NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – The Business
Overview
Caladrius Biosciences, Inc. (“we,” “us,” "our," “Caladrius” or the “Company”), through its subsidiary, PCT, LLC, a Caladrius Company
TM
("PCT"), is a leading provider of development and manufacturing services to the cell and cell-based gene therapy industry. PCT has significant cell therapy-specific experience and expertise, an expansive list of noteworthy clients and significant revenue growth over the past two years. Notably, PCT and Hitachi Chemical Co. America, Ltd. and Hitachi Chemical Co., Ltd. (each independently or collectively referred to herein as "Hitachi Chemical") entered into a strategic collaboration to accelerate the creation of a global commercial cell therapy development and manufacturing enterprise with deep engineering expertise. Caladrius leverages both its internal specialized cell therapy clinical development expertise and PCT’s prowess to select and develop early-stage cell therapy candidates with the intention of partnering these candidates post proof-of-concept in man to both generate value for our shareholders and to expand PCT’s client base. Our current lead product candidate, CLBS03, is a T regulatory cell (“Treg”) clinical Phase 2 therapy targeting adolescents with recent-onset type 1 diabetes.
Cell Therapy Development and Manufacturing
PCT is a leading cell therapy development and manufacturing provider (often called a contract development and manufacturing organization, or "CDMO"), specializing in cell and cell-based gene therapies. PCT offers high-quality development and manufacturing capabilities (e.g., current Good Manufacturing Practice (“cGMP”) manufacturing systems and facilities), quality systems, cell and tissue processing, logistics, storage and distribution and engineering solutions (e.g., process and assay development, optimization and automation) to clients with therapeutic candidates at all stages of development. PCT produces clinical supplies and ultimately, intends also to produce commercial product for its clients. PCT has worked with over
100
clients and produced over
20,000
cell therapy products since it was founded
17
years ago. PCT’s manufacturing services are designed to reduce the capital investment and time required by clients to advance their development programs compared to conducting the process development and manufacturing in-house. PCT has demonstrated regulatory expertise, including the support of over
50
U.S. and European Union ("EU") regulatory filings for clients and expertise across multiple cell types and therapeutic applications, including immunotherapy (e.g. CAR-T therapies), neuro/endocrine therapies, hematopoietic replacement and tissue repair/regeneration. PCT offers a complete development pathway for its clients, with services supporting preclinical through commercial phase, all underpinned by timely process optimization and automation support. We currently operate facilities qualified under cGMPs in each of Allendale, New Jersey and Mountain View, California, including EU-grade production suites. On March 11, 2016, PCT entered into a strategic collaboration and license agreement with Hitachi Chemical to accelerate the creation of a global commercial cell therapy development and manufacturing enterprise with deep engineering expertise. PCT is positioned to expand its capacity both in the United States and internationally, as needed. As the industry continues to mature and a growing number of cell therapy companies approach commercialization, we believe that PCT is well positioned to serve as an external manufacturing partner of choice for commercial-stage cell therapy companies.
CLBS03
We are developing, through the utilization of our core development and manufacturing expertise, a product candidate that is an innovative therapy for type 1 diabetes mellitus ("TID"). This therapy is based on a proprietary platform technology for immunomodulation. We have selected as an initial target the unmet medical need of pediatric patients who are newly diagnosed with T1D. This program is based on the use of Tregs to treat diseases caused by imbalances in an individual's immune system. This novel approach seeks to restore immune balance by enhancing Treg number and function. Tregs are a natural part of the human immune system and regulate the activity of T effector cells; the cells that are responsible for protecting the body from viruses and other foreign antigens. When Tregs function properly, only harmful foreign materials are attacked by T effector cells. In autoimmune disease, however, it is thought that deficient Treg activity and numbers permit the T effector cells to attack the body's own beneficial cells. In the case of T1D, there are currently no curative treatments, only lifelong insulin therapy, which often does not prevent serious co-morbidities. Two Phase 1 clinical trials of this technology in T1D patients demonstrated safety and tolerance, feasibility of manufacturing, an implied durability of effect and an early indication of efficacy through the preservation of beta cell function. In the first quarter of 2016 we commenced patient enrollment in the first of
two
cohorts in The Sanford Project: T-Rex Study, a Phase 2 prospective, randomized, placebo-controlled, double-blind clinical trial to evaluate the safety and efficacy of our Treg product candidate, CLBS03, in adolescents with recent onset T1D. After the three-month follow-up of the first cohort of
18
patients, which is expected by year end 2016, an initial safety analysis of the data and early analysis of immunological biomarkers will be undertaken. Satisfactory evaluation of the safety of the initial cohort as agreed by us, our independent Data Safety Monitoring Board and the U.S. Food and Drug Administration ("FDA") will then prompt the enrollment
of the remaining
93
patients. A subsequent interim analysis of efficacy is planned after approximately
50%
of patients reach the
six
-month follow-up milestone. We entered into a strategic collaboration with Sanford Research to support the execution of this trial. Sanford Research is a U.S.-based non-profit research organization that supports an emerging translational research center focused on finding a cure for T1D. CLBS03 has been granted Fast Track and Orphan Drug designations from the FDA as well as Advanced Therapeutic Medicinal Product classification from the European Medicines Agency.
Additional Technology Platforms
Our broad intellectual property portfolio of cell therapy assets includes notable programs available for out-licensing and partnering in order to continue our clinical development. These include platforms using tumor cell/dendritic cell technology for immuno-oncology and CD34 technology for ischemic repair. Both have the benefit of promising Phase 2 clinical data and are applicable to multiple indications. The immuno-oncology platform is based on our extensive intellectual property portfolio and includes CLBS20, a candidate for metastatic melanoma which was investigated in two Phase 2 trials and recently in a discontinued Phase 3 clinical trial. With respect to our ischemic repair platform, the Company's Clinical Trial Notification for a pivotal Phase 2 trial investigating CLBS12 (a candidate for critical limb ischemia "CLI") was submitted to the Japanese Pharmaceuticals and Medical Devices Agency ("PMDA") and was cleared to proceed. The protocol design was agreed with PMDA and if successful, could provide the basis for a conditional approval under Japan's favorable regenerative medicine law. We are seeking to collaborate on CLBS12 with development and/or manufacturing partners. In January 2016, we out-licensed our CD34 technology to SPS Cardio, LLC for chronic heart failure and acute myocardial infarction (candidate CLBS10) in India and other designated territories and non-major world markets outside the United States. In February 2016, we out-licensed a cell-derived dermatological product technology for topical skin application to AiVita Biomedical, Inc. ("AiVita"), which it intends to distribute through ALPHAEON Corporation. Furthermore, in May 2016, we out-licensed our tumor cell/dendritic cell technology to AiVita for ovarian cancer (candidate CLBS23) for worldwide use. Finally, our Treg immune modulation platform has potential applications across multiple autoimmune and allergic diseases beyond TID for which we are exploring partnering opportunities, including steroid-resistant asthma, multiple sclerosis, chronic obstructive pulmonary disease, inflammatory bowel disease, graft versus host disease, lupus and rheumatoid arthritis.
Our long term strategy focuses on advancing cell-based therapies to the market and assisting patients suffering from life-threatening medical conditions. Coupling our clinical development expertise with our process development and manufacturing capabilities, we believe we are positioned to realize potentially meaningful value increases within our own proprietary pipeline based on demonstration of proof-of-concept in man as well as process and manufacturing advancements.
Financial Information & Liquidity
On March 11, 2016, PCT and Caladrius entered into a global licensing, development and equity collaboration with Hitachi Chemical, a Japanese-based global conglomerate with a growing franchise in life sciences including regenerative medicine ("Hitachi Transaction"), and will receive an aggregate of
$25.0 million
in cash, of which
$22.5 million
was received in March 2016,
$1.25 million
was received in June 2016, and the remainder is expected to be received before the end of 2016. PCT will retain
$10.0 million
of the
$25.0 million
proceeds, and Caladrius received
$15.0 million
of the proceeds. Concurrent with the Hitachi Transaction, Caladrius used
$7.0 million
of the proceeds to repay a portion of the outstanding loan with Oxford Finance. In addition to the Hitachi Transaction, the Company anticipates requiring additional capital in order to grow the PCT business, to fund the development of CLBS03, to fund other operating expenses and to make principal and interest payments on the loan with Oxford Finance.
To meet its short and long term liquidity needs, the Company currently expects to use existing cash and cash equivalents balances, revenue generating activities and a variety of other means, including its common stock purchase agreements with Aspire Capital. Other sources of liquidity could include additional potential issuances of debt or equity securities in public or private financings, partnerships and/or collaborations and/or sale of assets. In addition, the Company will continue to seek as appropriate grants for scientific and clinical studies from various governmental agencies and foundations. While the Company continues to seek capital through a number of means, there can be no assurance that additional financing will be available on acceptable terms, if at all. If the Company is unable to access capital necessary to meet its long-term liquidity needs, it may have to delay or discontinue the development of CLBS03, and/or the expansion of its business or raise funds on terms that the Company currently consider unfavorable. The Company's inability to raise additional capital would also raise substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time. These unaudited consolidated financial statements have been prepared on a going concern basis and, as such, do not include any adjustments that might result from the outcome of this uncertainty that might be necessary should the Company be unable to continue as a going concern.
On February 25, 2016, the Company received written notification from the Listing Qualifications Department of The NASDAQ Stock Market LLC (“NASDAQ”) notifying the Company that for the preceding
30
consecutive business days, the
Company’s common stock did not maintain a minimum closing bid price of
$1.00
(“Minimum Bid Price Requirement”) per share as required by NASDAQ Listing Rule 5550(a)(2). The notice had no immediate effect on the listing or trading of the Company’s common stock and the common stock continues to trade on The NASDAQ Capital Market under the symbol “CLBS.”
In accordance with NASDAQ Listing Rule 5810(c)(3)(A), the Company has a grace period of
180
calendar days, or until August 23, 2016, to regain compliance with NASDAQ Listing Rule 5550(a)(2). Compliance can be achieved automatically and without further action if the closing bid price of the Company’s stock is at or above
$1.00
for a minimum of
10
consecutive business days at any time during the
180
-day compliance period, in which case NASDAQ will notify the Company of its compliance and the matter will be closed.
On July 28, 2016, the Company implemented a one-for-ten reverse split of its issued and outstanding shares of common stock (the “Reverse Stock Split”), as authorized at the annual meeting of stockholders on June 22, 2016. The Reverse Stock Split became effective on July 27, 2016 at 5:00 pm and the common stock of the Company began trading on The NASDAQ Capital Market on a post-split basis at the open of business on July 28, 2016. As of July 28, 2016, every ten shares of the Company’s issued and outstanding common stock were combined into one share of its common stock, except to the extent that the Reverse Stock Split resulted in any of the Company’s stockholders owning a fractional share, which was rounded up to the next highest whole share. In connection with the Reverse Stock Split, there was no change in the nominal par value per share of
$0.001
. The Reverse Stock Split was effectuated in order to increase the per share trading price of the Company’s common stock to satisfy the $1.00 minimum bid price requirement for continued listing on The NASDAQ Capital Market.
All share and per share amounts of common stock, options and warrants in the accompanying financial statements have been restated for all periods to give retroactive effect to the Reverse Stock Split. Accordingly, the consolidated statements of equity reflect the impact of the Reverse Stock Split by reclassifying from “common stock” to “Additional paid-in capital” in an amount equal to the par value of the decreased shares resulting from the Reverse Stock Split.
Basis of Presentation
The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying Consolidated Financial Statements of the Company and its subsidiaries, which are unaudited, include all normal and recurring adjustments considered necessary to present fairly the Company’s financial position as of
June 30, 2016
and the results of its operations and its cash flows for the periods presented. The unaudited consolidated financial statements herein should be read together with the historical consolidated financial statements of the Company for the years ended
December 31, 2015
,
2014
and
2013
included in our 2015 Form 10-K. Operating results for the
six months ended
June 30, 2016
are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. The Company makes critical estimates and assumptions in determining the fair values of goodwill for potential goodwill impairments, useful lives of our tangible long lived assets, allowances for doubtful accounts, and stock-based awards values. Accordingly, actual results could differ from those estimates and assumptions.
An accounting policy is considered to be critical if it is important to the Company’s financial condition and results of operations and if it requires management’s most difficult, subjective and complex judgments in its application.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Caladrius Biosciences, Inc. and its wholly-owned and partially-owned subsidiaries and affiliates as listed below. All intercompany activities have been eliminated in consolidation.
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Entity
|
|
Percentage of Ownership
|
|
Location
|
Caladrius Biosciences, Inc.
|
|
100%
|
|
United States of America
|
NeoStem Therapies, Inc.
|
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100%
|
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United States of America
|
Stem Cell Technologies, Inc.
|
|
100%
|
|
United States of America
|
Amorcyte, LLC
|
|
100%
|
|
United States of America
|
PCT, LLC, a Caladrius Company (1)
|
|
80.1%
|
|
United States of America
|
NeoStem Family Storage, LLC (1)
|
|
80.1%
|
|
United States of America
|
Athelos Corporation (2)
|
|
97.9%
|
|
United States of America
|
PCT Allendale, LLC (1)
|
|
80.1%
|
|
United States of America
|
NeoStem Oncology, LLC
|
|
100%
|
|
United States of America
|
_________________________________________________________________
(1) As of
June 30, 2016
, Hitachi's ownership interest was
19.9%
(see Note 3).
(2) As of
June 30, 2016
, Becton Dickinson's ownership interest was
2.1%
.
Note 2 – Summary of Significant Accounting Policies
In addition to the policies below, our significant accounting policies are described in Note 2 of the Notes to Consolidated Financial Statements included in our 2015 Form 10-K. There were no changes to these policies during the
six
months ended
June 30, 2016
.
Concentration of Risks
We are subject to credit risk from our portfolio of cash and cash equivalents and marketable securities. Under our investment policy, we limit amounts invested in such securities by credit rating, maturity, industry group, investment type and issuer, except for securities issued by the U.S. government. Cash is held at major banks in the United States. Therefore, the Company is not exposed to any significant concentrations of credit risk from these financial instruments. The goals of our investment policy, in order of priority, are as follows: safety and preservation of principal and diversification of risk; liquidity of investments sufficient to meet cash flow requirements, and a competitive after-tax rate of return.
We are also subject to credit risk from our accounts receivable related to our services. The majority of our trade accounts receivable arises from services in the United States.
For the
six
months ended
June 30, 2016
, the
three
largest customers represented
46%
of total revenues recognized, the largest of which was
19%
. As of
June 30, 2016
,
three
customers represented
46%
of our accounts receivable, the largest of which was
26%
.
Share-Based Compensation
The Company expenses all share-based payment awards to employees, directors, consultants, including grants of stock options, warrants, and restricted stock, over the requisite service period based on the grant date fair value of the awards. Consultant awards are remeasured each reporting period through vesting. For awards with performance-based vesting criteria, the Company estimates the probability of achievement of the performance criteria and recognizes compensation expense related to those awards expected to vest. The Company determines the fair value of option awards using the Black-Scholes option-pricing model which uses both historical and current market data to estimate the fair value. This method incorporates various assumptions such as the risk-free interest rate, expected volatility, expected dividend yield and expected life of the options or warrants. The fair value of the Company’s restricted stock and restricted stock units is based on the closing market price of the Company’s common stock on the date of grant.
Goodwill
Goodwill is the excess of purchase price over the fair value of identified net assets of businesses acquired. The Company reviews goodwill at least annually, or at the time a triggering event is identified for possible impairment. Goodwill is reviewed for possible impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. The Company tests its goodwill each year on December 31. The Company reviews the carrying value of goodwill utilizing an income approach model, and, where appropriate, a market value approach is also utilized to supplement the discounted cash flow model. The Company makes assumptions regarding estimated future cash flows, discount rates, long-term growth rates and market values to determine each reporting unit’s estimated fair value.
If these estimates or related assumptions change in the future, the Company may be required to record impairment charges. In accordance with its accounting policy, the Company tested goodwill for impairment as of December 31, 2015 and June 30, 2015 and determined as of December 31, 2015 goodwill valued at
$18.2 million
related to the Company's Research and Development reporting unit was impaired.
Definite-Lived Intangible Assets
Definite-lived intangible assets consist of customer lists, manufacturing technology, tradenames, patents and rights. These intangible assets are amortized on a straight line basis over their respective useful lives. The Company reviews definite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset exceeds the fair value of the asset. If other events or changes in circumstances indicate that the carrying amount of an asset that the Company expects to hold and use may not be recoverable, the Company will estimate the undiscounted future cash flows expected to result from the use of the asset and/or its eventual disposition, and recognize an impairment loss, if any. The impairment loss, if determined to be necessary, would be measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. No triggering events were noted in the quarter ended
June 30, 2016
that would require interim impairment assessment.
Revenue Recognition
Clinical Services:
The Company recognizes revenue for its (i) process development and (ii) clinical manufacturing services based on the terms of individual contracts.
We recognize revenues when all of the following conditions are met:
|
|
•
|
persuasive evidence of an arrangement exists;
|
|
|
•
|
delivery has occurred or the services have been rendered;
|
|
|
•
|
the fee is fixed or determinable; and
|
|
|
•
|
collection is probable.
|
The Company considers signed contracts as evidence of an arrangement. The Company assesses whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the payment terms are subject to refund or adjustment. The Company assesses cash collectability based on a number of factors, including past collection history with the client and the client's creditworthiness. If the Company determines that collectability is not reasonably assured, it defers revenue recognition until collectability becomes reasonably assured, which is generally upon receipt of the cash. The Company's arrangements are generally non-cancellable, though clients typically have the right to terminate their agreement for cause if the Company materially fails to perform.
Revenues associated with process development services generally contain multiple stages that do not have stand-alone values and are dependent upon one another, and are recognized as revenue on a completed contract basis. Progress billings collected prior to contract completion are recorded as unearned revenue until such time the contract is completed, which usually requires formal client acceptance.
Clinical manufacturing services are generally distinct arrangements whereby the Company is paid for time and materials or for fixed monthly amounts. Revenue is recognized when contractual terms have been met.
Some client agreements include multiple elements, comprised of cell process development and cell manufacturing services. The Company believes that process development and clinical manufacturing services each have stand-alone value because these services can be provided separately by other companies. In accordance with ASC Update No. 2009-13, “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements,” the Company (1) separates deliverables into separate units of accounting when deliverables are sold in a bundled arrangement and (2) allocates the arrangement's consideration to each unit in the arrangement based on its relative selling price.
Clinical Services Reimbursements:
The Company separately charges the customers for the expenses associated with certain consumable resources (reimbursable expenses) that are specified in each clinical services contract. On a monthly basis, the Company bills customers for reimbursable expenses and immediately recognizes these billings as revenue, as the revenue is deemed earned as reimbursable expenses are incurred. For the
three months ended
June 30, 2016
and
2015
, clinical services reimbursements
were
$2.1 million
and
$0.9 million
, respectively. For the
six months ended
June 30, 2016
and
2015
, clinical services reimbursements were
$3.4 million
and
$1.4 million
, respectively.
Processing and Storage Services:
The Company recognizes revenue related to the collection and cryopreservation of autologous adult stem cells when the cryopreservation process is completed which is approximately
twenty-four
hours after cells have been collected. Revenue related to advance payments of storage fees is recognized ratably over the period covered by the advance payments.
License Fees:
PCT and Hitachi Chemical also entered into an exclusive license agreement for Asia pursuant from which PCT will receive
$5.6 million
from Hitachi Chemical in three fee driven payments throughout 2016. PCT licensed to Hitachi Chemical certain cell therapy technology and know-how (including an exclusive license to use the PCT brand in Asia) and agreed to provide Hitachi Chemical with certain training and support. As additional consideration, Hitachi Chemical will pay PCT royalties on contract revenue generated in Asia for a minimum of ten years. The initial term of the License Agreement is ten years and may be automatically extended for successive additional two year terms. The Company recognizes the payments as revenue on a straight-line basis over the initial ten-year term. PCT has received
$4.4 million
under the Technology License Agreement through
June 30, 2016
. For the
three and six months ended
June 30, 2016
, the Company recognized
$0.09 million
and
$0.1 million
of license fee revenue, respectively.
As of June 30, 2016
,
$0.4 million
of Hitachi license fees were included in unearned revenue, and
$3.8 million
was included in unearned revenue - long-term.
Recently Issued Accounting Pronouncement
In May 2014, the FASB issued ASU 2014-09, "
Revenue from Contracts with Customers (Topic 606).
" The new revenue recognition standard provides a five-step analysis to determine when and how revenue is recognized. The standard requires that a company recognizes revenue to depict the transfer of 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 or services. This ASU is effective for annual periods beginning after December 15, 2017 and will be applied retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is currently evaluating the impact of the pending adoption of ASU 2014-09 on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU requires that a lessee recognize lease assets and lease liabilities for those leases classified as operating leases. The guidance is effective for interim and annual periods beginning after December 15, 2018, and will be applied at the beginning of the earliest period presented using a modified retrospective approach. This ASU may have a material impact on the Company’s financial statements. The impact on the Company’s results of operations is currently being evaluated. The impact of the ASU is non-cash in nature and will not affect the Company’s cash position.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. This ASU simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, accounting for forfeitures, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance is effective for interim and annual periods beginning after December 15, 2016, with early adoption permitted. The guidance will be applied prospectively, retrospectively, or by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted, dependent upon the specific amendment that is adopted within the ASU. The Company is currently evaluating the effect that adopting this new guidance will have on the consolidated results of operations, cash flows, and financial position.
Note 3 – Collaboration and License Agreement
Hitachi
On March 11, 2016, PCT entered into a global collaboration that includes licensing, development and equity components with Hitachi Chemical to develop our PCT business outside of the United States. This collaboration consists of an equity investment in and a license agreement with PCT.
Under the equity investment agreement, Hitachi Chemical purchased a
19.9%
membership interest in PCT for
$19.4 million
of which
$15.0 million
of proceeds was distributed to Caladrius from PCT and
$4.4 million
remained at PCT to be used for the continued expansion and improvements at PCT in support of commercial product launch readiness as well as for general corporate purposes. Caladrius remains the majority shareholder retaining an
80.1%
ownership interest.
PCT and Hitachi Chemical also entered into an exclusive license agreement for the acceleration of the creation of a global commercial cell therapy development and manufacturing expertise in Asia pursuant from which PCT will receive
$5.6 million
from Hitachi Chemical in three fee driven payments throughout 2016,
$4.4 million
of which has been received as of
June 30, 2016
. PCT licensed certain cell therapy technology and know-how (including an exclusive license in Asia) and agreed to provide Hitachi Chemical with certain training and support. As additional consideration, Hitachi Chemical will pay PCT royalties on contract revenue generated in Asia for a minimum of ten years.
Lastly, as part of the transaction, PCT and Hitachi Chemical agreed to explore the possibility of pursuing a collaboration in cell therapy contract development and manufacturing in Europe.
Note 4 – Available-for-Sale-Securities
The following table is a summary of available-for-sale securities recorded in cash and cash equivalents or marketable securities in our Consolidated Balance Sheets (in thousands):
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|
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|
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|
|
|
|
|
|
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|
|
June 30, 2016
|
|
December 31, 2015
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Estimated Fair Value
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Estimated Fair Value
|
Certificate of deposits
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
249.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
249.0
|
|
Corporate debt securities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,047.2
|
|
|
—
|
|
|
—
|
|
|
1,047.2
|
|
Money market funds
|
2,567.0
|
|
|
—
|
|
|
—
|
|
|
2,567.0
|
|
|
837.7
|
|
|
—
|
|
|
—
|
|
|
837.7
|
|
Municipal debt securities
|
5,725.0
|
|
|
—
|
|
|
—
|
|
|
5,725.0
|
|
|
4,740.9
|
|
|
0.8
|
|
|
—
|
|
|
4,741.7
|
|
Total
|
$
|
8,292.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,292.0
|
|
|
$
|
6,874.8
|
|
|
$
|
0.8
|
|
|
$
|
—
|
|
|
$
|
6,875.6
|
|
Estimated fair values of available-for-sale securities are generally based on prices obtained from commercial pricing services. The following table summarizes the classification of the available-for-sale debt securities on our Consolidated Balance Sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
Cash and cash equivalents
|
$
|
8,292.0
|
|
|
$
|
6,875.6
|
|
Marketable securities
|
—
|
|
|
—
|
|
Total
|
$
|
8,292.0
|
|
|
$
|
6,875.6
|
|
The following table summarizes our portfolio of available-for-sale debt securities by contractual maturity (in thousands):
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
Amortized Cost
|
|
Estimated Fair Value
|
Less than one year
|
$
|
8,292.0
|
|
|
$
|
8,292.0
|
|
Greater than one year
|
—
|
|
|
—
|
|
Total
|
$
|
8,292.0
|
|
|
$
|
8,292.0
|
|
Note 5 – Deferred Costs
Deferred costs, representing work in process for costs incurred on process development contracts that have not been completed, were $
5.1 million
and $
2.9 million
as of
June 30, 2016
and
December 31, 2015
, respectively. The Company also has deferred revenue of approximately $
6.3 million
and $
4.9 million
of advance billings received as of
June 30, 2016
and
December 31, 2015
, respectively, related to these contracts.
Note 6 – Loss Per Share
For the
three and six months ended
June 30, 2016
and
2015
, the Company incurred net losses and therefore no common stock equivalents were utilized in the calculation of loss per share as they are anti-dilutive. At
June 30, 2016
and
2015
, the Company excluded the following potentially dilutive securities:
|
|
|
|
|
|
|
|
June 30
|
|
2016
|
|
2015
|
Stock Options
|
692,205
|
|
|
692,446
|
|
Warrants
|
460,047
|
|
|
351,895
|
|
Restricted Shares
|
70,046
|
|
|
28,105
|
|
Note 7 – Fair Value Measurements
The fair value of financial assets and liabilities that are being measured and reported are defined as the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market at the measurement date (exit price). The Company is required to classify fair value measurements in one of the following categories:
Level 1 inputs are defined as quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 inputs are defined as inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly or indirectly.
Level 3 inputs are defined as unobservable inputs for the assets or liabilities. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.
The Company had no financial assets and liabilities that were accounted for at fair value on a recurring basis as of
June 30, 2016
, and
December 31, 2015
.
Note 8 – Goodwill and Other Intangible Assets
The Company's goodwill was
$7.0 million
as of
June 30, 2016
and
December 31, 2015
. All goodwill resides in the PCT reporting unit.
The Company's intangible assets and related accumulated amortization as of
June 30, 2016
and
December 31, 2015
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
|
Useful Life
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
Customer list
|
10 years
|
|
$
|
1,000.0
|
|
|
$
|
(545.1
|
)
|
|
$
|
454.9
|
|
|
$
|
1,000.0
|
|
|
$
|
(495.1
|
)
|
|
$
|
504.9
|
|
Manufacturing technology
|
10 years
|
|
3,900.0
|
|
|
(2,125.9
|
)
|
|
1,774.1
|
|
|
3,900.0
|
|
|
(1,930.9
|
)
|
|
1,969.1
|
|
Tradename
|
10 years
|
|
800.0
|
|
|
(436.1
|
)
|
|
363.9
|
|
|
800.0
|
|
|
(396.1
|
)
|
|
403.9
|
|
Total Intangible Assets
|
|
|
$
|
5,700.0
|
|
|
$
|
(3,107.1
|
)
|
|
$
|
2,592.9
|
|
|
$
|
5,700.0
|
|
|
$
|
(2,822.1
|
)
|
|
$
|
2,877.9
|
|
Total intangible amortization expense was classified in the operating expense categories for the periods included below as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Cost of revenue
|
$
|
77.7
|
|
|
$
|
79.2
|
|
|
$
|
157.3
|
|
|
$
|
153.9
|
|
Research and development
|
19.8
|
|
|
27.1
|
|
|
37.7
|
|
|
58.7
|
|
Selling, general and administrative
|
45.0
|
|
|
45.0
|
|
|
90.0
|
|
|
90.0
|
|
Total
|
$
|
142.5
|
|
|
$
|
151.3
|
|
|
$
|
285.0
|
|
|
$
|
302.6
|
|
Estimated intangible amortization expense for the succeeding five years is as follows (in thousands):
|
|
|
|
|
2016
|
$
|
285
|
|
2017
|
570.0
|
|
2018
|
570.0
|
|
2019
|
570.0
|
|
2020
|
570.0
|
|
Thereafter
|
27.9
|
|
Total
|
$
|
2,592.9
|
|
Note 9 – Accrued Liabilities
Accrued liabilities as of
June 30, 2016
and
December 31, 2015
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
Salaries, employee benefits and related taxes
|
$
|
3,160.8
|
|
|
$
|
2,771.2
|
|
Professional fees
|
342
|
|
|
480.7
|
|
Other
|
2,699.6
|
|
|
2,946.5
|
|
Total
|
$
|
6,202.4
|
|
|
$
|
6,198.4
|
|
Note 10 – Debt
Notes Payable
As of
June 30, 2016
and
December 31, 2015
, the Company had notes payable of approximately
$1.3 million
and
$1.8 million
, respectively. The notes relate to certain insurance policies and equipment financings, require monthly payments, and mature within one to three years.
Long-Term Debt
On September 26, 2014, the Company entered into a loan and security agreement (the “Loan and Security Agreement”) with Oxford Finance LLC (together with its successors and assigns, the “Lender”) pursuant to which the Lender disbursed
$15.0 million
(the “Loan”). The debt offering/issuance costs have been recorded as debt issuance costs in other assets in the consolidated balance sheet, and will be amortized to interest expense throughout the life of the Loan using the effective interest rate method.
On March 11, 2016, upon execution of the Hitachi Transaction, the Company and the Lender entered into an amendment to the Loan and Security Agreement whereby (i) the Company paid
$7.0 million
to Lender, comprising principal, interest and early termination fees, (ii) the Company's subsidiaries PCT, PCT Allendale, LLC, and NeoStem Family Storage, LLC (collectively the "Removed Borrowers") were removed as borrowers under the Loan, (iii) Lender's security interests in any and all assets of the Removed Borrowers were released, (iv) the interest only period on the remaining outstanding Loan balance was extended until January 1, 2017, and (v) in the event the Company receives gross proceeds from the sale or issuance of any equity securities or subordinated debt, or any partnership, licenses, collaboration, dividend, grant or asset sale through March 31, 2017,
20%
of such proceeds will be paid to Lender, up to a
$3.0 million
maximum as additional partial repayment of Loan. If
20%
of such proceeds in aggregate is less than
$3.0 million
by March 31, 2017, then the Company will make a lump sum payment equal to the difference by March 31, 2017. The outstanding balance was approximately
$8.7 million
and
$15.0 million
at
June 30, 2016
and
December 31,
2015
, respectively, of which
$5.0 million
is payable within twelve months as of
June 30, 2016
.
The Company is making interest-only payments on the outstanding amount of the Loan on a monthly basis at a rate of
8.50%
per annum. Commencing on January 1, 2017, the Company will make
21
consecutive monthly payments of principal and interest. The Loan matures on September 1, 2018. At its option, the Company may prepay all amounts owed under the Loan and Security Agreement (including all accrued and unpaid interest), subject to a prepayment fee that is determined based on the date the loan is prepaid. The Company is also required to pay Lender a final payment fee equal to
8%
of the Loan. The final payment fee will be amortized to interest expense throughout the life of the Loan using the effective interest rate method. The Company paid a facility fee in the amount of
$100,000
in connection with Loan.
Under the Loan and Security Agreement, the Lender holds a security interest ("Lenders' Security Interest") in all of the Company’s property, excluding the security interests in any and all assets of the Removed Borrowers, and excluding intellectual property and certain other assets and exemptions. The Lender also holds a security interest in the shares owned by the Company in the Company’s subsidiaries. The Loan and Security Agreement restricts the ability of the Company to: (a) convey, lease, sell, transfer or otherwise dispose of any part of Lenders' Security Interest and (b) incur any additional indebtedness. The Loan and Security Agreement provides for standard indemnification of Lender and contains representations, warranties and certain covenants of the Company. Upon the occurrence of an event of default by the Company under the Loan and Security Agreement, Lender will have customary acceleration, collection and foreclosure remedies. There are no financial covenants associated to the Loan and Security Agreement. As of
June 30, 2016
, the Company was in compliance with all covenants under the Loan and Security Agreement.
Estimated future principal payments, interest, and fees due under the Loan and Security Agreement are as follows:
|
|
|
|
|
Years Ending December 31,
|
(in millions)
|
2016
|
$
|
0.4
|
|
2017
|
6.8
|
|
2018
|
3.0
|
|
Total
|
$
|
10.2
|
|
During the
three and six months ended
June 30, 2016
, the Company recognized
$0.2 million
and
$0.5 million
of interest expense, respectively, related to the Loan and Security Agreement. During the
three and six months ended
June 30, 2015
, the Company recognized
$0.3 million
and
$0.6 million
of interest expense, respectively, related to the Loan and Security Agreement.
Note 11 – Redeemable Securities
Under the Hitachi Transaction (see Note 3), Hitachi may, at any time following the 10th anniversary of the Hitachi Transaction closing date on March 11, 2016, have the right on one occasion to require Caladrius or PCT to purchase all or some of the equity securities in PCT then held by Hitachi ("Hitachi Put Right") for an amount equal to the lower of (i) the fair market value of the Hitachi equity holdings and (ii) the original purchase price paid of
$19.4 million
on March 11, 2016 for its
19.9%
ownership interest, plus interest at a rate of
2.0%
per annum compounded annually;
provided, however
, that if Hitachi ownership interests increases subsequent to its initial ownership interest, and it offers to sell its equity holdings in excess of
21%
of PCT’s outstanding equity securities, then the Company shall be required to purchase all such equity holdings of Hitachi but in no event shall the aggregate purchase price of such Hitachi equity holdings exceed
$20.5 million
plus interest at the rate of
2.0%
per annum compounded annually.
Since Hitachi has the right to deliver the equity interests in PCT it holds in exchange for cash from Caladrius or PCT, the initial
$19.4 million
value of the non-controlling interest is considered redeemable equity, requiring it to be treated as mezzanine equity. Redeemable non-controlling interest is required to be initially measured at the initial carrying amount. If the non-controlling interest is not currently redeemable and also not probable of becoming redeemable (e.g., it is not probable a contingency that triggers redemption will be met), the non-controlling interest should be classified in mezzanine equity.
Note 12 – Shareholders' Equity
Reverse Stock Split
On
July 28, 2016
, the Company implemented the Reverse Stock Split, as authorized at the annual meeting of stockholders on June 22, 2016 and unanimously approved by the Company’s board of directors on
July 22, 2016
. The Reverse Stock Split
became effective on July 27, 2016 at 5:00pm and the common stock of the Company began trading on The NASDAQ Capital Market on a post-split basis at the open of business on
July 28, 2016
. As of
July 28, 2016
, every ten shares of the Company’s issued and outstanding common stock were combined into one share of its common stock, except to the extent that the Reverse Stock Split resulted in any of the Company’s stockholders owning a fractional share, which was rounded up to the next highest whole share. In connection with the Reverse Stock Split, there was no change in the nominal par value per share of
$0.001
.
All share and per share amounts of common stock, options and warrants in the accompanying financial statements have been restated for all periods to give retroactive effect to the Reverse Stock Split. Accordingly, the consolidated statements of equity reflect the impact of the Reverse Stock Split by reclassifying from “common stock” to “Additional paid-in capital” in an amount equal to the par value of the decreased shares resulting from the Reverse Stock Split.
Equity Issuances
March 2016 Private Placement
On March 10, 2016, the Company entered into a securities purchase agreement with certain investors, pursuant to which the Company issued and sold in a private placement an aggregate of
141,844
shares of common stock and two-year warrants to purchase up to an aggregate of
141,844
shares of the Company's common stock, at an exercise price of
$10.00
per share. The unit purchase price for a share of the Company's common stock and warrant to purchase one share of the Company's common stock was
$7.05
per unit, with
$1.0 million
of gross proceeds received by the Company. On April 8, 2016, the Company filed a registration statement on Form S-3 to register the shares of common stock and the shares of common stock issuable upon exercise of the warrants acquired in the private placement, which registration statement became effective on June 7, 2016.
Aspire Purchase Agreements
In November 2015, the Company entered into a common stock purchase agreement (the "Purchase Agreement") with Aspire Capital Fund, LLC, an Illinois limited liability company (“Aspire Capital”), which provides that, subject to certain terms and conditions, Aspire Capital is committed to purchase up to an aggregate of
$30 million
of shares (limited to a maximum of approximately
1.1 million
shares, unless stockholder approval is obtained or certain minimum sale price levels are reached) of the Company's common stock over a
24
-month term. As consideration for entering into the Purchase Agreement, the Company issued
84,270
shares of its common stock to Aspire Capital. During the
six months ended
June 30, 2016
, the Company issued
5,000
shares of common stock under the Purchase Agreement for gross proceeds of
$0.03 million
. Overall, as of
June 30, 2016
, the Company has issued
109,270
shares under the Purchase Agreement for gross proceeds of
$0.3 million
.
Under the Purchase Agreement, at the Company’s discretion, it may present Aspire Capital with purchase notices from time to time to purchase the Company’s common stock, provided certain price, trading volume and conditions, including NASDAQ's trading requirements, are met. The purchase price for the shares of common stock is based upon one of two formulas set forth in the Purchase Agreement depending on the type of purchase notice the Company submits to Aspire Capital, and is based on market prices of the Company’s common stock (in the case of regular purchases) or a discount of
5%
applied to volume weighted average prices (in the case of VWAP purchases), in each case as determined by parameters defined in the Purchase Agreements. We have filed a registration statement with the SEC and a related prospectus supplement that covers the offering of shares of our common stock subject to the Purchase Agreement, and therefore can initiate sales to Aspire Capital at any time, subject to the limitation discussed above.
We are party to one other existing agreement with Aspire Capital (the "May 2015 Purchase Agreement"). The registration statement we previously filed with the SEC to cover offerings of shares of our common stock subject to the May 2015 Purchase Agreement has expired, and we have not, and currently have no intention to include such shares in a registration statement filed with the SEC. Unless and until we include such shares in a registration statement filed with the SEC, we are unable to initiate sales to Aspire under the May 2015 Purchase Agreement. Under the May 2015 Purchase Agreement, Aspire Capital is committed to purchase up to an aggregate of
$30 million
of shares. As consideration for entering into the May 2015 Purchase Agreement, the Company issued
36,484
shares of its common stock to Aspire Capital. The Company has not issued any additional shares under the May 2015 Purchase Agreement.