive Officer
	(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)

AS ADOPTED PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Andrew J. Einhorn, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Edge Therapeutics, Inc. for the period ended September 30, 2015;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: November 6, 2015	/s/ Andrew J. Einhorn
	Andrew J. Einhorn
	Chief Financial Officer
	(Principal Financial Officer)

Exhibit 32.1

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Quarterly Report of Edge Therapeutics, Inc. (the “Company”), on Form 10-Q for the quarter ended September 30, 2015 (the “Report”), I, Brian A. Leuthner, President and Chief Executive Officer of the Company, hereby certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 that:

(1)

the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 6, 2015	/s/ Brian A. Leuthner
	Brian A. Leuthner
	President and Chief Executive Officer
	(Principal Executive Officer)

Exhibit 32.2

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Quarterly Report of Edge Therapeutics, Inc. (the “Company”), on Form 10-Q for the quarter ended September 30, 2015 (the “Report”), I, Andrew J. Einhorn, Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 that:

(1)

the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 6, 2015	/s/ Andrew J. Einhorn
	Andrew J. Einhorn,
	Chief Financial Officer
	(Principal Financial Officer)