The accompanying notes are an integral part of these unaudited condensed financial statements.
The accompanying notes are an integral part of these unaudited condensed financial statements.
During the three months ended March 31, 2016, Biocept, Inc., or the Company, financed insurance premiums of $434,475 through third-party financings.
Fixed assets purchased totaling $181,101 during the three months ended March 31, 2017 were recorded as equipment financing obligations and were excluded from cash purchases in the Company’s unaudited condensed statements of cash flows.
The amount of unpaid fixed asset purchases excluded from cash purchases in the Company’s unaudited condensed statements of cash flows decreased from $64,300 at December 31, 2015 to $18,937 at March 31, 2016, and increased from $58,066 at December 31, 2016 to $203,267 at March 31, 2017.
The accompanying notes are an integral part of these unaudited condensed financial statements.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. The Company, Business Activities and Basis of Presentation
The Company and Business Activities
The Company was founded in California in May 1997 and is an early stage molecular oncology diagnostics company that develops and commercializes proprietary circulating tumor cell, or CTC, and circulating tumor DNA, or ctDNA, assays utilizing a standard blood sample. The Company’s current and planned assays are intended to provide information to aid healthcare providers to identify specific oncogenic mutations that may qualify a subset of cancer patients for targeted therapy. Often, traditional methodologies such as tissue biopsies are insufficient or unavailable to provide the molecular subtype information necessary for clinical decisions. The Company’s assays have the potential to provide more contemporaneous information on the characteristics of a patient’s disease compared with traditional methodologies such as tissue biopsy and radiographic imaging.
The Company operates a clinical laboratory that is CLIA-certified (under the Clinical Laboratory Improvement Amendment of 1988) and CAP-accredited (by the College of American Pathologists), and manufactures cell enrichment and extraction microfluidic channels, related equipment and certain reagents to perform the Company’s diagnostic assays in a facility located in San Diego, California. CLIA certification and accreditation are required before any clinical laboratory may perform testing on human specimens for the purpose of obtaining information for the diagnosis, prevention, treatment of disease, or assessment of health. The assays the Company offers are classified as laboratory developed tests under the CLIA regulations.
In July 2013, the Company effected a reincorporation to Delaware by merging itself with and into Biocept, Inc., a Delaware corporation, which had been formed to be and was a wholly-owned subsidiary of the Company since July 23, 2013.
Basis of Presentation
The financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America.
The unaudited condensed financial statements included in this Form 10-Q have been prepared in accordance with the U.S. Securities and Exchange Commission, or SEC, instructions for Quarterly Reports on Form 10-Q. Accordingly, the condensed financial statements are unaudited and do not contain all the information required by U.S. Generally Accepted Accounting Principles, or GAAP, to be included in a full set of financial statements. The balance sheet at December 31, 2016 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for a complete set of financial statements. The audited financial statements for the year ended December 31, 2016, filed with the SEC with our Annual Report on Form 10-K on March 28, 2017 include a summary of our significant accounting policies and should be read in conjunction with this Form 10-Q. In the opinion of management, all material adjustments necessary to present fairly the results of operations for such periods have been included in this Form 10-Q. All such adjustments are of a normal recurring nature. The results of operations for interim periods are not necessarily indicative of the results of operations for the entire year.
Reverse Stock Split
On September 27, 2016, the Company’s stockholders approved, and the Company filed, an amendment to the Company’s amended and restated certificate of incorporation to effect a one-for-three reverse stock split of the Company’s outstanding common stock, and to
increase the authorized number of shares of the Company’s common stock from 40,000,000 to 150,000,000 shares. The one-for-three reverse stock split was effected September 29, 2016
. As such, all references to share and per share amounts in the unaudited condensed financial statements and accompanying notes to the unaudited condensed financial statements have been retroactively restated to reflect the one-for-three reverse stock split, except for the authorized number of shares of the Company’s common stock of 150,000,000 shares, which was not affected by the one-for-three reverse stock split.
Revenue Recognition and Related Reserves
The Company's commercial revenues are generated from diagnostic services provided to physicians and billed to third-party insurance payers such as managed care organizations, Medicare and Medicaid and patients for any deductibles, coinsurance or copayments that may be due. The Company recognizes revenue in accordance with the provision of ASC 954-605, Health Care Entities—Revenue Recognition, which requires that four basic criteria must be met prior to recognition of revenue: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred and title and the risks and rewards of ownership have been transferred to the client or services have been rendered; (3) the price is fixed or determinable; and (4) collectability is reasonably assured. Commencing on March 31, 2017, the Company recognizes commercial revenue related to billings for assays delivered and billed to Medicare and other
8
third-party payers on an accrual basis when amounts that will ultimately be realized can be estimated upon delivery, w
hereby prior to March 31, 2017, the Company recognized revenues for its commercial diagnostic services on a cash basis as collected because the amounts ultimately expected to be received could not be estimated upon delivery due to insufficient collection h
istory experience.
The Company bills third-party payers on a fee-for-service basis at the Company’s list price and third-party commercial revenue is recorded net of contractual discounts, payer-specific allowances and other reserves. The Company’s development services revenues are supported by contractual agreements and generated from assay development services provided to entities, as well as certain other diagnostic services provided to physicians. Diagnostic services are completed upon the delivery of assay results to the prescribing physician, at which time the Company bills for the service.
The Company’s gross commercial revenues billed are subject to estimated deductions for such contractual discounts, payer-specific allowances and other reserves to arrive at reported net revenues, which relate to differences between amounts billed and corresponding amounts estimated to be subsequently collected. These third-party payer discounts and sales allowances are estimated based on a number of assumptions and factors, including historical payment trends, seasonality associated with the annual reset of patient deductible limits on January 1 of each year, and current and estimated future payments. Specifically, the Company maintains four such reserves: the reserve for contractual discounts, the reserve for aged non-patient receivables, the reserve for estimated patient receivables, and the reserve for other payer-specific sales allowances. The reserve for contractual discounts relates to discounts to gross amounts billed to Medicare and contracted third-party payers to arrive at the deemed “allowed expense" amount covered by that payer. The Company’s contracted third-party commercial sales are recorded using an actual or contracted fee schedule at the time of sale, while estimated fee schedules are maintained for each non-contracted payer separately as part of other payer-specific sales allowances. Contractual discounts are recorded at the transaction level at the time of sale based on a fee schedule that is maintained for each contracted third-party payer. The Company periodically adjusts fee schedules for both contracted and noncontracted third-party payers based upon historical payment trends. The reserve for aged non-patient receivables reduces gross amounts billed to noncontracted third-party payers for amounts estimated to be collected according to the age of the outstanding balance. The reserve for estimated patient receivables reduces gross amounts billed to third-party payers for amounts estimated to be collected directly from individual patients, such as copayments, deductibles, or amounts otherwise designated as patient responsibility. The reserve for other payer-specific sales allowances relates to the amounts billed to noncontracted third-party payers that are estimated to not be covered by that specific payer’s coverage policies, as well as estimated necessary adjustments to gross amounts billed based on historical collection experience for a particular third-party payer unrelated to the age of outstanding balances.
The estimates of amounts that will ultimately be realized from commercial diagnostic services require significant judgment by management. Patients do not enter into direct agreements with the Company that commit them to pay any portion of the cost of the tests in the event that they have not met their annual deductible limit under their insurance policy, if any, or if their insurance otherwise declines to reimburse the Company. Adjustments to the estimated payment amounts are recorded at the time of final collection and settlement of each transaction as an adjustment to commercial revenue. The estimation process used to determine third-party payer discounts and sales allowance has been applied on a consistent basis since March 31, 2017, and no subsequent significant adjustments have been necessary to increase or decrease these discounts and allowances as a result of changes in underlying estimates.
The composition of the Company’s gross and net revenues recognized during the three months ended March 31, 2016 and 2017 is as follows:
|
March 31,
|
|
|
March 31,
|
|
|
2016
|
|
|
2017
|
|
Commercial revenues recognized upon delivery
|
$ —
|
|
|
$
|
4,725,966
|
|
Development services revenues recognized upon delivery
|
|
31,848
|
|
|
|
60,789
|
|
Commercial revenues recognized upon cash collection
|
|
189,521
|
|
|
|
896,586
|
|
Total gross revenues
|
|
221,369
|
|
|
|
5,683,341
|
|
Less reserve for contractual discounts
|
|
—
|
|
|
|
(1,325,796
|
)
|
Less reserve for aged non-patient receivables
|
|
—
|
|
|
|
(316,552
|
)
|
Less reserve for estimated patient receivables
|
|
—
|
|
|
|
(103,340
|
)
|
Less reserve for other payer-specific sales allowances
|
|
—
|
|
|
|
(2,254,588
|
)
|
Net revenues
|
$
|
221,369
|
|
|
$
|
1,683,065
|
|
The amount of nonrecurring net revenue recorded during the three months ended March 31, 2017, had the Company recognized revenue for commercial diagnostic services upon delivery prior to January 1, 2017 instead of on March 31, 2017, was $877,328, and the corresponding decrease in net loss per common share was $0.04. The incremental net revenue, net accounts receivable and decrease in loss from operations during the three months ended March 31, 2017 as a result of recognizing revenue on an accrual basis for commercial diagnostic services delivered on or prior to March 31, 2017, for which no cash collections had yet been received as of March 31, 2017, was $725,690, and the corresponding decrease in net loss per common share was $0.03.
9
A summary of activity in the Company’s reserves for discounts and sales allowances
during the three months ended March 31, 2017 is as follows:
Reserve for Contractual Discounts
|
|
|
|
Balance at December 31, 2016
|
$ —
|
|
Provisions recorded
|
|
1,325,796
|
|
Settlements upon cash collection
|
|
—
|
|
Balance at March 31, 2017
|
|
1,325,796
|
|
Reserve for Aged Non-Patient Receivables
|
|
|
|
Balance at December 31, 2016
|
|
—
|
|
Provisions recorded
|
|
316,552
|
|
Settlements upon cash collection
|
|
—
|
|
Balance at March 31, 2017
|
|
316,552
|
|
Reserve for Estimated Patient Receivables
|
|
|
|
Balance at December 31, 2016
|
|
—
|
|
Provisions recorded
|
|
103,340
|
|
Settlements upon cash collection
|
|
—
|
|
Balance at March 31, 2017
|
|
103,340
|
|
Reserve for Other Payer-Specific Sales Allowances
|
|
|
|
Balance at December 31, 2016
|
|
—
|
|
Provisions recorded
|
|
2,254,588
|
|
Settlements upon cash collection
|
|
—
|
|
Balance at March 31, 2017
|
|
2,254,588
|
|
Total Discounts and Sales Allowances
|
|
|
|
Balance at December 31, 2016
|
|
—
|
|
Provisions recorded
|
|
4,000,276
|
|
Settlements upon cash collection
|
|
—
|
|
Balance at March 31, 2017
|
$
|
4,000,276
|
|
Concentration of Risk
Concentrations of credit risk with respect to revenues are primarily limited to geographies to which the Company provides a significant volume of its services, and to specific third-party payers of the Company’s services such as Medicare, insurance companies, and other third-party payers. The Company’s client base consists of a large number of geographically dispersed clients diversified across various customer types.
The Company's third-party payers that represent more than 10% of total net revenues and their related net revenue amount as a percentage of total net revenues during the three months ended March 31, 2016 were as follows:
Medicare
|
|
32
|
%
|
United Healthcare
|
|
19
|
%
|
Blue Cross Blue Shield
|
|
12
|
%
|
The Company's third-party payers that represent more than 10% of total net revenues and their related net revenue amount as a percentage of total net revenues during the three months ended March 31, 2017 were as follows:
Medicare
|
|
37
|
%
|
Blue Cross Blue Shield
|
|
21
|
%
|
United Healthcare
|
|
15
|
%
|
The Company's third-party payers that represent more than 10% of total net accounts receivable and their related net accounts receivable balance as a percentage of total net accounts receivable at March 31, 2017 were as follows:
Medicare
|
|
35
|
%
|
Blue Cross Blue Shield
|
|
29
|
%
|
United Healthcare
|
|
18
|
%
|
10
Recent Accounting Pronouncements
In May 2014, and as subsequently updated and amended from time to time, the Financial Accounting Standards Board, or the FASB, issued authoritative guidance that requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. This proposed guidance has been deferred and would be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. As the Company has not yet completed its final review of the impact of the new guidance but expects to during 2017, the Company has not determined whether the adoption of this guidance will have a material impact on its financial statements or disclosures. The Company is still evaluating disclosure requirements under the new guidance, and will continue to evaluate additional changes, modifications or interpretations to the guidance which may impact the current conclusions. The Company expects to adopt the new standard for the fiscal year beginning January 1, 2018 and has not yet determined whether the full or modified retrospective application method will be applied.
In July 2015, the FASB issued authoritative guidance requiring entities that do not measure inventory using the retail inventory method or on a last-in, first-out basis to record inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This guidance is effective on a prospective basis for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted this guidance for the reporting period beginning January 1, 2017. The adoption of this guidance did not have a material impact on the Company’s financial statements or disclosures.
In January 2016, the FASB issued authoritative guidance requiring, among other things, that certain equity investments be measured at fair value with changes in fair value recognized in net income, that financial assets and financial liabilities be presented separately by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements, that the prior requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet be eliminated, and that a reporting organization is to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption of the instrument-specific credit risk amendment is permitted. The Company expects to adopt this guidance for the fiscal year beginning on January 1, 2018, and does not anticipate that the adoption of this guidance will have a material impact on its financial statements or disclosures because the Company does not currently have any equity method investments.
In February 2016, the FASB issued authoritative guidance requiring, among other things, that entities recognize the assets and liabilities arising from leases on the balance sheet under revised criteria, while the classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria in the previous leases guidance. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company anticipates that the adoption of this guidance will materially affect its statement of financial position and will require changes to its processes. The Company has not yet made any decision on the timing of adopting this guidance or the method of adoption with respect to the optional practical expedients, but expects to during 2018.
In March 2016, the FASB issued authoritative guidance clarifying that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument does not necessarily require dedesignation of that hedging relationship, provided that all other applicable hedge accounting criteria continue to be met. This guidance is effective on either a prospective basis or modified retrospective basis for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted this guidance for the reporting period beginning January 1, 2017. The adoption of this guidance did not have a material impact on the Company’s financial statements or disclosures.
In March 2016, the FASB issued authoritative guidance requiring entities to assess whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts, and clarifies what steps are required when assessing whether the economic characteristics and risks of call (put) options are clearly and closely related to the economic characteristics and risks of their debt hosts. This guidance is effective on a modified retrospective basis for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted this guidance for the reporting period beginning January 1, 2017. The adoption of this guidance did not have a material impact on the Company’s financial statements or disclosures.
In March 2016, the FASB issued authoritative guidance simplifying the accounting for stock compensation. This guidance, among other things, amends existing accounting and classification requirements primarily around income taxes, forfeitures, and cash
11
payments associated with share-based payment awards to employees. This guidance is effective for fiscal years beginning after December 15, 2016, including interim periods
within those fiscal years. Early adoption is permitted. The Company adopted this guidance for the reporting period beginning January 1, 2017. The adoption of this guidance did not have a material impact on the Company’s financial statements or disclosures.
In August 2016, the FASB issued authoritative guidance clarifying the classification of certain cash receipts and cash payments in the statement of cash flows. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, on a retrospective transition method to each period presented. Early adoption is permitted. The Company currently intends to adopt this guidance for the fiscal year beginning on January 1, 2018, and does not anticipate that the adoption of this guidance will have a material impact on its financial statements or disclosures because the Company has not historically engaged in the transactions encompassed by the proposed guidance.
In January 2017, the FASB issued authoritative guidance clarifying the definition of a business when evaluating transactions involving acquisitions or disposals of assets or businesses. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Certain applications of this guidance are permitted for early adoption. The Company currently intends to adopt this guidance for the fiscal year beginning on January 1, 2018, and does not anticipate that the adoption of this guidance will have a material impact on its financial statements or disclosures because the Company has not historically acquired or disposed of material assets or businesses.
In January 2017, the FASB issued authoritative guidance eliminating the “Step 2” requirement for an entity to determine the fair value of its assets and liabilities for goodwill impairment testing in the same manner that would be required for those assumed in a business combination. Instead, the amended guidance allows an entity to perform goodwill impairment testing by comparing the fair value of a reporting unit with its carrying amount. This guidance is effective for any goodwill impairment tests in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company currently intends to adopt this guidance for the fiscal year beginning January 1, 2020, and does not anticipate that the adoption of this guidance will have a material impact on its financial statements or disclosures because the Company does not currently have any recorded goodwill.
In February 2017, the FASB issued authoritative guidance clarifying the definition of the term “in substance nonfinancial asset” when accounting for transfers of financial and nonfinancial assets, and other matters concerning the transfer, sale and partial sale of nonfinancial assets to both consolidated entities and non-consolidated counterparties. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted. The Company currently intends to adopt this guidance for the fiscal year beginning on January 1, 2018, and does not anticipate that the adoption of this guidance will have a material impact on its financial statements or disclosures because the Company has not historically engaged in transfers, sales or partial sales of nonfinancial assets.
In March 2017, the FASB issued authoritative guidance shortening the amortization period to the earliest call date for certain purchased callable debt securities held at a premium. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company currently intends to adopt this guidance for the fiscal year beginning on January 1, 2019, and does not anticipate that the adoption of this guidance will have a material impact on its financial statements or disclosures because the Company does not currently hold any callable debt securities.
2. Liquidity and Going Concern Uncertainty
As of March 31, 2017, cash totaled $14.0 million and the Company had an accumulated deficit of $178.1 million. For the year and three month periods ended December 31, 2016 and March 31, 2017, the Company incurred net losses of $18.4 million and $4.4 million, respectively. At March 31, 2017, the Company had aggregate net interest-bearing indebtedness of $4.1 million, of which $2.4 million was due within one year in the absence of subjective acceleration of amounts due under a credit facility entered into in April 2014 with Oxford Finance LLC, or the April 2014 Credit Facility, in addition to $3.1 million of other non-interest bearing current liabilities. Additionally, in February 2016, the Company signed a firm, noncancelable, and unconditional commitment in an aggregate amount of $1,062,500 with a vendor to purchase certain inventory items, payable in minimum quarterly installments of $62,500 through May 2020, under which $707,259 remained outstanding at March 31, 2017 (see Note 11). These factors raise substantial doubt about the Company’s ability to continue as a going concern for the one year period following the date that these unaudited condensed financial statements were issued. The accompanying unaudited condensed financial statements have been prepared assuming that the Company will continue as a going concern. The unaudited condensed financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
While the Company is currently in the commercialization stage of operations, the Company has not yet achieved profitability and anticipates that it will continue to incur net losses for the foreseeable future. Historically, the Company’s principal sources of cash have included proceeds from the issuance of common and preferred stock, proceeds from the exercise of warrants to purchase common stock, proceeds from the issuance of debt, and revenues from laboratory services. The Company’s principal uses of cash have
12
included cash used in operations, payments relating to purchases of property and equipment and repayments of borrowings. The Company expects that the principal uses of cash in the future will be for continuing operations, hiring of sales an
d marketing personnel and increased sales and marketing activities, funding of research and development, capital expenditures, and general working capital requirements. The Company expects that, as revenues grow, sales and marketing and research and develo
pment expenses will continue to grow, albeit at a slower rate and, as a result, the Company will need to generate significant growth in net revenues to achieve and sustain income from operations.
In May 2015, the SEC declared effective a shelf registration statement filed by the Company. The shelf registration statement allows the Company to issue any combination of its common stock, preferred stock, debt securities and warrants from time to time for an aggregate initial offering price of up to $50 million, subject to certain limitations for so long as the Company’s public float is less than $75 million. A public offering of the Company’s common stock and warrants to purchase its common stock was effected under this shelf registration statement on April 29, 2016, the closing of which occurred on May 4, 2016, pursuant to which the Company received net cash proceeds of approximately $4.3 million (see Note 3). Subsequent to the closing of this offering on May 4, 2016, no warrants sold in this offering have been exercised, with approximately $4.5 million in gross warrant proceeds remaining outstanding and available to be exercised at $3.90 per share until their expiration in May 2021. A second offering of the Company’s common stock was effected under this shelf registration statement on March 28, 2017, the closing of which occurred on March 31, 2017, pursuant to which the Company received net cash proceeds of approximately $8.6 million (see Note 3). In a concurrent private placement, the Company sold unregistered warrants to purchase up to 2,160,000 shares of the Company’s common stock that closed concurrently with the March 31, 2017 offering of common stock sold pursuant to this shelf registration statement. Subsequent to the closing of the sales of these unregistered warrants, no warrants sold have been exercised, with $5.4 million in gross warrant proceeds remaining outstanding and available to be exercised at $2.50 per share commencing on the six month anniversary of the closing of the offering, or September 30, 2017, until their expiration in March 2022. The specific terms of additional future offerings, if any, under this shelf registration statement would be established at the time of such offerings. A public offering of the Company’s common stock and warrants to purchase its common stock was effected under an underwriting agreement dated October 14, 2016 between the Company, Roth Capital Partners, LLC and Feltl and Company, Inc., as underwriters named therein, the closing of which occurred on October 19, 2016, pursuant to which the Company received net cash proceeds of approximately $9.0 million (see Note 3). Subsequent to the closing of this offering, cash proceeds of approximately $5.3 million have been received from the exercise of warrants sold in this offering, while approximately $5.4 million in gross warrant proceeds remain outstanding and available to be exercised at $1.10 per share until their expiration in October 2021.
Management’s Plan to Continue as a Going Concern
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Until the Company can generate significant cash from operations, including assay revenues, management’s plans to obtain such resources for the Company include proceeds from offerings of the Company’s equity securities or debt, or transactions involving product development, technology licensing or collaboration. Management can provide no assurances that any sources of a sufficient amount of financing will be available to the Company on favorable terms, if at all.
3. Sales of Equity Securities
On December 21, 2015, the Company entered into a common stock purchase agreement with Aspire Capital Fund, LLC, or Aspire Capital, which committed to purchase up to an aggregate of $15.0 million of shares of the Company’s common stock over the 30-month term of the common stock purchase agreement.
On November 4, 2016, the Company voluntarily terminated this common stock purchase agreement.
Upon execution of the common stock purchase agreement, the Company sold to Aspire Capital 208,334 shares of common stock at $4.80 per share for proceeds of $1,000,000, and concurrently also entered into a registration rights agreement with Aspire Capital, pursuant to which the Company filed a registration statement registering the sale of the shares of the Company’s common stock that were issued to Aspire Capital under the common stock purchase agreement. In consideration for entering into, and concurrently with the execution of, the common stock purchase agreement, the Company issued to Aspire Capital 55,000 shares of its common stock. The proceeds received by the Company under the common stock purchase agreement were used for working capital and general corporate purposes. During the year ended December 31, 2016, the Company submitted purchase notices to Aspire Capital for an aggregate of 173,145 shares of common stock for gross proceeds of $544,051. Costs associated with this offering of approximately $42,000 and $79,000 during the years ended December 31, 2015 and 2016, respectively, were also recorded to common stock issuance costs under applicable accounting guidance, and as such, the total net increase in capital related to these transactions was approximately $1.4 million.
In May 2015, the SEC declared effective a shelf registration statement filed by the Company. The shelf registration statement allows the Company to issue any combination of its common stock, preferred stock, debt securities and warrants from time to time for an aggregate initial offering price of up to $50 million, subject to certain limitations for so long as the Company’s public float is less than $75 million. Pursuant to an exclusive placement agent agreement dated April 25, 2016 between the Company and H.C. Wainwright & Co., LLC, and a securities purchase agreement dated April 29, 2016 between the Company and the purchasers signatory thereto, a public offering of 1,662,191 shares of the Company’s common stock and warrants to purchase up to an aggregate of 1,163,526 shares
13
of common
stock was effected under this registration statement at a combined offering price of $3.00. All warrants sold in this offering have a per share exercise price of $3.90, are exercisable immediately and expire five years from the date of issuance. The estim
ated grant date fair value of these warrants of approximately $2.0 million was recorded as an offset to additional paid-in capital within common stock issuance costs upon the closing of this offering.
The closing of the sale of these securities to the purc
hasers occurred on May 4, 2016, pursuant to which the Company received, after deducting $0.7 million of costs directly associated with the offering that were recorded as an offset to additional paid-in capital under applicable accounting guidance, approxim
ately $4.3 million of net cash proceeds. Subsequent to the closing of this offering on May 4, 2016, no warrants sold in this offering have been exercised, with approximately $4.5 million in gross warrant proceeds remaining outstanding and available to be e
xercised at $3.90 per share until their expiration in May 2021.
Pursuant to an exclusive placement agent agreement dated March 28, 2017 between the Company and Roth Capital Partners, LLC as lead placement agent, and WestPark Capital and Chardan Capital as
co-placement agents, a securities purchase agreement for a second offering of 4,320,000 shares of the Company’s common stock was effected under this registration statement at per share price of $2.15, which closed on March 31, 2017. In a concurrent private
placement, the Company sold unregistered warrants to purchase up to an aggregate of 2,160,000 shares of the Company’s common stock that closed concurrently with the March 2017 offering of common stock sold pursuant the shelf registration statement. All wa
rrants sold in this offering have a per share exercise price of $2.50, are exercisable beginning on the six-month anniversary of the date of issuance, and expire five years from the date first exercisable. The estimated grant date fair value of these warra
nts of approximately $2.8 million was recorded as an offset to additional paid-in capital within common stock issuance costs upon the closing of this offering (see Note 4).
At the closing of these sales on March 31, 2017, the Company received, after deduct
ing $0.7 million of costs directly associated with the offering that were recorded as an offset to additional paid-in capital under applicable accounting guidance, approximately $8.6 million of net cash proceeds. In connection with the closing of the offer
ing, the Company has agreed to certain contractual terms that limit its ability to issue any shares of its common stock or common stock equivalents for a 90-day period, or variable rate securities for a period of one year, following the closing of the offe
ring, with certain exceptions. The specific terms of additional future offerings, if any, under this shelf registration statement would be established at the time of such offerings.
Pursuant to an underwriting agreement dated October 14, 2016 between the Company, Roth Capital Partners, LLC and Feltl and Company, Inc., as underwriters named therein, a public offering of 9,100,000 shares of the Company’s common stock and warrants to purchase up to an aggregate of 9,100,000 shares of common stock was effected at a combined offering price of $1.10. The estimated grant date fair value of these warrants of approximately $5.2 million was recorded as an offset to additional paid-in capital within common stock issuance costs upon the closing of this offering.
Additionally, the underwriters were granted a 30-day option to purchase up to 1,365,000 additional shares of common stock at a price of $1.0331 per share, net of the underwriting discount, and/or additional warrants to purchase up to 1,365,000 shares of common stock at a price of $0.0009 per warrant to cover overallotments, if any, of which the underwriters exercised their overallotment option to purchase 627,131 option warrants for total proceeds to the Company of $564. The estimated aggregate grant date fair value of the overallotment options and warrants of approximately $0.8 million was recorded as an offset to additional paid-in capital within common stock issuance costs upon the closing of this offering.
All warrants sold in this offering
have a per share exercise price of $1.10, are exercisable immediately and expire five years from the date of issuance. The closing of the sale of these securities to the underwriters occurred on October 19, 2016, when the Company received, after deducting $1.0 million of costs directly associated with the offering that were recorded as an offset to additional paid-in capital under applicable accounting guidance, $9.0 million of net cash proceeds. Subsequent to the closing of this offering, approximately $5.3 million of additional cash proceeds had been received from the exercise of warrants sold in this offering. As such, the total net increase in capital as a result of the sale of these shares and warrants has been $14.3 million.
4. Fair Value Measurement
The estimated fair value of the April 2014 Credit Facility at March 31, 2017 approximated carrying value, which was determined using a discounted cash flow analysis. The analysis considered interest rates of instruments with similar maturity dates, which involved the use of significant unobservable Level 3 inputs.
Other Fair Value Measurements
As of the closing of the Company’s March 31, 2017 offering, the estimated grant date fair value of $1.31 per share associated with the warrants to purchase 2,160,000 shares of common stock issued in this offering, or a total of approximately $2.8 million, was recorded as an offset to additional paid-in capital within common stock issuance costs, and was estimated using a Black-Scholes valuation model with the following assumptions:
Stock price
|
$
|
2.13
|
|
Exercise price
|
$
|
2.50
|
|
Expected dividend yield
|
|
0.00
|
%
|
Discount rate-bond equivalent yield
|
|
1.93
|
%
|
Expected life (in years)
|
|
5.00
|
|
Expected volatility
|
|
80.0
|
%
|
14
5. Balance Sheet Details
The following provides certain balance sheet details:
|
December 31,
|
|
|
March 31,
|
|
|
2016
|
|
|
2017
|
|
Fixed Assets
|
|
|
Machinery and equipment
|
$
|
2,728,468
|
|
|
$
|
2,840,784
|
|
Furniture and office equipment
|
|
143,726
|
|
|
|
147,976
|
|
Computer equipment and software
|
|
620,582
|
|
|
|
914,302
|
|
Leasehold improvements
|
|
517,968
|
|
|
|
517,968
|
|
Financed equipment
|
|
1,559,690
|
|
|
|
1,762,799
|
|
Construction in process
|
|
169,896
|
|
|
|
10,026
|
|
|
|
5,740,330
|
|
|
|
6,193,855
|
|
Less accumulated depreciation and amortization
|
|
(3,933,999
|
)
|
|
|
(4,050,155
|
)
|
Total fixed assets, net
|
$
|
1,806,331
|
|
|
$
|
2,143,700
|
|
Accrued Liabilities
|
|
|
|
|
|
|
|
Accrued interest
|
$
|
20,776
|
|
|
$
|
17,667
|
|
Accrued payroll
|
|
168,727
|
|
|
|
358,291
|
|
Accrued vacation
|
|
364,953
|
|
|
|
443,622
|
|
Accrued bonuses
|
|
422,868
|
|
|
|
650,667
|
|
Accrued sales commissions
|
|
77,844
|
|
|
|
55,634
|
|
Current portion of deferred rent
|
|
67,085
|
|
|
|
77,147
|
|
Accrued other
|
|
37,783
|
|
|
|
45,431
|
|
Total accrued liabilities
|
$
|
1,160,036
|
|
|
$
|
1,648,459
|
|
6. April 2014 Credit Facility
On April 30, 2014, the Company received net cash proceeds of approximately $4,898,000 pursuant to the execution of the April 2014 Credit Facility with Oxford Finance LLC. Upon the entry into the April 2014 Credit Facility, the Company was required to pay the lender a facility fee of $50,000 in conjunction with the funding of the term loan. The April 2014 Credit Facility is secured by substantially all of the Company’s personal property other than its intellectual property. Amounts due to Oxford Finance LLC under the April 2014 Credit Facility are callable before maturity by the lender under certain subjective acceleration clauses of the underlying agreement, including changes deemed to be materially adverse by the lender. The term loan under the April 2014 Credit Facility bears interest at an annual rate equal to the greater of (i) 7.95% or (ii) the sum of (a) the three-month U.S. LIBOR rate reported in the Wall Street Journal three business days prior to the funding date of the term loan, plus (b) 7.71%. The term loan bears interest at an annual rate of 7.95%. The Company was required to make interest-only payments on the term loan through August 1, 2015. The outstanding term loan under the April 2014 Credit Facility began amortizing at the end of the applicable interest-only period, with monthly payments of principal and interest being made by the Company to the lender in consecutive monthly installments following such interest-only period. The term loan under the April 2014 Credit Facility matures on July 1, 2018. Under the original terms of the underlying agreement, the Company is also required to make a final payment to the lender equal to 5.5% of the original principal amount of the term loan funded. At its option, the Company may prepay the outstanding principal balance of the term loan in whole but not in part, subject to a prepayment fee of 1% of any amount prepaid.
On June 30, 2016, the Company entered into an amendment of the April 2014 Credit Facility. This amendment required the Company to make interest-only payments on the term loan from July 1, 2016 through September 30, 2016, and also requires an additional final payment of $50,000 to the lender. The terms of the amendment require the amortization of the outstanding amount due under the term loan to commence at the end of the applicable interest-only period, with monthly payments of principal and interest, in arrears, being made by the Company to the lender in consecutive monthly installments following such interest-only period. Additionally, pursuant to the amendment the aggregate outstanding principal amount of the Company’s permitted indebtedness, consisting of capitalized lease obligations and purchase money indebtedness outstanding at any time, was increased to $1.2 million. The June 30, 2016 amendment of the April 2014 Credit Facility was accounted for as a modification of debt under applicable accounting guidance.
The April 2014 Credit Facility includes affirmative and negative covenants applicable to the Company and any subsidiaries created in the future. The affirmative covenants include, among others, covenants requiring the Company to maintain its legal existence and governmental approvals, deliver certain financial reports and maintain insurance coverage. The negative covenants include, among others, restrictions on transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends
15
or making other distributions, making investments, creating liens, selling assets, and suffering a change in control, in each case subject to certain exceptions. The April 2014 Credit Facility also
includes events of default, the occurrence and continuation of which provide Oxford Finance LLC, as collateral agent, with the right to exercise remedies against the Company and the collateral securing the term loan under the April 2014 Credit Facility, in
cluding foreclosure against the Company’s properties securing the April 2014 Credit Facility, including its cash. These events of default include, among other things, the Company’s failure to pay any amounts due under the April 2014 Credit Facility, a brea
ch of covenants under the April 2014 Credit Facility, insolvency, a material adverse change, the occurrence of any default under certain other indebtedness in an amount greater than $250,000, and a final judgment against the Company in an amount greater th
an $250,000.
A warrant to purchase up to 17,655 shares of the Company’s common stock at an exercise price of $14.16 per share with a term of 10 years was issued to Oxford Finance LLC on April 30, 2014. Issuance costs of $102,498 associated with the term loan under the April 2014 Credit Facility were recorded as a discount to outstanding debt as of the closing date, resulting in net proceeds of $4,897,502. The estimated fair value of the warrant issued of $233,107 was also recorded as a discount to outstanding debt as of the closing date. The discounts and other issuance costs are amortized to interest expense utilizing the effective interest method over the underlying term of the loan, with total unamortized discounts of $78,408 and $75,122 remaining at December 31, 2016 and March 31, 2017, respectively. The effective annual interest rate associated with the April 2014 Credit Facility was 13.87% at both December 31, 2016 and March 31, 2017. As of March 31, 2017, total remaining principal payments of $1,465,274 and $1,201,409 were due under the April 2014 Credit Facility during the fiscal years ending December 31, 2017 and 2018, respectively.
7. Equipment Financings
The Company leases certain laboratory equipment under arrangements accounted for as capital leases and classified as equipment financings. The financed equipment is depreciated on a straight-line basis over periods ranging from 5 to 7 years. The total gross value of fixed assets capitalized under such financing arrangements was $1,559,690 and $1,762,799 at December 31, 2016 and March 31, 2017, respectively. Total accumulated depreciation related to financed equipment was approximately $525,000 and $580,000 at December 31, 2016 and March 31, 2017, respectively. Total depreciation expense related to financed equipment was approximately $26,000 and $55,000 for the three months ended March 31, 2016 and 2017, respectively. Fixed assets purchased totaling $181,101 during the three months ended March 31, 2017 were recorded as equipment financings. The aggregate weighted average effective annual interest rate related to the equipment financings was 13.18% and 13.08% at December 31, 2016 and March 31, 2017, respectively, and the maturity dates on such outstanding arrangements range from July 2017 to May 2023.
The following schedule sets forth the remaining future minimum lease payments outstanding under financed equipment arrangements, as well as corresponding remaining sales tax and maintenance obligation payments that are expensed as incurred, due within each respective fiscal year ending December 31, as well as the present value of the total amount of remaining minimum lease payments, as of March 31, 2017:
|
|
|
|
|
Maintenance
|
|
|
Minimum
|
|
|
and Sales Tax
|
|
|
Lease
|
|
|
Obligation
|
|
|
Payments
|
|
|
Payments
|
|
2017
|
$
|
308,193
|
|
|
$
|
5,323
|
|
2018
|
|
290,482
|
|
|
|
56,725
|
|
2019
|
|
249,203
|
|
|
|
77,122
|
|
2020
|
|
212,055
|
|
|
|
58,714
|
|
2021
|
|
206,478
|
|
|
|
53,896
|
|
Thereafter
|
|
387,504
|
|
|
|
75,122
|
|
Total payments
|
|
1,653,915
|
|
|
|
326,902
|
|
Less amount representing interest
|
|
(493,128
|
)
|
|
|
—
|
|
Present value of payments
|
$
|
1,160,787
|
|
|
$
|
326,902
|
|
At March 31, 2017, the present value of minimum lease payments due within one year was $351,252.
8. Stock-Based Compensation
Equity Incentive Plans
The Company maintains two equity incentive plans: the Amended and Restated 2013 Equity Incentive Plan, or the 2013 Plan, and the 2007 Equity Incentive Plan, or the 2007 Plan. The 2013 Plan includes a provision that shares available for grant under the Company’s 2007 Plan become available for issuance under the 2013 Plan and are no longer available for issuance under the 2007 Plan. On July 25, 2016, the Company’s Board of Directors approved an amendment to the 2013 Plan to reserve 333,333 shares of the Company’s common stock exclusively for the grant of stock awards to employees who have not previously been an employee or director of the
16
Company, except following a bona fide period of non-employment, as an inducement material to the individual
’s entering into employment with the Company, as defined under applicable Nasdaq Listing Rules.
As of March 31, 2017, under all plans, a total of 1,022,955 non-inducement shares were authorized for issuance, 947,704 non-inducement stock options and restric
ted stock units, or RSUs, had been issued and were outstanding, and 33,769 non-inducement shares were available for grant. As of March 31, 2017, a total of 333,333 inducement shares were authorized for issuance, 158,049 inducement stock options and RSUs ha
d been issued and were outstanding, and 175,284 inducement shares were available for grant under the 2013 Plan. At the Company’s annual meeting of stockholders held on May 2, 2017, the Company’s stockholders approved amendments to the 2013 Plan, which incl
uded an increase in the number of non-inducement shares of common stock authorized for issuance under the 2013 Plan by 2,500,000.
Stock Options
A summary of stock option activity for the three months ended March 31, 2017 is as follows:
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
Number of
|
|
|
Average Exercise
|
|
|
Contractual
|
|
|
Shares
|
|
|
Price Per Share
|
|
|
Term in Years
|
|
Outstanding at December 31, 2016
|
|
896,662
|
|
|
$
|
8.80
|
|
|
|
8.5
|
|
Granted
|
|
112,899
|
|
|
$
|
2.09
|
|
|
|
|
|
Exercised
|
|
—
|
|
|
|
|
|
|
|
|
|
Cancelled/forfeited/expired
|
|
(78,057
|
)
|
|
$
|
4.26
|
|
|
|
|
|
Outstanding at March 31, 2017
|
|
931,504
|
|
|
$
|
8.29
|
|
|
|
8.4
|
|
Vested and unvested expected to vest, March 31, 2017
|
|
925,739
|
|
|
$
|
8.26
|
|
|
|
9.1
|
|
The intrinsic values of options outstanding at December 31, 2016 and March 31, 2017 were zero and $54,571, respectively, and the intrinsic values of options vested and unvested expected to vest at March 31, 2017 was $52,853. The total weighted-average grant date fair value of the 110,569 stock options that vested during the three months ended March 31, 2017 was $7.80.
The assumptions used in the Black-Scholes pricing model for stock options granted during the three months ended March 31, 2017 were as follows:
Stock and exercise prices
|
$2.05 – $2.13
|
|
Expected dividend yield
|
|
0.00
|
%
|
Discount rate-bond equivalent yield
|
1.95% – 2.08%
|
|
Expected life (in years)
|
5.12 – 6.09
|
|
Expected volatility
|
80.0% - 90.0%
|
|
Using the assumptions described above, with stock and exercise prices being equal on date of grant, the weighted-average estimated fair value of options granted in the three months ended March 31, 2017 was $1.46 per share.
On August 31, 2015, the Company’s Board of Directors approved the issuance of 33,333 stock options with an estimated grant date fair value of $4.40 per share and an exercise price of $6.03 per share to its Chief Executive Officer pursuant to the 2013 Plan. On February 29, 2016, the Company’s Board of Directors approved the issuance of 33,333 stock options with an estimated grant date fair value of $2.87 per share and an exercise price of $4.02 per share to its Chief Executive Officer pursuant to the 2013 Plan. Vesting of these stock options was based on the Company’s achievement of specified objectives by December 31, 2016 as determined by the Company’s Board of Directors or the Compensation Committee of the Board of Directors. During the three months ended March 31, 2017, 6,333 of the performance stock options granted on August 31, 2015 and 10,000 of the performance stock options granted on February 29, 2016 were declared vested by the Company’s Board of Directors, and the remaining 50,333 shares underlying these awards were forfeited.
On July 25, 2016, the Company entered into an employment agreement with its new Chief Financial Officer, Senior Vice President of Operations and Secretary, or CFO. Pursuant to the terms of this employment agreement, on July 29, 2016 the CFO was granted inducement stock option awards with an exercise price of $1.95 per share to purchase up to (i) 66,666 shares of the Company’s common stock with an estimated grant date fair value of $1.45 per share, 25% of which will vest on the one-year anniversary of the commencement of the CFO’s employment with the Company, and remainder of which will vest in equal monthly installments over the following three years, and (ii) 33,333 shares of the Company’s common stock with an estimated grant date fair value of $1.26 per share, which vest upon the Company’s achievement of specified corporate goals for 2016 and the consummation of a specified
17
financing transaction.
During the three months ended March 31, 2017, 16,383 shares of the performance option award granted on July 29, 2016 were dec
lared vested by the Company’s Board of Directors, and the remaining 16,950 shares underlying this award were forfeited.
Restricted Stock
A summary of RSU activity for the three months ended March 31, 2017 is as follows:
|
|
|
|
|
Weighted
|
|
|
Number of
|
|
|
Average Grant
|
|
|
Shares
|
|
|
Date Fair Value
|
|
Outstanding at December 31, 2016
|
|
174,249
|
|
|
$
|
2.68
|
|
Granted
|
|
—
|
|
|
|
—
|
|
Vested and issued
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
—
|
|
|
|
—
|
|
Outstanding at March 31, 2017
|
|
174,249
|
|
|
$
|
2.68
|
|
Vested and unvested expected to vest, March 31, 2017
|
|
171,624
|
|
|
$
|
2.66
|
|
At March 31, 2017, the intrinsic values of RSUs outstanding and RSUs unvested and expected to vest were $371,150 and $365,560, respectively. Of the 174,249 RSUs outstanding at March 31, 2017, 10,920 are fully vested, and 79,997 vest fully on the one year anniversary of the date of grant, or June 6, 2017, subject to continuing service by the holders of such RSUs. On July 6, 2016, the Compensation Committee of the Company’s Board of Directors approved retention RSUs for an aggregate of 58,332 shares of common stock to three of the Company’s executive officers pursuant to the 2013 Plan, including retention RSUs for 25,000 shares of common stock to its Chief Executive Officer. Each of these retention RSUs has a grant date fair value of $1.86 per share for a grant date fair value of $108,498 to all three officers, in aggregate. These retention RSUs vest fully on the one year anniversary of the date of grant, subject to continuing service by the holders of such RSUs. Pursuant to the terms of the Company’s employment agreement with its CFO dated July 25, 2016, the CFO was granted an inducement RSU award on July 29, 2016 covering 25,000 shares of the Company’s common stock with a grant date fair value of $1.95 per share, 100% of which will vest on the one-year anniversary of the commencement of the CFO’s employment with the Company, subject to continuing service.
Stock-based Compensation Expense
The following table presents the effects of stock-based compensation related to equity awards to employees and nonemployees on the unaudited condensed statements of operations and comprehensive loss during the periods presented:
|
For the three months ended
|
|
|
March 31,
|
|
|
2016
|
|
|
2017
|
|
Stock Options
|
|
|
|
|
|
|
|
Cost of revenues
|
$
|
26,075
|
|
|
$
|
31,770
|
|
Research and development expenses
|
|
33,003
|
|
|
|
29,256
|
|
General and administrative expenses
|
|
272,569
|
|
|
|
192,053
|
|
Sales and marketing expenses
|
|
37,343
|
|
|
|
40,540
|
|
Total expenses related to stock options
|
|
368,990
|
|
|
|
293,619
|
|
RSUs
|
|
|
|
|
|
|
|
Cost of revenues
|
|
—
|
|
|
|
15,167
|
|
Research and development expenses
|
|
—
|
|
|
|
14,358
|
|
General and administrative expenses
|
|
—
|
|
|
|
29,933
|
|
Sales and marketing expenses
|
|
—
|
|
|
|
20,145
|
|
Total stock-based compensation
|
$
|
368,990
|
|
|
$
|
373,222
|
|
Stock-based compensation expense was recorded net of estimated forfeitures of 0% - 8% per annum during the three months ended March 31, 2016 and 2017. As of March 31, 2017, total unrecognized stock-based compensation expense related to unvested stock options and RSUs, adjusted for estimated forfeitures, was approximately $1,431,000 and is expected to be recognized over a weighted-average period of approximately 2.2 years.
18
9. Common Stock Warrants Outstanding
A summary of equity-classified common stock warrant activity for the three months ended March 31, 2017 is as follows:
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
Number of
|
|
|
Average Exercise
|
|
|
Contractual
|
|
|
Shares
|
|
|
Price Per Share
|
|
|
Term in Years
|
|
Outstanding at December 31, 2016
|
|
11,623,987
|
|
|
$
|
1.93
|
|
|
|
4.6
|
|
Issued
|
|
2,160,000
|
|
|
$
|
2.50
|
|
|
|
|
|
Exercised
|
|
(4,780,850
|
)
|
|
$
|
1.10
|
|
|
|
|
|
Expired
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Outstanding at March 31, 2017
|
|
9,003,137
|
|
|
$
|
2.51
|
|
|
|
4.6
|
|
All warrants outstanding at March 31, 2017 are exercisable, except for the 2,160,000 warrants issued during the three months ended March 31, 2016, which first become exercisable for a five year period beginning on September 30, 2017, or the six-month anniversary of the closing of the associated offering. The intrinsic value of equity-classified common stock warrants outstanding at March 31, 2017 was $5,094,669.
10. Net Loss per Common Share
Basic and diluted net loss per common share is determined by dividing net loss applicable to common shareholders by the weighted-average common shares outstanding during the period. Because there is a net loss attributable to common shareholders for the three months ended March 31, 2016 and 2017, the outstanding RSUs, warrants, and common stock options have been excluded from the calculation of diluted loss per common share because their effect would be anti-dilutive. Therefore, the weighted-average shares used to calculate both basic and diluted loss per share are the same.
On September 29, 2016, the Company effected a one-for-three reverse stock split of all common shares outstanding. The calculation of weighted-average shares outstanding has been adjusted for this reverse stock split as if it had occurred on December 31, 2015.
The following potentially dilutive securities have been excluded from the computations of diluted weighted-average shares outstanding for the periods presented, as they would be anti-dilutive:
|
For the three months ended
|
|
|
March 31,
|
|
|
2016
|
|
|
2017
|
|
Preferred warrants outstanding (number of common stock equivalents)
|
|
529
|
|
|
|
529
|
|
Common warrants outstanding
|
|
733,330
|
|
|
|
9,003,137
|
|
RSUs outstanding
|
|
10,920
|
|
|
|
174,249
|
|
Common options outstanding
|
|
754,799
|
|
|
|
931,504
|
|
Total anti-dilutive common share equivalents
|
|
1,499,578
|
|
|
|
10,109,419
|
|
11. Commitments and Contingencies
In the normal course of business, the Company may be involved in legal proceedings or threatened legal proceedings. The Company is not party to any legal proceedings or aware of any threatened legal proceedings that are expected to have a material adverse effect on its financial condition, results of operations or liquidity.
In February 2016, the Company signed a firm, non-cancelable, and unconditional commitment in an aggregate amount of $1,062,500 with a vendor to purchase certain inventory items, payable in quarterly installments of $62,500 through May 2020. At March 31, 2017, a total of $707,259 remained outstanding under this purchase commitment.
12. Related Party Transactions
A member of the Company’s management is the controlling person of Aegea Biotechnologies, Inc., or Aegea. On September 2, 2012, the Company entered into an Assignment and Exclusive Cross-License Agreement, or the Cross-License Agreement, with Aegea. The Company received payments totaling $19,047 during the year ended December 31, 2016, and a payment of $15,325 subsequent to March 31, 2017, from Aegea as reimbursements for shared patent costs under the Cross-License Agreement.
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Pursuant to a sublease agreement dated March 30, 2015, the Company subleased 9,849 square feet, plus free use of an additional area, of its San Diego facility to an entity affiliated with the Company’s non-executive Chairman for $12,804 per month, w
ith a refundable security deposit of $12,804 due from the subtenant. The initial term of the sublease expired on July 31, 2015, and was subject to renewal on a month-to-month basis thereafter. A total of $38,412 in rental income was recorded to other incom
e/(expense) in the Company’s unaudited condensed statements of operations and comprehensive loss during each of the three months ended March 31, 2016 and 2017. On February 1, 2017, the Company received notice from the subtenant terminating the sublease eff
ective March 31, 2017.
Three members of the Company’s Board of Directors participated in its public offering in May 2016, purchasing an aggregate of 58,335 shares of the Company’s common stock and warrants to purchase up to an aggregate of 40,832 shares of its common stock for total gross proceeds to the Company of $175,000. Additionally, a trust affiliated with Claire K.T. Reiss, who at the time was the beneficial owner of more than 10% of the Company’s outstanding common stock, participated in the Company’s public offering in May 2016, purchasing 204,758 shares of its common stock and warrants to purchase up to 143,330 shares of its common stock for total gross proceeds to the Company of $614,273.
Seven members of the Company’s Board of Directors, including its Chief Executive Officer, and all three of the Company’s other executive officers participated in the Company’s public offering in October 2016, purchasing an aggregate of 534,088 shares of common stock and warrants to purchase up to an aggregate of 534,088 shares of common stock for total gross proceeds to the Company of $587,497. Additionally, a trust affiliated with Claire K.T. Reiss, who at the time was the beneficial owner of more than 10% of the Company’s outstanding common stock, participated in the Company’s public offering in October 2016, purchasing 227,272 shares of its common stock and warrants to purchase up 227,272 shares of its common stock for total gross proceeds to the Company of $249,999. Further, several of the Company’s employees and one of its consultants participated in the Company’s public offering in October 2016, purchasing an aggregate of 79,090 shares of its common stock and warrants to purchase up to an aggregate of 79,090 shares of its common stock for total aggregate gross proceeds to the Company of $86,999.
13. Subsequent Events
At the Company’s annual meeting of stockholders held on May 2, 2017, the Company’s stockholders approved amendments to the 2013 Plan, which included an increase in the number of non-inducement shares of common stock authorized for issuance under the 2013 Plan by 2,500,000.
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