Notes to Unaudited Condensed Consolidated Financial
Statements
1. Basis of Presentation
We
are a Delaware corporation, originally incorporated in 1988 under
the name Terrapin Diagnostics, Inc. in the State of Delaware, and
subsequently renamed “Telik, Inc.” in 1998, and
thereafter renamed MabVax Therapeutics Holdings, Inc.
(“MabVax”) in September 2014. Our principal corporate
office is located at 11535 Sorrento Valley Road, Suite 400, San
Diego, CA 92121 telephone: (858) 259-9405. On July 8, 2014, we
consummated a merger with MabVax Therapeutics, Inc. (“MabVax
Therapeutics”), pursuant to which our subsidiary Tacoma
Acquisition Corp. merged with and into MabVax Therapeutics, with
MabVax Therapeutics surviving as our wholly owned subsidiary. This
transaction is referred to as the
“Merger.” Unless the context otherwise
requires, references to “we,” “our,”
“us,” or the “Company” in this Quarterly
Report mean MabVax Therapeutics Holdings, Inc. on a condensed
consolidated financial statement basis with our wholly-owned
subsidiary following the Merger, MabVax Therapeutics, as
applicable. Beginning October 10, 2014, our common stock was quoted
on the OTCQB under the symbol “MBVX.” Since August 17,
2016, our common stock has been trading on the NASDAQ Capital
Market under the symbol “MBVX.”
The
balance sheet data at December 31, 2016, has been derived from
audited financial statements at that date. It does not include,
however, all the information and notes required by accounting
principles generally accepted in the United States of America
(“GAAP”) for complete financial statements. The
condensed consolidated financial statements as presented reflect
certain reclassifications from previously issued financial
statements to conform to the current year
presentation.
On
August 16, 2016, we filed a certificate of amendment to our Amended
and Restated Certificate of Incorporation with the Secretary of
State of the State of Delaware in order to effectuate a reverse
stock split of our issued and outstanding common stock on a 1 for
7.4 basis, effective on August 16, 2016 (the “Reverse Stock
Split”). The Reverse Stock Split was effective with The
Financial Industry Regulatory Authority (FINRA) and the
Company’s common stock began trading on the NASDAQ Capital
Market at the open of business on August 17, 2016.
All share and per share amounts, and number of
shares of common stock into which each share of preferred stock
will convert, in the financial statements and notes thereto have
been retroactively adjusted for all periods presented to give
effect to the Reverse Stock Split, including reclassifying an
amount equal to the reduction in par value of common stock to
additional paid-in capital.
MabVax
is a clinical stage biopharmaceutical company engaged in the
discovery, development and commercialization of proprietary human
monoclonal antibody products for the treatment of a variety of
cancers. We have discovered a pipeline of human monoclonal antibody
products based on the protective immune responses generated by
patients who have been vaccinated against targeted cancers with our
proprietary vaccines. We have the exclusive license to the vaccines
from Memorial Sloan Kettering Cancer Center (“MSK”). We
operate in only one business segment.
We
have incurred net losses since inception and expect to incur
substantial losses for the foreseeable future as we continue our
research, development and clinical activities. To date, we have
funded operations primarily through government grants, proceeds
from the sale of common and preferred stock, the issuance of debt,
the issuance of common stock in lieu of cash for services, payments
from collaborators, and interest income. The process of developing
products will require significant additional research and
development, preclinical testing and clinical trials, as well as
regulatory approvals. We expect these activities, together with
general and administrative expenses, to result in substantial
operating losses for the foreseeable future. We will not receive
substantial revenue unless we or our collaborative partners
complete clinical trials, obtain regulatory approvals and
successfully commercialize one or more products; or we license our
technology after achieving one or more milestones of interest to a
potential partner.
The
accompanying unaudited condensed consolidated financial statements
were prepared using GAAP for interim financial information and the
instructions to Regulation S-X. While these statements reflect all
normal recurring adjustments, which are, in the opinion of
management, necessary for a fair presentation of the results of the
interim period, they do not include all information or notes
required by GAAP for annual financial statements and should be read
in conjunction with the Audited Financial Statements of MabVax
Therapeutics Holdings, Inc. for the year ended December 31,
2016, filed in our Annual Report on Form 10-K on March 1,
2017.
The
preparation of condensed consolidated 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 condensed consolidated financial statements and the
reported amounts of expenses during the reporting period.
Management believes that these estimates are reasonable; however,
actual results may differ from these estimates.
Recent Accounting Pronouncements
In May 2014, the FASB issued
ASU 2014-09,
“
Revenue
from Contracts with Customers (Topic 606)
”,
which
contains new accounting literature relating to how and when a
company recognizes revenue. Under ASU 2014-09, a company will
recognize revenue when it transfers promised goods or services to
customers in an amount that reflects the consideration to which the
company expects to be entitled in exchange for those goods and
services. ASU 2014-09 is effective for the
Company’s fiscal year beginning January 1, 2018, which
reflects a one year deferral approved by the FASB in July 2015, and
will be adopted by the Company beginning January 1, 2018.
We
expect the adoption of this new standard will not have a material
impact on our condensed consolidated financial
statements.
In February 2016, the FASB issued ASU
2016-2,
“Leases (Topic
842).” This update will increase transparency and
comparability by recognizing lease assets and lease liabilities on
the balance sheet and disclosing key information about leasing
arrangements. Under the new guidance, lessees will be
required to recognize the following for all leases (with the
exception of short-term leases) at the commencement date (i) a
lease liability, which is a lessee’s obligation to make lease
payments arising from a lease, measured on a discounted basis; and
(ii) a right-of-use asset, which is an asset that represents the
lessee’s right to use, or control the use of, a specified
asset for the lease term. Under the new guidance, lessor accounting
is largely unchanged, and it simplified the accounting for sale and
leaseback transactions. Lessees will no longer be provided with a
source of off-balance sheet financing. Lessees (for capital and
operating leases) and lessors (for sales-type, direct financing,
and operating leases) must apply a modified retrospective
transition approach for leases existing at, or entered into after,
the beginning of the earliest comparative period presented in the
financial statements. The modified retrospective approach would not
require any transition accounting for leases that expired before
the earliest comparative period presented. Lessees and lessors may
not apply a full retrospective transition approach. The standard is
effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years. We are
currently in the process of assessing what impact this new standard
may have on our condensed consolidated financial
statements.
In March 2016, the FASB issued ASU 2016-09,
“Compensation—Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting.”
This update includes multiple provisions intended to simplify
various aspects of the accounting for share-based payment
transactions including accounting for excess tax benefits and tax
deficiencies, classification of excess tax benefits in the
statement of cash flows and accounting for award forfeitures. This
update is effective for annual and interim reporting periods of
public entities beginning after December 15, 2016, with early
adoption permitted.
The adoption of this new standard did
not have a material impact on our condensed consolidated financial
statements.
In June 2016, the FASB issued ASU
No. 2016-13,
“
Financial Instruments—Credit Losses
(Topic326): Measurement of Credit Losses on Financial
Instruments.
”
This ASU requires instruments measured
at amortized cost to be presented at the net amount expected to be
collected. Entities are also required to record allowances for
available-for-sale debt securities rather than reduce the carrying
amount. This ASU is effective for fiscal years beginning after
December 15, 2019, including interim periods within those
fiscal years.
We expect the adoption of this new standard
will not have a material impact on our condensed consolidated
financial statements.
In
August 2016, the FASB issued ASU No. 2016-15 (“ASU
2016-15”), “Statement of Cash Flows (Topic 230):
Classification of Certain Cash Receipts and Cash Payments.”
The standard provides guidance on eight (8) cash flow issues: (1)
debt prepayment or debt extinguishment costs; (2) settlement of
zero-coupon bonds; (3) contingent consideration payments after a
business combination; (4) proceeds from the settlement of insurance
claims; (5) proceeds from the settlement of corporate-owned life
insurance policies; (6) distributions received from equity method
investees; (7) beneficial interests in securitization transactions;
and (8) separately identifiable cash flows and application of the
predominance principle. ASU 2016-15 addresses how certain cash
receipts and cash payments are presented and classified in the
statement of cash flows. ASU 2016-15 is effective for fiscal years,
and interim periods within those years, beginning after December
15, 2017 with early adoption permitted. We expect the adoption of
this new standard will not have a material impact on our condensed
consolidated financial statements.
In August 2016, the FASB issued ASU
No. 2016-16, “Income Taxes (Topic 740):
Intra-Entity Transfers of Assets Other Than
Inventory
.
” This ASU requires the recognition of
the income tax consequences of an intra-entity transfer of an asset
other than inventory when the transfer occurs. The amendments in
this ASU should be applied on a modified retrospective basis
through a cumulative-effect adjustment directly to retained
earnings as of the beginning of the period of adoption.
We
expect the adoption of this new standard will not have a material
impact on our condensed consolidated financial
statements.
In January 2017, the FASB issued ASU
No. 2017-03,
“Accounting Changes and Error Corrections
(Topic 250) and Investments—Equity Method and Joint Ventures
(Topic 323).” This ASU amends the disclosure requirements for
ASU No. 2014-09, Revenue from Contracts with Customers
(Topic 606), ASU No. 2016-02, Leases (Topic 842) and
ASU No. 2016-13, Financial Instruments—Credit
Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments. This ASU states that if a registrant does not know or
cannot reasonably estimate the impact that the adoption of the
above ASUs is expected to have on the financial statements, then in
addition to making a statement to that effect, the registrant
should consider additional qualitative financial statement
disclosures to assist the reader in assessing the significance of
the impact that the standard will have on the financial statements
of the registrant when adopted. This ASU was effective upon
issuance.
The adoption of this new standard did not have a
material impact on our condensed consolidated financial
statements.
In January 2017, the FASB issued ASU
No. 2017-04, “Intangibles—Goodwill and Other
(Topic 350): Simplifying the Test for Goodwill
Impairment.” This ASU eliminates Step 2 from the
goodwill impairment test. Instead, an entity should recognize an
impairment charge for the amount by which the carrying value
exceeds the reporting unit’s fair value, not to exceed the
total amount of goodwill allocated to that reporting unit. This ASU
is effective for annual or any interim goodwill impairment tests in
fiscal years beginning after December 15, 2019.
We
expect the adoption of this new standard will not have a material
impact on our condensed consolidated financial
statements.
In January 2017, the FASB issued ASU
No. 2017-01, “Business Combinations (Topic 805):
Clarifying the Definition of a Business.” This ASU
clarifies the definition of a business with the objective of adding
guidance to assist entities with evaluating whether transactions
should be accounted for as acquisitions (or disposals) of assets or
businesses. This ASU is effective for annual periods beginning
after December 15, 2017, including interim periods within
those periods.
We expect the adoption of this new standard
will not have a material impact on our condensed consolidated
financial statements.
Management
believes that any other recently issued, but not yet effective,
accounting standards if currently adopted would not have a material
effect on the accompanying condensed consolidated financial
statements.
2. Liquidity and Going Concern
The
accompanying condensed consolidated financial statements have been
prepared on the going concern basis, which assumes that the Company
will continue to operate as a going concern and which contemplates
the realization of assets and the satisfaction of liabilities and
commitments in the normal course of business. As reflected in the
accompanying condensed consolidated financial statements, the
Company had a net loss of $14,424,883, net cash used in operating
activities of $8,702,932, net cash used in investing activities of
$21,072, and net cash provided by financing activities of
$7,797,492 for the nine months ended September 30, 2017. As of
September 30, 2017, the Company had $3,052,778 in cash and cash
equivalents, a working capital deficit of $2,918,271, an
accumulated deficit of $101,046,557 and stockholders’ equity
of $2,520,416.
On
January 15, 2016, we and Oxford Finance, LLC, as collateral agent
and lender, entered into a Loan and Security Agreement (the
“Loan Agreement”) providing for senior secured term
loans to the Company in an aggregate principal amount of up to
$10,000,000, subject to the terms and conditions set forth in the
Loan Agreement (the “January 2016 Term
Loan”). On January 15, 2016, the Company received
an initial loan of $5,000,000 under the Loan Agreement, before fees
and issuance costs of approximately $390,000. The option to draw
the second $5,000,000 expired on September 30, 2016.
On March 31, 2017, we and Oxford Finance, LLC,
signed a First Amendment to the Loan Agreement (the
“Amendment”), providing that the payment of principal
of $138,889 on the January 2016 Term Loan that otherwise would have
been due on the Amortization Date of April 1, 2017, will be due and
payable on May 1, 2017 along with any other payment of principal
due on May 1, 2017. We were obligated to pay a fully earned and
non-refundable amendment fee of $15,000 to Oxford Finance LLC. On
May 1, 2017, we paid the principal that was due on May 1, 2017,
along with the $15,000 amendment fee.
On May
3, 2017, we sold 850 shares of
0% Series H convertible
preferred stock (the “Series H Preferred
Stock”),
at a stated value of $1,000 per share,
representing an aggregate of $850,000 before offering costs of
$29,429 in a private placement (the “May 2017 Private
Placement”), to certain existing investors
.
The shares of Series H Preferred Stock are
convertible into shares of common stock based on a conversion
calculation equal to the stated value of the Series H Preferred
Stock, plus all accrued and unpaid dividends, if any, on such
Series H Preferred Stock, as of such date of determination, divided
by the conversion price. The stated value of each share of Series H
Preferred Stock is $1,000 and the initial conversion price is $1.75
per share, each subject to adjustment for stock splits, stock
dividends, recapitalizations, combinations, subdivisions or other
similar events. This May 2017 Private Placement is discussed in
further detail in Note 5, Convertible Preferred Stock, Common Stock
and Warrants.
On
May 19, 2017, we closed a public offering of 1,342,858 shares of
common stock and 1,000,000 shares of newly designated 0% Series G
convertible preferred stock (the “Series G Preferred
Stock”), at $1.75 per share of common stock and Series G
Preferred Stock (the “May 2017 Public Offering”).
The Series G Preferred Stock is initially convertible into
1,000,000 shares of common stock, subject to adjustment for stock
splits, stock dividends, recapitalizations, combinations,
subdivisions or other similar events, to certain existing investors
in the offering who, as a result of their purchases of common
stock, would hold in excess of 4.99% of our issued and outstanding
common stock, and elect to receive shares of our Series G Preferred
Stock. We received $4,100,000 in gross proceeds, before
underwriting discounts and commissions and offering expenses
estimated at $452,609. The May 2017 Public Offering is described in
more detail in Note 5, Convertible Preferred Stock, Common Stock
and Warrants.
On July
27, 2017, we entered into a subscription agreement with an
accredited investor pursuant to which we agreed to sell 152,143
restricted shares of common stock for $125,000 (the “July
2017 Private Placement”). The July 2017 Private Placement
closed on August 2, 2017.
On
August 11, 2017,
we entered into a
security purchase agreement with a group of existing investors in
the Company
, where we sold 2,386.36 shares of
0% Series J convertible
preferred stock (“the Series J Preferred
Stock”),
at a stated value of $550 per share,
representing an aggregate of approximately $1,312,500 before
offering costs estimated at $123,083 in a registered direct
offering (the “August 2017 Financing”)
.
The shares of Series J Preferred Stock are
convertible into shares of common stock based on a conversion
calculation equal to the stated value of the Series J Preferred
Stock plus the base amount on such Series J Preferred Stock, as of
such date of determination, divided by the conversion price. The
stated value of each share of Series J Preferred Stock is $550 and
the initial conversion price is $0.55 per share, each subject to
adjustment for stock splits, stock dividends, recapitalizations,
combinations, subdivisions or other similar
events.
On
August 23, 2017, we engaged Greenhill & Co. (NYSE: GHL) to
serve as a financial advisor to assist us in exploring and
evaluating strategic options with the goal of maximizing
shareholder value. We are evaluating inbound inquiries and
transaction options, as well as identifying new opportunities,
which could include the acquisition of MabVax by another company,
the sale or divestiture of specific assets coupled with a reverse
merger, merging with another company, or licensing of selected
technologies. We do not have a defined timeline for the exploration
of strategic alternatives and are not confirming that the
evaluation will result in any strategic alternative being announced
or consummated. We do not intend to discuss or disclose
further developments during this process unless and until our Board
of Directors has approved a specific action or otherwise determined
that further disclosure is appropriate. While Greenhill & Co.
continues as our financial advisor, we will continue to advance our
Phase 1 clinical programs including our MVT-1075 radioimmunotherapy
clinical trial for the treatment of pancreatic, colon and lung
cancers, and our MVT-5873 clinical trial in combination with one or
more chemotherapy agents in first line therapy for patients newly
diagnosed with pancreatic cancer.
On
September 14, 2017, the Company entered into subscription
agreements with select accredited investors relating to the
Company’s registered direct offering, issuance and sale of
4,000,000 shares of the Company’s common stock. The purchase
price per share was $0.50. We received $2.0 million in gross
proceeds, before offering expenses estimated at $147,639. The
offering closed September 14, 2017.
On
September 22, 2017, the Company entered into additional
subscription agreements with select accredited investors relating
to the Company’s registered direct offering, issuance and
sale of 2,016,129 shares of the Company’s common stock. The
purchase price per share was $0.62. We received $1.25 million in
gross proceeds, before offering expenses estimated at $35,000. The
offering closed on September 27, 2017.
On
October 10, 2017, the Company entered into additional subscription
agreements with select accredited investors relating to the
Company’s registered direct offering, issuance and sale of
769,231 shares of the Company’s common stock. The purchase
price per share was $0.65. We received $500,000 in gross proceeds,
before offering expenses totaling approximately $15,000. The
offering closed on October 11, 2017.
We plan to continue to fund the Company’s
losses from operations and capital funding needs through equity or
debt financings, strategic collaborations, licensing arrangements,
government grants or other arrangements. Further, to extend
availability of existing cash available for our programs for the
purpose of achieving milestones or a strategic transaction, we have
cut personnel from 25 full time people to 10, and reduced other
operating expenses following the completion of two phase 1a
clinical trials of our lead antibody HuMab 5B1, which has enabled
us to reduce our expenditures on clinical trials. We continue to
develop our radioimmunotherapy product MVT-1075 discussed further
in Management’s Discussion and Analysis of Financial
Condition and Results of Operations. Several members of
m
anagement have volunteered to defer receiving portions of
their salaries until the earlier of achieving one or more business
transactions or the end of 2017.
However, we cannot be sure that capital funding
will be available on reasonable terms, or at all. If we are unable
to secure adequate additional funding, we may be forced to make
additional reductions in spending, incur further cutbacks in
personnel, extend payment terms with suppliers, liquidate assets
where possible, and/or suspend or curtail planned programs. In
addition, if the Company does not meet its payment obligations to
third parties as they come due, it may be subject to litigation
claims. Even if we are successful in defending against these
claims, litigation could result in substantial costs and be a
distraction to management.
We anticipate that the Company will continue to
incur net losses into the foreseeable future as we: (i) continue
our clinical trial for the development of MVT1075 as a
radioimmunotherapy, (ii) continue our clinical trial of
MVT-5873
in combination with gemcitabine and nab-paclitaxal
in first line therapy for the treatment of patients newly diagnosed
with pancreatic cancer
; and (iii)
continue operations as a public company. Based on receipt of the
$125,000 private placement in July 2017, and financings of $1.3
million in August 2017, $2.0 million on September 14, $1.25 million
on September 22, 2017, and $500,000 on October 10, 2017, before
offering expenses, and without any other additional funding or
receipt of payments from potential licensing agreements, we expect
we will have sufficient funds to meet our obligations until
February 2018. These conditions give rise to substantial doubt as
to the Company’s ability to continue as a going
concern.
Any of these actions
could materially harm the Company’s business, results of
operations, and prospects. The accompanying condensed consolidated
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
If
the Company raises additional funds by issuing equity securities,
substantial dilution to existing stockholders would result. If the
Company raises additional funds by incurring debt financing, the
terms of the debt may involve significant cash payment obligations
as well as covenants and specific financial ratios that may
restrict the Company’s ability to operate its
business.
3. Cash and Cash Equivalents
We
consider all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. The
Company limits its exposure to credit loss by holding cash in U.S.
dollars, or, from time to time, placing cash and investments in
U.S. government, agency and government-sponsored enterprise
obligations.
4. Fair value of financial instruments
Our
financial instruments consist of cash and cash equivalents and
accounts payable, both of which are generally considered to be
representative of their respective fair values because of the
short-term nature of those instruments.
5. Convertible Preferred Stock, Common Stock and
Warrants
Dividends on Preferred Stock
We
immediately recognize the changes in the redemption value on
preferred stock as they occur and the carrying value of the
security is adjusted to equal what the redemption amount would be
as if redemption were to occur at the end of the reporting date
based on the conditions that exist as of that date.
No
dividends were ever declared by our Board of Directors since our
inception on any series of convertible preferred
stock.
Series D Preferred Stock
As
of September 30, 2017, and December 31, 2016, there were 44,104 and
132,489 shares of Series D convertible preferred stock
(“Series D Preferred Stock”) issued and outstanding
that are convertible into an aggregate of 596,000 and 1,790,392
shares of common stock, respectively.
The
Series D Preferred Stock had been issued on March 25, 2015, to
certain holders of the Company’s Series A-1 Preferred Stock
and Merger warrants (the “Series A-1 Exchange
Securities”) and holders of the Company’s Series B
Preferred Stock and Series B warrants (the “Series B Exchange
Securities” and, collectively with the Series A-1 Exchange
Securities, the “Exchange Securities”), all previously
issued by the Company. Pursuant to the exchange agreements, the
holders exchanged the Exchange Securities and relinquished any and
all other rights they may have had pursuant to the Exchange
Securities, their respective governing agreements and certificates
of designation, including any related registration rights, in
exchange for an aggregate of 342,906 shares of the Company’s
common stock and an aggregate of 238,156 shares of the
Company’s newly designated Series D Preferred Stock,
convertible into 3,218,325 shares of common stock.
As
contemplated by the exchange agreements and as approved by the
Company’s Board of Directors, the Company filed with the
Secretary of State of the State of Delaware a Certificate of
Designation of Preferences, Rights and Limitations of Series D
Convertible Preferred Stock (the “Series D Certificate of
Designations”), on March 25, 2015. Pursuant to the
Series D Certificate of Designations, the Company designated
1,000,000 shares of its blank check preferred stock as Series D
Preferred Stock. Each share of Series D Preferred Stock has a
stated value of $0.01 per share. In the event of a
liquidation, dissolution or winding up of the Company, each share
of Series D Preferred Stock will be entitled to a per share
preferential payment equal to the stated value. Each share of
Series D Preferred Stock is convertible into 13.5135 shares of
common stock. The conversion ratio is subject to adjustment in
the event of stock splits, stock dividends, combination of shares
and similar recapitalization transactions. The Company is
prohibited from effecting the conversion of the Series D Preferred
Stock to the extent that, as a result of such conversion, the
holder beneficially would own more than 4.99% (provided that
certain investors elected to block their beneficial ownership
initially at 2.49% in the exchange agreements), in the aggregate,
of the issued and outstanding shares of the Company’s common
stock calculated immediately after giving effect to the issuance of
shares of common stock upon the conversion of the Series D
Preferred Stock. Each share of Series D Preferred Stock
entitles the holder to vote on all matters voted on by holders of
common stock. With respect to any such vote, each share of Series D
Preferred Stock entitles the holder to cast such number of votes
equal to the number of shares of common stock such shares of Series
D Preferred Stock are convertible into at such time, but not in
excess of the beneficial ownership limitations.
Series E Preferred Stock
As
of September 30, 2017, and December 31, 2016, there were 33,333
shares of Series E convertible preferred stock (“Series E
Preferred Stock”) issued and outstanding, convertible into
519,751 shares of common stock.
On
March 30, 2015, the Company filed with the Secretary of State of
the State of Delaware a Certificate of Designation of Preferences,
Rights and Limitations of Series E Convertible Preferred Stock (the
“Series E Certificate of Designations”) to designate
100,000 shares of its blank check preferred stock as Series E
Preferred Stock.
The
shares of Series E Preferred Stock are convertible into shares of
common stock based on a conversion calculation equal to the stated
value of such preferred share, plus all accrued and unpaid
dividends, if any, on such share of Series E Preferred Stock, as of
such date of determination, divided by the conversion price. The
stated value of each share of Series E Preferred Stock is $75 and
the initial conversion price is $5.55 per share, each subject to
adjustment for stock splits, stock dividends, recapitalizations,
combinations, subdivisions or other similar events. In addition,
during the period proscribed for in the Series E Certificate of
Designations, in the event the Company issues or sells, or is
deemed to issue or sell, shares of common stock at a per share
price that is less than the conversion price then in effect, the
conversion price shall be reduced to such lower price, subject to
certain exceptions. The Company is prohibited from effecting a
conversion of the share of Series E Preferred Stock to the extent
that, as a result of such conversion, such holder would
beneficially own more than 4.99% of the number of shares of common
stock outstanding immediately after giving effect to the issuance
of shares of common stock upon conversion of the Series E Preferred
Stock, which beneficial ownership limitation may be increased by
the holder up to, but not exceeding, 9.99%. Each holder is entitled
to vote on all matters submitted to stockholders of the Company,
and shall have the number of votes equal to the number of shares of
common stock issuable upon conversion of such holder’s share
of Series E Preferred Stock, but not in excess of beneficial
ownership limitations. The shares of Series E Preferred Stock bear
no interest.
On
August 22, 2016, when the Company closed on the August 2016 Public
Offering, the current Series E Preferred Stock conversion price of
$5.55 per share was reduced to $4.81 per share under the terms of
the Series E Certificate of Designations, resulting in an increase
in the number of shares of common stock to 519,751 that the Series
E Preferred Stock may be converted into. There is no further
adjustment required by the Series E Certificate of Designations in
the event of an offering of shares below $4.81 per share by the
Company.
Series F Preferred Stock
As
of September 30, 2017, and December 31, 2016, there were 665,281
shares of Series F convertible preferred stock (the “Series F
Preferred Stock”), par value of $0.01 per share, issued and
outstanding, convertible into 665,281 shares of common
stock.
On
August 16, 2016, we filed a Certificate of Designations,
Preferences and Rights of the 0% Series F Convertible Preferred
Stock with the Delaware Secretary of State, designating 1,559,252
shares of preferred stock as 0% Series F
Preferred Stock
.
The
shares of Series F
Preferred
Stock
are convertible into shares of common stock based on a
conversion calculation equal to the stated value of such Series F
Preferred Stock
, plus all
accrued and unpaid dividends, if any, on such Series F
Preferred Stock
, as of such date of
determination, divided by the conversion price. The stated value of
each share of Series F
Preferred
Stock
is $4.81 and the initial conversion price is $4.81 per
share, each subject to adjustment for stock splits, stock
dividends, recapitalizations, combinations, subdivisions or other
similar events. In the event of a liquidation, dissolution or
winding up of the Company, each share of Series F
Preferred Stock
will be entitled to a per
share preferential payment equal to the par value. All shares of
the Company’s capital stock will be junior in rank to Series
F
Preferred Stock
with respect
to the preferences as to dividends, distributions and payments upon
the liquidation, dissolution and winding-up of the Company, except
for the Company’s Series D
Preferred Stock
and Series E
Preferred Stock
.
The
holders of Series F
Preferred
Stock
will be entitled to receive dividends if and when
declared by our Board of Directors. The Series F
Preferred Stock
shall participate on an
“as converted” basis, with all dividends declared on
the Company’s common stock. In addition, if we grant, issue
or sell any rights to purchase our securities pro rata to all our
record holders of our common stock, each holder will be entitled to
acquire such securities applicable to the granted purchase rights
as if the holder had held the number of shares of common stock
acquirable upon complete conversion of all Series F
Preferred Stock
then held.
We are
prohibited from effecting a conversion of the Series F
Preferred Stock
to the extent that, as a
result of such conversion, the holder would beneficially own more
than 4.99% of the number of shares of common stock outstanding
immediately after giving effect to the issuance of shares of common
stock upon conversion of the Series F
Preferred Stock
, which beneficial ownership
limitation may be increased by the holder up to, but not exceeding,
9.99%. Each holder is entitled to vote on all matters submitted to
stockholders of the Company, and shall have the number of votes
equal to the number of shares of common stock issuable upon
conversion of such holder’s Series F
Preferred Stock
, but not in excess of the
beneficial ownership limitations.
Series G Preferred Stock
As
of September 30, 2017, and December 31, 2016, there were 1,000,000
and no shares of our Series G Preferred Stock issued and
outstanding and convertible into 1,000,000 and no shares of our
common stock, respectively.
Pursuant
to a Series G Preferred Stock Certificate of Designations, on May
15, 2017, we designated 5,000,000 shares of our blank check
preferred stock as Series G Preferred Stock, par value of $0.01 per
share. The shares of Series G Preferred Stock are convertible into
shares of common stock based on a conversion calculation equal to
the stated value of the of such Series G Preferred Stock, plus all
accrued and unpaid dividends, if any, on such Series G Preferred
Stock, as of such date of determination, divided by the conversion
price. The stated value of each share of Series G Preferred Stock
is $1.75 and the initial conversion price is $1.75 per share, each
subject to adjustment for stock splits, stock dividends,
recapitalizations, combinations, subdivisions or other similar
events. The holder of a majority of the Series G
Preferred Stock shall have the right to nominate a candidate for
the Board, such right to expire on December 31, 2017.
In the event of a liquidation, dissolution or
winding up of the Company, each share of Series G Preferred Stock
will be entitled to a per share preferential payment equal to the
par value.
All shares our
capital stock will be junior in rank to Series G Preferred Stock
with respect to the preferences as to dividends, distributions and
payments upon the liquidation, dissolution and winding-up of the
Company, except for the Company’s Series D Preferred Stock,
Series E Preferred Stock and Series F Preferred
Stock.
The holders of
Series G Preferred Stock will be entitled to receive dividends if
and when declared by our Board of Directors. The Series G Preferred
Stock shall participate on an “as converted” basis,
with all dividends declared on our common stock. In
addition, if we grant, issue or sell any rights to purchase our
securities pro rata to all our record holders of our common stock,
each holder will be entitled to acquire such securities applicable
to the granted purchase rights as if the holder had held the number
of shares of common stock acquirable upon complete conversion of
all Series G Preferred Stock then held.
We
are prohibited from effecting a conversion of the Series G
Preferred Stock to the extent that, as a result of such conversion,
the holder would beneficially own more than 4.99% of the number of
shares of common stock outstanding immediately after giving effect
to the issuance of shares of common stock upon conversion of the
Series G Preferred Stock, which beneficial ownership limitation may
be increased by the holder up to, but not exceeding, 9.99%. Each
holder is entitled to vote on all matters submitted to stockholders
of the Company, and shall have the number of votes equal to the
number of shares of common stock issuable upon conversion of such
holder’s Series G Preferred Stock, but not in excess of the
beneficial ownership limitations.
Series H Preferred Stock
As
of September 30, 2017, and December 31, 2016, there were 850 and no
shares of our Series H Preferred Stock issued and outstanding and
convertible into 485,714 and no shares of our common stock,
respectively.
Pursuant
to a Series H Preferred Stock Certificate of Designations, on May
3, 2017, we designated 2,000 shares of our blank check preferred
stock as Series H Preferred Stock, par value of $0.01 per
share.
The
shares of Series H Preferred Stock are convertible into shares of
common stock based on a conversion calculation equal to the stated
value of the Series H Preferred Stock, plus the base amount, if
any, on such Series H Preferred Stock, as of such date of
determination, divided by the conversion price. The stated value of
each share of Series H Preferred Stock is $1,000 and the initial
conversion price is $1.75 per share, each subject to adjustment for
stock splits, stock dividends, recapitalizations, combinations,
subdivisions or other similar events.
In the event of a liquidation, dissolution or
winding up of the Company, each share of Series H Preferred Stock
will be entitled to a per share preferential payment equal to the
base amount.
All shares of our
capital stock will be junior in rank to Series H Preferred Stock
with respect to the preferences as to dividends, distributions and
payments upon the liquidation, dissolution and winding-up of the
Company other than Series A through G Preferred
Stock.
The holders of
Series H Preferred Stock will be entitled to receive dividends if
and when declared by our Board of Directors. The Series H Preferred
Stock shall participate on an “as converted” basis,
with all dividends declared on our common stock. In
addition, if we grant, issue or sell any rights to purchase our
securities pro rata to all our record holders of our common stock,
each holder will be entitled to acquire such securities applicable
to the granted purchase rights as if the holder had held the number
of shares of common stock acquirable upon complete conversion of
all Series H Preferred Stock then held.
We
are prohibited from effecting a conversion of the Series H
Preferred Stock to the extent that, as a result of such conversion,
the holder would beneficially own more than 4.99% of the number of
shares of common stock outstanding immediately after giving effect
to the issuance of shares of common stock upon conversion of the
Series H Preferred Stock, which beneficial ownership limitation may
be increased by the holder up to, but not exceeding, 9.99%. Each
holder is entitled to vote on all matters submitted to stockholders
of the Company, and shall have the number of votes equal to the
number of shares of common stock issuable upon conversion of such
holder’s Series H Preferred Stock, but not in excess of the
beneficial ownership limitations.
Series I Preferred Stock
As
of September 30, 2017, and December 31, 2016, there were 1,048,460
and no shares of our Series I convertible preferred stock (the
“Series I Preferred Stock”) issued and outstanding and
convertible into 1,048,460 and no shares of our common stock,
respectively.
Pursuant
to a Series I Preferred Stock Certificate of Designations, on May
26, 2017, we designated 1,968,664 shares of our blank check
preferred stock as Series I Preferred Stock, par value of $0.01 per
share.
Each
share of Series I Preferred Stock has a stated value of $0.01 per
share. In the event of a liquidation, dissolution or winding
up of the Company, each share of Series I Preferred Stock will be
entitled to a per share preferential payment equal to the stated
value. Each share of Series I Preferred Stock is convertible into
one share of common stock. The conversion ratio is subject to
adjustment in the event of stock splits, stock dividends,
combination of shares and similar recapitalization
transactions. The Company is prohibited from effecting the
conversion of the Series I Preferred Stock to the extent that, as a
result of such conversion, the holder beneficially owns more than
4.99%, in the aggregate, of the issued and outstanding shares of
the Company’s Common Stock calculated immediately after
giving effect to the issuance of shares of Common Stock upon the
conversion of the Series I Preferred Stock (the “Beneficial
Ownership Limitation”), which beneficial ownership limitation
may be increased by the holder up to, but not exceeding,
9.99%. Each share of Series I Preferred Stock entitles the
holder to vote on all matters voted on by holders of Common Stock.
With respect to any such vote, each share of Series I Preferred
Stock entitles the holder to cast such number of votes equal to the
number of shares of Common Stock such shares of Series I Preferred
Stock are convertible into at such time, but not in excess of the
Beneficial Ownership Limitation.
Series J Preferred Stock
As
of September 30, 2017, and December 31, 2016, there were 818.18 and
no shares of our Series J Preferred Stock issued and outstanding
and convertible into 818,180 and no shares of our common stock,
respectively.
On
August 14, 2017, the Company filed a Certificate of Designations,
Preferences and Rights of the 0% Series J Convertible Preferred
Stock with the Delaware Secretary of State, designating 3,400
shares of preferred stock as Series J Preferred Stock.
The
shares of Series J Preferred Stock are convertible into shares of
common stock based on a conversion calculation equal to the stated
value of the Series J Preferred Stock, plus all accrued and unpaid
dividends, if any, on such Series J Preferred Stock, as of such
date of determination, divided by the conversion price. The stated
value of each share of Series J Preferred Stock is $550 and the
initial conversion price is $0.55 per share, each subject to
adjustment for stock splits, stock dividends, recapitalizations,
combinations, subdivisions or other similar events.
For
so long as the holder has Series J Preferred Stock, if the Company
sells, or is deemed to have sold, common stock, or common
equivalent shares, for consideration per share less than the
conversion price in effect immediately prior to the issuance (the
“Lower Issuance Price”), then the conversion price in
effect immediately prior to such issuance will be adjusted to the
Lower Issuance Price, provided however the Lower Issuance Price
shall not be less than $0.10.
The
holders of Series J Preferred Stock will be entitled to receive
dividends if and when declared by our board of directors. The
Series J Preferred Stock shall participate on an “as
converted” basis, with all dividends declared on our common
stock. In addition, if we grant, issue or sell any
rights to purchase our securities pro rata to all our record
holders of our common stock, each holder will be entitled to
acquire such securities applicable to the granted purchase rights
as if the holder had held the number of shares of common stock
acquirable upon complete conversion of all Series J Preferred Stock
then held.
We
are prohibited from effecting a conversion of the Series J
Preferred Stock to the extent that, as a result of such conversion,
the holder would beneficially own more than 4.99% of the number of
shares of common stock outstanding immediately after giving effect
to the issuance of shares of common stock upon conversion of the
Series J Preferred Stock, which beneficial ownership limitation may
be increased by the holder up to, but not exceeding, 9.99%. Each
holder is entitled to vote on all matters submitted to stockholders
of the Company, and shall have the number of votes equal to the
number of shares of common stock issuable upon conversion of such
holder’s Series J Preferred Stock, substituting the
consolidated closing bid price of the common stock on August 10,
2017 for the then-applicable conversion price, and not in
excess of the beneficial ownership limitations.
The
Company shall not be obligated to issue any shares of common stock
upon conversion of the Series J Preferred Stock, and the holder of
any shares of Series J Preferred Stock shall not have the right to
receive upon conversion of any shares of the Series J Preferred
Stock if the issuance of such shares of common stock would exceed
the aggregate number of shares of common stock which the Company
may issue upon conversion of the Series J Preferred Stock without
breaching the Company's obligations under the rules or regulations
of the Nasdaq Capital Market, which aggregate number equals 19.99%
of the number of shares outstanding on the closing date, except
that such limitation shall not apply in the event that the Company
obtains the approval of its stockholders as required by the
applicable rules of the Nasdaq Capital Market for issuances of
common stock in excess of such amount. Such approval was obtained
in October 2017.
Holders
of Series J Preferred Stock will be entitled to a preferential
payment of cash per share equal to the greater of 125% of the base
amount on the date of payment or the amount per share had the
holders converted such preferred shares immediately prior to the
date of payment upon the liquidation, dissolution or winding up of
the affairs of the Company, or a consolidation or merger of the
Company with or into any other corporation or corporations, or a
sale of all or substantially all of the assets of the Company, or
the effectuation by the Company of a transaction or series of
transactions in which more than 50% of the voting shares of the
Company is disposed of or conveyed.
Series K Preferred Stock
As
of September 30, 2017, and December 31, 2016, there were 65,000 and
no shares of our Series K convertible preferred stock
(“Series K Preferred Stock”) issued and outstanding and
convertible into 6,500,000 and no shares of our common stock,
respectively.
On
August 14, 2017, the Company filed a Certificate of Designations,
Preferences and Rights of the Series K Convertible Preferred Stock
with the Delaware Secretary of State, designating 65,000 shares of
preferred stock as Series K Preferred Stock.
The
shares of Series K Preferred Stock are convertible into shares of
common stock based on a conversion calculation equal to the stated
value of the Series K Preferred Stock divided by the conversion
price. The stated value of each share of Series K Preferred Stock
is $0.01 and the initial conversion price is $0.0001 per share,
each subject to adjustment for stock splits, stock dividends,
recapitalizations, combinations, subdivisions or other similar
events.
The
holders of Series K Preferred Stock will be entitled to receive
dividends if and when declared by our board of directors. The
Series K Preferred Stock shall participate on an “as
converted” basis, with all dividends declared on our common
stock. In addition, if we grant, issue or sell any
rights to purchase our securities pro rata to all our record
holders of our common stock, each holder will be entitled to
acquire such securities applicable to the granted purchase rights
as if the holder had held the number of shares of common stock
acquirable upon complete conversion of all Series K Preferred Stock
then held.
We
are prohibited from effecting any conversion of the Series K
Preferred Stock if the Company has not obtained shareholder
approval for the full conversion of the Series J Preferred Stock
and Series K Preferred Stock in accordance with the rules of the
NASDAQ Capital Market or to the extent that, as a result of such
conversion, the holder would beneficially own more than 4.99% of
the number of shares of common stock outstanding immediately after
giving effect to the issuance of shares of common stock upon
conversion of the Series K Preferred Stock, which beneficial
ownership limitation may be increased by the holder up to, but not
exceeding, 9.99%. Each holder is entitled to vote on all matters
submitted to stockholders of the Company, and shall have the number
of votes equal to the number of shares of common stock issuable
upon conversion of such holder’s Series K Preferred
Stock, substituting the consolidated closing bid price of the
common stock on August 10, 2017 for the then-applicable conversion
price, and not in excess of the beneficial ownership limitations.
Such approval was obtained in October 2017.
Warrants Issued in Connection with April 2015 Private
Placement
As
of September 30, 2017, there were warrants outstanding to purchase
481,036 shares at $11.10 per share and 324,324 shares at $2.00 per
share; and as of December 31, 2016, there were warrants outstanding
to purchase 805,361 shares of common stock at $11.10 per share. All
of the warrants at $11.10 and $2.00 per share that were outstanding
on September 30, 2017, expired on October 10, 2017.
The warrants priced at $11.10 and $2.00 per share
were remaining from our private offering in March and April 2015
(the “April 2015 Private Placement”) in which we sold
$8,546,348 worth of units (the “Units”), net of
$668,150 in issuance costs, of which $2,500,000 of the Units
consisted of Series E Preferred Stock and the balance consisted of
1,660,271 shares of common stock, together with warrants to all
investors to purchase 1,055,361 shares of common stock at $11.10
per share. Each Unit was sold at a purchase price of
$5.55 per Unit. OPKO Health, Inc., the lead investor in the April
2015 Private Placement, purchased $2,500,000 worth of Units
consisting of all of the shares of the Series E Preferred
Stock.
In
connection with the May 2017 Public Offering, the Company had
agreed to amend the terms of a portion of the outstanding warrants,
or warrants to purchase 324,324 shares of common stock that had an
exercise price of $11.10 per share, such that the amended warrants
shall have an exercise price of $2.00 per share and no cashless
exercise feature, for those investors who made a certain minimum
required investment to qualify for repricing. After the repricing,
the stock price never reached above $2.00 in order for the warrants
to be exercised prior to the expiration date of October 10,
2017.
Warrants Issued in Connection with October 2015 Public
Offering
As
of September 30, 2017, and December 31, 2016, there were warrants
outstanding to purchase 168,919 shares of common stock at $9.77 per
share in connection with a public offering on October 5,
2015.
The
warrants at $9.77 per share were issued in connection with our
public offering on October 5, 2015, which consisted of 337,838
shares of common stock and warrants to purchase 168,919 shares of
common stock, at an offering price of $8.14 per share. For
every two shares of common stock sold, the Company issued one
warrant to purchase one share of common stock. We received
$2,750,000 in gross proceeds, before underwriting discounts and
commissions and offering expenses totaling approximately $586,608.
The shares and warrants were separately issued and sold in equal
proportions. The warrants are immediately exercisable, expire
September 30, 2018, and have an exercise price of $9.77 per
share. The warrants are not listed on any securities
exchange or other trading market.
August 2016 Public Offering
As
of September 30, 2017, there were warrants outstanding to purchase
436,332 shares at $5.55 per share and 436,332 shares at $6.29 per
share. As of December 31, 2016, there were warrants outstanding to
purchase 1,962,319 shares at $5.55 per share and 1,962,319 shares
at $6.29 per share.
The
warrants at $5.55 per share and $6.29 per share were issued on
August 22, 2016, in connection with a public offering of 1,297,038
shares of common stock and 665,281 shares of Series F preferred
stock, and warrants to purchase 1,962,319 shares of common stock at
$5.55 per share and warrants to purchase 1,962,319 shares of common
stock at $6.29 per share, at an offering price of $4.81 per share.
For every one share of common stock or Series F preferred
stock sold, we issued one warrant to purchase one share of common
stock at $5.55 per share and one warrant to purchase one share of
common stock at $6.29 per share. We received $9,438,753 in
gross proceeds, before underwriting discounts and commissions and
offering expenses totaling $871,305. The gross proceeds include the
underwriter’s over-allotment option, which it exercised on
the closing date.
May 2017 Private Placement
On May
3, 2017, we entered into separate subscription agreements with
accredited investors pursuant to which we sold an aggregate of
$850,000, or 850 shares, of
Series H Preferred
Stock,
at a stated value of $1,000 per share, before
offering costs of $29,429, in the May 2017 Private
Placement
.
The shares of Series H Preferred Stock are
convertible into shares of common stock based on a conversion
calculation equal to the stated value of the Series H Preferred
Stock, plus the base amount, if any, on such Series H Preferred
Stock, as of such date of determination, divided by the conversion
price. The initial conversion price is $1.75 per share, each
subject to adjustment for stock splits, stock dividends,
recapitalizations, combinations, subdivisions or other similar
events.
In the event of a liquidation, dissolution or
winding up of the Company, each share of Series H Preferred Stock
will be entitled to a per share preferential payment equal to the
base amount.
All shares of our
capital stock will be junior in rank to Series H Preferred Stock
with respect to the preferences as to dividends, distributions and
payments upon the liquidation, dissolution and winding-up of the
Company other than Series A through G Preferred Stock.
The holders of Series H Preferred
Stock will be entitled to receive dividends if and when declared by
our Board of Directors. The Series H Preferred Stock shall
participate on an “as converted” basis, with all
dividends declared on our common stock. In addition, if
we grant, issue or sell any rights to purchase our securities pro
rata to all our record holders of our common stock, each holder
will be entitled to acquire such securities applicable to the
granted purchase rights as if the holder had held the number of
shares of common stock acquirable upon complete conversion of all
Series H Preferred Stock then held.
We
are prohibited from effecting a conversion of the Series H
Preferred Stock to the extent that, as a result of such conversion,
the holder would beneficially own more than 4.99% of the number of
shares of common stock outstanding immediately after giving effect
to the issuance of shares of common stock upon conversion of the
Series H Preferred Stock, which beneficial ownership limitation may
be increased by the holder up to, but not exceeding, 9.99%. Each
holder is entitled to vote on all matters submitted to stockholders
of the Company, and shall have the number of votes equal to the
number of shares of common stock issuable upon conversion of such
holder’s Series H Preferred Stock, but not in excess of the
beneficial ownership limitations.
The
shares were offered and sold solely to “accredited
investors” in reliance on the exemption from registration
afforded by Rule 506 of Regulation D and Section 4(a)(2) of the
Securities Act of 1933, as amended (the “Securities
Act”). On the closing date, we entered into registration
rights agreements with each of the investors, pursuant to which we
agreed to undertake to file a registration statement to register
the resale of the shares within thirty (30) days following the
closing date, to cause such registration statement to be declared
effective by the Securities and Exchange Commission
(“SEC”) within sixty (60) days of the closing date and
to maintain the effectiveness of the registration statement until
all of such shares have been sold or are otherwise able to be sold
pursuant to Rule 144 under the Securities Act, without any
restrictions.
On May
10, 2017, we entered into exchange agreements with each of the
holders of our Series H Preferred Stock representing an aggregate
of $850,000 of our Series H Preferred Stock with such exchange to
be effective on the closing of our May 2017 Public Offering. Prior
to the closing of the May 2017 Public Offering, we and the holders
rescinded and cancelled the exchange agreements and they have no
force and effect and no transaction contemplated by the Exchange
Agreements was consummated.
May 2017 Public Offering
On
May 19, 2017, we closed a public offering of 1,342,858 shares of
common stock and 1,000,000 shares of newly designated 0% Series G
Convertible Preferred Stock, or Series G Preferred Stock, at $1.75
per share of common stock and Series G Preferred Stock, or the May
2017 Public Offering. The Series G Preferred Stock is
initially convertible into 1,000,000 shares of common stock,
subject to adjustment for stock splits, stock dividends,
recapitalizations, combinations, subdivisions or other similar
events and was purchased by certain existing investors of the
Company who, as a result of their purchases of common stock, would
hold in excess of 4.99% of our issued and outstanding common stock.
We received $4,100,000 in gross proceeds, before estimated
underwriting discounts, commissions and offering expenses of
$452,609.
The May 2017 Public Offering was consummated
pursuant to an underwriting agreement that we signed on May 15,
2017, with Laidlaw & Company (UK) Ltd. (“Laidlaw”),
as
underwriter (the
“Underwriter”) pursuant to which, among other things,
we agreed to issue and sell to the Underwriter, and the Underwriter
agreed to purchase from us, in an underwritten public offering, an
aggregate of 1,342,858 shares of common stock and 1,000,000 shares
of Series G Preferred Stock.
We granted the Underwriters an
option for a period of up to 45 days from the date of our
prospectus to purchase up to an aggregate of 201,428 additional
shares of our common stock at the public offering price of $1.75
per share, less the underwriting discount, solely to cover
overallotments, which was not exercised.
In connection with the May 2017 Public Offering,
we agreed with the lead investor of the August 2016 Public Offering
(the “August Lead Investor”) pursuant to a Letter
Agreement, dated May 18, 2017, to issue the Inducement Shares to
the investors in the August 2016 Public Offering (the “August
2016 Investors”), as incentive shares to those investors to
make a minimum required investment in this public offering of at
least 50% of their investment in the $9,400,000 August 2016 Public
Offering, or the Minimum Required Investment, and who still hold
100% of the shares of common stock previously acquired. Such August
2016 Investors shall be entitled to receive their pro rata share of
2,900,000 shares, after the Lead Investor in this offering receives
the first 10%. For the August 2016 Investors who purchased Series F
Preferred Stock and made the Minimum Required Investment and who
still held 100% of the shares of Series F Preferred Stock at the
closing of the May 2017 Public Offering, they may, instead of
receiving a pro rata share of the 2,610,000 shares remaining after
the August Lead Investor receives the first 290,000 shares, elect
to receive their Inducement Shares in the form of a new Series I
Preferred Stock to be created with similar rights as currently
exist in the Series G Preferred Stock.
The stated value of
each share of Series I Preferred Stock will be $0.01 and the
conversion rate shall be one (1) share of common stock for one (1)
share of Series I Preferred Stock, each subject to adjustment for
stock splits, stock dividends, recapitalizations, combinations,
subdivisions or other similar events. In the event of a
liquidation, dissolution or winding up of the Company, each share
of Series I Preferred Stock will be entitled to a per share
preferential payment equal to the par value, or $0.01 per share.
All shares of the Company’s capital stock will be junior in
rank to the Series I Preferred Stock at the time of creation, with
respect to the preferences as to dividends, distributions and
payments upon the liquidation, dissolution and winding-up of the
Company, except for the Company’s Series D Preferred Stock,
Series E Preferred Stock, Series F Preferred Stock, Series G
Preferred Stock, and Series H Preferred Stock.
Also in
connection with the May 2017 Public Offering, for these August 2016
Investors to receive the Inducement Shares, each of them must also
agree to the cancellation of the warrants issued to them in the
August 2016 Public Offering. Investors in the Company’s 2015
private offering that invest at least 25% of their original
investment from such private financing in the May 2017 Public
Offering and still hold 100% of their common stock or Series E
preferred stock from the private 2015 financing also must agree to
amend the terms of their outstanding warrants that currently have
an exercise price of $11.10 per share, such that the amended
warrants shall have an exercise price of $2.00 per share and no
cashless exercise feature (as amended, the “Inducement
Amended Warrants”). The Company agreed with the Lead Investor
to register for resale on a registration statement all the
Inducement Shares and shares of common stock underlying the
Inducement Amended Warrants, and to issue the Inducement Shares to
each investor meeting the investment and ownership terms described
above.
Based
on the closing of the May 2017 Public Offering, and election of
certain prior investors who made the Minimum Required Investment
and elected to take Series I Preferred Stock upon its creation,
931,336 Inducement Shares of common stock were issued and 1,968,664
Inducement Shares were issued in the form of Series I Preferred
Stock that was created following the closing of the May 2017 Public
Offering and issued following verification with each investors that
the terms of the Inducement Shares have been met. The Company
recorded a deemed dividend of $5,220,000 in June 2017 in connection
with issuing the Inducement Shares.
Additionally,
in connection with participation by the April 2015 investors in the
May 2017 Public Offering, the Company revised the exercise price
for 90,099 warrants from $11.10 to $2.00 per warrant share and
recorded a deemed dividend of $19,413 also in June 2017. In August
2017, the Company revised the exercise price for an additional
225,225 warrants from $11.10 to $2.00 per warrant share for the
July 2017 Private Placement. The impact of the repricing of the
additional warrants was immaterial as the stock price on the date
of repricing was $0.70, with a volatility index in the neighborhood
of 85%, and were expiring in 69 days. The warrants expired on
October 10, 2017, unexercised.
May 2017 Letter Agreement
As
a condition to the Lead Investor leading an investment in the May
2017 Public Offering, including the requirement that we offer
incentive shares to August 2016 Investors who participate in making
the Minimum Required Investment in the May 2017 Public Offering, we
agreed to the following:
Board Nomination
|
|
The
Company shall nominate one candidate to the Board of Directors of
the Company acceptable to the holder of a majority of the Series G
Preferred Stock by December 31, 2017, and two current Board members
will resign.
|
|
|
|
Executive Hire
|
|
The Company shall hire a new C-level executive in a leadership role
by July 15, 2017.
|
|
|
|
Board Compensation
|
|
T
he
Company is obligated to issue an aggregate of 1,050,000 options to
certain employees and members of the Board, at a price not less
than $2.00 per share, and 50,000 options to each other Board member
at the current market price in connection with this offering. The
options shall be issued pursuant to the Company’s option plan
and are subject to the requisite approvals and subject to
availability under the plan. To the extent we need to increase the
number of shares available under such plan, we will need the
approval of our Board and Stockholders. All Board fees will
be waived for 2017.
|
|
|
|
Funds Held in Escrow
|
|
$500,000 of the funds from this offering will be held in escrow and
released to one or more investor relations services acceptable to
the Company following the closing of this offering.
|
Additionally we
granted the
Lead Investor
in
the May 2017 Public Offering certain rights to approve future (i)
issuances of our securities, (ii) equity or debt financings and
(iii) sales of any development product assets currently held by us,
subject to certain exceptions, if such securities are sold at price
below $2.50 per share and for as long as the
Lead Investor
in the offering holds 50% or
more of the shares of Series G Preferred Stock purchased by the
Lead Investor
in this offering
(the “May 2017 Consent Right”). All other prior consent
rights of the
Lead Investor
have been superseded by the May 2017 Consent Right.
For the
period from the May 2017 Public Offering to September 30, 2017, the
Company incurred approximately $223,000 in expenses related to
outside investor relations services, and the Company has engaged
additional services for the remainder of 2017 that will complete
our obligation for spending on investor relations. The Lead
Investor elected not to hold the funds in escrow. Further, two
Board members have resigned, which achieves one of the conditions
of the Lead Investor.
July 2017 Private Placement
On July
27, 2017, we entered into a subscription agreement with an
accredited investor pursuant to which we agreed to sell 152,143
restricted shares of common stock for $125,000 (the “July
2017 Private Placement”). As part of the transaction, the
Company agreed to reprice the investor’s warrant to purchase
225,225 shares of common stock from $11.10 to $2.00 per warrant
share and remove the cashless exercise feature. The transaction
closed on August 2, 2017. The impact of repricing the
warrants to $2.00 a share, which took effect on August 2, 2017, was
immaterial, as the stock price on the date of the closing of the
transaction was $0.70 and the warrants at $2.00 a share expired on
October 10, 2017, unexercised.
August 2017 Registered Direct Offering
On August 11, 2017, we entered into securities
purchase agreements to sell 2,386.36 shares of Series J Preferred
Stock with a stated value of $550 per share (the “August 2017
Offering”). The Series J Preferred Stock is convertible
into common stock at $0.55 per share, subject to adjustment for
stock splits, stock dividends, recapitalizations, combinations,
subdivisions or other similar events and was purchased by certain
existing investors of the Company (the “Prior
Investors”). The total amount of the securities purchase
agreements amounted to approximately $1,312,500, before estimated
expenses of
$123,083
. The
Certificate of Designation for the Series J Preferred Stock
includes a 4.99% beneficial ownership conversion blocker, a 19.99%
blocker provision to comply with the NASDAQ Capital Market rules
until stockholders have approved any or all shares of common stock
issuable upon conversion of the Series J Preferred Stock, which was
approved in a special meeting of stockholders on October 2, 2017
(the “October 2017 Special Meeting”), and a 125%
liquidation preference. All shares of the Company’s capital
stock will be junior in rank to the Series J Preferred Stock at the
time of creation, with respect to the preferences as to dividends,
distributions and payments upon the liquidation, dissolution and
winding-up of the Company, except for the Company’s Series D
Preferred Stock, Series E Preferred Stock, Series F Preferred
Stock, Series G Preferred Stock, Series H Preferred Stock, and
Series I Preferred Stock.
In
connection with the August 2017 Offering, we agreed with the Lead
Investor pursuant to a Letter Agreement, dated August 9, 2017 (the
“August 2017 Letter Agreement”), to issue incentive
shares (the “Incentive Shares”) to Prior Investors as
an incentive to invest in the August 2017 Offering. Such Prior
Investors received a portion of 65,000 shares in the form of a new
Series K Preferred Stock, allocated by the Lead Investor, and
convertible into 6,500,000 shares of common stock, subject to
stockholder approval, which was also approved in the October 2017
Special Meeting. The stated value of each share of Series K
Preferred Stock is $0.01 and the conversion rate is the stated
value of $0.01 divided by .0001, or one hundred (100) shares of
common stock upon conversion of one (1) share of Series K Preferred
Stock, each subject to adjustment for stock splits, stock
dividends, recapitalizations, combinations, subdivisions or other
similar event, and have a 4.99% beneficial ownership conversion
blocker. In the event of a liquidation, dissolution or winding up
of the Company, each share of Series K Preferred Stock will be
entitled to a per share preferential payment equal to the par
value, or $0.01 per share. All shares of the Company’s
capital stock will be junior in rank to the Series K Preferred
Stock at the time of creation, with respect to the preferences as
to dividends, distributions and payments upon the liquidation,
dissolution and winding-up of the Company, except for the
Company’s Series D Preferred Stock, Series E Preferred Stock,
Series F Preferred Stock, Series G Preferred Stock, Series H
Preferred Stock, Series I Preferred Stock and Series J Preferred
Stock. The Company recorded a deemed dividend of $3,120,000 in
August 2017 in connection with issuing the Incentive
Shares.
The August 2017 Letter Agreement also specified the
following:
●
That the Company files a
proxy statement for a special meeting of stockholders within 10
days of closing the
August 2017 Offering. Proposals shall
include (i) an amendment to the Company’s Certificate of
Incorporation to effect a reverse stock split of its issued and
outstanding common stock by a ratio of not less than one-for-two
and not more than one-for-twenty at any time prior to one year from
the date of the special meeting, with the exact ratio to be set at
a whole number within this range as determined by the Board of
Directors, (ii) the issuance of securities in one or more
non-public offerings where the maximum discount at which securities
will be offered will be equivalent to a discount of 30% below the
market price of the common stock, as required by and in accordance
with Nasdaq Marketplace Rule 5635(d), (iii) the issuance of
securities in one or more non-public offerings where the maximum
discount at which securities will be offered will be equivalent to
a discount of 20% below the market price of the Common Stock, as
required by and in accordance with Nasdaq Marketplace Rule 5635(d),
(iv) the issuance of the Series J Conversion Shares and (v) the
issuance of the Inducement Shares.
●
Lead
Investor will commit to investing an additional $1,000,000 in a new
private or public offering of up to $8,000,000 (the
“$8,000,000 Financing”). The $8,000,000 Financing shall
sign and close following shareholder approval of each of the
proposals identified in the August 2017 Letter
Agreement.
●
That
the
employment
terms of all management be reduced to two years from three years
and that management defer portions of their salary for the
remainder of the year, which shall be paid upon the earlier of
completion of the $8,000,000 Financing or a business transaction
that represents, or transactions in the aggregate that represent,
in excess of $10,000,000.
Effective with the Company’s pay period
ending August 10, 2017, and without changing their employment
agreements dated July 1, 2017, several members of management
volunteered to defer receiving portions of their salaries for the
remainder of 2017. The voluntary deferral of cash payments is
intended to help with the Company’s cash flow for the
remainder of the year, with voluntary reductions by the management
team committed to remain in effect until the earlier of completing
a successful financing of at least $8.0 million, a business
transaction that represents, or business transactions in the
aggregate that represent, an amount of $10.0 million or greater, or
the end of the year, whichever occurs first. The employment
agreements with the Company remain unchanged, except that the
executives have volunteered to reduce the terms of their employment
agreements to two years from three in connection with
the August 11, 2017 registered direct
offering and Letter Agreement with the Lead
Investor.
On
August 14, 2017, the Chairman of the Compensation Committee, acting
on behalf of the Board of Directors sent a letter to each executive
of the Company stating that the Board deems it in the best
interests of the Company to request that the executive voluntarily
defer a portion of his regular salary to help with cash flow of the
Company. On August 16 and August 21, 2017, Paul Resnick, M.D. and
Paul Maffuid, Ph.D., respectively gave notice of good reason (as
that term is defined in their employment agreements, or “Good
Reason”) for termination of their employment. The Company had
30 days from the notification date under each of their employment
agreements to cure their concerns. In oral discussions with each
executive the President and Chief Executive Officer communicated on
behalf of the Compensation Committee the Company’s intention
to provide additional equity compensation in return for salary
deferrals. Given the perceived uncertainty about the
Company’s plans at the time for addressing the concerns of
Dr. Resnick and Dr. Maffuid, and that nothing in writing had been
provided as possible equity compensation, they each submitted their
notices to the Company of good reason for termination. Further,
they each expressed in oral conversations that they wanted to
remain employed by the Company. The Company cured each
executive’s concerns within the 30-day cure period, by
reinstating the deferred salary for Dr. Resnick in one instance,
and in granting restricted stock to all executives with vesting
over time, as disclosed in the filings of Form 4s following the
approvals. Both executives rescinded their notices of good reason
for termination on September 7, 2017, and all executives’
employment agreements remain unchanged as the salary deferrals
remain to be voluntary.
In
order to meet the Nasdaq Capital Market rules in the August 2017
Offering, we were not obligated to issue any shares of common stock
upon conversion of the Series J Preferred Stock which would cause
the Company to breach our obligations under the rules and
regulations of the Nasdaq Capital Market, which limit the aggregate
number of shares issued at a discount to market at 19.99% of the
number of shares outstanding on the closing date of the August 2017
Offering, except that such limitation shall not apply in the event
that we obtain the approval of our stockholders as required by the
applicable rules of the Nasdaq Capital Market for issuances of
common stock in excess of such amount. Similarly, none of the
Series K Preferred Stock may be converted into common stock until
we obtain the approval of our stockholders. On October 2, 2017, in
a special meeting of stockholders, we obtained approval to issue
shares underlying all of the Series J Preferred Stock and the
Series K Preferred Stock.
September 2017 Registered Direct Offerings
On
September 11, 2017,
we
entered into an agreement to sell 4.0 million shares of common
stock at $0.50 a share for gross proceeds of approximately
$2.0 million, before estimated expenses of $147,639. The
shares were offered and sold to certain accredited investors in a
registered direct offering. Laidlaw acted as placement agent for
the offering.
On
September 22, 2017, we entered into a subscription agreement with
select accredited investors relating to the Company’s
registered direct offering, issuance and sale of 2,016,129 shares
of the Company’s common stock, $0.01 par value per share. The
purchase price per share was $0.62. The total amount of the
subscription agreements amounted to $1,250,000, before estimated
expenses of $35,000.
Consultant Grants
On
January 13, 2016, the Board of Directors approved the issuance of
13,514 shares of restricted stock with immediate vesting valued at
$64,000 to a consultant for advisory services to the
Company.
On
February 10, 2017, we entered into a consulting agreement with MDM
Worldwide, pursuant to which MDM Worldwide began providing investor
relations services to the Company in consideration for an immediate
grant of 20,000 shares of the Company’s common stock and a
monthly cash retainer of $10,000 a month for ongoing services for a
period of one year. As the shares granted were fully vested upon
grant and the Company has no legal recourse to recover the shares
in the event of nonperformance, the Company recognized the grant
date fair value of the 20,000 shares, or $56,600, as investor
relations expense upon grant during the first quarter of
2017.
On
March 7, 2017, we entered into a consulting agreement with Jenene
Thomas Communications, pursuant to which Jenene Thomas
Communications began providing investor relations services to the
Company on April 1, 2017. In consideration for the services, we
began paying a monthly cash retainer of $12,500. Additionally, we
issued 20,000 restricted shares of common stock on April 1, 2017,
to be vested at 5,000 per quarter over the four quarters of
services under the agreement beginning April 1, 2017. The shares
granted vest over a one-year period over which the services are
performed and, as such, will be amortized over the same period
beginning in April 1, 2017. During the three and nine months ended
September 30, 2017, we have recognized $3,250 and $10,200,
respectively, in general and administrative expenses related to
this arrangement in common stock for services.
On
September 14, 2017, we issued 100,000 restricted shares of common
stock for legal services and 100,000 restricted shares of common
stock for due diligence services in connection with the September
11, 2017 registered direct offering.
6. Notes Payable
On
January 15, 2016, we entered into the Loan Agreement with Oxford
Finance, LLC pursuant to which we had the option to borrow
$10,000,000 in two equal tranches of $5,000,000
each. The first tranche of $5,000,000 was funded at
close on January 15, 2016 (the “Term A Loan”). The
option to fund the second tranche of $5,000,000 (the “Term B
Loan”) was upon the Company achieving positive interim data
on the Phase 1 HuMab-5B1 antibody trial in pancreatic cancer and
successfully uplisting to either the NASDAQ Capital Market or NYSE
MKT on or before September 30, 2016. The option for the
Term B Loan expired on September 30, 2016. The Company is not
pursuing completion of any additional debt financing with Oxford
Finance, LLC at the present time. The interest rate for the Term A
Loan is set on a monthly basis at the index rate plus 11.29%, where
the index rate is the greater of the 30-day LIBOR rate or
0.21%. Interest is due on the first day of each month,
in arrears, calculated based on a 360-day year. The loan
is interest only for first year after funding, and the principal
amount of the loan is amortized in equal principal payments, plus
period interest, over the next 36 months. A facility fee
of 1.0% or $100,000 was due at closing of the transaction, and was
earned and paid by the Company on January 15, 2016. The
Company is obligated to pay a $150,000 final payment upon
completion of the term of the loan, and this amount is being
accreted using the effective interest rate method over the term of
the loan. Each of the term loans can be prepaid subject to a
graduated prepayment fee, depending on the timing of the
prepayment.
Concurrent
with the closing of the transaction, the Company issued 225,226
common stock purchase warrants to Oxford Finance, LLC with an
exercise price of $5.55 per share. The warrants are
exercisable for five years and may be exercised on a cashless
basis, and expire on January 15, 2021. The Company recorded
$607,338 for the fair value of the warrants as a debt discount
within notes payable and an increase to additional paid-in capital
on the Company’s balance sheet. We used the
Black-Scholes-Merton valuation method to calculate the value of the
warrants. The debt discount is being amortized as interest expense
over the term of the loan using the effective interest
method.
We
granted Oxford Finance, LLC a perfected first priority lien on all
of the Company’s assets with a negative pledge on
intellectual property. The Company paid Oxford Finance, LLC a good
faith deposit of $50,000, which was applied towards the facility
fee at closing. The Company agreed to pay all costs,
fees and expenses incurred by Oxford Finance, LLC in the initiation
and administration of the facilities including the cost of loan
documentation.
At
the initial funding, the Company received net proceeds of
approximately $4,610,000 after fees and expenses. These fees and
expenses are being accounted for as a debt discount and classified
within notes payable on the Company’s condensed consolidated
balance sheet. The Company's transaction costs of approximately
$390,000 are presented in the condensed consolidated balance sheet
as a direct deduction from the carrying amount of the notes
payable, consistent with debt discounts. Debt discounts, issuance
costs and the final payment are being amortized or accreted as
interest expense over the term of the loan using the effective
interest method.
The
Loan Agreement also contains customary indemnification obligations
and customary events of default, including, among other things, our
failure to fulfill certain of the Company's obligations under the
Loan Agreement, the occurrence of a material adverse change, which
is defined as a material adverse change in the Company's business,
operations, or condition (financial or otherwise), a material
impairment of the prospect of repayment of any portion of the loan,
or a material impairment in the perfection or priority of the
Lenders’ lien in the collateral or in the value of such
collateral. In the event of default by the Company under the
Loan Agreement, the Lenders would be entitled to exercise their
remedies thereunder, including the right to accelerate payment of
the debt, upon which we may be required to repay all amounts then
outstanding under the Loan Agreement, which could harm the
Company's financial condition.
On
March 31, 2017, we and Oxford Finance, LLC signed the Amendment,
providing that the payment of principal on the January 2016 Term
Loan that otherwise would have been due on the Amortization Date
will be due and payable on May 1, 2017 along with any other payment
of principal due on May 1, 2017. We were obligated to pay a fully
earned and non-refundable amendment fee of $15,000 to the
Collateral Agent. On May 1, 2017, we paid the principal due on May
1, 2017, along with the $15,000 amendment fee.
The
Company was in compliance with all applicable covenants set forth
in the Loan Agreement as of September 30, 2017.
For
the three and nine months ended September 30, 2017, the Company
recorded interest expense related to the term loan of $138,642 and
$445,934, respectively. For the three and nine months ended
September 30, 2016, the Company recorded $266,057 and $729,350 in
interest expense related to the term loan, respectively. The annual
effective interest rate on the note payable, including the
amortization of the debt discounts and accretion of the final
payment, but excluding the warrant amortization, was approximately
12.3% and approximately 13.8% as of September 30, 2017 and 2016,
respectively.
In
July 2016, we entered into a premium insurance agreement with First
Insurance of California for the financing of our 2016-17 insurance
policy premiums in the amount of $183,584, payable in monthly
installments of $20,783 with an effective interest rate of 3.9%
which was completed in April 2017.
In
July 2017, we entered into another premium finance agreement with
First Insurance of California for the financing of our 2017-18
insurance policy premiums in the amount of $33,756, payable in nine
monthly installments of $3,855. The effective interest rate is
6.7%.
Future
principal payments under the Loan Agreement and the insurance notes
as of September 30, 2017, are as follows:
Years ending December 31:
|
|
2017 (remaining)
|
$
581,952
|
2018
|
1,666,667
|
2019
|
1,666,667
|
2020
|
138,889
|
Notes
payable, balance as of September 30, 2017
|
4,054,175
|
Unamortized
discount on notes payable
|
(403,453
)
|
Notes
payable, balance as of September 30, 2017
|
3,650,722
|
Current
portion of notes payable
|
(1,693,065
)
|
Non-current
portion of notes payable
|
$
1,957,657
|
7. Related Party Transactions
On
April 1, 2016, the Company entered into a two-year consulting
agreement with Jeffrey Ravetch, M.D., Ph.D., a Board member until
August 3, 2017, for work beginning January 1, 2016 through December
31, 2017, at a rate of $100,000 a year, in support of scientific
and technical advice on the discovery and development of technology
and products for the Company primarily related to monoclonal
antibodies, corporate development, and corporate partnering
efforts. In April 2016, the Company paid Dr. Ravetch
$100,000 for services to be performed in 2016, and will pay
quarterly thereafter beginning January 1, 2017. During the three
and nine months ended September 30, 2017, the Company recorded
$25,000 and $75,000, respectively, in consulting expenses, as part
of general and administration expenses, related to this agreement,
of which $25,000 is outstanding and included in other accrued
expenses on the balance sheet as of September 30,
2017.
On
November 3, 2016, the Company granted 17,500 stock options to
Jeffrey Ravetch, M.D., Ph.D., for his ongoing consulting services
to the Company. The option award vests over a three-year period.
During the three and nine months ended September 30, 2017, the
Company recognized $3,900 and $11,572 of stock-based compensation
expense, respectively, as part of general and administration
expenses, related to this option grant.
On May 19, 2017, the Company granted
each
director, other than J. David Hansen, Jeffrey Ravetch, a Board
member at the time, and Philip Livingston, 50,000 options at market
price, $1.80 on May 19, 2017, with immediate vesting for their
continuing service to the Company, in exchange for giving up their
Board fees for the remainder of the year.
J. David
Hansen and Jeffrey Ravetch were
each granted 500,000 options and Philip Livingston was granted
50,000 options each at $2.00 exercise price per share with
immediate vesting and no performance obligations. Options granted
to J. David Hansen, CEO and Philip Livingston were granted as a
condition of the May 2017 financing transaction. The 450,000
options granted to Dr. Ravetch in addition to the 50,000 options
granted to other non-employee members of the Company’s Board
of Directors were in recognition of the additional value provided
by Dr. Ravetch as a scientific expert. During the three and nine
months ended September 30, 2017, the Company recorded $0 and
$1,480,089 in stock-based compensation expense, respectively, in
general and administration expenses, related to these
grants.
8. Stock-based Activity
Amendment of Equity Incentive Plan
On
March 31, 2015, the Company approved a Second Amended and Restated
2014 Employee, Director and Consultant Equity Incentive Plan (the
“Plan”) to increase the number of shares reserved for
issuance under the Plan from 21,362 to 1,129,837 shares of common
stock. Additional changes to the Plan include:
●
An “evergreen” provision to reserve additional shares
for issuance under the Plan on an annual basis commencing on the
first day of fiscal 2016 and ending on the second day of fiscal
2024, such that the number of shares that may be issued under the
Plan shall be increased by an amount equal to the lesser of: (i)
1,081,081 or the equivalent of such number of shares after the
administrator, in its sole discretion, has interpreted the effect
of any stock split, stock dividend, combination, recapitalization
or similar transaction in accordance with the Plan; (ii) the number
of shares necessary such that the total shares reserved under the
Plan equals (x) 15% of the number of outstanding shares of common
stock on such date (assuming the conversion of all outstanding
shares of Preferred Stock (as defined in the Plan) and other
outstanding convertible securities and exercise of all outstanding
warrants to purchase common stock) plus (y) 30,946; and (iii) an
amount determined by the Board.
●
Provisions that no more than 405,406 shares may be granted to any
participant in any fiscal year.
●
Provisions to allow for performance based equity awards to be
issued by the Company in accordance with Section 162(m) of the
Internal Revenue Code.
On September 22,
2016, the Board of Directors ratified an automatic increase in the
number of shares reserved for issuance under the Plan, increasing
the total shares reserved from 1,129,837 to 1,208,307 shares of
common stock, under the annual evergreen provision for the Plan,
plus a fixed amount of 30,946
.
On January 1, 2017, the Board of Directors
ratified an automatic increase in the number of shares reserved for
issuance under the Plan, effective January 1, 2017, increasing the
total shares reserved from 1,208,307 to 2,159,352 shares of common
stock, under the annual evergreen provision for the Plan
,
plus a fixed amount of 30,946
.
On June 12, 2017, the Company’s stockholders at its annual
meeting approved a proposal to increase in the number of shares
reserved for issuance under the Plan, increasing the total shares
reserved under the Plan from 2,128,406 (including the fixed amount
of 30,946) to 4,128,406, and increasing the number of shares that
may be granted to any participant in any fiscal year to 900,000,
from 405,406.
On October 2, 2017, in a special meeting of stockholders, the
Company received approval of the Fifth Amended and Restated MabVax
Therapeutics Holdings, Inc. 2014 Employee, Director and Consultant
Equity Incentive Plan (the “Plan”), including an
increase in the shares of common stock reserved for issuance under
the Plan from 4,128,406 to 6,128,406 shares.
Stock-based
Compensation
We
measure stock-based compensation expense for equity-classified
awards, principally related to stock options and restricted stock
units, or RSUs, based on the estimated fair value of the award on
the date of grant. We recognize the value of the portion of the
award that we ultimately expect to vest as stock-based compensation
expense over the requisite service period in our condensed
consolidated statements of operations. Due to limited activity in
2017, 2016 and 2015, we assumed a forfeiture rate of
zero.
We
use the Black-Scholes model to estimate the fair value of stock
options granted. The expected term of stock options granted
represents the period of time that we expect them to be
outstanding. For the three and nine months ended September 30, 2017
and 2016, the following valuation assumptions were used (there were
no options granted for the three months ended September 30,
2017):
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|
|
|
|
|
Risk-free interest
rate
|
-
|
0.87
%
|
1.5 to 2.0%
|
1.43
%
|
Dividend
yield
|
-
|
0
%
|
0
%
|
0
%
|
Expected
volatility
|
-
|
70.98
%
|
73 to 85%
|
85.91
%
|
Expected
life of options, in years
|
-
|
2.9 yrs.
|
1.4 to 6.0 years
|
6.0 yrs.
|
Weighted-average
grant date fair value
|
-
|
$3.43
|
$1.53
|
$3.23
|
Total
estimated stock-based compensation expense, related to all of the
Company’s stock-based payment awards recognized under ASC
718,
“Compensation—Stock
Compensation”
and ASC 505,
“Equity”
was comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development
|
$
292,523
|
$
301,985
|
$
989,884
|
$
889,666
|
General and
administrative
|
721,213
|
666,556
|
3,526,488
|
2,570,326
|
Total stock-based
compensation expense
|
$
1,013,736
|
$
968,541
|
$
4,516,372
|
$
3,459,992
|
Stock-based Award Activity
The
following table summarizes the Company’s stock option
activity during the nine months ended September 30,
2017:
|
|
Weighted-Average Exercise Price
|
Outstanding
at December 31, 2016
|
851,375
|
$
10.94
|
Granted
|
2,046,690
|
2.37
|
Exercised
|
—
|
—
|
Forfeited/cancelled/expired
|
(82,825
)
|
5.67
|
Outstanding
and expected to vest at September 30, 2017
|
2,815,240
|
$
4.87
|
Vested
and exercisable at September 30, 2017
|
1,742,632
|
$
4.79
|
The
total unrecognized compensation cost related to unvested stock
option grants as of September 30, 2017, was $2,519,222 and the
weighted average period over which these grants are expected to
vest is 1.71 years. The weighted average remaining contractual life
of stock options outstanding at September 30, 2017 and 2016 is 9.1
and 9.0 years, respectively.
During
the first nine months of 2017, the Company granted 2,046,690
options to officers and employees with a weighted average exercise
price of $2.37 which consisted of 1,300,000 shares vesting
immediately at grant and the remainder vesting over a three-year
period starting at the one-year anniversary of the grant
date. During the first nine months of 2016, the Company
granted 413,578 options to officers and employees with a weighted
average exercise price of $5.21. Stock options granted to employees
generally vest over a three-year period with one third of the
grants vesting at each one-year anniversary of the grant
date.
Because
the Company had a net operating loss carryforward as of September
30, 2017, no tax benefits for the tax deductions related to
stock-based compensation expense were recognized in the
Company’s condensed consolidated statements of operations.
Additionally, no stock options were exercised in the three and nine
months ended September 30, 2017 and 2016.
A
summary of activity related to restricted stock grants under the
Plan for the nine months ended September 30, 2017 is presented
below:
|
|
Weighted Average Grant-Date Fair Value
|
Non-vested
at December 31, 2016
|
205,478
|
$
16.84
|
Granted
|
850,965
|
.55
|
Vested
|
(102,737
)
|
16.22
|
Forfeited
|
—
|
—
|
Non-vested
at September 30, 2017
|
953,706
|
$
2.30
|
As
of September 30, 2017, there were 953,706 non-vested
restricted stock units remaining outstanding.
As
of September 30, 2017 and 2016, unamortized compensation expense
related to restricted stock grants amounted to $1,169,284 and
$2,553,920, respectively, which is expected to be recognized over a
weighted average period of 0.24 and 1.5 years,
respectively.
Management Bonus Plan and Compensation for Non-Employee
Directors
On
February 16, 2016, our Compensation Committee approved a 2016
Management Bonus Plan (the “2016 Management Plan”)
outlining maximum target bonuses of the base salaries of certain of
our executive officers. Under the terms of the 2016 Management
Plan, the Company's Chief Executive Officer shall receive a maximum
target bonus of up to 50% of his annual base salary, and the Chief
Financial Officer and each of the Company's Vice Presidents shall
receive a maximum target bonus of up to 30% of their annual base
salary.
Also,
on February 16, 2016, the Compensation Committee of the Board of
Directors of the Company approved the following
amendments to Company's policy for compensating non-employee
members of the Board:
●
The initial equity grant upon first appointment (or election) of
future non-employee directors to the Board shall be a 10-year
option to purchase 6,757 shares of the Company's common stock,
under the Company's Second Amended and Restated 2014 Equity
Incentive Plan with 3-year annual vesting and a strike price equal
the closing price of the Company's common stock on the effective
date of the appointment (or election);
●
The annual cash retainer for each non-employee director, paid
quarterly, is increased by $1,000 per calendar quarter to a total
of $7,000 per quarter, effective April 1, 2016; and
●
The additional annual cash retainer for the chairperson of each of
the Audit, Compensation, and Nominating and Governance Committees,
paid quarterly, is increased by $1,000 per calendar year, such that
each chairperson retainer shall be as follows, effective April 1,
2016: Audit Committee: $13,000; Compensation Committee: $9,000;
Nominating and Governance Committee: $6,000.
On
August 25, 2016, the Compensation Committee of the Board of
Directors of the Company approved the following amendments to
Company's policy for compensating non-employee members of the
Board:
●
The initial equity
grant upon first appointment (or election) of future non-employee
directors to the Board shall be a 10-year option to purchase 25,000
shares of the Company's common stock, under the Plan with 3-year
annual vesting and a strike price equal to the closing price of the
Company's common stock on the effective date of the appointment (or
election); and
●
the additional
automatic annual option grant to each non-employee director on the
date of the Company's annual meeting shall be a 10-year option to
purchase 17,500 shares of the Company's common stock, under the
Plan with 1-year vesting and a strike price equal to the closing
price of the Company's common stock on the date of the annual
meeting.
On
February 6, 2017, the Compensation Committee of the Board of
Directors of the Company approved the following amendments to
Company's policy for compensating non-employee members of the
Board:
●
the initial equity
grant upon first appointment (or election) of future non-employee
directors to the Board shall be a 10-year option to purchase 30,000
shares of the Company's common stock, under the Plan with 3-year
annual vesting and a strike price equal to the closing price of the
Company's common stock on the effective date of the appointment (or
election); and
●
the additional
automatic annual option grant to each non-employee director on the
date of the Company's annual meeting shall be a 10-year option to
purchase 20,000 shares of the Company's Common Stock, under the
Plan with 1-year vesting and a strike price equal the closing price
of the Company's common stock on the date of the annual
meeting.
On
May 19, 2017, in connection with the May 2017 Public Offering, the
Company entered into the May 2017 Letter Agreement with the Lead
Investor, whereby the Company was obligated to issue an aggregate
of 1,050,000 options to certain employees and members of the Board,
at a price not less than $2.00 per share, and 50,000 options to
each other Board member at the current market price. Further, all
Board fees were waived for 2017 in connection with the May 2017
Letter Agreement.
On
August 14, 2017, the Chairman of the Compensation Committee, acting
on behalf of the Board of Directors sent a letter to each executive
of the Company stating that the Board deems it in the best
interests of the Company to request that the executive voluntarily
defer a portion of his regular salary to help with cash flow of the
Company. On August 16 and August 21, 2017, Paul Resnick, M.D. and
Paul Maffuid, Ph.D., respectively gave notice of good reason (as
that term is defined in their employment agreements, or “Good
Reason”) for termination of their employment. The Company had
30 days from the notification date under each of their employment
agreements to cure their concerns. In oral discussions with each
executive the President and Chief Executive Officer communicated on
behalf of the Compensation Committee the Company’s intention
to provide additional equity compensation in return for salary
deferrals. Given the perceived uncertainty about the
Company’s plans at the time for addressing the concerns of
Dr. Resnick and Dr. Maffuid, and that nothing in writing had been
provided as possible equity compensation, they each submitted their
notices to the Company of good reason for termination. Further,
they each expressed in oral conversations that they wanted to
remain employed by the Company. The Company cured each
executive’s concerns within the 30-day cure period, by
reinstating the deferred salary for Dr. Resnick in one instance,
and in granting restricted stock to all executives with vesting
over time, as disclosed in the filings of Form 4s following the
approvals. Both executives rescinded their notices of good reason
for termination on September 7, 2017, and all executives’
employment agreements remain unchanged as the salary deferrals
remain to be voluntary.
Common stock reserved for future issuance
Common
stock reserved for future issuance consists of the following at
September 30, 2017:
Common
stock reserved for issuance upon conversion of preferred
stock
|
11,633,387
|
Common
stock reserved for issuance upon exercise of warrants
|
2,073,416
|
Common
stock options outstanding
|
2,815,240
|
Authorized
for future grant or issuance under the Stock Plan
|
181,839
|
Unvested
restricted stock
|
953,706
|
Total
|
17,657,588
|
9. Net Loss per Share
The
Company calculates basic and diluted net loss per share using the
weighted-average number of shares of common stock outstanding
during the period.
When
the Company is in a net loss position, it excludes from the
calculation of diluted net loss per share all potentially dilutive
stock options, preferred stock and warrants, and the diluted net
loss per share is the same as the basic net loss per share for such
periods. If the Company was to be in a net income position, the
weighted average number of shares used to calculate the diluted net
income per share would include the potential dilutive effect of
in-the-money securities, as determined using the treasury stock
method.
The
table below presents, the potentially dilutive securities that
would have been included in the calculation of diluted net loss per
share if they were not antidilutive for the periods
presented.
|
|
|
|
|
Stock
options
|
2,815,240
|
815,412
|
Restricted stock
awards
|
953,706
|
205,478
|
Preferred
stock
|
11,633,387
|
2,975,424
|
Common stock
warrants
|
2,073,416
|
5,124,144
|
Total
|
17,475,749
|
9,120,458
|
10. Contracts and Agreements
Memorial Sloan Kettering Cancer Center, or MSK
Since 2008 the Company has engaged in various
research agreements and collaborations with MSK including licensed
rights to cancer vaccines and the blood samples from patients who
have been vaccinated with MSK’s cancer vaccines. Total
sponsored research contracts outstanding in 2016 amounting to
approximately $800,000 in 2016 were 100% complete as of the year
ended December 31, 2016. Such sponsored research agreements provide
support for preclinical work on the Company’s product
development programs. The work includes preparing
radioimmunoconjugates of the Company’s antibodies and
performing
in vitro
and
in vivo
pharmacology studies for our therapeutic antibody
product, imaging agent product and radioimmunotherapy product
programs. For the three and nine months ended September 30, 2017
the Company incurred $0 and $184,000 in expenses related to these
contracts, respectively, and for the three and nine months ended
September 30, 2016, the Company incurred $0 and $212,574,
respectively.
Life Technologies Licensing Agreement
On
September 24, 2015, the Company entered into a licensing agreement
with Life Technologies Corporation, a subsidiary of ThermoFisher
Scientific. Under the agreement MabVax agreed to license
certain cell lines from Life Technologies Corporation to be used in
the production of recombinant proteins for the Company’s
clinical trials. The amount of the contract is for
$450,000 and was fully expensed during 2015. This agreement was
fully paid as of December 31, 2016. For the three and nine months
ended September 30, 2017 and 2016, the Company recorded no expenses
associated with the agreement.
Rockefeller
University Collaboration
In
July 2015, the Company entered into a research collaboration
agreement with Rockefeller University's Laboratory of Molecular
Genetics and Immunology. The Company provided antibody material to
Rockefeller University, which is exploring the mechanism of action
of constant region (Fc) variants of the HuMab 5B1 in the role of
tumor clearance. The Company may supply additional research
materials if requested by the Rockefeller University, which is
evaluating ways to optimize the function. For the three and nine
months ended September 30, 2017, and 2016, the Company recorded no
expenses associated with the agreement.
Patheon
Biologics LLC Agreement
On April 14, 2014, the Company entered into a
development and manufacturing services agreement with Patheon
(f.k.a. Gallus Biopharmaceuticals) to provide a full range of
manufacturing and bioprocessing services, including cell line
development, process development, protein production, cell culture,
protein purification, bio-analytical chemistry and QC
testing. Total amount of the contract is estimated at
approximately $3.0 million. For the three and nine
months ended September 30, 2017 and 2016, the Company recorded no
expenses associated with the agreement.
NCI PET Imaging Agent Grant
In
September 2013, the NCI awarded the Company a SBIR Program Contract
to support the Company’s program to develop a Positron
Emission Tomography (“PET”) imaging agent for
pancreatic cancer using a fragment of the Company’s 5B1
antibody (the “NCI PET Imaging Agent Grant”). The
project period for Phase I of the grant award of approximately
$250,000 covered a nine-month period, which commenced in September
2013 and ended in June 2014.
On
August 25, 2014, the Company was awarded a $1.5 million contract
for the Phase II portion of the NCI PET Imaging Agent Grant. The
contract is intended to support a major portion of the preclinical
work being conducted by the Company, together with its
collaboration partner, MSK, to develop a novel PET imaging agent
for detection and assessment of pancreatic cancer. The total
contract amount for Phase I and Phase II was approximately
$1,749,000. The Company recorded revenue associated with the NCI
PET Imaging Agent Grant as the related costs and expenses were
incurred. For the three and nine month periods ended September 30,
2017 the Company recorded no revenues associated with the NCI PET
Imaging Agent Grant, and during the same periods in 2016, the
Company recorded $0 and $148,054 of revenue associated with the NCI
PET Imaging Agent Grant, respectively.
11. Commitments and contingencies
Capital Leases
On
March 21, 2016, the Company entered into a lease agreement with
ThermoFisher Scientific (“Lessor”). Under
the terms of the agreement, the Company agreed to lease two pieces
of equipment from the Lessor, a liquid chromatography system and an
incubator, totaling in cost of $95,656. The term of the
lease is five years (60 months), and the monthly lease payment is
$1,867. In addition, there is a $1.00 buyout option at the end of
the lease term.
Minimum
future annual capital lease obligations are as follows as of
September 30, 2017:
2017
(remaining)
|
$
5,601
|
2018
|
22,402
|
2019
|
22,402
|
2020
|
22,402
|
2021
|
7,467
|
Less
interest
|
(12,379
)
|
Principal
|
67,895
|
Less
current portion
|
(17,447
)
|
Noncurrent
portion
|
$
50,448
|
Operating Leases
In
connection with the Merger, the Company recorded a $590,504
contingent lease termination fee, in connection with the
termination by MabVax (f.k.a. Telik, Inc.) of the master lease and
sublease of 3165 Porter Drive in Palo Alto, California, which is
payable to ARE-San Francisco No. 24, if the Company receives $15
million or more in additional financing in the aggregate. The
additional financing was achieved in 2015 and the termination fee
is reflected on the condensed consolidated balance sheet as an
accrued lease contingency fee.
On September 2, 2015,
the Company
entered into a lease (the
“Lease”) with AGP Sorrento Business Complex, L.P., for
certain premises of office and laboratory space in buildings
located at 11535 Sorrento Valley Rd., San Diego, California, to
serve as the Company’s corporate offices and laboratories
(the “New Premises”). Because certain tenant
improvements needed to be made to the New Premises before the
Company could take occupancy, the term of the Lease did not
commence until the New Premises were ready for occupancy, which was
on February 4, 2016. The Lease terminates six years
after such term commencement date, unless earlier terminated in
accordance with the Lease. Pursuant to the terms of the Lease, the
monthly base rent is $35,631, subject to annual increases as set
forth in the Lease. Effective March 1, 2017, the monthly base rent
increased to $36,700.
The
Company has an option to extend the Lease term for a single,
five-year period. If the Lease term is extended for the
optional five-year period, the monthly base rent will be adjusted
based on fair market rental value. In addition to rent,
the Company agreed to pay a portion of the taxes and utility,
maintenance and other operating costs paid or accrued in connection
with the ownership and operation of the property.
During
the three and nine months ended September 30, 2017, the Company
recorded rent expense of $115,238 and $345,714, respectively, and
during the three and nine months ended September 30, 2016, the
Company recorded rent expense of $115,238 and $318,159,
respectively.
Minimum
future annual operating lease obligations are as follows as of
September 30, 2017:
2017
(remaining)
|
$
110,100
|
2018
|
451,409
|
2019
|
464,951
|
2020
|
478,900
|
2021
|
493,267
|
Thereafter
|
82,612
|
Total
|
$
2,081,239
|
12. Subsequent Events
October 10, 2017 Registered Direct
Offering
– On October 10, 2017, we entered into a
subscription agreement with select accredited investors relating to
the Company’s registered direct offering, issuance and sale
of 769,231 shares of the Company’s common stock, $0.01 par
value per share. The purchase price per share was $0.65. The total
amount of the subscription agreements amounted to $500,000, before
estimated expenses of $15,000.
October 16, 2017 Series L
Preferred Stock
- On October
16, 2017, we filed a Certificate of Designations, Preferences and
Rights of the 0% Series L Convertible Preferred Stock (the
"Series L Certificate of Designation") with the Delaware
Secretary of State, designating 58,000 shares of preferred stock as
Series L convertible preferred stock (the “Series L Preferred
Stock”). On October 18, 2017, we filed a Certificate of
Correction to the Series L Certificate of Designation to include a
sentence that was inadvertently omitted.
The
shares of Series L Preferred Stock are convertible into shares of
common stock based on a conversion calculation equal to the stated
value of the Series L Preferred Stock, plus all accrued and unpaid
dividends, if any, on such Series L Preferred Stock, as of such
date of determination, divided by the conversion price. The stated
value of each share of Series L Preferred Stock is $100 and the
initial conversion price is $0.60 per share, each subject to
adjustment for stock splits, stock dividends, recapitalizations,
combinations, subdivisions or other similar events.
The
holders of Series L Preferred Stock will be entitled to receive
dividends if and when declared by our board of directors. The
Series L Preferred Stock shall participate on an “as
converted” basis, with all dividends declared on our common
stock. In addition, if the Company grants, issues or
sells any rights to purchase its securities pro rata to all record
holders of common stock, each holder will be entitled to acquire
such securities applicable to the granted purchase rights as if the
holder had held the number of shares of common stock acquirable
upon complete conversion of all Series L Preferred Stock then
held.
We
are prohibited from effecting a conversion of the Series L
Preferred Stock if the Company has not obtained stockholder
approval for the full conversion of the Series L Preferred Stock in
accordance with the rules of the NASDAQ Capital Market or to
the extent that, as a result of such conversion, the holder would
beneficially own more than 4.99% of the number of shares of common
stock outstanding immediately after giving effect to the issuance
of shares of common stock upon conversion of the Series L Preferred
Stock, which beneficial ownership limitation may be increased by
the holder up to, but not exceeding, 9.99%. Each holder is entitled
to vote on all matters submitted to stockholders of the Company,
and shall have the number of votes equal to the number of shares of
common stock issuable upon conversion of such holder’s Series
L Preferred Stock, substituting the consolidated closing bid
price of the common stock on October 13, 2017, for the
then-applicable conversion price, and not in excess of the
beneficial ownership limitations or limitations required by the
rules and regulations of the NASDAQ Capital Market.
Holders
of Series L Preferred Stock will be entitled to a preferential
payment of cash per share equal to the greater of 100% of the base
amount on the date of payment or the amount per share had the
holders converted such preferred shares immediately prior to the
date of payment upon the liquidation, dissolution or winding up of
the affairs of the Company, or a consolidation or merger of the
Company with or into any other corporation or corporations, or a
sale of all or substantially all of the assets of the Company, or
the effectuation by the Company of a transaction or series of
transactions in which more than 50% of the voting shares of the
Company is disposed of or conveyed.
October 17, 2017
Preferred Stock Exchange Agreement
– On October 17, 2017, we entered into exchange agreements
(each, an “Exchange Agreement” and collectively, the
“Exchange Agreements”) with the holders of all of the
Company’s outstanding shares of Series F Preferred Stock,
Series G Preferred Stock and Series H Preferred Stock, pursuant to
which 665,281 shares of Series F Preferred Stock, 1,000,000 shares
of Series G Preferred Stock and 850 shares of Series H Preferred
Stock were exchanged for 58,000 newly authorized shares of Series L
Preferred Stock. The Company agreed to hold a special meeting of
shareholders to approve the issuance of the Series L Preferred
Stock and shares of common stock issuable upon conversion of the
Series L Preferred Stock (the “Conversion Shares”). The
special meeting has been scheduled for Novermber 22,
2017.
The
terms of the Exchange Agreements and Series L Preferred Stock were
determined by negotiation between the parties. No commission or
other payment was received by the Company in connection with the
Exchange Agreements. Such exchange was conducted pursuant to the
exemption provided by Section 3(a)(9) of the Securities Act,
and Series L Preferred Stock issuable pursuant to the Exchange
Agreements and the Conversion Shares will be issued in reliance on
the exemption from registration contained in Section 3(a)(9)
of the Securities Act.
Pursuant to a
registration rights agreement entered into between the Company and
the Holders on October 17, 2017, the Company agreed to use its
reasonable best efforts to file a registration statement
registering the Conversion Shares for resale within 10 days of
closing and cause the registration statement to be declared
effective within 30 days of filing. On October 25, 2017, we filed a
registration statement with the SEC, which was within 10 days of
closing. The registration statement is currently under review by
the SEC.
Restricted Stock Grants
– During the month of October
2017, we issued an aggregate of 415,000 shares of restricted common
stock valued at $306,650 based on the closing market prices ranging
from $0.63 to $0.78, depending on the date of issuance, to
different investor relations services firms or individuals in
connection with providing investor relations services to the
Company. All of the shares were fully vested on the date of
issuance.