Total amortization expense for the three and six months ended June 30, 2017 and 2016 follows:
There were no impairment charges during the three and six months ended June 30, 2017 and 2016, with respect to goodwill and intangible assets.
The estimated future amortization expense for intangible assets during the remainder of 2017, the subsequent four years and thereafter is as follows:
Future amortization expense is an estimate. Actual amounts may change due to additional intangible asset acquisitions, impairment, accelerated amortization or other events.
We measure certain financial assets and liabilities at fair value. In accordance with ASC 820-10-30, fair value is a market-based measurement that should be determined based on the assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820-10-35 establishes a three-level hierarchy that prioritizes the inputs used in measuring fair value. The three hierarchy levels are defined as follows:
In December 2016, we recorded a contingent consideration liability of $967, in the form of an earn-out payment of shares of common stock, related to our merger with Nuvel Holdings (see Note 4). The contingent consideration is based on achieving certain revenue results and is payable in shares of common stock. The fair value of the liability was estimated using a weighted probability approach with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement. The significant inputs in the Level 3 measurement not supported by market activity included our assessments of expected future revenues during the earn-out period related to the assets acquired and appropriately weighting the uncertainties associated with the obligation. The assumptions used in preparing the analyses included estimates of the amount and timing of revenues. Through June 30, 2017, no shares were earned.
Under an agreement with Rene Babi, Agilivant's founder and former Executive Chairman, OrangeHook MN has agreed to distribute 151,378 shares of our common stock over a three-year period, beginning annually on April 10, 2017. As of December 31, 2016, we recorded an installment payable to related party of $546 for the outstanding shares of 151,378 at fair value per share of $3.61. On April 10, 2017, consistent with the agreement, we issued 50,460 shares of common stock under the agreement, which resulted in a reclassification of $182 from the installment payable to additional paid-in capital. The remaining 100,918 shares are issued but not outstanding.
In March 2016, OrangeHook MN entered into a Registration Rights and Put Agreement, a related party transaction with David Batchelor, the founder and CEO of LifeMed which allows him to require us to repurchase, as amended, 110,714 shares of his common stock. OrangeHook MN is required to repurchase the shares at $14 per share up to a maximum of $1,550. In 2016, in accordance with the contract, Mr. Batchelor requested that OrangeHook MN purchase a total of 114,778 shares of his common stock at a price of $14 per share, an aggregate purchase price of $1,607, of which $1,550 will be repurchased in accordance with the agreement. The Company is temporarily relieved from fulfilling its obligation under this agreement until certain settlement provisions and statutory considerations are met. The balance of the put obligation due to Mr. Batchelor of $1,550 is included in put option obligations in the consolidated balance sheets as of June 30, 2017 and December 31, 2016.
In 2016, OrangeHook MN also agreed to purchase 1,000 shares per month of OrangeHook MN's common stock owned by Rene Babi, Agilivant's founder and former Executive Chairman, at a price of $14.00 per share for a period of 24 months beginning in January 2017. The Company is temporarily relieved from fulfilling its obligation to repurchase under the agreement until certain settlement provisions and statutory considerations are met. The balance of the put obligation due to Mr. Babi of $336 is included in put option obligations in the consolidated balance sheets as of June 30, 2017 and December 31, 2016.
On March 30, 2016, OrangeHook MN entered into an unsecured revolving line of credit with a bank which provided for borrowings up to $350. The line of credit is for general working capital purposes and borrowings are subject to an interest charge of 4.5% per annum. Amounts borrowed under this line of credit have been personally guaranteed by four of the Company's directors. This revolving line of credit originally was set to expire on December 31, 2016 but on February 8, 2017, was extended to January 30, 2018 and the line of credit was increased by $200 to $550. The increase is secured by cash collateral provided by the Company's Chairman of the Board who received three-year warrants to purchase up to 28,000 shares of common stock at an exercise price of $10.00 per share as consideration. The fair value of the stock warrant, which was expensed during the period, was determined to be $3, which represents the estimated present value at grant date using the Black Scholes pricing model with the following weighted-average assumptions:
The balance outstanding under this line of credit was $400 and $350 as of June 30, 2017 and December 31, 2016, respectively.
Since inception, the Company has received interest-bearing advances from various directors and their affiliates, as related parties. During the six months ended June 30, 2017, we received interest-bearing advances from two directors which totaled $2,670 and made payments to directors of $55. Proceeds of $1,200 were part of the senior notes authorized on March 31, 2017, as described below under 2017 Debt Participation Program. The maturity dates of these are generally less than twelve months; however, $1,200 of the notes payable issued during the six months ended June 30, 2017 have initial terms of two years from issuance. Original issuance discount and debt issuance costs are being amortized over the term of the notes and amortization expense is recorded in interest expense in the accompanying consolidated statements of operations.
OrangeHook, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except for share and per share amounts)
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Face amount of notes payable to directors
|
|
$
|
5,408
|
|
|
$
|
2,793
|
|
|
Unamortized original issue discount
|
|
|
(12
|
)
|
|
|
-
|
|
|
Unamortized debt issuance costs
|
|
|
(38
|
)
|
|
|
-
|
|
|
|
|
|
5,358
|
|
|
|
2,793
|
|
|
Less: current portion
|
|
|
(4,208
|
)
|
|
|
(2,793
|
)
|
|
Notes payable to directors, net, less current portion
|
|
$
|
1,150
|
|
|
$
|
-
|
|
Notes payable generally accrue interest at a range of 0% to 10% per annum, except for one note of $500, which accrues at 0.2% per day. Interest related amounts are listed below:
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Contractual interest expense
|
|
$
|
144
|
|
|
$
|
116
|
|
|
Amortization of original issue discounts
|
|
|
1
|
|
|
|
163
|
|
|
Amortization of debt issuance costs
|
|
|
5
|
|
|
|
-
|
|
|
Interest paid
|
|
|
25
|
|
|
|
22
|
|
As of June 30, 2017 and December 31, 2016, there was $160 and $42, respectively, of accrued and unpaid interest on notes payable to directors.
Convertible Debentures
Convertible debentures as of June 30, 2017 and December 31, 2016, which includes convertible notes assumed in the Merger of $15, consist of the following:
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Face amount of debentures
|
|
$
|
3,443
|
|
|
$
|
3,443
|
|
|
Unamortized original issue discount
|
|
|
(29
|
)
|
|
|
(77
|
)
|
|
Unamortized debt issuance costs
|
|
|
-
|
|
|
|
(14
|
)
|
|
|
|
|
3,414
|
|
|
|
3,352
|
|
|
Less: current portion
|
|
|
(3,414
|
)
|
|
|
(3,352
|
)
|
|
Convertible debentures, net
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest related amounts are listed below:
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Contractual interest expense
|
|
$
|
171
|
|
|
$
|
154
|
|
|
Amortization of original issuance discount
|
|
|
49
|
|
|
|
181
|
|
|
Amortization of debt issuance costs
|
|
|
14
|
|
|
|
82
|
|
Convertible debentures accrue interest at an annual rate of 10%, except for the assumed convertible notes of $15, which accrues interest at the default rate of 18% per annum. As of June 30, 2017 and December 31, 2016, there was $340 and $163, respectively, of accrued and unpaid interest on convertible notes.
Certain of the Company's directors provided joint and several personal guaranties to certain lenders. Convertible debentures subject to these guaranties as of June 30, 2017 and December 31, 2016 is $2,455 and $2,455, respectively.
OrangeHook, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except for share and per share amounts)
The outstanding balance of convertible debentures includes $1,193 from board members, officers and their affiliates, as related parties, as of both June 30, 2017 and December 31, 2016. Interest expense related to these amounts of $60 and $60 was recorded for the six months ended June 30, 2017 and 2016, respectively. Accrued interest payable on these amounts were $120 and $61 as of June 30, 2017 and December 31, 2016, respectively.
Other Debt
Other debt as of June 30, 2017 and December 31, 2016 consists of the following:
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
2,296
|
|
|
$
|
950
|
|
|
Assumed notes payable
|
|
|
347
|
|
|
|
347
|
|
|
Insurance premium financing contracts
|
|
|
48
|
|
|
|
49
|
|
|
Unamortized debt issuance costs
|
|
|
(65
|
)
|
|
|
-
|
|
|
|
|
|
2,626
|
|
|
|
1,346
|
|
|
Less: current portion
|
|
|
(1,942
|
)
|
|
|
(1,346
|
)
|
|
Notes payable, less current portion
|
|
$
|
684
|
|
|
$
|
-
|
|
Interest related amounts are listed below:
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Contractual interest expense
|
|
$
|
345
|
|
|
$
|
4
|
|
|
Amortization of original issue discount
|
|
|
48
|
|
|
|
53
|
|
|
Amortization of debt issuance costs
|
|
|
2
|
|
|
|
-
|
|
|
Interest paid
|
|
|
226
|
|
|
|
2
|
|
Notes Payable
During the six months ended June 30, 2017, we received unsecured, short-term loans of $2,758, less original issue discount of $48 and made principal payments of $1,470.
On January 19, 2017, OrangeHook MN entered into a short-term debt agreement with a lender in the amount of $300. Interest accrued at a rate of 20 basis points or $0.6 per day. On March 2, 2017, this lender provided an additional amount of $300 under the same terms as the previous loan. Both amounts were due no later than March 17, 2017. On March 15, 2017, OrangeHook MN repaid $600 principal and $42 of accrued interest.
On February 17, 2017, OrangeHook MN entered into a short-term debt agreement with a lender in the amount of $75. The loan is non-interest bearing and is due on demand. On May 23, 2017 we repaid $75 of principal.
On February 23, 2017, OrangeHook MN entered into a short-term debt agreement with two parties totaling $250. On March 1, 2017, OrangeHook MN repaid this note together with accrued interest of $10.
On February 24, 2017, OrangeHook MN entered into a short-term debt agreement with a lender in the amount of $165 with a due date of March 24, 2017. Net proceeds of $147 were received representing the principal amount less an original issue discount of $15 and fees of $3. Interest of a fixed amount of $5 is due at maturity. In connection with this transaction, for a fee of $4 plus interest of $11, OrangeHook MN extended, to March 25, 2017, an outstanding loan of $500, from the same lender, which was originally issued in July 2016. On March 24, 2017, OrangeHook MN exercised an extension for both loans through April 15, 2017, in exchange for a fee of $5 plus additional interest of $13. On April 15, 2017, OrangeHook entered into an agreement with a current lender which extended the maturity date on these two loans from April 15, 2017 to May 27, 2017. In consideration for the extension granted by the lender, we agreed to pay additional loan discount points totaling $33 plus a fixed amount of interest of $52. In addition, we paid interest accrued to that date of $63. These loans may be extended until June 30, 2017 upon payment by OrangeHook MN of an amount equal to one-half of the interest amount due of $26 on May 27, 2017. On May 30, 2017 we paid $26 of interest as required by the agreement, which resulted in the agreement being extended through June 30, 2017. Additional activity subsequent to June 30, 2017 is described in Note 18 "Subsequent Events". These loans are personally guaranteed by our Chief Executive Officer, a director and one shareholder.
OrangeHook, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except for share and per share amounts)
On March 31, 2017 and April 20, 2017, OrangeHook MN entered into a short-term debt agreement with a lender in the amount of $250 and $100, respectively. Interest accrues at a rate of 20 basis points, or $0.7 per day and is due no later than May 29, 2017. On May 26, 2017, OrangeHook MN repaid this note together with accrued interest of $36.
On April 27, 2017, OrangeHook MN entered into a short-term debt agreement with a lender in the amount of $250. Interest is a fixed amount of $10 per week, regardless of when the loan is repaid. On May 19, 2017, we paid $30 of accrued interest and there is $60 of accrued interest at June 30, 2017.
On May 26, 2017, OrangeHook MN entered into a financing agreement with a lender in the amount of $600. Under the terms of the agreement, $850 of proceeds from 5 active contracts in LifeMed segment have been assigned to the individual lender. The contract terms extend through July 2020, as such, the proceeds from the contracts will continue to be collected by the individual lender. The annual interest rate is 27.8% and is being recorded in interest expense. As of June 30, 2017, $136 of payments had been made, leaving an amount of $463 outstanding. There were $66 of debt issuance costs associated with this agreement, which are being amortized over the term of the agreement.
On June 22, 2017, OrangeHook MN entered into a short-term debt agreement with a lender in the amount of $150 which is due July 21, 2017. Interest accrues at a rate of 20 basis points and a minimum of $8, due no later than July 21, 2017. As described in Note 18 Subsequent Events, this note was paid on July 28, 2017.
On June 5, 2017, OrangeHook MN received an advance in the amount of $184, the repayment terms of which are being negotiated.
Included in notes payable is $350 of short-term notes payable from one officer, a related party. There were no payments made on these notes and $350 was outstanding as of June 30, 2017 and December 31, 2017.
As of June 30, 2017 and December 31, 2016, there was $106 and $32, respectively, of accrued and unpaid interest on notes payable.
Financing Contracts
We finance certain of our contracts for insurance premiums. The contracts are generally for one year of coverage and include interest at rates of 6.7%, 9.6% and 11.0%. We made payments of $55 during the six months ended June 30, 2017. The balance of these contracts was $48 and $49 as of June 30, 2017 and December 31, 2016.
2017 Debt Participation Program
On March 31, 2017, the Board of Directors authorized the issuance of up to $7,000 of senior notes pursuant to the terms of a participation and payment priority agreement. Terms of the senior notes include interest of 10% per annum, payable quarterly, unless negotiated otherwise, with a maturity date of two years from the issue date. In addition, lenders receive an up-front participation fee equal to 3.5% of the amount of the note and three-year warrants equal to 14% of the amount of the note at an exercise price of $10.00 per share which vest ratably over the term of the note. As of June 30, 2017, OrangeHook has received a total of $1,300 of proceeds under this offering, $1,200 of which have been received from the Company's Chairman of the Board. Warrants to purchase 182,000 shares of common stock were issued in conjunction with the program. The fair value of these stock warrants, which will be amortized as original issue discount over the term of the notes, was determined to be $15, which represents the estimated present value at grant date using the Black-Scholes pricing model with the following assumptions:
|
Risk-free interest rate
|
|
|
1.48 - 1.50
|
%
|
|
Expected volatility
|
|
|
36.1 - 38.2
|
%
|
|
Dividend yield
|
|
|
0.0
|
%
|
|
Expected option life (years)
|
|
|
3
|
|
OrangeHook, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except for share and per share amounts)
9.
Commitments and Contingencies
We lease office space for our corporate offices and for each of our subsidiaries, through noncancelable operating leases. Rent expense, which includes charges for common area and maintenance expenses, was $173 and $82 for the three months ended June 30, 2017 and 2016, respectively, and $351 and $161 for the six months ended June 30, 2017 and 2016, respectively.
Unasserted Claims
In the ordinary course of business, the Company could be subject to liability claims related to employees or the services it provides. Asserted claims are subject to many uncertainties and the outcome of individual matters is not predictable. While the ultimate resolution of these actions may have an impact on the Company's financial results for a particular reporting period, management believes that any such resolution would not have a material adverse effect on the financial position, results of operations or cash flows of the Company and the chance of a negative outcome on outstanding litigation is considered remote.
10.
Preferred Stock
During the three and six months ended June 30, 2017, we issued 395 and 1,095 units, respectively, of OH-2 preferred stock in exchange for proceeds of $395 and $1,095, respectively, net of financing fees of $2 and $71, respectively. Attached to the units of preferred stock which were issued during the three and six months ended June 30, 2017, were seven-year warrants to purchase up to 28,437 shares and 78,507 shares, respectively, of common stock at a price of $7.00 per share.
Preferred stock dividends, related to OH-2 preferred stock of $331 and $222 were recorded for the three months ended June 30, 2017 and 2016, respectively and $643 and $413 were recorded for the six months ended June 30, 2017 and 2016, respectively. Dividends on OH-2 preferred stock are legally obligated regardless of whether they are declared by the Company's Board of Directors.
As of June 30, 2017, there were no Series A Preferred stock issued and outstanding. Cumulative dividends in arrears totaled $3 as of June 30, 2017 and December 31, 2016 and have not been declared by Board of Directors.
As of June 30, 2017, there were 20,000 shares Series B Preferred stock issued and outstanding. Cumulative dividends in arrears totaled $20 and $17 as of June 30, 2017 and December 31, 2016, respectively, and have not been declared by Board of Directors.
As of June 30, 2017
, there were 371,052 shares of Series C Preferred issued and outstanding.
Cumulative dividends in arrears totaled $313 and $260 as of June 30, 2017 and December 31, 2016, respectively, and have not been declared by the Company's Board of Directors.
11.
Stock-based Compensation
In August 2016, OrangeHook MN adopted the 2016 Equity Incentive Plan which authorized one million shares of common stock to be used for the granting of incentive awards to employees, directors or consultants.
The options allow for the purchase of shares of common stock at prices equal to the fair market value of our common stock on the date of grant. Options granted had a ten-year contractual term and vest over approximately three years. Forfeited options are available for future issue. The Company issues new stock when non-qualified stock options are exercised.
OrangeHook, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except for share and per share amounts)
During the six months ended June 30, 2017, non-qualified stock option activity was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
average
|
|
|
|
|
|
|
Weighted
|
|
Aggregate
|
|
|
remaining
|
|
|
|
|
Number of
|
|
average
|
|
intrinsic
|
|
|
contractual
|
|
|
(in thousands except number of options, exercise price and years)
|
|
options
|
|
exercise price
|
|
value
|
|
|
term (years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2016
|
|
|
1,379,566
|
|
|
$
|
5.40
|
|
|
$
|
848
|
|
|
|
8.9
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited or expired
|
|
|
(150,147
|
)
|
|
|
13.55
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding as of June 30, 2017
|
|
|
1,229,419
|
|
|
$
|
4.41
|
|
|
$
|
846
|
|
|
|
7.2
|
|
|
Exercisable as of June 30, 2017
|
|
|
636,895
|
|
|
$
|
4.56
|
|
|
$
|
628
|
|
|
|
7.1
|
|
|
Remaining authorized options available for issue
|
|
|
248,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the number of non-qualified options shown above are non-qualified stock options issued outside the plan of 478,413 as of both June 30, 2017 and December 31, 2016.
The intrinsic value of a stock award is the amount by which the fair market value of the underlying stock exceeds the exercise price of the award. The fair market value of our common stock is determined by a valuation completed by external third party for options granted during the year. The evaluation of the Company's common stock requires the Company to make assumptions about future cash flows of the Company that include, among others, growth in revenues, margins realized, level of operating expenses and cost of capital. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts. The Company engaged an independent specialist to assist The Company in evaluating the fair value of the Company's common stock and we ultimately concluded on the fair value of our common stock. As of June 30, 2017 and December 31, 2016, the fair value of our common stock was $3.61 per share.
We determine the fair value of options using the Black-Scholes option pricing model. The estimated fair value of options is recognized as expense on a straight-line basis over the options' vesting periods. There were no options granted during the six months ended June 30, 2017.
We recognized non-cash non-qualified stock option compensation expense for the three months ended June 30, 2017 and 2016, of $116 and $104, respectively, and for the six months ended June 30, 2017 and 2016, we recognized $230 and $116, respectively. Non-cash non-qualified stock option compensation expense is included in general and administrative expenses. As of June 30, 2017, there was a total of $456 in unrecognized compensation cost related to unvested stock options which is expected to be recognized over a weighted-average period of approximately 1.5 years.
12.
Stock Warrants
Warrants to purchase shares of the Company's common stock have been issued in connection with issuances of preferred stock (See Note 10), convertible debentures (See Note 8) and for certain other situations. Warrants outstanding and exercisable as of June 30, 2017 are as follows:
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
shares
|
|
|
|
|
|
|
|
|
average
|
|
|
|
|
outstanding
|
|
Weighted
|
|
Aggregate
|
|
|
remaining
|
|
|
|
|
and
|
|
average
|
|
intrinsic
|
|
|
contractual
|
|
|
(in thousands except number of options, exercise price and years)
|
|
vested
|
|
exercise price
|
|
value
|
|
|
term (years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable as of December 31, 2016
|
|
|
2,515,919
|
|
|
$
|
20.08
|
|
|
$
|
378
|
|
|
|
5.7
|
|
|
Granted
|
|
|
288,507
|
|
|
|
9.18
|
|
|
|
-
|
|
|
|
3.8
|
|
|
Exercised
|
|
|
(42,500
|
)
|
|
|
0.01
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited or expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding as of June 30, 2017
|
|
|
2,761,926
|
|
|
$
|
19.25
|
|
|
$
|
225
|
|
|
|
3.7
|
|
|
Exercisable as of June 30, 2017
|
|
|
2,600,081
|
|
|
$
|
19.82
|
|
|
$
|
225
|
|
|
|
5.3
|
|
OrangeHook, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except for share and per share amounts)
The intrinsic value of a stock award is the amount by which the fair market value of the underlying stock exceeds the exercise price of the award. The fair market value of our common stock is determined by a valuation completed by external third party for options granted during the year. The evaluation of our common stock requires us to make assumptions about future cash flows of the Company that include, among others, growth in revenues, margins realized, level of operating expenses and cost of capital. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts. The Company engaged an independent specialist to assist us in evaluating the fair value of our common stock and we ultimately concluded on the fair value of our common stock. As of June 30, 2017 and December 31, 2016, the fair value of our common stock was $3.61 per share.
During the three months ended June 30, 2017, the Company identified 20,556,642 warrants which were assumed during the Merger transaction. After giving effect to Merger and the related reverse stock split, 119 warrants remain outstanding with a weighted average exercise price per share of $276,000. The weighted average remaining term of the warrants is 2.0 years. As of June 30, 2017 and December 31, 2016, all 119 warrants were outstanding. These shares have been retrospectively included in the December 31, 2016 amounts as noted above.
13.
Net loss per share
Basic and diluted net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by giving effect to all potential shares of common stock, including our outstanding stock options, outstanding warrants, common stock related to unvested early exercised stock options, common stock related to warrants and convertible senior notes to the extent dilutive. Basic and diluted net loss per share was the same for each period presented, as the inclusion of all potential common shares outstanding would have been anti-dilutive.
The following table presents the calculation of basic and diluted net loss attributable to common stockholders per share (in thousands, except for share and per share data):
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss attributable to common stockholders per share:
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of distributed net loss attributable to common stockholders
|
|
$
|
(4,204
|
)
|
|
$
|
(2,354
|
)
|
|
$
|
(8,375
|
)
|
|
$
|
(4,466
|
)
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
6,739,950
|
|
|
|
3,863,841
|
|
|
|
6,713,475
|
|
|
|
3,719,747
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.62
|
)
|
|
$
|
(0.61
|
)
|
|
$
|
(1.25
|
)
|
|
$
|
(1.20
|
)
|
As of June 30, 2017 and 2017 the following anti-dilutive securities were outstanding. These anti-dilutive securities were excluded from the weighted-average shares used to calculate the diluted net loss per common share as follows:
|
|
|
As of June 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Restricted stock
|
|
|
-
|
|
|
|
200,000
|
|
|
Non-qualified stock options
|
|
|
1,229,419
|
|
|
|
2,115,167
|
|
|
Stock warrants
|
|
|
2,761,926
|
|
|
|
1,637,747
|
|
|
|
|
|
3,991,345
|
|
|
|
3,952,914
|
|
14.
Income Taxes
The Company assesses the potential realization of net deferred tax assets on an annual basis, or on an interim basis if the circumstances warrant. If our actual results and updated projections vary significantly from the projections used as a basis for this determination, we may need to increase or decrease the valuation allowance against the gross deferred tax assets. We would adjust our valuation allowance in the period the determination was made. The Company considers projected future taxable income and ongoing tax planning strategies and then records a valuation allowance to reduce the carrying value of the net deferred taxes for amounts that are unable to be realized. As of June 30, 2017, the Company had available unused federal net operating loss carryforwards of approximately $29,556. The net operating loss carryforwards will expire at various dates from 2025 through 2036. The Company's ability to utilize a portion of its net operating loss carryforwards to offset future taxable income may be subject to certain limitations under Section 382 of the Internal Revenue Code due to changes in the equity ownership of the Company. We have not performed an analysis to determine if an ownership change has occurred. We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant tax authority. As of June 30, 2017 and December 31, 2016, we did not have any material uncertain tax positions.
OrangeHook, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except for share and per share amounts)
15.
Business Segments
A business segment is a distinguishable component of an enterprise that is engaged in providing an individual product or service or a group of related products or services and that is subject to risks and returns that are different from those of other business segments. The Company has three operating segments: (1) Salamander, which includes the results of the business operation within Salamander Technologies, LLC, which provides an asset tagging and tracking software solution used to manage incidents or events, (2) Agilivant, which includes the results of the business operation of Agilivant, LLC, offers a real-time debit based banking and payment system, (3) LifeMed, which offers a suite of software solutions that overlays with existing systems and equipment which automates patient identity validation, record matching, insurance and payment requirements and access to information. We reconcile the results of our operating segments to our consolidated results by including the results of our corporate headquarters and centralized functions, which includes corporate expenses (e.g. corporate administrative costs) and interest expense. Segment disclosures are provided to the extent practicable under the Company's accounting system. Transactions within and between the segments are generally made on a basis to reflect the market value of the services and have been eliminated in consolidation. Management continues to evaluate the interoperability of our software solutions and related operational framework.
The Salamander segment was created as a result of OrangeHook MN's acquisition of Salamander Technologies, Inc. which occurred on October 1, 2015. The Agilivant segment was created as a result of OrangeHook MN's acquisition of Agilivant, LLC which occurred on February 12, 2016. The LifeMed segment was created as a result of OrangeHook MN's acquisition of LifeMed ID, Inc. which occurred on July 20, 2016.
Segment disclosures are as follows:
(in thousands)
|
|
|
For the Three Months Ended June 30, 2017
|
|
|
|
|
Salamander
|
|
|
Agilivant
|
|
|
LifeMed
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
416
|
|
|
$
|
-
|
|
|
$
|
204
|
|
|
$
|
-
|
|
|
$
|
620
|
|
|
Loss from operations
|
|
|
(157
|
)
|
|
|
(182
|
)
|
|
|
(1,219
|
)
|
|
|
(1,859
|
)
|
|
|
(3,417
|
)
|
|
Net loss
|
|
|
(157
|
)
|
|
|
(156
|
)
|
|
|
(1,223
|
)
|
|
|
(2,337
|
)
|
|
|
(3,873
|
)
|
|
Total assets
|
|
|
(323
|
)
|
|
|
1,030
|
|
|
|
(213
|
)
|
|
|
28,128
|
|
|
|
28,622
|
|
|
Depreciation and amortization
|
|
|
26
|
|
|
|
59
|
|
|
|
457
|
|
|
|
330
|
|
|
|
872
|
|
|
Capital expenditures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(20
|
)
|
|
|
(20
|
)
|
|
Interest expense, net of interest income
|
|
|
-
|
|
|
|
(8
|
)
|
|
|
(4
|
)
|
|
|
(478
|
)
|
|
|
(490
|
)
|
|
|
|
For the Three Months Ended June 30, 2016
|
|
|
|
|
Salamander
|
|
|
Aligivant
|
|
|
LifeMed
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
222
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
222
|
|
|
Loss from operations
|
|
|
(228
|
)
|
|
|
(296
|
)
|
|
|
-
|
|
|
|
(1,353
|
)
|
|
|
(1,877
|
)
|
|
Net loss
|
|
|
(228
|
)
|
|
|
202
|
|
|
|
-
|
|
|
|
(2,106
|
)
|
|
|
(2,132
|
)
|
|
Total assets
|
|
|
(323
|
)
|
|
|
1,030
|
|
|
|
(213
|
)
|
|
|
28,128
|
|
|
|
28,622
|
|
|
Depreciation and amortization
|
|
|
26
|
|
|
|
59
|
|
|
|
-
|
|
|
|
9
|
|
|
|
94
|
|
|
Capital expenditures
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
-
|
|
|
|
(10
|
)
|
|
|
(13
|
)
|
|
Interest expense, net of interest income
|
|
|
-
|
|
|
|
(28
|
)
|
|
|
-
|
|
|
|
(394
|
)
|
|
|
(422
|
)
|
OrangeHook, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except for share and per share amounts)
|
(in thousands)
|
|
For the Six Months Ended June 30, 2017
|
|
|
|
|
Salamander
|
|
|
Agilivant
|
|
|
LifeMed
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
823
|
|
|
$
|
4
|
|
|
$
|
322
|
|
|
$
|
-
|
|
|
$
|
1,149
|
|
|
Loss from operations
|
|
|
(247
|
)
|
|
|
(451
|
)
|
|
|
(2,530
|
)
|
|
|
(3,753
|
)
|
|
|
(6,981
|
)
|
|
Net loss
|
|
|
(247
|
)
|
|
|
(383
|
)
|
|
|
(2,548
|
)
|
|
|
(4,554
|
)
|
|
|
(7,732
|
)
|
|
Total assets
|
|
|
(323
|
)
|
|
|
1,030
|
|
|
|
(213
|
)
|
|
|
28,128
|
|
|
|
28,622
|
|
|
Depreciation and amortization
|
|
|
52
|
|
|
|
118
|
|
|
|
913
|
|
|
|
703
|
|
|
|
1,786
|
|
|
Capital expenditures
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(21
|
)
|
|
|
(23
|
)
|
|
Interest expense, net of interest income
|
|
|
-
|
|
|
|
(16
|
)
|
|
|
(18
|
)
|
|
|
(801
|
)
|
|
|
(835
|
)
|
|
|
|
For the Six Months Ended June 30, 2016
|
|
|
|
|
Salamander
|
|
|
Agilivant
|
|
|
LifeMed
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
461
|
|
|
$
|
2
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
463
|
|
|
Loss from operations
|
|
|
(466
|
)
|
|
|
(448
|
)
|
|
|
-
|
|
|
|
(2,501
|
)
|
|
|
(3,415
|
)
|
|
Net loss
|
|
|
(466
|
)
|
|
|
65
|
|
|
|
-
|
|
|
|
(3,652
|
)
|
|
|
(4,053
|
)
|
|
Total assets
|
|
|
364
|
|
|
|
1,222
|
|
|
|
-
|
|
|
|
15,469
|
|
|
|
17,055
|
|
|
Depreciation and amortization
|
|
|
52
|
|
|
|
91
|
|
|
|
-
|
|
|
|
15
|
|
|
|
158
|
|
|
Capital expenditures
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
-
|
|
|
|
(21
|
)
|
|
|
(25
|
)
|
|
Interest expense, net of interest income
|
|
|
-
|
|
|
|
(43
|
)
|
|
|
-
|
|
|
|
(792
|
)
|
|
|
(835
|
)
|
16.
Proforma Combined Financial Information (unaudited)
The following unaudited supplemental pro forma information presents the financial results as if the acquisitions of Agilivant, LifeMed, and Nuvel had occurred on January 1, 2016 for the three and six months ended June 30, 2016. This supplemental pro forma information has been prepared for comparative purposes and does not purport to be indicative of what would have occurred had the acquisition been made on January 1, 2016, nor are they indicative of any future results.
|
(in thousands except for share and per share amounts)
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
|
June 30, 2016
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
223
|
|
|
$
|
613
|
|
|
Loss from operations
|
|
$
|
(2,480
|
)
|
|
$
|
(6,281
|
)
|
|
Net loss before non-controlling interest in subsidiary
|
|
$
|
(2,771
|
)
|
|
$
|
(7,015
|
)
|
|
Net loss attributable to common stockholders
|
|
$
|
(3,037
|
)
|
|
$
|
(7,429
|
)
|
|
Loss per common share - basic and diluted
|
|
$
|
(0.79
|
)
|
|
$
|
(1.96
|
)
|
|
Pro forma weighted average common shares outstanding - basic and diluted
|
|
|
3,822,985
|
|
|
|
3,785,223
|
|
17.
Related-Party Transactions
Lease obligations
Our subsidiary LifeMed is obligated under a non-cancellable operating lease with Mr. Batchelor, CEO of LifeMed and his spouse, as owners of the property. Base rent paid to Mr. Batchelor during the three and six months ended June 30, 2017 was $11 and $28, respectively. There were no amounts of base rent paid to Mr. Batchelor during the three and six months ended June 30, 2016. There was $6 and no amounts accrued at June 30, 2017 and December 31, 2016, respectively.
OrangeHook subleases office space in Wayzata, Minnesota from a company controlled by family members of the Company's Chief Executive Officer and director under an operating lease dated December 15, 2014. During the three months ended June 30, 2017 and 2016, we paid rent to the related company of $11 and $16, respectively. During the six months ended June 30, 2017 and 2016, we paid rent to the related company of $16 and $32, respectively. There was $16 and $5 accrued at June 30, 2017 and December 31, 2016, respectively.
OrangeHook, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except for share and per share amounts)
Business Relationship
OrangeHook engaged with a corporation to provide business advisory services of which an individual director and officer of OrangeHook MN is also the Chairman of that corporation. The corporation provides business advisory services which include identifying potential investors, general business development, and other services as required. During the three and six months ended June 30, 2017, we paid $15 and $20, respectively. During the three and six months ended June 30, 2016, we paid $0 and $16, respectively. There was $21 and $22 accrued at June 30, 2017 and December 31, 2016, respectively.
18.
Subsequent Events
Subsequent to June 30, 2017 and through August 14, 2017, the date of the filing of this report, the following subsequent events have occurred:
Sales of OH-2 Convertible Preferred Stock
Through August 14, 2017, a total of 100 units of OH-2 convertible preferred stock have been sold to a director, a related party, in exchange for cash proceeds of $100. Attached to the units of preferred stock were warrants to purchase up to 7,150 shares of common stock at a price of $7 per share.
Other Debt
On July 5, 2017, we repaid to one lender, $525 and $173 of notes payable principal on two notes issued July 7, 2016 and February 27, 2017, respectively, along with accrued interest of $26. From this same lender, on July 7, 2017 we received a new loan in the amount $250. The principal of $250 and interest of $15 is due September 5, 2017.
On July 24, 2017, we received an advance of $100 from our Chief Executive Officer, a related party, which was repaid on July 25, 2017.
On July 25, 2017, we received a note from a lender of $100. This note matures in one year and accrues interest at an annual rate of 9%.
On July 28, 2017, we paid principal and interest of $150 and $12 to lender for a note dated June 22, 2017.
On July 31, 2017, we entered into a Commercial Promissory Note with a lender in the principal amount of $1,000. The maturity date of the Note is October 30, 2017. We are required to pay a loan discount fee of $50 and interest of $90 by August 30, 2017. The Note may be extended for an additional 90-day period until January 28, 2018 under the same terms if there has been no default under the Note or personal guaranties. The Note is supported by a confession of judgment by the Company and five personal guarantees and confessions of judgment, including four members of the Board of Directors.
On August 8, 2017, we received a note $500 from a company owned by children of the Chairman of the Board of Directors. The note to be issued by the Company will mature in ninety days and will require a fixed interest amount of $50. The proceeds of the note were used to pay a $500 loan from the Chairman of the Board of Directors. Additional terms of the note are being defined.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement Regarding Forward-Looking Statements
This quarterly report on Form 10-Q and other reports filed by the Company from time to time with the Securities and Exchange Commission (the "SEC") contain or may contain forward-looking statements and information that are based upon beliefs of and information currently available to management as well as estimates and assumptions made by management. When used in the filings the words "anticipate," "believe," "estimate," "expect," "future," "intend," "plan," "may," "will," or the negative variation of these terms and similar expressions as they relate to the Company or management identify forward-looking statements. These statements include those relating to our business strategy, our future results of operations, including our expectations as to expected and potential new sources of revenue or increases in revenue from existing sources, our future gross margins and levels of product development and sales and marketing expenses, our sales and marketing activities, our competitive market position, our product development activities and our financing. They reflect the current view of management with respect to future events and are subject to risks, uncertainties, assumptions and other factors relating to our industry and operations and results of operations, such as our beliefs regarding the operational efficiencies offered by our platform; the competitiveness of our products; the effectiveness of our marketing strategies; the strength and security of our intellectual property; our expectations regarding generation of revenue from current and future business partnerships and other business relationships; our ability to control costs for outside services and other general and administrative expenses; our ability to further develop our products and to leverage their interoperability; the risk that we will need to raise additional capital to fund our operations and such capital may either not be available to us or be available on acceptable terms; the risk that we do not have enough cash to fund our operations to profitability and if we are unable to secure additional capital, we may need to reduce and/or cease our operations; the risk that a "going concern" opinion from our auditors could impair our ability to finance our operations through the sale of equity, incurring debt, or other financing alternatives on terms acceptable to us. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.
Although management believes that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results. The following discussion should be read in conjunction with the unaudited consolidated financial statements of the Company and its portfolio companies included elsewhere in this quarterly report on Form 10-Q,
our annual report on Form 10-K and 10-K/A for the fiscal year ended December 31, 2016, our other quarterly reports on Form 10-Q, our current reports on Form 8-K and our other reports filed with the Securities and Exchange Commission.
Company Overview
OrangeHook, Inc., a Minnesota corporation ("OrangeHook MN"), was formed on October 17, 2014, to acquire select software applications and technology that service consumer, healthcare, and governmental organizations. On December 1, 2016, OrangeHook MN was acquired by reverse merger by Nuvel Holdings, Inc., a Florida corporation ("Nuvel Holdings"), under an Agreement and Plan of Merger dated July 1, 2016, as amended by Amendment No. 1 dated October 14, 2016 (as amended, the "Merger Agreement"). The Merger Agreement was between Nuvel Holdings, OH Acquisition Corp, a Minnesota corporation and wholly-owned subsidiary of Nuvel Holdings ("Merger Sub"), and OrangeHook MN. Under the terms of the Merger Agreement, Merger Sub merged with and into OrangeHook MN, with OrangeHook MN remaining as the surviving corporation and a wholly-owned subsidiary of Nuvel Holdings (the "Merger"). Although Nuvel Holdings was the legal acquirer due to the reverse triangular merger structure of the Merger, OrangeHook MN shareholders received as merger consideration shares of Nuvel Holdings capital stock representing a substantial majority of the voting rights of Nuvel Holdings. As a result, OrangeHook MN was the accounting and financial acquirer in the Merger. Subsequent to the Merger, Nuvel Holdings adopted the name OrangeHook, Inc. ("OrangeHook").
During 2015 and 2016, prior to the Merger, OrangeHook MN acquired Salamander Technologies, Inc. (now Salamander Technologies, LLC, "Salamander"), an 82% interest in Agilivant LLC, ("Agilivant") and LifeMed ID, Inc. ("LifeMed"). Although Salamander, Agilivant and LifeMed each have entered their revenue generation phase, the sales cycle for each offering is longer than the average sales cycle, as is typical with SaaS-based solutions. We are seeking to expand our sales distribution channels through partners and additional sales to increase our sales opportunities. Also in 2016, OrangeHook MN purchased certain intellectual property and other assets of LifeNexus, Inc. ("LifeNexus"). OrangeHook the acquired OrangeHook MN in late 2016 pursuant to the Merger and, consequently, is the ultimate parent entity of OrangeHook MN, Salamander, Agilivant and LifeMed and the ultimate owner of the LifeNexus assets. Following the Merger, OrangeHook continues to own its other operating subsidiary, Nuvel, Inc. The LifeNexus technologies and the technologies offered by Nuvel, Inc. are in the late stages of development, and we expect to commence field trial activity during the current calendar year.
Portfolio Companies
Our four operating portfolio companies, Salamander, Agilivant, LifeMed and Nuvel, have developed proprietary software applications and services which are unique to the OrangeHook suite of identification solutions. OrangeHook believes that the solutions offered by its portfolio companies have the potential to provide an efficient, cost effective, and comprehensive solution to the issues surrounding correct patient identification, first responder credentialing, and payment authentication. Management believes that our identity solutions can transcend specific industry verticals and become usable across a wide spectrum of applications. Our ability to implement our solutions across industry specific verticals will depend, in part, on our ability to fund any necessary information technology initiatives, to market the solutions at correct management levels in our customer base and our success in early adopter installations. Management believes the interoperability features of our portfolio companies' suite of software applications position OrangeHook for a competitive advantage in the healthcare, first responder, and payments industries and will be attractive to other industries across multiple disciplines in the future.
Currently, management voluntarily undertakes to report financial results in three operating segments: LifeMed, Salamander, and Agilivant. Although management and certain administrative functions are centralized at OrangeHook, each segment operates independently with its own staffing and facilities and offers complementary but unique software solutions. Management evaluates the financial results of each operating segment separately to determine how to allocate resources and to assess performance. Management includes the development and marketing activities related to software technologies which were acquired through our acquisitions of LifeNexus assets and Nuvel, Inc. in the OrangeHook corporate results. Management continues to evaluate the interoperability of our software solutions and related operational framework.
Salamander
Our Salamander segment accounted for $823 and $461, or approximately 71.6% and 99.6% of our revenues, for the six months ended June 30, 2017 and 2016, respectively. OrangeHook acquired the Salamander business in October of 2015. Salamander competes in the emergency management tracking and accountability solutions industry. Salamander sells its SaaS solutions primarily through its internal sales staff and through agreements with channel distributors. The channel distributor group is comprised of regional technical centers, resellers and lead generators, all of which have non-exclusive rights to internal sales activity in various geographic territories in the United States. As of June 30, 2017, we had 11 active channel distributors.
Agilivant
Our Agilivant segment accounted for $4 and $2, or approximately 0.4% and 0.4% of our revenues, for the six months ended June 30, 2017 and 2016, respectively. OrangeHook acquired a 82% majority interest in Agilivant, LLC in February of 2016. Agilivant offers a hybrid SaaS-based payment technology solution, encompassing both issuing and acquiring bank functionality, in the financial transfer and remittance services industry. Agilivant's current activities focus on the sale of instances of its software and third party joint revenue sharing opportunities and does not maintain a relationship with a bank for card programs. Agilivant continues to pursue limited marketing and sale of card programs.
LifeMed
Our LifeMed segment accounted for $322 and $0, or approximately 28.0% and 0% of our revenues, for the six months ended June 30, 2017 and 2016, respectively. We made a series of investments in LifeMed beginning in December 2014 and we acquired the remaining equity interests in LifeMed on July 20, 2016. LifeMed competes in the healthcare information systems industry, which has shown that, in addition to the longer sales cycle associated with SaaS-based offering, the sales cycle includes a large variety of internal stakeholders, and regulatory considerations and other factors, which may further lengthen the sales process
.
With the LifeMed application, all medical records can be linked via a secure, cloud-based application to allow access to a complete history instantly through a SaaS-based solution. The LifeMed application utilizes a library of application programming interfaces to overlay, enhance, and integrate, with existing systems, while at the same time facilitating connectivity with outside third party systems and databases. Management expects to further enhance the LifeMed platform through the integration of additional OrangeHook portfolio products including payment applications, personal health storage features, and secure health record file transfer capabilities.
Nuvel
Nuvel, Inc.
is an early-stage company engaged in the business of designing, developing and selling a family of proxy and other appliances and related software and services that can secure, accelerate and optimize the flow, delivery and performance of end users' business applications, web content and other information to users over private enterprise networks, or across an enterprise's gateway to the public Internet. N
uvel's approach—the Network Data Tunnel (NDT) solution— streamlines the transfer process itself rather than modifying the file being sent. The NDT solution can increase transfer speeds by up to 150 times. The software requires minimal time and effort to incorporate into extant systems, and due to the massive increases in bandwidth utilization, can be used to facilitate mass integration into cloud-based systems. Results of operations for Nuvel are included in the 'Corporate' results.
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion addresses:
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the unaudited consolidated results of operations for the three and six month periods ended June 30, 2017 and 2016 and
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our financial condition as of June 30, 2017.
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This discussion should be read in conjunction with the unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and the Management's Discussion and Analysis of Financial Condition and Results of Operations section included in our 2016 Annual Report on Form 10-K and 10-K/A filed with the Securities and Exchange Commission.
Consolidated Results of Operations for the three months ended June 30, 2017 compared to the three months ended June 30, 2016
Total Revenue
Total revenue for the three months ended June 30, 2017 and 2016 was $620 and $222, respectively, representing an increase of $398 or 179.3%. The increase was primarily due to increased revenue in our Salamander segment of $194 and three months of revenue of $204 for our LifeMed segment compared to none in 2016 prior to our merger with LifeMed.
The Company has executed and may execute additional contracts with various partners that we believe will assist with expanding revenue generation in future periods.
Total Cost of Sales
Total cost of sales for the three months ended June 30, 2017 and 2016 was $262 and $35, respectively, representing an increase of $227 or 648.6%. The increase was primarily due to increases in our Salamander segment of $157 and three months of financial results for our LifeMed segment, which resulted in $70 of cost of sales, compared to none in 2016 when we did not own LifeMed.
Total Gross Margin
Total gross margin for the three months ended June 30, 2017 and 2016 was $358 and $187, respectively, representing an increase of $171 or 91.4%. The increase was primarily due to increased gross margin in our Salamander segment related to a new large customer and three months of financial results for our LifeMed segment compared to none in 2016. Gross margins were 57.7% and 84.2% for the three months ended June 30, 2017 and 2016, respectively.
Operating Expenses
Our operating expenses consist primarily of personnel costs, including salaries, commissions, bonuses, stock-based compensation and related benefits, and taxes, marketing programs, external consulting and professional services, travel, and depreciation and amortization expenses. Additionally, operating expenses were impacted by the additional results of our acquired company, LifeMed, in the third quarter of 2016 and full period results for Agilivant, which was acquired in February 2016.
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(dollars in thousands)
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Three months ended June 30,
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2017
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2016
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$ Change
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% Change
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Product development
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$
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538
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$
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284
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$
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254
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89.4
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%
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Sales and marketing
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224
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120
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104
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86.7
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General and administrative
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3,013
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1,660
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1,353
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81.5
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Interest expense
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490
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422
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68
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16.1
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Product Development
Product development expense for the three months ended June 30, 2017 increased by $254, or 89.4%, to $538 as compared to $284 for the same period of 2016. The increase was primarily due to the inclusion of product development expenses for three months for our LifeMed segment of $378 compared to none in 2016. Product development expenses as a percentage of total revenue was 86.8% and 127.9% for the three months ended June 30, 2017 and 2016, respectively.
Sales and Marketing
Sales and marketing expense for the three months ended June 30, 2017 increased by $104 or 86.7%, to $224 as compared to $120 for the same period of 2016. The increase was primarily due to the inclusion of sales and marketing expenses for three months for our LifeMed segment of $110 compared to none in 2016. Sales and marketing expenses as a percentage of total revenue was 36.1% and 54.1% for the three months ended June 30, 2017 and 2016, respectively.
General and Administrative
General and administrative expense for the three months ended June 30, 2017 increased by $1,353 or 81.5%, to $3,013 as compared to $1,660 for the same period of 2016. The increase was primarily due to the inclusion of general and administrative expenses for three months for our LifeMed segment of $879 compared to none in 2016 and an increase of $402 of amortization related to amortization of intangible assets acquired in 2016. General and administrative expenses as a percentage of total revenue was 486.0% and 747.7% for the three months ended June 30, 2017 and 2016, respectively.
Interest Expense
Interest expense for the three months ended June 30, 2017 increased by $68 or 16.1%, to $490 as compared to $422 for the same period of 2016. Cash interest expense on outstanding debt was $410 and $145 for the three months ended June 30, 2017 and 2016, respectively. Total debt increased $3,280 to a total of $11,798 as of June 30, 2017 compared to $8,518 at the same period in 2016. Amortization of debt issuance costs, original issue discount and financing fees, which are included in interest expense, was $85 and $36 for the three months ended June 30, 2017 and 2016, respectively.
Non-controlling Interest in Subsidiary
During the three months ended June 30, 2017 the net loss attributable to non-controlling interest in subsidiary was $34 and for the three months ended June 30, 2017 the net income attributable to non-controlling interest was $44. The non-controlling interest in the subsidiary is due to OrangeHook owning 82% of Agilivant, while the remaining 18% is held by minority owners.
Net Loss
As a result of the above, net loss for the three months ended June 30, 2017 was $3,873 compared to $2,132 for the same period of 2016.
Salamander Segment
(dollars in thousands)
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Three months ended June 30,
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2017
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2016
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$ Change
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% Change
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Total revenue
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$
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416
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$
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222
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$
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194
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87.4
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%
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Cost of sales
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192
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35
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157
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448.6
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Gross margin
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$
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224
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$
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187
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$
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37
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19.8
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Gross margin %
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53.8
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%
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84.2
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%
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Product Development
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$
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156
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$
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178
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$
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(22
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)
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(12.4
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)%
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Total revenue in the Salamander segment for the three months ended June 30, 2017 increased by $194, or 87.4%, to $416 as compared to revenue of $222 for the three months ended June 30, 2016. Salamander has 11 active channel distributers in 2017, which generated 73.2% percent of our contracted revenue for the three months ended June 30, 2017, and 10 active channel distributors for the three months ended 2016, which generated 29.3% of our contracted revenue for the three months ended June 30, 2016.
Total cost of sales in the Salamander segment for the three months ended June 30, 2017 increased by $157 or 448.6% to $192 as compared to cost of sales of $35 for the three months ended June 30, 2016. The increase resulted primarily from an increase of third-party software costs related to one new customer contract.
Total gross margin for the Salamander segment was $224 and $187 for the three months ended June 30, 2017 and 2016, respectively. Gross margin in the Salamander segment was 53.8% and 84.2% for the three months ended June 30, 2017 and 2016, respectively.
Total product development expenses for the Salamander segment for the three months ended June 30, 2017 decreased by $22 or 12.4%, to $156 as compared to $178 for the three months ended June 30, 2016. Product development expenses as a percentage of total Salamander revenue was 37.5% and 80.2% for the three months ended June 30, 2017 and 2016, respectively. Investments in product development relate to the continued reconfiguring and development our SalamanderLive
TM
product to a cloud-based platform and ongoing software support.
Agilivant Segment
(dollars in thousands)
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Three months ended June 30,
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2017
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2016
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$ Change
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% Change
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Total revenue
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$
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-
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$
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-
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$
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-
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*
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%
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Cost of sales
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-
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-
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-
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*
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Gross margin
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$
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-
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|
$
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-
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|
$
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-
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*
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Gross margin %
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*
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%
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*
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%
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Product Development
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$
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5
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$
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106
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$
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(101
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)
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(95.3
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)%
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* Not meaningful
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There were no revenues earned or cost of sales incurred during the three months ended June 30, 2017 and 2016.
Total product development expenses for the three months ended June 30, 2017 decreased by $101, or 95.3%, to $5 as compared to $106 for the three months ended June 30, 2016. Investments in product development relate to external services to continue the development of the Agilivant software and compliance with banking industry regulatory obligations.
LifeMed Segment
(dollars in thousands)
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|
Three months ended June 30,
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2017
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2016
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$ Change
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% Change
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Total revenue
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$
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204
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$
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-
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$
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204
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*
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%
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Cost of sales
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70
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-
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|
70
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*
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Gross margin
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$
|
134
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|
$
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-
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$
|
134
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*
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Gross margin %
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65.7
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%
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*
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%
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|
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|
|
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|
|
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Product Development
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$
|
378
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$
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-
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|
$
|
378
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*
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%
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|
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* Not meaningful
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The acquisition of LifeMed was completed in July 2016. Accordingly, there are no results to report for the three months ended June 30, 2016. Total revenue in the LifeMed segment for the three months ended June 30, 2017 was $204 compared to $0 for the three months ended June 30, 2016. Revenues resulted primarily from the licensing of our SecureReg 2.0 software to hospitals. As of June 30, 2017, we had five active customers.
Total cost of sales in the LifeMed segment for the three months ended June 30, 2017 was $70 compared to $0 for the three months ended June 30, 2016. The acquisition of LifeMed was completed in July 2016. Accordingly, there are no results to report for the three months ended June 30, 2016. Cost of sales was primarily comprised of hosting and technical services fees for our SecureReg 2.0 software and costs of hardware and supplies.
Total gross margin for the LifeMed segment was $134 for the three months ended June 30, 2017. As a percentage of total revenue, gross margin for the LifeMed segment was 65.7% for the three months ended June 30, 2017.
Total product development expenses for the LifeMed segment for the three months ended June 30, 2017 were $378 compared to $0 for the three months ended June 30, 2016. The acquisition of LifeMed was completed in July 2016. Accordingly, there are no results to report for the three months ended June 30, 2016. Product development expenses as a percentage of total revenue was 185.3% for the three months ended June 30, 2017. Product development expense was primarily related to developing our proprietary patent-pending Authoritative Identity Management Exchange ("AIMe
TM
") software, developing and integrating the electronic payments platform, and other software support.
Consolidated Results of Operations for the six months ended June 30, 2017 compared to the six months ended June 30, 2016
Total Revenue
Total revenue for the six months ended June 30, 2017 and 2016 was $1,149 and $463, respectively, representing an increase of $686 or 148.2%. The increase was primarily due to increased revenue in our Salamander segment of $362 and six months of revenue of $322 for our LifeMed segment compared to none in 2016.
The Company has existing contracts with various partners that we believe will result in revenue generation in future periods.
Total Cost of Sales
Total cost of sales for the six months ended June 30, 2017 and 2016 was $468 and $96, respectively, representing an increase of $372 or 387.5%. The increase was primarily due to increases in our Salamander segment of $219 and six months of financial results for our LifeMed segment, which resulted in $151 of cost of sales, compared to none in 2016.
Total Gross Margin
Total gross margin for the six months ended June 30, 2017 and 2016 was $681 and $367, respectively, representing an increase of $314 or 85.6%. The increase was primarily due to increased revenue in our Salamander segment and six months of financial results for our LifeMed segment compared to none in 2016. Gross margins were 59.3% and 79.3% for the six months ended June 30, 2017 and 2016, respectively.
Operating expenses
Our operating expenses consist primarily of personnel costs, including salaries, commissions, bonuses, employee benefits, stock-based compensation, taxes, marketing programs, external consulting and professional services, travel, and depreciation and amortization expenses. Additionally, operating expenses were impacted by the additional results of our acquired company, LifeMed, in the third quarter of 2016 and full period results for Agilivant, which was acquired in February 2016.
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(dollars in thousands)
|
|
Six months ended June 30,
|
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|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
$ Change
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% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Development
|
|
$
|
1,179
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|
|
$
|
491
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|
|
$
|
688
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|
|
|
140.1
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%
|
|
Sales and marketing
|
|
|
415
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|
|
|
247
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|
|
|
168
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|
|
|
68.0
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|
General and administrative
|
|
|
6,068
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|
|
|
3,044
|
|
|
|
3,024
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|
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|
99.3
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Interest Expense
|
|
|
835
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|
|
|
835
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|
|
|
-
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|
|
|
-
|
|
Product Development
Product development expense for the six months ended June 30, 2017 increased by $688, or 140.1%, to $1,179 as compared to $491 for the same period of 2016. The increase was primarily due to the inclusion of product development expenses of $780 for six months for our LifeMed segment compared to none in 2016. Product development expenses as a percentage of total revenue was 102.6% and 221.2% for the six months ended June 30, 2017 and 2016, respectively.
Sales and Marketing
Sales and marketing expense for the six months ended June 30, 2017 increased by $168 or 68.0%, to $415 as compared to $247 for the same period of 2016. The increase was primarily due to the inclusion of sales and marketing expenses for six months for our LifeMed segment of $211 compared to none in 2016 offset by decreases in employee related and marketing costs of $30 and $13, respectively. Sales and marketing expenses as a percentage of total revenue was 36.1% and 111.3% for the six months ended June 30, 2017 and 2016, respectively.
General and Administrative
General and administrative expense for the six months ended June 30, 2017 increased by $3,024 or 99.3%, to $6,068 as compared to $3,044 for the same period of 2016. The increase was primarily due to the inclusion of general and administrative expenses of $1,710 for six months for our LifeMed segment compared to none in 2016 and increased employee costs and amortization of $828 and $805, respectively, offset by a decrease in professional service fees of $195. General and administrative expenses as a percentage of total revenue was 528.1% and 1,371.2% for the six months ended June 30, 2017 and 2016, respectively.
Interest Expense
Interest expense for the six months ended June 30, 2017 and 2016 remained flat at $835. Cash interest expense on outstanding debt increase was $673 and $290 for the six months ended June 30, 2017 and 2016, respectively. Total debt increased $3,280 to a total of $11,798 as of June 30, 2017 compared to $8,518 at the same period in 2016. Amortization of debt issuance costs, original issue discount and financing fees, which are included in interest expense, was $108 and $82 for the six months ended June 30, 2017 and 2016, respectively.
Non-controlling Interest in Subsidiary
During the six months ended June 30, 2017 the net loss attributable to non-controlling interest in subsidiary was $84 and for the three months ended June 30, 2017 the net income attributable to non-controlling interest was $14. The non-controlling interest in the subsidiary is due to OrangeHook owning 82% of Agilivant, while the remaining 18% is held by minority owners.
Net Loss
As a result of the above, net loss for the six months ended June 30, 2017 was $7,732 compared to $4,053 for the same period of 2016.
Salamander Segment
(dollars in thousands)
|
|
|
Six months ended June 30,
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|
|
|
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|
|
2017
|
|
|
2016
|
|
|
$ Change
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|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
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|
$
|
823
|
|
|
$
|
461
|
|
|
$
|
362
|
|
|
|
78.5
|
%
|
|
Cost of sales
|
|
|
315
|
|
|
|
96
|
|
|
|
219
|
|
|
|
228.1
|
|
|
Gross margin
|
|
$
|
508
|
|
|
$
|
365
|
|
|
$
|
143
|
|
|
|
39.2
|
|
|
Gross margin %
|
|
|
61.7
|
%
|
|
|
79.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Development
|
|
$
|
324
|
|
|
$
|
326
|
|
|
$
|
(2
|
)
|
|
|
(0.6
|
)%
|
Total revenue in the Salamander segment for the six months ended June 30, 2017 increased by $362 or 78.5%, to $823 as compared to revenue of $461 for the six months ended June 30, 2016. Salamander had 11 active channel distributers in 2017, which generated approximately 69.8% percent of our contracted revenue for the six months ended June 30, 2017, and 10 active channel distributers in 2016, which generated 35.4% of our contracted revenue for the six months ended June 30, 2016.
Total cost of sales in the Salamander segment for the six months ended June 30, 2017 increased by $219 or 228.1% to $315 as compared to cost of sales of $96 for the six months ended June 30, 2016. The increase was primarily driven by third party software costs for one contract $217.
Total gross margin for the Salamander segment was $508 and $365 for the six months ended June 30, 2017 and 2016, respectively. Gross margin in the Salamander segment was 61.7% and 79.2% for the six months ended June 30, 2017 and 2016, respectively.
Total product development expenses for the Salamander segment for the six months ended June 30, 2017 decreased by $2 or 0.6%, to $324 as compared to $326 for the six months ended June 30, 2016. Product development expenses as a percentage of total Salamander revenue was 39.4% and 70.7% for the six months ended June 30, 2017 and 2016, respectively. Investments in product development relate to the continued reconfiguring and development our SalamanderLive
TM
product to a cloud-based platform and ongoing software support.
Agilivant Segment
(dollars in thousands)
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
4
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
|
100.0
|
%
|
|
Cost of sales
|
|
|
2
|
|
|
|
-
|
|
|
|
2
|
|
|
|
*
|
|
|
Gross margin
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
-
|
|
|
|
*
|
|
|
Gross margin %
|
|
|
50.0
|
%
|
|
|
*
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Development
|
|
$
|
76
|
|
|
$
|
165
|
|
|
$
|
(89
|
)
|
|
|
(53.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Not meaningful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue in the Agilivant segment for the six months ended June 30, 2017 was $4 compared to $2, an increase of 100.0% from the six months ended June 30, 2016.
Total cost of sales in the Agilivant segment for the six months ended June 30, 2017 was $2 compared to $0 for the six months ended June 30, 2016.
Total product development expenses for the six months ended June 30, 2017 decreased by $89, or 53.9%, to $76 as compared to $165 for the six months ended June 30, 2016. Product development expenses as a percentage of total revenue was 1,900.0% and 8,250.0% for six months ended June 30, 2017 and 2016, respectively. Investments in product development relate to external services to continue the development of the Agilivant software and compliance with banking industry regulatory obligations.
LifeMed Segment
(dollars in thousands)
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
322
|
|
|
$
|
-
|
|
|
$
|
322
|
|
|
|
*
|
%
|
|
Cost of sales
|
|
|
151
|
|
|
|
-
|
|
|
|
151
|
|
|
|
*
|
|
|
Gross margin
|
|
$
|
171
|
|
|
$
|
-
|
|
|
$
|
171
|
|
|
|
*
|
|
|
Gross margin %
|
|
|
53.1
|
%
|
|
|
*
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Development
|
|
$
|
780
|
|
|
$
|
-
|
|
|
$
|
780
|
|
|
|
*
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Not meaningful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The acquisition of LifeMed was completed in July 2016. Accordingly, there are no results to report for the six months ended June 30, 2016. Total revenue in the LifeMed segment for the six months ended June 30, 2017 was $322 compared to $0 for the six months ended June 30, 2016. Revenues resulted primarily from the licensing of our SecureReg 2.0 software to hospitals. As of June 30, 2017, we had five active customers.
Total cost of sales in the LifeMed segment for the six months ended June 30, 2017 was $151 compared to $0 for the six months ended June 30, 2016. The acquisition of LifeMed was completed in July 2016. Accordingly, there are no results to report for the six months ended June 30, 2016. Cost of sales was primarily comprised of hosting and technical services fees and the costs of hardware and supplies.
Total gross margin for the LifeMed segment was $171 for the six months ended June 30, 2017. As a percentage of total revenue, gross margin for the LifeMed segment was 53.1% for the six months ended June 30, 2017.
Total product development expenses for the LifeMed segment for the six months ended June 30, 2017 were $780 compared to $0 for the six months ended June 30, 2016. The acquisition of LifeMed was completed in July 2016. Accordingly, there are no results to report for the six months ended June 30, 2016. Product development expenses as a percentage of total revenue was 242.2% for the six months ended June 30, 2017. Product development expense was primarily related to developing our proprietary patent-pending Authoritative Identity Management Exchange ("AIMe
TM
") software, developing and integrating the electronic payments platform, and other software support.
LIQUIDITY AND CAPITAL RESOURCES
Sources of Liquidity
During the six months ended June 30, 2017 and 2016, we recorded revenues of $1,149 and $463, respectively, and incurred net losses of $7,732 and $4,053, respectively. Net cash used in operating activities was $4,139
and $2,469 for the six months ended June 30, 2017 and 2016, respectively.
OrangeHook has incurred losses from its operations, which include product development investments and merger and acquisition related expenses. These activities have resulted in an accumulated deficit of $24,413 and a working capital deficiency of $20,644
as of June 30, 2017. OrangeHook is currently executing on growth initiatives at each of its subsidiaries with the intent to generate additional revenues and achieve meaningful profitability. However, OrangeHook cannot currently predict the timing of when these improvements in operating results may occur.
Since inception, the Company has met its liquidity requirements principally through the issuance of debt, including related-party debt, and the sale of its equity. Our ability to continue operations and to pay obligations when they become due is contingent upon the Company obtaining additional financing.
On April 12, 2017, management negotiated a financing agreement which could provide for up to $10,000 over the next twelve months. Through June 30, 2017, this financing arrangement has provided for $184 in funding. We do not expect significant near term investments related to this agreement.
On June 28, 2017, we agreed on material non-binding terms of joint venture with a Shanghai, China-based healthcare firm to deliver healthcare infrastructure solutions to the China healthcare market. A key component of the terms includes a purchase of up to 2 million shares of common stock at a valuation of $20 per share. Completion of this arrangement is subject to substantial legal and regulatory compliance, and the timing of such events is not estimable.
Additionally, although still in the early stages of commercialization, the Company has executed contracts with various partners that management believes will result in future revenue and cash flow from operations within the next twelve months.
There are no assurances that the Company will be able to raise capital on terms acceptable to us or at all, or that cash flows generated from its operations will be sufficient to meet its current operating costs and required debt service. If the Company is unable to obtain sufficient amounts of additional capital, it may be required to reduce the scope of its planned growth initiatives, which could harm its financial condition and operating results, or it may not be able to continue to fund its ongoing operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Cash Flows – Operating Activities
Net cash used in operating activities was $4,139 and $2,469 during the six months ended June 30, 2017 and 2016, respectively. Net cash used in operating activities consisted principally of a net loss of $7,732 and $4,053 for the six months ended June, 2017 and 2016, respectively.
Cash Flows – Investing Activities
Net cash used for operating activities was $23 and $2,951 during the six months ended June 30, 2017 and 2016, respectively. During the six months ended June 30, 2016, net cash used for investing activities consisted principally of $85 in net advances to Agilivant, $340 in advances to Nuvel Holdings, and $1,178 in advances to LifeMed ID, Inc. In addition, the Company purchased shares of LifeMed common and preferred stock of $1,310 during the period prior to the completion of its acquisition on July 20, 2016.
Cash Flows – Financing Activities
Net cash provided by financing activities was $4,772 and $5,576 during the six months ended June 30, 2017 and 2016, respectively. Net cash provided by financing activities during the six months ended June 30, 2017 consisted primarily of proceeds of $1,024 from the sale of preferred stock, net of financing fees of $71, proceeds of $2,670 from director loans and proceeds from notes payable of $2,710. Net cash provided by financing activities during the six months ended June 30, 2016 consisted primarily of proceeds of $2,287 from the sale of preferred stock, net of financing fees, net proceeds of $1,895 from director loans and net proceeds from notes payable of $1,450.
The following table sets forth selected historical information regarding our cash flows:
|
|
|
Six months ended June 30,
|
|
|
(in thousands)
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
$
|
(4,139
|
)
|
|
$
|
(2,469
|
)
|
|
Net cash used in investing activities
|
|
|
(23
|
)
|
|
|
(2,951
|
)
|
|
Net cash provided by financing activities
|
|
|
4,772
|
|
|
|
5,576
|
|
Off-Balance Sheet Arrangements
OrangeHook does not have any off-balance sheet arrangements
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a smaller reporting company, we are not required to provide disclosure pursuant to this item.
Item 4. Controls and Procedures
(a)
Evaluation of disclosure controls and procedures
During
fiscal year 2016 prior to the Merger and Reverse Stock Split, OrangeHook MN acquired approximately 82% of the equity interests of Agilivant, completed a merger with LifeMed, and acquired certain assets of LifeNexus. We then completed the Merger with OrangeHook MN on December 1, 2016 and effected the Reverse Stock Split on December 27, 2016.
Following the Merger and Reverse Stock Split, our management, including our Chief Executive Officer and Chief Financial Officer, conducted an initial assessment of the effectiveness of our internal control over financial reporting as of December 31, 2016. Based on this assessment, management has determined that, as of December 31, 2016, certain internal controls over financial reporting relating specifically to the valuation of OrangeHook MN common stock, the appraisal of fair value of net assets acquired and the associated purchase price allocations for the Merger and Reverse Stock Split were not effective. These issues were determined to be a material weakness within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 5. The material weakness centered on our delayed submission of the financial statements to our printer in the time necessary to prepare the required eXtensible Business Reporting Language (XBRL) filing. We filed our Form 10-K within the time frame allowed by the extension afforded all filers by the SEC and pursuant to our extension filed on March 31, 2017. On April 26, 2017, we filed Amendment No. 1 on Form 10-K/A ("Amendment No. 1") to the Company's annual report on Form 10-K for the year ended December 31, 2016, filed with the SEC on April 17, 2017, solely to (i) indicate by check mark that the registrant has submitted electronically and posted on its corporate web site every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months; (ii) amend and restate our Item 5 disclosures to include information related to the sale of unregistered securities, which was inadvertently omitted from our original filing; and (iii) furnish Exhibit 101 to the Form 10-K in accordance with Rule 405 of Regulation S-T. Exhibit 101 consists of the following materials from the Company's Form 10-K, formatted in eXtensible Business Reporting Language (XBRL)
Our Chief Executive Officer and Chief Financial Officer believe that our acquisition activity during the year ended December 31, 2016, particularly in light of the year-end timing of certain transactions, represented extraordinary circumstances that are not likely to recur. Despite this belief, management has identified certain practices and procedures to address the foregoing deficiency and is in the process of expanding the scope of its assessment of the effectiveness of its internal controls over financial reporting and determining a plan to complete the remediation of the foregoing deficiencies.
To remediate the material weakness described above, we are enhancing and revising the design of existing controls and procedures in our financial reporting process, including with our external service providers. The material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed by the end of fiscal year 2017. As remediation has not yet been completed, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures continued to be ineffective at a level that provides reasonable assurance as of the last day of the period covered by this report.
(b)
Changes in internal control over financial reporting
Except as noted above, there has been no change in the Company's internal control over financial reporting as of June 30, 2017, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
Part II – OTHER INFORMATION
Item 1. Legal Proceedings
As reported in our annual report on Form 10-K filed on April 17, 2017, a former shareholder of LifeMed filed a complaint on March 17, 2017, in the Superior Court of California, County of Sacramento with respect to the shareholder's exercise of dissenters' rights under the California Corporations Code in connection with OrangeHook MN's acquisition of LifeMed.
Except as previously described, OrangeHook is not a party to any material litigation or claims. However, no assurance can be given that material claims or disputes will not arise or occur in the future; in such event, we would be required to incur legal costs and fees to assert critical claims or defend claims made against us or our portfolio companies.
As a smaller reporting company, we are not required to provide disclosure pursuant to this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds OrangeHook issued and sold to accredited investors the following units of Series OH-2 Convertible Preferred Stock.
|
|
|
Number of Units
|
|
|
|
of OH-2
|
|
|
|
Convertible
|
|
Date
|
|
Preferred Stock
|
|
|
|
|
|
April 12, 2017
|
|
50
|
|
April 12, 2017
|
|
38
|
|
April 12, 2017
|
|
50
|
|
April 25, 2017
|
|
50
|
|
May 4, 2017
|
|
11
|
|
May 4, 2017
|
|
11
|
|
May 9, 2017
|
|
10
|
|
May 22, 2017
|
|
175
|
|
Total
|
|
395
|
Aggregate fees related to the sale of these securities were $2. Each unit consists of one share of Series OH-2 Convertible Preferred Stock and an attached 7-year warrant to purchase 71.5 shares of our common stock at a price of $7.00 per share. The securities were issued in reliance upon exemptions from the registration requirements pursuant to Section 4(a)(2) under the Securities Act and/or Regulation D promulgated under the Securities Act and/or Regulation S promulgated under the Securities Act. There was no general solicitation or advertising with respect to the private placement and the purchasers provided written representations of an intent to acquire the securities for investment only and not with a view to or for sale in connection with any distribution of the securities. An appropriate legend was affixed by OrangeHook to the share certificate representing shares issued in the private placement.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
|
Exhibit
Number
|
|
Description
|
|
Method of
Filing
|
|
|
|
|
|
|
|
2.2
|
|
Agreement and Plan of Merger dated July 1, 2016 by and among Nuvel Holdings, Inc., OH Acquisition Corp., and OrangeHook, Inc.
(2)
|
|
*
|
|
|
|
|
|
|
|
2.3
|
|
Amendment No. 1 to Agreement and Plan of Merger dated October 14, 2016 by and among OrangeHook, Inc., Nuvel Holdings, Inc., and OH Acquisition Corp.
(3)
|
|
*
|
|
|
|
|
|
|
|
2.4
|
|
Agreement and Plan of Merger dated October 1, 2015 by and among OrangeHook, Inc., Salamander Technologies, LLC, Salamander Technologies, Inc., and the other parties named therein.
(8)
|
|
*
|
|
|
|
|
|
|
|
2.5
|
|
Membership Unit Purchase Agreement dated January 4, 2016 by and among OrangeHook, Inc., Agilivant, LLC, and the members of the Agilivant, LLC.
(8)
|
|
*
|
|
|
|
|
|
|
|
2.6
|
|
Amended and Restated Agreement and Plan of Merger dated May 31, 2016 by and among OrangeHook, Inc., OH Solutions, Inc., LifeMed ID, Inc., and the principal shareholders of LifeMed ID, Inc.
(8)
|
|
*
|
|
|
|
|
|
|
|
3.1
|
|
Articles of Incorporation of Nuvel Holdings, Inc., dated June 15, 2010.
(4)
|
|
*
|
|
|
|
|
|
|
|
3.2
|
|
Articles of Merger of Nuvel Holdings, Inc. filed with the State of Florida on March 21, 2012.
(1)
|
|
*
|
|
|
|
|
|
|
|
3.3
|
|
Articles of Amendment to Articles of Incorporation, filed with the State of Florida on August 5, 2014.
(5)
|
|
*
|
|
|
|
|
|
|
|
3.4
|
|
Bylaws of Nuvel Holdings, Inc.
(4)
|
|
*
|
|
|
|
|
|
|
|
4.1
|
|
Certificate of Designations, Preferences and Rights of Series A Preferred Stock, filed with the State of Florida on August 10, 2012.
(6)
|
|
*
|
|
|
|
|
|
|
|
4.2
|
|
4.2 Certificate of Designations, Preferences and Rights of Series B Preferred Stock, filed with the State of Florida on May 19, 2014.
(5)
|
|
*
|
|
|
|
|
|
|
|
4.3
|
|
4.3 Certificate of Designations, Preferences and Rights of Series C Preferred Stock, filed with the State of Florida on May 22, 2014.
(5)
|
|
*
|
|
|
|
|
|
|
|
4.4
|
|
4.4 Certificate of Designations, Preferences and Rights of Series D Preferred Stock, filed with the State of Florida on May 2, 2014.
(5)
|
|
*
|
|
|
|
|
|
|
|
4.5
|
|
4.5 Certificate of Designation of Series OH-1 Convertible Preferred Stock of Nuvel Holdings, Inc.
(3)
|
|
*
|
|
|
|
|
|
|
|
4.6
|
|
4.6 Certificate of Designation of Series OH-2 Convertible Preferred Stock of Nuvel Holdings, Inc.
(3)
|
|
*
|
|
|
|
|
|
|
|
4.7
|
|
4.7 Amendment to Certificate of Designation of Series OH-2 Convertible Preferred Stock of Nuvel Holdings, Inc.
(9)
|
|
*
|
|
Exhibit
Number
|
|
Description
|
|
Method of
Filing
|
|
|
|
|
|
|
|
10.86
|
|
|
|
Filed electronically
|
|
|
|
|
|
|
|
10.87
|
|
|
|
Filed electronically
|
|
|
|
|
|
|
|
10.88
|
|
|
|
Filed electronically
|
|
|
|
|
|
|
|
10.89
|
|
|
|
Filed electronically
|
|
|
|
|
|
|
|
10.90
|
|
|
|
Filed electronically
|
|
|
|
|
|
|
|
10.91
|
|
|
|
Filed electronically
|
|
|
|
|
|
|
|
10.92
|
|
|
|
Filed electronically
|
|
|
|
|
|
|
|
31.1
|
|
|
|
Filed electronically
|
|
|
|
|
|
|
|
31.2
|
|
|
|
Filed electronically
|
|
|
|
|
|
|
|
32.1
|
|
|
|
Furnished electronically
|
|
|
|
|
|
|
|
101
|
|
OrangeHook, Inc. unaudited consolidated financial statements for the quarter ended June 30, 2017, formatted in eXtensible Business Reporting Language (XBRL).
|
|
Filed electronically
|
|
*
|
Incorporated by reference
|
|
(1)
|
Included as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 2011, filed on April 13, 2012.
|
|
(2)
|
Included as an exhibit to the Current Report on Form 8-K, filed on July 8, 2016.
|
|
(3)
|
Included as an exhibit to the Current Report on Form 8-K, filed on October 14, 2016.
|
|
(4)
|
Included as an exhibit to the Registration Statement on Form S-1, filed on November 5, 2010.
|
|
(5)
|
Included as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 2013, filed on November 25, 2014.
|
|
(6)
|
Included as an exhibit to the Current Report on Form 8-K, filed on August 20, 2012.
|
|
(8)
|
Included as an exhibit to the Current Report on Form 8-K, filed on December 5, 2016.
|
|
(9)
|
Included as an exhibit to the Current Report on Form 8-K, filed on January 25, 2017.
|
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned there unto duly authorized.
Date: August 14, 2017
ORANGEHOOK, INC.
By:
/s/ James L. Mandel
James L. Mandel
Chief Executive Officer
By:
/s/ David C. Carlson
David C. Carlson
Chief Financial Officer
EXHIBIT INDEX
Certain exhibits and schedules to the documents listed below have been omitted pursuant to Item 601 of Regulation S-K. OrangeHook hereby undertakes to furnish supplemental copies of any omitted exhibits and schedules upon request to the SEC; provided, however, that OrangeHook may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934 for any exhibits or schedules so furnished.
|
Exhibit
Number
|
|
Description
|
|
Method of
Filing
|
|
|
|
|
|
|
|
10.86
|
|
|
|
Filed electronically
|
|
|
|
|
|
|
|
10.87
|
|
|
|
Filed electronically
|
|
|
|
|
|
|
|
10.88
|
|
|
|
Filed electronically
|
|
|
|
|
|
|
|
10.89
|
|
|
|
Filed electronically
|
|
|
|
|
|
|
|
10.90
|
|
|
|
Filed electronically
|
|
|
|
|
|
|
|
10.91
|
|
|
|
Filed electronically
|
|
|
|
|
|
|
|
10.92
|
|
|
|
Filed electronically
|
|
|
|
|
|
|
|
31.1
|
|
|
|
Filed electronically
|
|
|
|
|
|
|
|
31.2
|
|
|
|
Filed electronically
|
|
|
|
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|
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32.1
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Furnished electronically
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