Amarantus
Bioscience Holdings, Inc.
Consolidated
Statements of Cash Flows
(in
thousands, except share and per share data)
|
|
For the years ended
|
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Supplemental schedule of non-cash investing and financing activities:
|
|
|
|
|
|
|
Acquisition of DioGenix, Inc
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
$
|
(13
|
)
|
|
$
|
-
|
|
Property and equipment, net
|
|
$
|
(40
|
)
|
|
$
|
-
|
|
Intangible assets
|
|
$
|
(1,961
|
)
|
|
$
|
-
|
|
goodwill
|
|
$
|
(7,967
|
)
|
|
$
|
-
|
|
Earn-out liability
|
|
$
|
917
|
|
|
$
|
-
|
|
Deferred tax liability
|
|
$
|
1,113
|
|
|
$
|
-
|
|
Common stock issued for acquisition of Diogenix
|
|
$
|
7,951
|
|
|
$
|
-
|
|
8% senior convertible debentures and accrued interest, net of unamortized debt discount and associated derivative liability converted to common stock
|
|
$
|
-
|
|
|
$
|
7,091
|
|
Debt discount associated with convertible promissory note - derivative liability
|
|
$
|
3,720
|
|
|
$
|
-
|
|
Issuance of warrants at fair value related to convertible debt
|
|
$
|
3,096
|
|
|
$
|
-
|
|
Warrant liability limitations adjustment
|
|
$
|
1,045
|
|
|
$
|
-
|
|
Fair Value of common stock warrant issued with Series H convertible preferred stock
|
|
$
|
2,534
|
|
|
$
|
-
|
|
Beneficial conversion feature of Series H convertible preferred stock
|
|
$
|
1,260
|
|
|
$
|
-
|
|
Deemed dividends related to immediate accretion of beneficial conversion feature of Series H convertible preferred stock
|
|
$
|
1,260
|
|
|
$
|
-
|
|
Deemed dividend on conversion of Series H convertible preferred stock to common stock
|
|
$
|
1,301
|
|
|
$
|
-
|
|
Deemed dividend related to accretion of redemption value of Series H convertible preferred stock
|
|
$
|
2,363
|
|
|
$
|
-
|
|
Deemed dividends related to immediate accretion of beneficial conversion feature of Series E convertible preferred stock
|
|
$
|
490
|
|
|
$
|
-
|
|
Beneficial conversion feature of Series E convertible preferred stock adjustment due to rice reset from $7.50 to $4.50
|
|
$
|
2,835
|
|
|
$
|
-
|
|
Common stock issued as fee for debt financing arrangement
|
|
$
|
116
|
|
|
$
|
-
|
|
Common stock issued for Series D convertible preferred stock quarterly dividend
|
|
$
|
60
|
|
|
$
|
-
|
|
Common stock issued for Series E convertible preferred stock quarterly dividend
|
|
$
|
1,033
|
|
|
$
|
-
|
|
Common stock issued for Series G convertible preferred stock quarterly dividend
|
|
$
|
2,087
|
|
|
$
|
-
|
|
Common stock issued for Series H convertible preferred stock quarterly dividend
|
|
$
|
213
|
|
|
$
|
-
|
|
Common stock issued in conversion of Series D convertible preferred stock
|
|
$
|
1,169
|
|
|
$
|
-
|
|
Common stock issued in conversion of Series E convertible preferred stock
|
|
$
|
700
|
|
|
$
|
104
|
|
Common stock issued in conversion of Series G convertible preferred stock
|
|
$
|
1,810
|
|
|
$
|
-
|
|
Common stock issued in conversion of Series H convertible preferred stock
|
|
$
|
1,772
|
|
|
$
|
-
|
|
Common stock issued for note conversion
|
|
$
|
1,659
|
|
|
$
|
130
|
|
Series D dividend accrued
|
|
$
|
34
|
|
|
$
|
-
|
|
Series E dividend accrued
|
|
$
|
1,261
|
|
|
$
|
65
|
|
Series G dividend accrued
|
|
$
|
2,087
|
|
|
$
|
-
|
|
Series H dividend accrued
|
|
$
|
213
|
|
|
$
|
-
|
|
Common stock issued in consideration of commitment fees for equity financing
|
|
$
|
-
|
|
|
$
|
516
|
|
Common stock issued to acquire intangible assets
|
|
$
|
-
|
|
|
$
|
354
|
|
Common stock issued in settlement of accounts payable
|
|
$
|
-
|
|
|
$
|
68
|
|
Exchange of notes payable for senior secured convertible debt
|
|
$
|
3,021
|
|
|
$
|
-
|
|
Note payable converted to Series E convertible preferred stock
|
|
$
|
689
|
|
|
$
|
500
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
Amarantus
Bioscience Holdings, Inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1.
General
Amarantus Bioscience Holdings, Inc. (”the
Company”) is a California based biopharmaceutical company founded in January 2008. The Company owns or have exclusive licenses
to various product candidates in the biopharmaceutical and diagnostic areas of the healthcare industry. The Company is developing
a diagnostic product candidates in the field of neurology, and therapeutic product candidates in the areas of neurology, psychiatry,
ophthalmology and regenerative medicine. The Company’s business model is to develop product candidates through various de-risking
milestones that will be accretive to shareholder value, and will strategically partner with pharmaceutical companies, diagnostic
companies and/or other stakeholders in order to more efficiently achieve regulatory approval and commercialization.
The
Company has three operating divisions: the diagnostics division; the therapeutics division; and the drug discovery division.
Reverse
Stock Split
On May 2, 2015, the Company’s
Board of Directors and stockholders approved a 1-for-150 reverse stock split of the Company’s authorized, issued and outstanding
common stock. The reverse stock split became effective on June 10, 2015. Upon the effectiveness of the reverse stock split, (i)
every one hundred and fifty shares of outstanding common stock was combined into one share of common stock, (ii) the number of
shares of common stock into which each outstanding warrant or option to purchase common stock is exercisable was proportionally
decreased, (iii) the exercise price of each outstanding warrant or option to purchase common stock was proportionately increased,
and (iv) the conversion ratio for each share of preferred stock outstanding was proportionately reduced.
Unless otherwise indicated, all of the share numbers, share prices and exercise prices in these consolidated
financial statements have been adjusted, on a retroactive basis, to reflect this 1-for-150 reverse stock split.
2.
Liquidity and Going Concern
The
Company’s activities since inception have consisted principally of acquiring product and technology rights, raising capital,
and performing research and development. Successful completion of the Company’s development programs and, ultimately, the
attainment of profitable operations are dependent on future events, including, among other things, its ability to access potential
markets; secure financing, develop a customer base; attract, retain and motivate qualified personnel; and develop strategic alliances.
From inception, the Company has been funded by a combination of equity and debt financings. Although management believes that
the Company will be able to successfully fund its operations, there can be no assurance that the Company will be able to do so
or that the Company will ever operate profitably. The Company’s activities since inception have consisted principally of acquiring product
and technology rights, raising capital, and performing research and development. Historically, we have incurred net losses and
negative cash flows from operations.
The
Company expects to continue to incur substantial losses over the next several years during its development phase. To fully execute
its business plan, the Company will need to complete certain research and development activities and clinical studies. Further,
the Company’s product candidates will require regulatory approval prior to commercialization. These activities may span
many years and require substantial expenditures to complete and may ultimately be unsuccessful. Any delays in completing these
activities could adversely impact the Company. The Company plans to meet its capital requirements primarily through issuances
of debt and equity securities and, in the longer term, revenue from product sales.
The accompanying financial statements
have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”),
which contemplate continuation of the Company as a going concern. Historically, the Company has incurred net losses and negative cash flows from operations. The Company believes
its current capital resources are not sufficient to support its operations. Management intends to continue its research efforts
and to finance operations of the Company through debt and/or equity financings. Management plans to seek additional debt and/or
equity financing through private or public offerings or through a business combination or strategic partnership. There can be
no assurance that the Company will be successful in obtaining additional financing on favorable terms, or at all. These matters
raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of these uncertainties.
3.
Significant Accounting Policies
Principles
of Consolidation
- The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Reclassification
-Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current
period financial statements. These reclassifications had no effect on the previously reported net loss.
Use
of Estimates
- The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of expenses during the reporting period. Significant estimates include the fair
value of derivatives, the fair value of stock-based compensation and warrants, the carrying value of intangible assets (patents
and licenses), valuation allowance against deferred tax assets, and related disclosure of contingent assets and liabilities. Actual
results could differ from those estimates.
Certain
Significant Risks and Uncertainties
- The Company participates in a global, dynamic, and highly competitive industry and believes
that changes in any of the following areas could have a material adverse effect on the Company’s future financial position,
results of operations, or cash flows: ability to obtain future financing; advances and trends in new technologies and industry
standards; regulatory approval and market acceptance of the Company’s products; development of the necessary manufacturing
capabilities and the Company’s ability to obtain adequate resources of necessary materials; development of sales channels;
certain strategic relationships; litigation or claims against the Company based on intellectual property, patent, product, regulatory,
or other factors; and the Company’s ability to attract and retain employees and other resources necessary to support its
growth.
Concentration
of Credit Risk
- Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash
and cash equivalents. The Company places its cash and cash equivalents with domestic financial institutions that are federally
insured within statutory limits.
Cash
and Cash Equivalents
- The Company considers all highly liquid investments purchased with an original maturity of three months
or less to be cash equivalents.
Property
and Equipment
- Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated
useful lives as follows:
Equipment
|
|
3 years
|
Computer equipment
|
|
2 years
|
Furniture and fixtures
|
|
3 years
|
Accounting
for Business Combinations -
Business combinations are accounted for under the acquisition method of accounting. This method
requires the recording of acquired assets, including separately identifiable intangible assets, and assumed liabilities at their
acquisition date fair values. The method records any excess purchase price over the fair value of acquired net assets as goodwill.
The determination of the fair value of assets acquired, liabilities assumed involves assessments of factors such as the expected
future cash flows associated with individual assets and liabilities and appropriate discount rates at the closing date of the
acquisition. When necessary, external advisors are consulted to help determine fair value. For non-observable market values, fair
values are determined using acceptable valuation principles (e.g., multiple excess earnings, relief from royalty and cost methods,
discounted cash flows).
Contingent
consideration assumed in a business combination is remeasured at fair value each reporting period and any change in the fair value
from either the passage of time or events occurring after the acquisition date, is recorded in results from operations.
The
results of operations are included from the acquisition date in the financial statements for all businesses acquired.
Goodwill
and Other Identifiable Intangibles -
Goodwill is the excess of purchase price over the fair value of identified net assets
of businesses acquired. The Company’s intangible assets with an indefinite life are related to in-process research and development
("IPR&D") programs acquired, as the Company expects future research and development on these programs to provide
the Company with substantial benefit for a period that extends beyond the foreseeable horizon. Intangible assets with indefinite
useful lives are measured at their respective fair values as of the acquisition date. The Company does not amortize goodwill and
intangible assets with indefinite useful lives. Intangible assets related to IPR&D projects are considered to be indefinite
lived until the completion or abandonment of the associated R&D efforts. If and when development is complete, which generally
occurs if and when regulatory approval to market a product is obtained, the associated assets would be deemed finite lived and
would then be amortized based on their respective estimated useful lives at that point in time.
The
Company estimates the fair value of the reporting unit using a market approach in combination with a discounted operating
cash flow approach. Impairment of goodwill is measured as the excess of the carrying amount of goodwill over the fair values
of recognized and unrecognized assets and liabilities of the reporting unit. An adjustment to goodwill will be recorded for
any goodwill that is determined to be impaired. The Company tests goodwill for impairment at least annually in conjunction
with the preparation of its annual business plan, or more frequently if events or circumstances indicate it might be
impaired. For reporting units with zero or negative carrying amounts, an entity is required to perform Step 2 of the goodwill
impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely
than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors
indicating that impairment may exist.
As of December 31, 2015, the Company
performed a quantitative goodwill impairment test and determined that goodwill was not impaired.
Impairment of Long-Lived Assets
- The Company monitors the carrying value of long-lived assets for potential impairment and tests the recoverability of such
assets whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. If a change in circumstance
occurs, the Company performs a test of recoverability by comparing the carrying value of the asset or asset group to its undiscounted
expected future cash flows. If cash flows cannot be separately and independently identified for a single asset, the Company will
determine whether impairment has occurred for the group of assets for which the Company can identify the projected cash flows.
If the carrying values are in excess of discounted expected future cash flows, the Company measures any impairment by comparing
the fair value of the asset or asset group to its carrying value. Due to the significant decline in the Company’s stock
price, the Company determined it was necessary to test its intangible assets for impairment during the fourth quarter of 2015.
The Company used the sale of its Diagnostic unit subsequent to December 31, 2015 as a significant transaction to determine if
the carrying value of the intangible assets were impaired. Based on the fair value of the common stock received, it was concluded
that the fair value exceeded the carrying value and no impairment was necessary.
Research and Development Expenditures
- Research and development costs are expensed as incurred. Research and development costs include salaries and personnel-related
costs, consulting fees, fees paid for contract research services, fees paid to clinical research organizations and other third
parties associated with clinical trials, the costs of laboratory equipment and facilities, and other external costs. The Company
incurred $13.3 million and $13.8 million research and development costs for the years ended December 31, 2015 and 2014, respectively.
Fair Value of Financial Instruments
- Accounting standards have been issued which define fair value, establishes a market-based framework or hierarchy for measuring
fair value and expands disclosures about fair value measurements. The standard is applicable whenever another accounting pronouncement
requires or permits assets and liabilities to be measured at fair value. The standard does not expand or require any new fair value
measures; however its application may change current practice.
Fair value is defined under the standard
as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market
in an orderly transaction between market participants on the measurement date. The standard also establishes a three-level hierarchy,
which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair
value:
●
|
Level 1
- inputs to the valuation methodology are quoted prices (unadjusted) for an identical asset or liability in an active market
|
|
|
●
|
Level 2
- inputs to the valuation methodology include quoted prices for a similar asset or liability in an active market or model-derived valuations in which all significant inputs are observable for substantially the full term of the asset or liability.
|
|
|
●
|
Level 3
- inputs to the valuation methodology are unobservable and significant to the fair value measurement of the asset or liability
|
Stock-Based
Compensation
- Stock-based compensation is measured at the grant date based on the fair value of the award. The fair value
of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service
period, which is generally the vesting period. The expense recognized for the portion of the award that is expected to vest has
been reduced by an estimated forfeiture rate. The forfeiture rate is determined at the time of grant and revised, if necessary,
in subsequent periods if actual forfeitures differ from those estimates.
Grant-date
fair value is determined using the Black-Scholes option pricing model, which requires the use of the following assumptions:
Expected
Term
- The expected term represents the period that awards are expected to be outstanding based on the simplified method,
which is the half-life from vesting to the end of its contractual term.
Expected
Volatility
- Stock price volatility is computed over expected terms based on the historical common stock trading price of
the Company’s common stock.
Risk-Free Interest Rate
- The
risk-free interest rate is estimated based upon the implied yield available on U.S. Treasury zero-coupon issues with an equivalent
expected term.
Expected
Dividend
- Cash dividends have never been declared or paid on common shares and there are no plans to do so in the foreseeable
future such that the expected dividend yield is assumed to be zero.
Forfeiture
Rate
- The forfeiture rate is based on historical data and managements estimates of failure rate to achieve vesting conditions.
Forfeiture rates are adjusted as actual forfeitures differ from managements estimates for the awards that actually vest in the
period of the change in estimate.
The
fair value of stock options granted to nonemployees is recognized over the period in which the related services are received.
Debt Extinguishment -
The Company
accounts for the income or loss from extinguishment of debt by comparing the difference between the reacquisition price and the
net carrying amount of the debt being extinguished should be recognized as gain or loss when the debt is extinguished. The gain
or loss from debt extinguishment is recorded in the consolidated statements of operations under "other income (expense)"
as loss from extinguishment of convertible debt.
Share-settled Debt –
Share-settled
debt may settle by providing the holder with a variable number of shares with an aggregate fair value equaling the debt principal
outstanding. (In some cases, a discount to the fair value of the share price may be used to determine the number of shares to be
delivered, resulting in settlement at a premium.) Share-settled debt was analyzed to determine that the share settled debt does
not contain a beneficial conversion feature or contingent beneficial conversion feature. Share-settled debt is recorded at fair
value.
Sequencing
-
As of October 2015, the Company adopted a
sequencing
policy whereby all future instruments may be classified as a derivative liability with the exception of instruments related to
share-based compensation issued to employees or directors.
Preferred
Stock
- Preferred shares subject to mandatory redemption are classified as liability instruments and are measured at fair
value. The Company classifies conditionally redeemable preferred shares, which includes preferred shares that feature redemption
rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely
within the Company’s control, as temporary equity (‘mezzanine’) until such time as the conditions are removed
or lapse.
Convertible
Financial Instruments
- The Company bifurcates conversion options from their host instruments and accounts for them as free
standing derivative financial instruments if certain criteria are met. The criteria include circumstances in which (a) the economic
characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics
and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract
is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value
reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would
be considered a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional, as
that term is described under applicable GAAP.
When
the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, discounts
are recorded for the intrinsic value of conversion options embedded in the instruments based upon the differences between the
fair value of the underlying common stock at the commitment date of the transaction and the effective conversion price embedded
in the instrument. Deemed dividends are also recorded for the intrinsic value of conversion options embedded in preferred shares
based upon the differences between the fair value of the underlying common stock at the commitment date of the transaction and
the effective conversion price embedded in the preferred shares.
Common Stock Purchase Warrants and Derivative Financial Instruments
- Common stock purchase warrants and other derivative financial instruments are classified as equity if the contracts (1) require
physical settlement or net-share settlement or (2) give the Company a choice of net-cash settlement or settlement in its own shares
(physical settlement or net-share settlement). Contracts which (1) require net-cash settlement (including a requirement to net
cash settle the contract if an event occurs and if that event is outside the control of the Company), (2) give the counterparty
a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement), or (3) that contain reset
provisions that do not qualify for the scope exception are classified as equity or liabilities. The Company assesses classification
of its common stock purchase warrants and other derivatives at each reporting date to determine whether a change in classification
between equity and liabilities is required.
Debt
Discounts -
Debt discounts under these arrangements are amortized to interest expense using the interest method over the earlier
of the term of the related debt or their earliest date of redemption.
Income
Taxes
- The Company accounts for income taxes using the liability method whereby deferred tax asset and liability account
balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides
a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.
In
evaluating the ability to recover its deferred income tax assets, the Company considers all available positive and negative evidence,
including its operating results, ongoing tax planning, and forecasts of future taxable income on a jurisdiction-by-jurisdiction
basis. In the event the Company determines that it would be able to realize its deferred income tax assets in the future in excess
of their net recorded amount, it would make an adjustment to the valuation allowance that would reduce the provision for income
taxes. Conversely, in the event that all or part of the net deferred tax assets are determined not to be realizable in the future,
an adjustment to the valuation allowance would be charged to earnings in the period such determination is made.
Interest
and penalties related to uncertain tax positions are recorded in the provision for income tax expense on the consolidated statements
of operations.
Net
Loss Per Common Shareholder -
Basic loss per share is computed on the basis of the weighted average number of shares outstanding
for the reporting period. Diluted loss per share is computed on the basis of the weighted average number of common shares (including
redeemable shares) plus dilutive potential common shares outstanding using the treasury stock method. Any potentially dilutive
securities are anti-dilutive due to the Company’s net losses. For the years presented, there is no difference between the
basic and diluted net loss per share.
Segments
- The Company operates
as one operating segment which reflect the manner in which performance was assessed by the Operating segment manager and, accordingly,
no segment disclosures have been presented herein.
Subsequent Events
- The Company
has evaluates subsequent events up to the date of filing of its Annual Report on Form 10-K for the year ended December 31, 2015.
Adoption
of Recent Accounting Pronouncements
In August 2015, the Financial Accounting
Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-15, “Interest - Imputation
of Interest: Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements”,
which clarifies the treatment of debt issuance costs from line-of-credit arrangements after the adoption of ASU No. 2015-03, “Interest
- Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs”. In particular, ASU No. 2015-15 clarifies
that the SEC staff would not object to an entity deferring and presenting debt issuance costs related to a line-of-credit arrangement
as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of such arrangement, regardless
of whether there are any outstanding borrowings on the line-of-credit arrangement. The Company adopted ASU No. 2015-15 and its
adoption did not have a material impact on the consolidated financial statements.
Recently
Issued Accounting Pronouncements
In
May 2014, the FASB issued ASU No. 2014-09, “
Revenue from Contracts with Customers
”, an updated standard on
revenue recognition. ASU No. 2014-09 provides enhancements to the quality and consistency of how revenue is reported by companies
while also improving comparability in the financial statements of companies reporting using International Financial Reporting
Standards or U.S. GAAP. The main purpose of the new standard is for companies to recognize revenue to depict the transfer of goods
or services to customers in amounts that reflect the consideration to which a company expects to be entitled in exchange for those
goods or services. The new standard also will result in enhanced disclosures about revenue, provide guidance for transactions
that were not previously addressed comprehensively and improve guidance for multiple-element arrangements. In July 2015, the FASB
voted to approve a one-year deferral of the effective date of ASU No. 2014-09, which will be effective for the Company in the
first quarter of fiscal year 2018 and may be applied on a full retrospective or modified retrospective approach. The Company is
evaluating the impact of implementation and transition approach of this standard on its financial statements.
In August 2014, the FASB issued
ASU No. 2014-15, “
Presentation of Financial Statements — Going Concern (Subtopic 205-40) — Disclosure of Uncertainties
about an Entity’s Ability to Continue as a Going Concern”
, which provides guidance regarding management’s
responsibility to assess whether substantial doubt exists regarding the ability to continue as a going concern and to provide related
footnote disclosures. In connection with preparing financial statements for each annual and interim reporting period,
management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about
the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued
(or within one year after the date that the financial statements are available to be issued when applicable). This ASU is effective
for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company is evaluating
the new guidance and has not determined the impact this standard may have on its financial statements.
In November 2014, the FASB issued ASU
No. 2014-16, Derivatives and Hedging ("ASU 2014-16"), which clarifies how current GAAP should be interpreted in evaluating
the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share.
The amendments in this Update are effective for public business entities for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2015. Early adoption, including adoption in an interim period, is permitted. The Update does
not change the current criteria in GAAP for determining when separation of certain embedded derivative features in a hybrid financial
instrument is required. The Company will adopt ASU 2014-16 on January 1, 2016 and does not believe the adoption of this ASU to
have a material impact on the combined and consolidated financial statements.
ASU
No. 2016-01,
Recognition and Measurement of Financial Assets and Financial Liabilities
. ASU No. 2016-01 requires equity
investments to be measured at fair value with changes in fair value recognized in net income; simplifies the impairment assessment
of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; eliminates
the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value
that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; requires public business
entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires
an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability
resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value
in accordance with the fair value option for financial instruments; requires separate presentation of financial assets and financial
liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial
statements and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to
available-for-sale securities in combination with the entity’s other deferred tax assets. ASU No. 2016-01 is effective for
financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.
The Company is currently evaluating the impact that ASU No. 2016-01 will have on its financial statements and related disclosures.
ASU No. 2016-02,
Leases (Topic 842)
which
supersedes FASB ASC Topic 840,
Leases (Topic 840)
provides principles for the recognition, measurement, presentation and
disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases
as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by
the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on
a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a
lease liability for all leases with a term of greater than twelve months regardless of classification. Leases with a term of twelve
months or less will be accounted for similar to existing guidance for operating leases. The standard is effective for annual and
interim periods beginning after December 15, 2018, with early adoption permitted upon issuance. When adopted, the Company does
not expect this guidance to have a material impact on the Company’s financial statements.
4.
Business Combinations
Acquisition
of Diogenix, Inc.
On
January 8, 2015, the Company acquired DioGenix, which owns a pipeline of diagnostic tests focused on immune-mediated neurological
diseases, such as multiple sclerosis (MS). Its lead product, MSPrecise, can significantly expand a physician's ability to diagnose
patients that exhibit unclear neurological dysfunction.
Consideration paid included 662,526
shares of Company stock valued at $12.00 per share and $0.9 million in cash for a total consideration of $8.9 million. In addition,
the agreement provides for a contingent payment amount up to $2.0 million in cash and common stock of the Company should the acquired
company achieve certain milestones related to results of clinical testing and future revenue from products in development. The
fair value of the contingent consideration was estimated by applying the income approach. That measure is based on significant
inputs that are not observable in the market (Level 3 inputs). Key assumptions include the discount rate of 30.4% and probability-adjusted
potential outcomes.
Following
an acquisition, there is a period of not more than twelve months from the closing date of the acquisition to finalize the acquisition
date fair values of assets acquired and liabilities assumed, including valuations of identifiable intangible assets and property
and equipment. The purchase price allocation was finalized on December 31, 2015. The determination of fair values of acquired
intangible assets and property and equipment involves a variety of assumptions, including estimates associated with remaining
useful lives.
The following unaudited supplemental
pro forma information presents the financial results as if the Merger had occurred on January 1, 2014. This supplemental pro forma
information has been prepared for comparative purposes and does not purport to be indicative of what would have occurred had the
acquisition been made on January 1, 2014, nor is it indicative of any future results (amount in thousands):
|
|
For the year end December 31, 2014
|
|
|
|
(Unaudited)
|
|
Net Sales
|
|
$
|
-
|
|
Operating Expenses
|
|
|
23,335
|
|
Loss from operations
|
|
|
(23,335
|
)
|
Total other expenses
|
|
|
(6,378
|
)
|
Net Loss
|
|
|
(29,713
|
)
|
Basic and diluted net loss per common share
|
|
$
|
(0.04
|
)
|
The
allocation of the purchase price to the Company’s balance sheet is shown below (amount in thousands):
|
|
January 8, 2015
|
|
Intangibles - Acquisition Diogenix (IPR&D)
|
|
$
|
2,861
|
|
Prepaid expenses and other current assets
|
|
|
13
|
|
Property and equipment, net
|
|
|
40
|
|
Goodwill
|
|
|
7,967
|
|
Total assets
|
|
|
10,881
|
|
Earn-out liability
|
|
|
(917
|
)
|
Deferred tax liability
|
|
|
(1,113
|
)
|
Net assets acquired
|
|
$
|
8,851
|
|
Goodwill represents expected synergies
resulting from the combination of the entities and other intangible assets that do not qualify for separate recognition, while
IPR&D assets represent ongoing projects obtained through the acquisition.
The transaction was accounted for using the acquisition method. Accordingly, goodwill has been measured as
the excess of the total consideration over the amounts assigned to the identifiable assets acquired and liabilities assumed including
the related deferred tax liability. Goodwill is not deductible for tax purposes.
5.
Research and Development Licenses and Patent Acquired
The following table summarizes the Company’s intangible assets
(amount in thousands):
|
|
As of December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Intangibles - Acquisition Diogenix (IPR&D)
|
|
$
|
2,861
|
|
|
$
|
-
|
|
Licenses
|
|
|
-
|
|
|
|
1,497
|
|
Total intangible assets
|
|
$
|
2,861
|
|
|
$
|
1,497
|
|
Acquisition
of Diogenix
The Company tested its intangible assets
for impairment during the fourth quarter of 2015 and determined that its intangible assets were not impaired.
Asset
Acquired in Research and Development
On
July 8, 2015, the Company exercised its previously disclosed option to acquire Intellectual property rights on the Engineered
Skin Substitute for $4.0 million. Pursuant to the Agreement, the Company will be required to pay up to $5.0 million in aggregate
milestone payments upon the achievement of certain regulatory milestones, none of which have currently been met.
Cost incurred in obtaining technology licenses
are charged to research and development expense if the technology licensed has not reached commercial feasibility and has no alternative
future use. Such licenses purchased by the Company require substantial completion of research and development, regulatory and
marketing approval efforts in order to reach commercial feasibility and has no alternative future use. Accordingly, the total
purchase price of $4.0 million
for the licenses acquired during the period was reflected as
research and development expenses on the Consolidated Statements of Operations for the year ended December 31, 2015.
Licenses
The Company concluded that there is
no further alternative future use associated with the licensed assets and as such they were expensed to the statement of operations
as research and development cost.
6.
Notes Payable
$1.0 Million Notes Payable Securities
Purchas Agreement
On July 9, 2015, the Company entered
into a Securities Purchase Agreement with four investors to purchase an aggregate of $1.0 million in principal amount of 12% Promissory
Notes (the “Notes Payable”) due July 9, 2016. One Note Payable Investor, with $0.6 million in Notes Payable has the
right to exchange the Notes Payable for 12% Senior Secured Convertible Notes at any time.
$0.6 million Conversion Feature
The conversion feature of the $0.6 million
note was treated as an embedded conversion feature and bifurcated for financial statement purposes, as the terms were not indexed
to the Company’s stock.
The Notes Payable are currently in default.
Other miscellaneous debt agreements
During the years ended December 31,
2015, the Company entered into multiple note agreement (the “Notes”) with multiple investors for an aggregate of $105,000
in principal. The notes were fully paid back as of December 31, 2015.
7.
Senior Secured Convertible Promissory Notes
The following is a summary of outstanding senior secured
convertible notes as of December 31, 2015 (amount in thousands):
|
|
|
|
|
|
Stated
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
Issue Date
|
|
Maturity Date
|
|
Interest Rate
|
|
|
Conversion Terms
|
|
|
Face Value
|
|
|
Debt Discount
|
|
|
Carrying Value
|
|
Delafield Investments Ltd
|
|
9/30/2015
|
|
9/29/2016
|
|
|
12
|
%
|
|
$
|
0.43
|
|
|
$
|
3,056
|
|
|
$
|
(2,286
|
)
|
|
$
|
770
|
|
Dominion Capital LLC
|
|
9/30/2015
|
|
9/29/2016
|
|
|
12
|
%
|
|
$
|
0.43
|
|
|
|
2,096
|
|
|
|
(1,568
|
)
|
|
|
528
|
|
US 1000 LLC
|
|
12/07/2015
|
|
12/6/2016
|
|
|
12
|
%
|
|
|
N/A
|
|
|
|
100
|
|
|
|
-
|
|
|
|
100
|
|
Ending balance as of December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,252
|
|
|
$
|
(3,854
|
)
|
|
$
|
1,398
|
|
12%
Senior Secured Convertible Promissory Note and Warrants
Delafield
Notes
On September 30, 2015, the Company entered
into a Securities Purchase Agreement (the “Notes SPA”) with an institutional investor for the sale of an aggregate
principal amount $3.1 million (including 10% OID) 12% Senior Secured Convertible Promissory Notes due September 29, 2016 (the “Delafield
Notes”) and a warrant to purchase 1,299,000 shares of common stock. The proceeds to the Company from the sale was $2.7 million.
Delafield Warrants
The warrants are exercisable after March
31, 2016 and terminate on the five-year anniversary of that date. The warrants had an initial exercise price of $2.00 per share.
The warrants have an aggregate exercise provision that upon reset the amount of warrant coverage increases proportionally to the
decrease in exercise price.
The terms of the warrants had reset
provisions that precluded their inclusion as equity and was recorded as a warrant liability on the balance sheet.
As
of December 31, 2015, the debt discount associated with Delafield Notes was $2.3 million, and expected to be amortized in 9 months.
Dominion
Notes
On September 30, 2015, the Company entered
into an exchange agreement with an institutional investor pursuant to which the Company exchanged $3.0 million (including OID and
make-whole) Notes Payable previously issued in 2015, which included principal and accrued interest for a $3.0 million Senior Secured
Convertible Promissory Note (“Dominion Note”) and a common stock purchase warrant to purchase 1,299,000 with a $2.00
exercise price. The warrants have an aggregate exercise provision that upon reset the amount of warrant coverage increases proportionally
to the decrease in exercise price.
The terms of the warrants had reset
provisions that precluded their inclusion as equity and was recorded as a warrant liability on the balance sheet.
Conversion of Dominion Notes
During the quarter ended December 31,
2015, the Company entered into a conversion agreement with the investor to covert an aggregate amount of $0.9 million of the Dominion
Notes to 3,415,574 shares of common stock. The Company recognized a loss on extinguishment of $1.3 million from the conversion
of convertible debt with a bifurcated conversion option, which included the write-off of $0.4 million of derivative liability,
$0.9 million in debt discount and fair value of the common shares issued of $1.7 million.
As of December 31, 2015, the debt discount
associated with Dominion Notes was $1.6 million, and expected to be amortized in 9 months.
Senior Secured Convertible Promissory Notes - Interest
Terms
The principal amount of the Dominion
Notes and Delafield Notes (“Senior Secured Notes”) shall accrue interest at a rate equal to 12% per annum, payable
on the Maturity Date in cash, or, at the Company’s option, in common stock or a combination thereof. At any time upon five
(5) days written notice to the Investor, the Company may prepay any portion of the principal amount of the Senior Secured Notes
and any accrued and unpaid interest at an amount equal to 120% of the then outstanding principal amount of the Senior Secured Notes
and accrued interest or 130% if a Qualified Financing (as defined in the Senior Secured Notes) has occurred.
Senior Secured Convertible Promissory Notes - Security
interest
In connection with the issuance of the Senior Secured Notes,
the Company granted a security interest in all of its assets to the note holders.
Senior Secured Convertible Promissory Notes -
Events
of Default
The
Senior Secured Notes contain certain customary Events of Default (including, but not limited to, default in payment of principal
or interest thereunder, breaches of covenants, agreements, representations or warranties thereunder, the occurrence of an event
of default under certain material contracts of the Company, including the transaction documents relating to the PP Offering, changes
in control of the Company, filing of bankruptcy and the entering or filing of certain monetary judgments against the Company).
Upon the occurrence of any such Event of Default the outstanding principal amount of the Senior Secured Notes, plus accrued but
unpaid interest, liquidated damages, and other amounts owing in respect thereof through the date of acceleration, shall become,
at the Investor’s election, immediately due and payable in cash. Upon any Event of Default that results in acceleration
of the Senior Secured Notes, the interest rate on the Senior Secured Notes shall accrue at an interest rate equal to the lesser
of 24% per annum or the maximum rate permitted under applicable law.
The Company is currently in default with all
Senior Secured Notes.
Senior Secured Convertible Promissory Notes - Conversion
Features
At
any time after the issuance date of the Senior Secured Notes until all amounts due have been paid in full, the Senior Secured
Note shall be convertible, in whole or in part, into shares of common stock at the option of the holder, at any time and from
time to time. The conversion price in effect on any conversion date shall be equal to the lowest of (i) $2.50, (ii) 75% of the
lowest daily VWAP in the fifteen (15) trading days prior to the conversion date, or (iii) (A) if a Public Offering (as defined
in the Senior Secured Note) that is not a Qualified Public Offering (as defined in the Senior Secured Note) has occurred, 75%
or (B) if a Qualified Public Offering has occurred, 80% of the lowest of the (x) per share price of shares of common stock, and
(y) the lowest conversion price, exercise price or exchange price of any common stock equivalents, that are sold or issued to
the public in the Public Offering or the Qualified Public Offering, respectively.
The
conversion features of the notes were bifurcated from the host instrument as its conversion terms were not indexed to the company’s
own stock. In addition, the warrants associated with the debt instruments were also treated as a free standing derivative liability.
The total fair value of the embedded conversion feature and the warrants exceeded the net proceeds received and resulted in a
loss on issuance of $1,045.
Other
Convertible Notes Payable
On
July 1, 2015, the Company entered into a Securities Purchase Agreement with an institutional investor (the “Investor”)
pursuant to which such Investor purchased an aggregate of $0.6 million in principal amount of 12% Convertible Promissory Notes
(the “Notes”) due April 2, 2016. This note was shortly thereafter converted into 766 shares of Series E Convertible
Preferred Stock with a 10% OID discount.
On
December 7, 2015, the Company entered into a Securities Purchase Agreement with an institutional investor (the “Investor”)
pursuant to which such Investor purchased an aggregate of $100,000 in principal amount of Convertible Promissory Notes.
8.
Share-settled Debt
On
August 27, 2015, the Company entered into a Securities Purchase Agreement with an institutional investor pursuant to which such
Investor purchased an aggregate of $75,000 in principal amount of 20% Convertible Promissory Notes due February 24, 2016. The
conversion price is 55% of the lowest VWAP of the prior 5 trading days.
On
October 14, 2015, the Company entered into a Securities Purchase Agreement with an institutional investor pursuant to which such
Investor purchased an aggregate of $150,000 in principal amount of 15% Promissory Notes due November 4, 2016. The conversion price
is 55% of the lowest VWAP of the prior 5 trading days.
On
November 20, 2015, the Company issued a convertible promissory note in principal amount of $50,000 to a vendor in exchange for
its services. The conversion price is 50% of the average of the lowest 3 closing prices for 10 trading days prior to but not including
the conversion date
These three convertible notes (the “Notes”)
settle by providing the holder with a variable number of the Company’s shares with an aggregate fair value determined by
reference to the debt principal outstanding. Because the value that the holder receives at settlement does not vary with the value
of the Company’s equity shares, the settlement provision is not considered a conversion option for financial accounting
purposes. Rather, these Notes are recognized as share-settled debt at fair value. During 2015, the Company recorded $0.2 million
change in fair value of the Notes.
The share-settled debt is currently
in default.
9.
Fair Value Measurements
The
Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2015
by level within the fair value hierarchy, are as follows:
|
|
Fair value measured at December 31, 2015
|
|
|
|
Fair value at
|
|
|
Quoted
prices in
active
|
|
|
Significant other observable
|
|
|
Significant unobservable
|
|
|
|
December 31,
|
|
|
markets
|
|
|
inputs
|
|
|
inputs
|
|
|
|
2015
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Derivative liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,073
|
|
|
$
|
2,073
|
|
Warrant liability
|
|
|
-
|
|
|
|
-
|
|
|
|
3,025
|
|
|
|
3,025
|
|
Share-settled debt
|
|
|
-
|
|
|
|
-
|
|
|
|
521
|
|
|
|
521
|
|
Total fair value
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,619
|
|
|
$
|
5,619
|
|
There
were no transfers between Level 1, 2 or 3 during the years ended December 31, 2015 and 2014.
The
following table presents additional information about Level 3 liabilities measured at fair value. Both observable and unobservable
inputs may be used to determine the fair value of positions that the Company has classified within the Level 3 category. As a
result, the unrealized gains and losses for assets and liabilities within the Level 3 category may include changes in fair value
that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable
long-dated volatilities) inputs.
Changes
in Level 3 liabilities measured at fair value for the period ended December 31, 2015 and December 31, 2014 were as follows (dollars
in thousands):
|
|
Warrant Liability
|
|
|
Earn-out
Liability
|
|
|
Embedded Conversion Feature
|
|
|
Share-settled Debt
|
|
|
Total
|
|
January 1, 2014
|
|
$
|
-
|
|
|
|
|
|
|
$
|
5,859
|
|
|
$
|
-
|
|
|
$
|
5,859
|
|
Conversion of 8% senior convertible debentures to common stock
|
|
|
-
|
|
|
|
|
|
|
|
(5,542
|
)
|
|
|
-
|
|
|
|
(5,542
|
)
|
Change in fair value
|
|
|
-
|
|
|
|
|
|
|
|
(317
|
)
|
|
|
-
|
|
|
|
(317
|
)
|
December 31, 2014
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Issuance of convertible notes
|
|
|
-
|
|
|
|
|
|
|
|
3,936
|
|
|
|
-
|
|
|
|
3,936
|
|
Issuance of share-settled debt
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
275
|
|
|
|
275
|
|
Addition of earn-out liability
|
|
|
|
|
|
|
917
|
|
|
|
|
|
|
|
|
|
|
|
917
|
|
Issuance of warrants
|
|
|
5,631
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,631
|
|
Conversion of 8% senior convertible debentures to common stock
|
|
|
-
|
|
|
|
|
|
|
|
(363
|
)
|
|
|
-
|
|
|
|
(363
|
)
|
Change in fair value
|
|
|
(2,606
|
)
|
|
|
(917
|
)
|
|
|
(1,500
|
)
|
|
|
246
|
|
|
|
(4,777
|
)
|
December 31, 2015
|
|
$
|
3,025
|
|
|
|
-
|
|
|
$
|
2,073
|
|
|
$
|
521
|
|
|
$
|
5,619
|
|
The fair value of contingent earn-out
liability was determined using discounted cash flow models for multiple revenue scenarios. To calculate the fair value of the
contingent liability, the probability of the discounted fair value of each scenario was weighted. As of December 31, 2015, the
Company determined that the fair value of the earn-out liability was $0.
The
Company’s warrant liabilities, derivative liabilities and share-settled debt are measured at fair value using the Monte
Carlo simulation valuation methodology. A summary of weighted average (in aggregate) about significant unobservable inputs (Level
3 inputs) used in measuring the Company’s warrant liabilities that are categorized within Level 3 of the fair value hierarchy
for the years ended December 31, 2015 is as follows:
|
|
As of December 31, 2015
|
|
|
|
Warrant Liability
|
|
|
Derivative Liability
|
|
|
Share-settled Debt
|
|
Contractual life (years)
|
|
|
4.8
|
|
|
|
0.8
|
|
|
|
0.4
|
|
Annualized volatility*
|
|
|
71
|
%
|
|
|
70
|
%
|
|
|
70
|
%
|
Conversion price
|
|
$
|
2.00
|
|
|
$
|
2.50
|
|
|
$
|
0.30
|
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk-free investment rate
|
|
|
1.7
|
%
|
|
|
0.6
|
%
|
|
|
0.6
|
%
|
* The Company uses comparable companies
within the same industry to derive at the 70% annualized volatility.
10.
Net Loss per Share
The
following table sets forth the computation of the basic and diluted net loss per share attributable to common stockholders for
the periods indicated (amount in thousands):
|
|
As of December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(25,214
|
)
|
|
$
|
(27,277
|
)
|
Preferred stock dividend
|
|
|
(3,595
|
)
|
|
|
(875
|
)
|
Deemed dividends on convertible preferred stock
|
|
|
(8,249
|
)
|
|
|
-
|
|
Net loss attributable to common stockholders
|
|
$
|
(37,058
|
)
|
|
$
|
(28,152
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted Average Common stock outstanding
|
|
|
8,878,000
|
|
|
|
4,926,000
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(4.17
|
)
|
|
$
|
(5.71
|
)
|
Potentially
dilutive securities consist of:
|
|
As of December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Outstanding common stock options
|
|
|
308,000
|
|
|
|
201,000
|
|
Outstanding preferred stock option
|
|
|
829,000
|
|
|
|
829,000
|
|
Common Stock Purchase Warrants
|
|
|
12,810,000
|
|
|
|
311,000
|
|
Related party liability
|
|
|
401,000
|
|
|
|
20,000
|
|
Convertible senior secured promissory notes and accrued interest
|
|
|
12,382,000
|
|
|
|
-
|
|
Convertible preferred stock Series C
|
|
|
5,000
|
|
|
|
5,000
|
|
Convertible preferred stock Series D
|
|
|
-
|
|
|
|
289,000
|
|
Convertible preferred stock Series E
|
|
|
1,302,000
|
|
|
|
375,000
|
|
Convertible preferred stock Series H
|
|
|
6,534,000
|
|
|
|
-
|
|
Potentially dilutive securities
|
|
|
35,021,000
|
|
|
|
2,030,000
|
|
All
of the listed dilutive securities are excluded from the computation of fully diluted loss per share as they are antidilutive.
11.
Commitments and Contingencies
Commitments:
Sponsored
Research Arrangements:
The Company entered into a number of
sponsored research agreements during 2015, primarily, which require us to make future payments as follows (amount in thousands):
Lease
Arrangements
The
Company leases its main office facility and laboratory space in two separate locations in San Francisco, California. Office space
in San Francisco is leased through November 2016 and provides for a monthly rental payment of approximately $12,600, plus operating
expenses, subject to annual adjustment, of approximately $9,000 per month. The other facility lease is on a month-to-month basis.
Future non-cancellable minimum lease payments are (amount
in thousands):
Rent
expense for the years ended December 31, 2015 and 2014 was $407,000 and $150,000, respectively.
12.
Temporary Equity
The
following table summarizes the Company’s Series H Preferred Stock activities for the year ended December 31, 2015 (amount
in thousand):
|
|
Series H convertible
preferred stock
|
|
|
|
Shares
|
|
|
Value
|
|
Total temporary equity as of December 31, 2014
|
|
|
-
|
|
|
$
|
-
|
|
Proceeds from sale of Series H preferred stock, net of issuance costs of $0.4 million
|
|
|
4,588
|
|
|
|
3,796
|
|
Beneficial conversion feature of Series H convertible preferred stock
|
|
|
-
|
|
|
|
(1,260
|
)
|
Deemed dividends related to immediate accretion of beneficial conversion feature of Series H convertible preferred stock
|
|
|
-
|
|
|
|
1,260
|
|
Fair Value of common stock warrant issued with Series H convertible preferred stock
|
|
|
-
|
|
|
|
(2,534
|
)
|
Common stock issued in conversion of Series H convertible preferred stock
|
|
|
(1,772
|
)
|
|
|
(1,772
|
)
|
Deemed dividend on conversion of Series H convertible preferred stock to common stock
|
|
|
-
|
|
|
|
1,301
|
|
Deemed dividend related to accretion of redemption value
|
|
|
-
|
|
|
|
2,363
|
|
Total temporary equity as of December 31, 2015
|
|
|
2,816
|
|
|
$
|
3,154
|
|
Securities
Purchase Agreement
In September 2015, the Company entered into
a Securities Purchase Agreement (the “Series H SPA”) with an institutional investor for the sale of 3,056 (including
10% OID) shares of the Company’s 12% Series H Preferred Stock (the “Series H Preferred Stock”) and a warrant
to purchase 1,299,000 shares of common stock (the “RD Warrant” and together with the Series H Preferred Stock, the
“Securities”) in a registered direct offering (the “RD Offering”), subject to customary closing conditions.
The gross proceeds to the Company from the RD Offering were $2.4 million, net of $0.3 million of legal fees. Each share of Series
H Preferred Stock has a stated value of $1,000 and is convertible into shares of common stock at an initial conversion price of
the lower of (i) $2.50, subject to adjustment and (ii) 75%, subject to adjustment, of the lowest volume weighted average price,
or VWAP, during the fifteen (15) Trading Days immediately prior to the date a conversion notice is sent to the Company by a holder,
at any time at the option of the holder. The proceeds of the raise was used to buyout the holders of the Series G. A minimal amount
was remaining and was included as a dividend.
The
RD Warrant is exercisable at any time on or after the earlier to occur of (i) all shares of common stock underlying the RD Warrant
are registered for resale under the Securities Act of 1933, and (ii) the date six (6) months from September 30, 2015 (the earlier
to occur of (i) and (ii), the “Initial Exercise Date”) and on or prior to the close of business on the five-year anniversary
of the Initial Exercise Date at an exercise price of $2.00 per share. The warrant had price protection terms that precluded an
equity classification, as such $1,548 was recorded as a derivative liability and recorded as net of proceeds.
4
th
Quarter Sale of Series H Preferred
During
the quarter ended December 31, 2015, the Company sold additional 1,532 (including 10% OID) shares of the Company’s Series
H Preferred Stock and a warrant to purchase 650,896 shares of common stock for gross proceeds of $1.4 million.
During the year ended December 31, 2015,
the Company recorded a deemed dividend of $0.9 million related to the beneficial conversion feature with the issuance of the Series
H Convertible Preferred stock.
During the year ended December 31, 2015, 1,772 shares of Series H Preferred were converted to common stock.
Upon conversion the Company recorded an additional deemed dividend of $1.6 million.
Temporary equity
The instrument is being classified as
temporary equity because it has redemption features outside of the Company’s control upon certain triggering events. If the
Company fails to provide at all times the Registration Statement or usable prospectus that permits the Company to issue the Conversion
Shares or which allows the Holder to sell the Conversion Shares pursuant thereto), is considered outside of the Company’s
control.
Redemption value
The Company is carrying the Series H at its maximum redemption amount at December 31, 2015 as the security
is not currently redeemable, but is redeemable subsequent to December 31, 2015. The Company recognized the change immediately as
if the redemption was to occur as of December 31, 2015. The current redemption amount is $3.1 million as of December 31, 2015
13.
Stockholders’ Equity
Preferred
Stock
Series
D Convertible Preferred Stock
On June 30, 2014, with the approval
of the holder of the Company’s Series D Preferred Stock, the Company filed an amendment to the Certificate of Designation
of the Series D Preferred Stock to remove the feature by which stockholder could require redemption of the stock at cost. Accordingly,
since the Series D Preferred Stock now contains mainly equity-like features, the Company changed the classification of the stock
on its balance sheet from temporary equity to permanent equity within stockholders’ equity (deficit).
The
Series D securities
were issued at 10% discount and contain
a beneficial conversion feature. The beneficial conversion feature has been accreted, resulting in a deemed dividend reflected
in the December 31, 2014 Consolidated Statements of Stockholders’ Equity (Deficit). The value of the original issue discount
is $130 and the beneficial conversion feature is $321.
During
the first quarter of 2015, 549 shares of Series D preferred stock were converted to 122,073 common shares, and 2,045 shares of
common stock were issued as a dividend due upon conversion. Also, 7,819 shares of common stock were issued as a quarterly dividend.
During
the second quarter of 2015, 400 shares of Series D preferred stock were converted to 88,889 common shares. Also, 3,620
shares of common stock were issued as a quarterly dividend.
During the third quarter of 2015, 350
shares of Series D preferred stock were converted into 77,778 common shares.
Series
E Convertible Preferred Stock
On November 7, 2014, the Company entered
into securities purchase agreements pursuant to which the Company issued 4,500 shares of Series E Convertible Preferred Stock
(”Series E Preferred Stock”) which has a stated value of $1,000 and pays quarterly 12% cumulative dividends per annum.
Dividends are payable by the Company in cash or at the Company’s option, in shares of common stock if certain conditions
are met. These conditions include availability of funds or no occurrence of a triggering event. Triggering events include change
of control, bankruptcy, junior security redemptions, the Company’s common stock shall fail to be listed or quoted on a Trading
Market for more than five Trading Days. As of December 31, 2015 no triggering event has occurred.
Series E Make-whole dividend rights
Holders
of Series E shares are entitled to three years of dividends from the date of issuance net of dividends already accrued. Each share
of Series E Preferred Stock is convertible into shares of common stock by dividing the stated value per share by the then effective
conversion price. The conversion price for the Series E is $12.00 per share, subject to adjustment under certain conditions, but
in no event prior to six months from issuance.
Series E voting rights
Series E Preferred stockholders have
the right to vote on all matters submitted to the Company’s shareholders and the Series E Preferred Stock are entitled to
such number of votes on an as-converted basis. Series E Preferred Stock also has a liquidation preference equal to the stated value
and accrued and unpaid dividends.
Sales of Series E
During 2014, the Company sold 3,944
shares of Series E Preferred Stock for proceeds of $3.5 million, net of issuance costs of $43,000. The Company also issued 556
shares of Series E Preferred Stock to retire a $0.5 million demand promissory note.
The Series E shares were issued
at 10% discount and contain a beneficial conversion feature. The beneficial conversion feature has been accreted, resulting in
a deemed dividend reflected in the December 31, 2014 Consolidated Statements of Stockholders’ Equity (Deficit). The value
of the original issue discount is $450 and the beneficial conversion feature is $376.
Through December 31 2015, the Company
has sold an additional 5,250 shares of Series E convertible preferred stock for gross proceeds of $4.7 million.
Senior Secured Notes Conversion into
Series E
During the year ended December 31, 2015,
the Company converted $0.7 million senior secured notes to 766 shares of Series E Preferred Stock.
Series E Conversions into common
stock
Through December 31 2015, the Company
converted 750 Series E shares to 1,501,112 common shares, and 1,003,433 shares of common stock were issued as a dividend.
Conversion Price
On July 9, 2015, the Company filed an
amended and restated Certificate of Designation of its Series E Preferred Stock (the “Amendment”). The Amendment changed
the conversion price for the Series E Preferred to $7.50, subject to adjustment commencing on January 8, 2016 (the “Conversion
Price”).
After January 8, 2016, in the event
that Preferred Stock is outstanding, a Holder delivers a Notice of Conversion within 5 Trading Days following a period that the
average of 3 consecutive VWAPs is less than $9.00 (subject to adjustment for reverse and forward stock splits and the like)(“Trigger
Period”), the Conversion Price shall be thereafter reduced, and only reduced, to equal the lesser of the then Conversion
Price (as previously adjusted) and 65% of the average of the lowest 2 consecutive VWAPs out of the prior 10 consecutive Trading
Days prior to the delivery of such Conversion Notice. Such adjustment may occur on multiple occasions during any Trigger
Period and shall permanently reduce, and never increase, the Conversion Price. Notwithstanding the foregoing if the common stock
of the Company is listed on NASDAQ and the price is $18.00 at the time of listing and for 10 consecutive Trading Days after such
listing (subject to adjustment for reverse and forward stock splits and the like), then the adjustment of the Conversion Price
above shall be 80% instead of 65% of the average of the lowest 2 consecutive VWAPs out of the prior 10 consecutive Trading Days.
Liquidation preference
The liquidation preference for Series
E convertible preferred stock was $12.5 million as of December 31, 2015.
Series
G Preferred Stock
Issuance
In
the second quarter
of 2015, the Company issued 1,087 shares
of Series G Preferred stock for gross proceeds of $5.0 million, which was net of 8% original issue discount.
On
July 10, 2015, the Company entered into an Amended and Restated Securities Purchase Agreement (the “Series G SPA”)
with an institutional investor for the sale of 435 shares of the Company’s Series G Preferred Stock and an additional 100
shares of Series G Preferred Stock as a fee (collectively, the “Shares”) in a registered direct offering (the “Offering”),
subject to customary closing conditions. The gross proceeds to the Company from the registered direct offering were $2.0 million.
Closing conditions were met on July 10, 2015 and the transaction was closed on July 13, 2015. The Series G Preferred Stock has
a fixed conversion price of $9.00.
Repurchase
Agreement
On September 25, 2015, the Company
entered into a repurchase agreement (the “Repurchase Agreement”) with the holder of all of the Company’s issued
and outstanding Series G Preferred Stock (the “Series G Holder”) pursuant to which the Company repurchased the remaining
Series G Preferred Stock and all shares of common stock held by the Series G Holder for an aggregate purchase price of $4,750.
As of October 1, 2015, there are no more shares of Series G Preferred Stock issued and outstanding.
Conversions
1,622
shares of Series G converted through December 31, 2015 into 201,112 of common shares. In addition, the holders upon conversion
received a conversion premium amount based on an agreed upon dividend rate which ranged 13-24% and six years from the date of
notice of exercise. In aggregate a conversion premium amount of $1.9 million was due the holders.
The
conversion premium amount was converted into common stock based upon an agreed upon discount to the common stock price, which
ranged between $0.90 to $3.40. This resulted in additional common stock issued of approximately 1,416,000.
Common
Stock
The Company is authorized to issue 35,000,000
shares of common stock, $0.001 par value. The holders of common stock: (i) have equal rights to dividends from funds legally available
therefore, ratably when as and if declared by the Company’s Board of Directors; (ii) are entitled to share ratably in all
assets of the Company available for distribution to holders of common stock upon liquidation, dissolution, or winding up of the
affairs of the Company; (iii) do not have preemptive, subscription or conversion rights and there are no redemption or sinking
fund provisions applicable thereto; (iv) are entitled to one non-cumulative vote per share of common stock, on all matters which
shareholders may vote on at all meetings of shareholders; and (v) the holders of common stock have no conversion, preemptive or
other subscription rights. There is no cumulative voting for the election of directors. Each holder of the Company’s common
stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. As of December
31, 2015, the Board of Directors had declared no dividends payable to holders of the Company’s common stock.
Common
stock private placement
In
March 2014, the Company entered into an equity financing agreement (“LPC Purchase Agreement”) with Lincoln Park Capital
Fund LLC (“LPC”) whereby LPC is obligated to purchase up to $20.0 million of the Company’s common stock from
time to time over a 30 month period, as directed by the Company and subject to certain requirements, restrictions and limitations.
Under the LPC Purchase Agreement, the per share purchase price will be the lesser of the lowest sale price of common stock on
the purchase date or the average of the three lowest closing purchase prices during the ten consecutive business days prior to
the purchase date. However, LPC is not obligated to purchase shares from the Company on any date that the closing price of the
common stock is below $6.00, subject to adjustment upon the occurrence of certain stock related events. The Company may also request
that LPC purchase shares under an accelerated purchase notice whereby the per share purchase price will be the lower of (i) 94%
of a volume weighted average price calculation as determined under the LPC Purchase Agreement or (ii) the closing price of the
common stock on the accelerated purchase date.
Concurrently
with the execution of the LPC Purchase Agreement, LPC purchased an initial 26,667 shares for gross proceeds of $0.4 million.
In consideration for entering into
the LPC Purchase Agreement, the Company issued 63,333 shares of common stock to LPC (the ‘Commitment Fee Shares’),
40,000 upon entering into the agreement and 23,333 contingently issuable on a pro rata basis as the Company utilizes the financing
arrangement. The agreement will automatically terminate upon the earlier of 30 months (August 2016) or upon full utilization of
the purchase commitment.
The
fair value of the 40,000 Commitment Fee Shares initially issued to LPC was approximately $0.5 million at issue and initially recorded
as a deferred funding fee asset. The fee, as well as fair value at issue of subsequent Commitment Fee Shares, has been recognized
as additional paid in capital as of December 31, 2014.
During
the first quarter of 2015 under the Lincoln Park Capital Fund LLC financing arrangement the Company sold 256,305 common shares
and issued 3,290 common shares as a commitment fee for a total of $2.8 million.
Service
Compensation
During
the year ended December 31, 2015, the Company issued an aggregate of 526,388 shares of common stock to multiple venders as service
compensation. The Company recorded $0.7 million service cost based on the fair value of the common stock on the issuance date.
Warrants
Nervada
Warrants
On September 30, 2015 the Company issued warrants to purchase 500,000 shares of its common stock in exchange
for an existing investor to agree to a lock-up of shares of common stock it held. The warrants are exercisable at $0.01 per share.
The Company fair valued the warrant at $0.6 million and recorded a loss on issuance. The inputs included the exercise price of
$0.01, contractual term of 5 years, volatility of 250% and risk free rate of 1%. The warrants are not exercisable until September
30, 2016.
Common
Stock Purchase Warrants
The
following table summarizes the Company’s warrant activities for the years ended December 31, 2015 and 2014:
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Number of
|
|
|
Weighted Average
|
|
|
Remaining Contractual
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
|
Term
|
|
Outstanding as of December 31, 2013
|
|
|
563,689
|
|
|
$
|
9.00
|
|
|
|
1.69
|
|
Issued in connection with warrant exchange
|
|
|
300,000
|
|
|
|
18.00
|
|
|
|
|
|
Exercised
|
|
|
(552,777
|
)
|
|
|
9.00
|
|
|
|
|
|
Outstanding as of December 31, 2014
|
|
|
310,912
|
|
|
|
18.00
|
|
|
|
3.06
|
|
Issued in connection with various financings (1)
|
|
|
5,046,705
|
|
|
|
2.00
|
|
|
|
|
|
Reset Warrants (2)
|
|
|
7,460,353
|
|
|
|
0.71
|
|
|
|
|
|
Expired and cancellation
|
|
|
(8,020
|
)
|
|
|
9.00
|
|
|
|
|
|
Outstanding as of December 31, 2015
|
|
|
12,809,950
|
|
|
$
|
1.14
|
|
|
|
4.77
|
|
|
(1)
|
Approximately 4,547,000 warrants contain “down round protection” and the Company classifies these warrant instruments as liabilities at their fair value and adjusts the instruments to fair value at each reporting period.
|
|
|
|
|
(2)
|
Certain warrants contain aggregate exercise provisions, and upon a reset the exercise price is decreased and the amount of common stock available under the warrant agreement increases. During the 4th quarter a reset occurred decreasing the exercise price from $2.00 to $0.71 and increasing the amount of common stock available to be issued from 4,106,000 to 11,566,000
|
14.
Stock Option Plans
2008
Stock Plan
The
Company’s Board of Directors approved the 2008 Stock Plan (the “Plan”). Under the Plan, the Company may grant
up to 307,466 shares of incentive stock options, nonqualified stock options, or stock awards to eligible persons, including employees,
nonemployees, members of the Board of Directors, consultants, and other independent advisors who provide services to the Company.
In general, options are granted with an exercise price equal to the fair value of the underlying common stock on the date of the
grant. Options granted typically have a contractual life of 10 years and vest over periods ranging from being fully vested as
of the grant date to four years.
The
following table is a summary of activity under the 2008 Plan:
|
|
Common stock
|
|
|
Weighted
|
|
|
Weighted Average Remaining
|
|
|
|
options
|
|
|
Average
|
|
|
Contractual
|
|
|
|
outstanding
|
|
|
Exercise Price
|
|
|
Term
|
|
Balance December 31, 2013
|
|
|
46,275
|
|
|
$
|
7.50
|
|
|
|
8.00
|
|
Options granted (weighted-average fair value of $0.08)
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee (1)
|
|
|
83,333
|
|
|
|
13.50
|
|
|
|
8.20
|
|
Non-employee
|
|
|
22,009
|
|
|
|
12.00
|
|
|
|
8.20
|
|
Options cancelled
|
|
|
(7,643
|
)
|
|
|
10.50
|
|
|
|
|
|
Outstanding as of December 31, 2014
|
|
|
143,974
|
|
|
|
11.50
|
|
|
|
7.80
|
|
Options cancelled
|
|
|
(30,000
|
)
|
|
|
15.00
|
|
|
|
|
|
Outstanding as of December 31, 2015
|
|
|
113,974
|
|
|
$
|
10.58
|
|
|
|
8.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested December 31, 2015
|
|
|
104,891
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes 26,666 shares granted to Robert Farrell, the
Company’s Chief Financial Officer, 13,333 of which are performance-based and vest upon continued service and achievement
of a specific goal; and 13,333 of which are market-based and vest upon continued service and the Company’s achievement of
certain stock price targets. All of these shares have an exercise price of $12.00.
|
The
amount of awards available to grant under the Plan is 38,977 as of December 31, 2015.
2014
Stock Plan
In
August 2014, the Company adopted the 2014 Stock Plan (the “2014 Plan”), which was approved by the Company’s
stockholder at the Company’s Annual Meeting in September 2014. Under the 2014 Plan, the Company may grant up to 1,025,868
common shares in the form of incentive stock options, nonqualified stock options or stock awards to eligible persons, including
employees, nonemployees, members of the Board of Directors, consultants, and other independent advisors who provide services to
the Company. In general, options are granted with an exercise price equal to the fair value of the underlying common stock on
the date of the grant. Options granted typically have a contractual life of 10 years and vest over periods ranging from being
fully vested as of the grant date to four years.
The
following table is a summary of activity under the 2014 Plan:
|
|
Common stock
options
|
|
|
Weighted Average
|
|
|
Weighted Average Remaining Contractual
|
|
|
|
outstanding
|
|
|
Exercise Price
|
|
|
Term
|
|
Balance December 31, 2013
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Options granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
|
|
|
57,333
|
|
|
|
13.50
|
|
|
|
8.80
|
|
Outstanding as of December 31, 2014
|
|
|
57,333
|
|
|
|
13.50
|
|
|
|
8.80
|
|
Options granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
|
|
|
166,467
|
|
|
|
12.50
|
|
|
|
8.20
|
|
Non-employee
|
|
|
15,000
|
|
|
|
12.30
|
|
|
|
8.20
|
|
Options cancelled
|
|
|
(44,600
|
)
|
|
|
12.00
|
|
|
|
|
|
Outstanding as of December 31, 2015
|
|
|
194,200
|
|
|
$
|
8.91
|
|
|
|
9.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested December 31, 2015
|
|
|
83,922
|
|
|
|
|
|
|
|
|
|
The
amount of awards available to grant under the 2014 Plan is 831,668 as of December 31, 2015.
2012
Preferred Stock Plan
In July 2012, the Board of Directors adopted
a new stock plan, the Management, Employee, Advisor and Director Preferred Stock Option Plan - 2012 Series B Convertible Preferred
Stock Plan (“Preferred Stock Plan”). The purposes of the Preferred Stock Plan are to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional incentive to Management, Employees, Advisors and Directors
and to promote the success of the Company’s business. Each share of Series B Preferred stock converts into 0.33 shares of common stock. The following table is a
summary of activity under the Preferred Stock Plan:
|
|
Preferred stock options
|
|
|
Weighted Average
|
|
|
Weighted Average Remaining Contractual
|
|
|
|
outstanding
|
|
|
Exercise Price
|
|
|
Term
|
|
Balance December 31, 2013
|
|
|
2,287,500
|
|
|
$
|
0.47
|
|
|
|
8.50
|
|
Options granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
|
|
|
200,000
|
|
|
|
2.21
|
|
|
|
8.80
|
|
Outstanding as of December 31, 2014
|
|
|
2,487,500
|
|
|
|
0.61
|
|
|
|
8.80
|
|
Options granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding as of December 31, 2015
|
|
|
2,487,500
|
|
|
$
|
0.61
|
|
|
|
7.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested December 31, 2015
|
|
|
2,483,333
|
|
|
|
|
|
|
|
|
|
The
amount of awards available to grant under the Preferred Stock Plan is 512,500 as of December 31, 2015.
Stock-based
compensation expense for all plans for the years ended December 31, 2015 and 2014 is classified in the statements of
operations as follows:
|
|
For the Years Ended
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Research and development
|
|
$
|
455
|
|
|
$
|
412
|
|
General and administrative
|
|
|
1,015
|
|
|
|
890
|
|
Total
|
|
$
|
1,470
|
|
|
$
|
1,302
|
|
At
December 31, 2015, there was a total of approximately $2.0 million of unrecognized compensation cost, related to non-vested stock
option awards, which is expected to be recognized over a weighted-average period of approximately 2.4 years.
The
fair value of the Company’s stock-based awards during the twelve months ended December 31, 2015 and 2014 were estimated
using the following assumptions:
|
|
Year
Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Weighted-average volatility
|
|
|
262
|
%
|
|
|
288
|
%
|
Weighted-average expected term
|
|
|
6.18
|
|
|
|
5.8
|
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk-free investment rate
|
|
|
2
|
%
|
|
|
2
|
%
|
Expected forfeiture rate
|
|
|
0
|
%
|
|
|
0
|
%
|
15. Income Taxes
There is no provision for income taxes
because we have incurred operating losses since inception and applied a full valuation allowance against all deferred tax assets.
The reported amount of income tax expense attributable to operations for the year differs from the amount that would result from
applying domestic federal statutory tax rates to loss before income taxes from operations as summarized below (amount in thousands):
|
|
Year ended December 31,
|
|
Loss before income taxes
|
|
2015
|
|
|
2014
|
|
United States
|
|
$
|
(25,213
|
)
|
|
$
|
(27,277
|
)
|
Foreign
|
|
|
-
|
|
|
|
-
|
|
Total Income (Loss) before income taxes
|
|
$
|
(25,213
|
)
|
|
$
|
(27,277
|
)
|
Income tax expense (benefit) for the years
ended December 31, 2015 and 2014 differed from the amounts computed by applying the statutory federal income tax rate of 34% to
pretax income (loss) as a result of the following (amount in thousands):
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Federal tax expense (benefit) at statutory rate
|
|
$
|
(8,572
|
)
|
|
$
|
(9,274
|
)
|
State tax expense (benefit), net of federal tax effect
|
|
|
(1,342
|
)
|
|
|
(1,334
|
)
|
R&D credit
|
|
|
(326
|
)
|
|
|
(269
|
)
|
Non-deductible expenses
|
|
|
915
|
|
|
|
1,696
|
|
Change in valuation allowance
|
|
|
9,325
|
|
|
|
9,181
|
|
Total tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
Year ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Federal tax expense (benefit) at statutory rate
|
|
|
(34.0
|
)%
|
|
|
(34.0
|
)%
|
State tax expense (benefit), net of federal tax effect
|
|
|
(5.3
|
)%
|
|
|
(4.9
|
)%
|
R&D credit
|
|
|
(1.3
|
)%
|
|
|
(1.0
|
)%
|
Non-deductible expenses
|
|
|
3.6
|
%
|
|
|
6.2
|
%
|
Change in valuation allowance
|
|
|
37.0
|
%
|
|
|
33.7
|
%
|
Total tax expense
|
|
|
-
|
%
|
|
|
-
|
%
|
The significant components of deferred tax assets are as
follows (amount in thousands):
|
|
As of December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Net operating loss carry-forward
|
|
$
|
23,241
|
|
|
$
|
12,835
|
|
Tax credit carry-forward
|
|
|
857
|
|
|
|
504
|
|
Accrued liabilities
|
|
|
1,851
|
|
|
|
1,257
|
|
Capitalized start-up costs
|
|
|
15
|
|
|
|
15
|
|
Depreciation and amortization
|
|
|
3,206
|
|
|
|
2,833
|
|
Gross deferred tax assets
|
|
|
29,170
|
|
|
|
17,444
|
|
Intangibles
|
|
|
(1,113
|
)
|
|
|
-
|
|
Valuation allowance
|
|
|
(29,170
|
)
|
|
|
(17,444
|
)
|
Net deferred tax liabilities
|
|
$
|
(1,113
|
)
|
|
$
|
-
|
|
The Company’s accounting for deferred taxes involves the
evaluation of a number of factors concerning the realizability of the Company’s net deferred tax assets. The Company primarily
considered such factors as the Company’s history of operating losses, the nature of the Company’s deferred tax assets
and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences
and carryforwards become deductible. At present, the Company does not believe that it is more likely than not that the deferred
tax assets will be realized; accordingly, a full valuation allowance has been established and no deferred tax asset is shown in
the accompanying balance sheets. The valuation allowance increased by approximately $11.7 million and $9.2 million during the
years ended December 31, 2015 and December 31, 2014, respectively.
As of December 31, 2015, the Company
had net federal and state net operating loss carry-forwards of approximately $58.3 million and $58.3 million, respectively. These
net operating loss carry forwards will begin to expire, if not utilized, beginning in 2028 for both federal and state income tax
purposes. The Company also has federal and state research and development credit carry-forwards of approximately $0.7 million
and $0.2 million, respectively. The federal credits will expire if not utilized beginning in 2029. The California credits do not
expire.
The Tax Reform Act of 1986 and similar
California legislation impose substantial restrictions on the use of net operating losses and tax credits in the event of an ownership
change of a corporation. Accordingly, the Company’s ability to use net operating losses and credit carry forwards may be
significantly limited in the future as a result of such an ownership change.
The Company follows GAAP with regard
recognition, measurement, presentation and disclosure in financial statements of any uncertain tax positions that have been taken
or expected to be taken on a tax return. No liability related to uncertain tax positions is recorded on the financial statements.
It is the Company’s policy to include penalties and interest expense related to income taxes as a component of tax expense,
as necessary.
A summary of unrecognized tax benefits
is as follows (amount in thousands):
Ending balance at December 31, 2014
|
|
$
|
62
|
|
Increase (decrease) of unrecognized tax benefits taken in prior years
|
|
|
-
|
|
Increase (decrease) of unrecognized tax benefits related to current year
|
|
|
41
|
|
Increase (decrease) of unrecognized tax benefits related to settlements
|
|
|
-
|
|
Reductions to unrecognized tax benefits related lapsing statute of limitations
|
|
|
-
|
|
|
|
|
|
|
Ending balance at December 31, 2015
|
|
$
|
103
|
|
The total amount of unrecognized tax
benefits that if recognized, would affect the effective tax rate is $0.
The Company has not incurred any interest or penalties
as of December 31, 2015. The Company does not anticipate any significant change within 12 months of this reporting date of its
uncertain tax positions. The Company is mainly subject U.S. federal income taxes and California state taxes. There are no ongoing
examinations by taxing authorities at this time.
The Company’s tax years 2008 through 2015 will remain
open for examination by the federal and state authorities for three and four years, respectively, from the date of utilization
of any net operating loss credits.
16. Related-Party Transactions
Consulting Agreements
The Company has an agreement with a
NeuroAssets Sarl, a Swiss-based company to provide consulting services to the Company. Dr. David Lowe, who until October 2015,
served as a Director of the Company is the president and chief executive officer of NeuroAssets. The Company recorded $0.6 million
and $0.7 million in consulting fees to NeuroAssets for the years ended December 31, 2015 and 2014, respectively.
The Company has an agreement with Joseph
Rubinfeld to provide consulting services to the company. Joseph Rubinfeld was appointed to the Company’s Board of Directors
in November 2012. The company recorded $100,000 and $142,000 in consulting fee for the years ended December 31, 2015 and 2014,
respectively.
Note Receivable
On March 2, 2015, the Company loaned
MedicoRx, Inc. $25,000 in an unsecured convertible promissory note. Joseph Rubinfeld is President and CEO and also a Board Member
of Amarantus. The note provided the Company with first right of refusal on any additional investments, but there are no further
obligations beyond the $25,000.
The Company had a demand promissory
note with Neurotrophics, which is due 365 days upon demand of the holder. At the option of the Company, the note and the accrued
interest owed can be converted into common stock of the Company based on the closing price of the Company’s common stock
on the day of the conversion. The conversion price if converted on December 31, 2015 would be $0.64 related to the note and accrued
interest on the note and would convert to approximately 400,000 shares.
Related party liabilities:
|
|
As of December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Promissory note, 2% interest
|
|
$
|
222
|
|
|
$
|
222
|
|
Accrued interest
|
|
|
35
|
|
|
|
30
|
|
Total
|
|
$
|
257
|
|
|
$
|
252
|
|
17.
Subsequent Events
From
January 1, 2016 to May 13, 2016, the Company issued the following preferred and common shares:
|
●
|
In accordance with the original terms, converted 1,365 of Series E Preferred Stock into 17.1 million shares of common stock;
|
|
|
|
|
●
|
In accordance with the original terms, converted 1,605 of Series H Preferred Stock into 28.8 million shares of common stock;
|
|
|
|
|
●
|
In accordance with the original terms, issue Preferred Stock E dividends into 2.1 million shares of common stock;
|
|
|
|
|
●
|
In
accordance with the original terms, converted notes and interest $200,000 into 3.8 million shares of common stock;
|
|
|
|
|
●
|
In accordance with the original terms, issue Preferred Stock H dividends into 2.3 million shares of common stock;
|
|
|
|
|
●
|
Issued 0.5 million shares for services.
|
See
below for more detail regarding certain debt and equity related transactions.
Sale of Series H Convertible Preferred
Stock
On January 27, 2016, the Company entered
into a Securities Purchase Agreement (the “Series H SPA”) with an accredited investor for the sale of 1,166.666 (including
10% OID) shares of the Company’s 12% Series H Preferred Stock (the “Series H Preferred Stock”) and a warrant
to purchase 495,833 shares of common stock (the “RD Warrant” and together with the Series H Preferred Stock, the “Securities”)
in a registered direct offering (the “RD Offering”), subject to customary closing conditions. The gross proceeds to
the Company from the RD Offering were $1,000,000. Each share of Series H Preferred Stock has a stated value of $1,000 and is convertible
into shares of common stock at an initial conversion price of the lower of (i) $2.50, subject to adjustment and (ii) 75%, subject
to adjustment, of the lowest volume weighted average price, or VWAP, during the fifteen (15) Trading Days immediately prior to
the date a conversion notice is sent to the Company by a holder, at any time at the option of the holder.
On February 19, 2016, the Company entered
into a Securities Purchase Agreement (the “Series H SPA”) with an accredited investor for the sale of 3,300 (including
10% OID) shares of the Company’s 12% Series H Preferred Stock (the “Series H Preferred Stock”) and a warrant
to purchase 13,200,000 shares of common stock (the “RD Warrant” and together with the Series H Preferred Stock, the
“Securities”) in a registered direct offering (the “RD Offering”), subject to customary closing conditions.
The gross proceeds to the Company from the RD Offering were $3,000,000. Each share of Series H Preferred Stock has a stated value
of $1,000 and is convertible into shares of common stock at an initial conversion price of the lower of (i) $0.40, subject to
adjustment and (ii) 75%, subject to adjustment, of the lowest volume weighted average price, or VWAP, during the fifteen (15)
Trading Days immediately prior to the date a conversion notice is sent to the Company by a holder, at any time at the option of
the holder.
The warrants are immediately exercisable,
expire on the five-year anniversary from issuance and are have an exercise price of $0.40 per share.
An additional 525 shares of Series H
were sold for $0.5 million in proceeds.
Repurchase agreement of Series E Preferred
Stock
The Company also entered into repurchase
agreements dated January 27, 2016 with two of its institutional investors pursuant to which the Company agreed to repurchase an
aggregate 496 shares of Series H Preferred Stock and 496 shares of Series E Preferred Stock each at a price of $750,000 in 3 tranches
in February 2016. Concurrently therewith, the Company has entered into an agreement with International Infusion LLC to provide
funding of up to $1,500,000 to be used solely to repurchase such shares of Series H Preferred Stock.
Sale of Series E Convertible Preferred
Stock
On February 8, 2016, the Company entered
into a Securities Purchase Agreement (the “Series E SPA”) with institutional investors for the sale of 255.56 (including
10% OID) shares of the Company’s 12% Series E Preferred Stock (the “Series E Preferred Stock”) in a registered
direct offering (the “RD Offering”), subject to customary closing conditions. The gross proceeds to the Company from
the RD Offering were $230,000. Each share of Series E Preferred Stock has a stated value of $1,000 and is convertible into shares
of common stock at a conversion price of $7.50 provided if the Holder delivers a conversion notice within 5 trading days following
a period that the average of 3 consecutive VWAPs is less than $9.00, the conversion price shall be equal to lesser of the then
conversion price and 65% of the lowest 2 consecutive VWAPs out of the prior 10 consecutive trading days prior to the delivery
of the conversion notice.
Investment
- Convertible Note
On
March 1, 2016, the Company was issued a convertible note (the “Note”) from Theranostic Health, Inc. (“THI”)
in exchange for $400,000. The Company provided the financing evidenced by the Note in order to facilitate the proposed acquisition
by Avant Diagnostics, Inc. (“Avant”) of the assets and certain liabilities of THI. In a concurrent transaction, the
Company has entered into a non-binding letter of intent to sell its wholly-owned subsidiary, Amarantus Diagnostics, Inc. to Avant
for 80 million shares of common stock of Avant. The Note matures on February 28, 2017 and bears interest at 8% per annum payable
at maturity in cash. The Note is convertible at any time at the option of the Company into shares of common stock of THI at a
conversion price of $40.64 per share. The Note shall automatically convert into shares of common stock of THI upon a change of
control of THI. It is expected that the Note will be assumed by Avant upon consummation of the transaction with THI. The conversion
price of the Note is subject to weighted average anti-dilution price protection if the dilutive issuances are for less than $1
million and full ratchet anti-dilution protection if the dilutive issuances are for more than $1 million. The Note has events
of default in for any default in the payment of principal or interest when due and for bankruptcy.
Debt Financing
On April 14,
2016, the Company entered into a Securities Purchase Agreement (the “Notes SPA”) with three institutional investors
for the sale of an aggregate principal amount $1,500,000 (including 10% OID) 10% Senior Secured Convertible Promissory Notes due
April 17, 2017 (the “Senior Secured Notes”) and a warrant to purchase 1,350,000 shares of common stock (the “Warrant”)
in a private placement offering (the “Offering”). The gross proceeds to the Company from the Offering were $1,350,000.
The Company used the net proceeds from the Offering to pay Lonza Walkerville for costs associated with development of its ESS
product and working capital. Chardan Capital Markets acted as a placement agent in connection with the sale of the Senior Secured
Notes and Warrants.
Pursuant to the
terms of the Notes SPA, the investors agreed to purchase additional aggregate principal amount of $1,555,556 (including 10% OID)
of Senior Secured Notes and Warrants to purchase 1,400,000 shares of the Company’s common stock on the first trading date
after the registration statement which is the subject of the registration rights agreement (discussed below) is filed, and an
additional $1,388,889 (including 10% OID) of Senior Secured Notes and Warrants to purchase 1,250,000 shares of the Company’s
common stock on the 61st day after such registration statement is declared effective or such earlier date as mutually agreed to
among the investors, subject to the satisfaction of customary closing conditions.
The principal
amount of the Senior Secured Notes shall accrue interest at a rate equal to 12% per annum, payable on the Maturity Date in cash,
or, at the Company’s option, in common stock or a combination thereof. At any time upon five (5) days written notice to
the Investor, the Company may prepay any portion of the principal amount of the Senior Secured Notes and any accrued and unpaid
interest at an amount equal to 120% of the then outstanding principal amount of the Senior Secured Notes and accrued interest
or 130% if a Qualified Financing (as defined in the Senior Secured Notes) has occurred.
At any time after
the issuance date of the Senior Secured Notes until all amounts due have been paid in full, the Senior Secured Note shall be convertible,
in whole or in part, into shares of common stock at the option of the holder, at any time and from time to time. The conversion
price in effect on any conversion date shall be equal to the lowest of (i) $0.40, (ii) 75% of the lowest daily VWAP in the fifteen
(15) trading days prior to the conversion date, or (iii) (A) if a Public Offering (as defined in the Senior Secured Note) that
is not a Qualified Public Offering (as defined in the Senior Secured Note) has occurred, 75% or (B) if a Qualified Public Offering
has occurred, 80% of the lowest of the (x) per share price of shares of common stock, and (y) the lowest conversion price, exercise
price or exchange price of any common stock equivalents, that are sold or issued to the public in the Public Offering or the Qualified
Public Offering, respectively.
Effective on
the closing (the “Mandatory Conversion Date”) of a Qualified Public Offering, the Qualified Public Offering Conversion
Amount (as defined in the Senior Secured Note) shall automatically (without further act or deed of the Holder or the Company)
convert (the “Mandatory Conversion”) into such number of shares of common stock as shall equal the quotient of (i)
the Qualified Public Offering Conversion Amount outstanding as of and including the Mandatory Conversion Date, divided by (ii)
a conversion price equal to the lowest of (i) the Conversion Price on the Mandatory Conversion Date, and (ii) eighty percent (80%)
of the lowest of (x) the price per share at which the Company sells shares of common stock, and (y) the lowest conversion price,
exercise price or exchange price of any common stock equivalents, if any, sold and or issued to the public in a Qualified Public
Offering, if any.
The Senior Secured
Notes contain certain customary Events of Default (including, but not limited to, default in payment of principal or interest
thereunder, breaches of covenants, agreements, representations or warranties thereunder, the occurrence of an event of default
under certain material contracts of the Company, including the transaction documents relating to the PP Offering, changes in control
of the Company, filing of bankruptcy and the entering or filing of certain monetary judgments against the Company). Upon the occurrence
of any such Event of Default the outstanding principal amount of the Senior Secured Notes, plus accrued but unpaid interest, liquidated
damages, and other amounts owing in respect thereof through the date of acceleration, shall become, at the Investor’s election,
immediately due and payable in cash. Upon any Event of Default that results in acceleration of the Senior Secured Notes, the interest
rate on the Senior Secured Notes shall accrue at an interest rate equal to the lesser of 24% per annum or the maximum rate permitted
under applicable law.
The Warrant issued
in the Offering is exercisable on or prior to the close of business on the five-year anniversary of the issuance date at an exercise
price of $0.40 per share. The Warrant may be exercised on a cashless basis in the event there is no effective registration statement
covering the shares of common stock issuable upon exercise.
In
connection with the issuance of the Senior Secured Notes and Warrants, the Company entered into a Security Agreement and an Intellectual
Property Security Agreement with the investor (the “Security Agreement”) pursuant to which the Company agreed to grant
a security interest in all of its assets to the investor in order to secure the prompt payment, performance and discharge in full
of all of the Company’s obligations under the Senior Secured Notes.
In
addition, each of the Company’s wholly owned subsidiaries entered into a Subsidiary Guarantee, pursuant to which each of
the subsidiaries, jointly and severally, agreed to guarantee the obligations of the Company under the Senior Secured Notes.
In
addition, the Company and certain of its investors agreed to a lock-up and leak-out agreements pursuant to which the investors
agreed to certain trading restrictions with respect to its holdings of preferred stock and convertible notes of the Company. The
lock-up agreements remain in force until $67.5 million of aggregate trading volume, calculated from the date that a registration
statement underlying the shares of the Senior Secured Notes has been declared effective by the Securities and Exchange Commission.
The leak-out restrictions, restrict certain investors to ranges of trading to no more than 2.5% to 15% of the average daily volume
of the Company’s common stock. The leak out agreements remain in force until $67.5 million of aggregate trading volume,
calculated from the date that a registration statement underlying the shares of the Senior Secured Notes has been declared effective
by the Securities and Exchange Commission. In partial consideration of the investors’ agreeing to the trading restrictions,
the Company agreed to amendments of the terms of the Series E and Series H Preferred in order to provide additional voting rights
for those investors at its upcoming annual meeting of shareholders.
The
Company entered into a Registration Rights Agreement with the investors in which it agreed to register the shares of common stock
issuable upon conversion or as interest under the Senior Secured Notes and the shares of common stock issuable upon exercise of
the Warrants which registration shall be filed within 10 days. The Company agreed to use its best efforts to have the Registration
Statement declared effective within 45 days of filing. The Company is required to pay partial liquidated damages in cash of 2%
of the subscription amount paid by each holder if: (i) the Company fails to file a request for acceleration of the registration
Statement within five trading days of the date that the Company is notified that such Registration Statement will not be “reviewed”
or will not be subject to further review, or (ii) the Company fails to file a pre-effective amendment and otherwise respond in
writing to comments within ten (10) calendar days after the receipt of comments, or (iii) the registration statement is not declared
effective within 45 days of filing, or (iv) after the effective date of, such Registration Statement ceases for any reason to
remain continuously effective. If the Company fails to pay any partial liquidated damages in full within seven days after the
date payable, the Company will pay interest thereon at a rate of 18% per annum.
In
connection with the Offering, the Company also agreed that at its annual meeting of shareholders to be held on or before June
6, 2016, to seek the approval of its shareholders to increase its authorized common stock and effect a reverse stock split.
Notes
payable exchange for Senior Secured Convertible Promissory Notes
On March 9,
2016 two investors assigned their 12% Promissory notes to a third investor in return for payment of principal and interest, $112,000
and $224,000 respectively. The third investor, on the same day, entered into two separate Exchange Agreements with the Company.
The Exchange Agreements allow the third investor to exchange the 12% Promissory Notes for two separate 12% Senior Secured Convertible
Promissory Notes, $100,000 and $200,000 respectively. During March 2016 the $100,000 note was converted to 1,989,669 Common shares.
The $200,000 12% Senior Secured Convertible Promissory Note is still outstanding.
Acquisition
of Amarantus Diagnostics by Avant Diagnostics, Inc.
On
May 11, 2016 (the “
Effective Date
”), Amarantus, Amarantus Diagnostics, Inc., a wholly-owned subsidiary of Amarantus
(“AMDX”), and Avant Diagnostics, Inc. (“Avant”) entered into a Share Exchange Agreement (the “
Exchange
Agreement
”). Pursuant to the terms of the Exchange Agreement, the Avant purchased 100% of the outstanding capital stock
of AMDX from Amarantus (the “
AMDX Acquisition
”). The AMDX Acquisition closed upon the execution of the Exchange
Agreement. Gerald Commissiong, President and Chief Executive Officer of Amarantus, became a member of the Avant’s Board
of Directors upon closing of the AMDX Acquisition.
Avant
paid to Amarantus aggregate consideration of 80,000,000 shares of Avant’s common stock for the AMDX Acquisition, subject
to the issuance of additional shares upon the occurrence of certain events set forth in the Exchange Agreement (the “
AMDX
Consideration
”). Each share of Avant common stock received in connection with the AMDX Acquisition shall be subject
to a lock-up beginning on the Effective Date and ending on the earlier of (i) eighteen (18) months after such date or (ii) a
Change in Control (as defined in the Exchange Agreement).
AMDX
owned the rights to MSPrecise®, a proprietary next-generation DNA sequencing (NGS) assay for the identification of patients
with relapsing-remitting multiple sclerosis (RRMS) at first clinical presentation, has an exclusive worldwide license to the Lymphocyte
Proliferation test (LymPro Test®) for Alzheimer's disease, which was developed by Prof. Thomas Arendt, Ph.D., from the University
of Leipzig, and owns intellectual property for the diagnosis of Parkinson's disease (NuroPro).
In
connection with the Exchange Agreement, on the Effective Date, the Avant issued to Amarantus a convertible promissory note in
the principal amount of $50,000 (the "
Note
"). The Note bears interest at 12% per annum and matures one year from
the date of issuance. The Note will be convertible at the option of the Amarantus at any time into shares of Avant’s common
stock, at an initial conversion price equal to $0.20, subject to adjustment. The conversion price of the Note is subject to customary
adjustments provisions for stock splits, stock dividends, recapitalizations and the like. Amarantus has contractually agreed to
restrict its ability to convert the Note such that the number of shares of Avant’s common stock held by Amarantus and its
affiliates after such conversion does not exceed 4.99% of Avant's then issued and outstanding shares of common stock.
Amarantus
Diagnostics Sale
On
May 11, 2016 (the “
Effective Date
”), Amarantus entered into a Share Exchange Agreement (the “
Exchange
Agreement
”) among the Amarantus, Amarantus Diagnostics, Inc., a wholly-owned subsidiary of the Company (“
AMDX
”)
and Avant Diagnostics, Inc. (the “
Buyer
”). Pursuant to the terms of the Exchange Agreement, the Buyer purchased
100% of the outstanding capital stock of AMDX from Amarantus (the “
AMDX Sale
”). The AMDX Sale closed upon the
execution of the Exchange Agreement. Gerald Commissiong, President and Chief Executive Officer of the Amarantus, became a member
of the Buyer’s Board of Directors (the “
Board
”) upon closing of the AMDX Sale.
The
Buyer paid aggregate consideration of 80,000,000 shares of its common stock to Amarantus for the AMDX Sale, subject to the issuance
of additional shares upon the occurrence of certain events set forth in the Exchange Agreement (the “
AMDX Consideration
”).
During the thirty-six (36) months from May 11, 2016 (the “
Measurement Period
”), if AMDX generates sales of
at least five million dollars ($5,000,000) with respect to MSPrecise
®
, during any consecutive 12-month period or twelve
million dollars ($12,000,000) million cumulatively during the Measurement Period, the Buyer shall issue to Amarantus an additional
10,000,000 shares of the Buyer’s common stock (the “
Additional AMDX Consideration
”) . Each share of Buyer
common stock received in connection with the AMDX Sale shall be subject to a lock-up beginning on the Effective Date and ending
on the earlier of (i) eighteen (18) months after such date or (ii) a Change in Control (as defined in the Exchange Agreement)
or (iii) written consent of the parties to that certain escrow agreement entered into between the Buyer, AMDX, Amarantus
and certain creditors of the Company (the “
Lock-Up Period
”).
At
the end of the Lock-Up Period, in the event that the AMDX Consideration has a value equal to or less than $3,000,000 in the aggregate
on the date the Lock-Up Period expires (based on the average closing “print’ prices at 4:00 p.m. of the Buyer’s
common stock on the last five days prior to the date the Lock-Up Period expires as listed or quoted on any national securities
exchange or over-the-counter market (including any tier maintained by the OTC Markets, Inc.), as the case may be (the “
Lock-Up
Termination Date Closing Price
”) multiplied by the AMDX Consideration) (the “
Lock-Up Termination Date
”),
the Buyer shall issue Amarantus such number of additional shares of its common stock (the “
Additional Common Stock
”)
equal to the lesser of (i) 9.99% of the outstanding shares of the Buyer’s common stock as of the Lock-Up Termination Date
or (ii) the difference between $3,000,000 and the value of the AMDX Consideration as of the Lock-Up Termination Date divided by
the Lock-Up Termination Date Closing Price. Notwithstanding the foregoing, in lieu of issuance of any Additional Common Stock,
the Buyer may, in its sole discretion, pay to the Buyer an amount in cash equal to the aggregate value of the Additional Buyer
Common Stock to be issued. So long as Amarantus holds any shares of Additional Common Stock, at any meeting of the stockholders
of the Buyer or any written action by consent of stockholders of the Buyer called for any matter, unless otherwise directed in
writing by the Buyer, Amarantus shall vote or shall cause to be voted any issued and outstanding shares of Additional Common Stock
owned by the Company as of the record date with respect to such meeting or consent as requested by the Buyer’s chief executive
officer.
The
Exchange Agreement includes customary representations, warranties and covenants of the Company, AMDX and the Buyer made solely
for the benefit of the parties to the Exchange Agreement. The assertions embodied in those representations and warranties were
made solely for purposes of the contract among Amarantus, AMDX and the Buyer and may be subject to important qualifications and
limitations agreed to by the Amarantus, AMDX and the Buyer in connection with the negotiated terms. Moreover, some of those representations
and warranties may not be accurate or complete as of any specified date, may be subject to a contractual standard of materiality
different from those generally applicable to stockholders or may have been used for purposes of allocating risk among Amarantus,
AMDX and the Buyer rather than establishing matters as facts. Investors are not third-party beneficiaries under the Exchange Agreement
and should not rely on the representations, warranties and covenants in the Exchange Agreement or any description thereof as characterizations
of the actual state of facts of the Company, AMDX and the Buyer or any of their respective subsidiaries or affiliates.
In
connection with the Exchange Agreement, on the Effective Date, the Company entered into an escrow agreement dated May 11, 2016
by and among Amarantus, the Buyer, AMDX, holders of the Company’s secured debt (“
Secured Holders
”) and
Robinson Brog Leinwand Greene Genovese & Gluck P.C., a professional corporation organized and existing under the laws of the
State of New York, as Escrow Agent (the “
Escrow Agreement
”) pursuant to which the AMDX Consideration and Additional
AMDX Consideration (collectively, the “
Escrow Shares
”) was deposited into escrow with the Escrow Agent to be
held in escrow for the Lock-Up Period. 1.5 million of the Escrow Shares can be released to the Secured Holders for any event of
default under the agreements between the Secured Holders and Amarantus. In addition, 7.25 million of the Escrow Shares can be
released to Amarantus to repay certain notes and 7.25 million of the Escrow Shares can be released to Amarantus in connection
with a stock dividend by the Company to its holders of common stock. The remaining 74 million of the Escrow Shares can be sold
and assigned by Amarantus; provided that no less than 70% of the net proceeds from any sale shall be used to repay certain notes
of Amarantus or redeem outstanding shares of preferred stock.
In
connection with the Exchange Agreement, on the Effective Date, the Buyer issued a convertible promissory note to Amarantus
pursuant to which the Company purchased a note with aggregate principal amount of $50,000 for an aggregate purchase price of $50,000
(the "
Note
"). The Note bears interest at 12% per annum and matures one year from the date of issuance. The Note
will be convertible at the option of Amarantus at any time into shares of common stock of the Buyer, at an initial conversion
price equal to $0.20, subject to adjustment. The conversion price of the Note is subject to customary adjustments provisions for
stock splits, stock dividends, recapitalizations and the like. The Buyer has contractually agreed to restrict its ability to convert
the Note such that the number of shares of Buyer common stock held by Amarantus and its affiliates after such conversion does
not exceed 4.99% of the Buyer’s then issued and outstanding shares of common stock.
Issuance
of Senior Secured Convertible Promissory Notes and Warrants
On
May 13, 2016, two institutional investors purchased $1,540,000 (including 10% OID) principal amount of 10% Senior Secured Convertible
Promissory Notes due May 13, 2017 (the “Senior Secured Notes”) pursuant to a previously disclosed Securities Purchase
Agreement (the “Notes SPA”) entered into on April 14, 2016.
In
connection with the sale of the Senior Secured Notes, Amarantus issued warrants to purchase an aggregate 1,400,000 shares of common
stock to the institutional investors. The warrant issued pursuant to the Notes SPA are exercisable on or prior to the close of
business on the five-year anniversary of the issuance date at an exercise price of $0.40 per share. The warrants may be exercised
on a cashless basis in the event there is no effective registration statement covering the shares of common stock issuable upon
exercise.
The warrants described above were
not registered under the Securities Act of 1933, as amended (the "
Securities Act
"), or the securities laws of
any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(a)(2) or other appropriate
exemptions promulgated under the Securities Act.
F-30
Amarantus Bioscience (CE) (USOTC:AMBS)
Historical Stock Chart
From Mar 2024 to Apr 2024
Amarantus Bioscience (CE) (USOTC:AMBS)
Historical Stock Chart
From Apr 2023 to Apr 2024