As filed with the Securities and
Exchange Commission on October 5
, 2017
Registration No. 333-215101
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
POST EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
____________
METASTAT, INC.
(Exact name of registrant as specified in its charter)
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Nevada
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3674
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20-8753132
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(State or jurisdiction of
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(Primary Standard Industrial
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(I.R.S. Employer
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incorporation or organization)
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Classification Code Number)
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Identification No.)
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27 Drydock Ave, 2
nd
Floor
Boston, MA 02210
(617) 531-6500
(Address and telephone number of principal executive
offices)
Douglas A. Hamilton
Chief Executive Officer
27 Drydock Ave, 2
nd
Floor
Boston, MA 02210
(617) 531-6500
(Name, address and telephone number of agent for
service)
Copies to:
David J. Levine, Esq.
Loeb & Loeb LLP
345 Park Avenue
New York, New York 10154
(212) 407-4923
(212) 898-1184 (fax)
Approximate date of commencement of proposed sale to the
public:
From time to time after
the effective date of this registration
statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933 check the following box.
☒
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering.
☐
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
☐
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
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☐
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Large accelerated filer
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☐
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Accelerated filer
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☐
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Non-accelerated filer (Do not check if a smaller reporting
company)
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☒
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Smaller reporting company
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The Registrant hereby files this post effective amendment number
one to its Registration Statement on Form S-1 (No. 333-215101) as
filed with the Securities and Exchange Commission on December 14,
2016, to include the following: (i) audited financial statements
for the Registrant’s fiscal year ended February 28 2017, (ii)
to reflect information disclosed in the Registrant’s annual
report on Form 10-K for the year ended February 28 2017, as filed
with the Securities and Exchange Commission on May 30, 2017, (iii)
unaudited financial statements for the Registrant’s quarter
ended May 31 2017 (iv) to reflect information disclosed in the
Registrant’s quarterly report on Form 10-Q for the period
ended May 31, 2017, as filed with the Securities and Exchange
Commission on July 17, 2017, and (v) to update the Selling
Stockholder Table.
The Registrant previously paid a registration fee of $1,167 in
connection with the filing of its Registration Statement on Form
S-1 (No. 333-215101) as filed with the Securities and Exchange
Commission on December 14, 2016.
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until
the registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of
1933 or until this Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The information in this prospectus is not complete and may be
changed. The selling stockholders may not sell these securities
publicly until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and is not soliciting an offer to
buy these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION: OCTOBER 5
, 2017
PRELIMINARY PROSPECTUS
METASTAT, INC.
5,342,875 shares of Common Stock
______________________
This prospectus relates to the resale, from time to time, of up to
5,342,875 shares of our common stock, par value $.0001 per share
(the “Common Stock”), being offered by the selling
stockholders identified in this prospectus. The shares
of Common Stock offered under this
prospectus include:
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2,174,116
shares of our Common
Stock;
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705,408
shares issuable upon conversion of outstanding shares of our Series
A-2 Convertible Preferred Stock (the “Series A-2
Preferred” or the “Series A-2 Preferred
Stock”);
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453,585
shares issuable upon conversion of outstanding shares of our Series
B Convertible Preferred Stock (the “Series B Preferred”
or the “Series B Preferred Stock”); and
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2,009,766
shares issuable upon exercise of outstanding warrants (the
“Warrants”).
We will not receive any of the proceeds from the sale of the shares
by the selling stockholders. To the extent Warrants are
exercised for cash, if at all, we will receive the exercise price
for the Warrants. The selling stockholders may sell the
shares as set forth herein under “Plan of
Distribution.”
Our Common Stock is traded on the OTCBB under the ticker symbol
“MTST”. The last reported sales price was
$0.82
on September
29
, 2017.
We will pay the expenses of registering the shares offered by this
prospectus.
Investment in our securities involves
a high degree of risk. You should consider carefully the risk
factors beginning on page 8
of this prospectus before purchasing any of the
shares offered by this prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is ____________, 2017
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F-1
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You may only rely on the information contained in this prospectus
or that we have referred you to. We have not authorized anyone to
provide you with different information. This prospectus does not
constitute an offer to sell or a solicitation of an offer to buy
any securities other than the Common Stock offered by this
prospectus. This prospectus does not constitute an offer to sell or
a solicitation of an offer to buy any Common Stock in any
circumstances in which such offer or solicitation is unlawful.
Neither the delivery of this prospectus nor any sale made in
connection with this prospectus shall, under any circumstances,
create any implication that there has been no change in our affairs
since the date of this prospectus is correct as of any time after
its date.
FORWARD-LOOKING
STATEMENTS
Statements in this prospectus that are not descriptions of
historical facts are forward-looking statements that are based on
management’s current expectations and are subject to risks
and uncertainties that could negatively affect our business,
operating results, financial condition and stock price. We have
attempted to identify forward-looking statements by terminology
including “anticipates,” “believes,”
“can,” “continue,” “could,”
“estimates,” “expects,”
“intends,” “may,” “plans,”
“potential,” “predicts,”
“should,” or “will” or the negative of
these terms or other comparable terminology. Factors that could
cause actual results to differ materially from those currently
anticipated include those set forth under “Risk
Factors” including, in particular, risks relating
to:
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the
results of research and development activities;
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uncertainties relating to preclinical and clinical
testing, financing and strategic agreements and
relationships;
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the early stage of products under
development;
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our need for substantial additional
funds;
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patent and
intellectual property matters; and
We expressly disclaim any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statements
contained herein to reflect any change in our expectations or any
changes in events, conditions or circumstances on which any such
statement is based, except as required by law.
This summary highlights information contained elsewhere in this
prospectus. You should read the entire prospectus carefully,
including, the section entitled “Risk Factors” before
deciding to invest in our securities.
Overview
We are a biotechnology company focused on discovering and
developing personalized therapeutic (Rx) and diagnostic (Dx)
treatment solutions for cancer patients. Our Mena protein isoform
“driver-based” diagnostic biomarkers also serve as
novel therapeutic targets for anti-metastatic drugs. Unlike
surrogate cancer markers, which are indirect measures of cancer and
its progression, our driver-based biomarkers are the critical
components of intracellular cancer pathways responsible for driving
the aggressive activity of cancer cells. Our core expertise
includes a deep understanding of the mechanisms and pathways that
drive tumor cell invasion and metastasis, as well as drug
resistance to certain targeted therapies and cytotoxic
chemotherapies. We are developing therapeutic product candidates
and paired companion diagnostics based on a novel approach that
makes the Mena isoform protein a druggable target.
Our
integrated Rx/Dx strategy for treating cancer patients has
three key product development
programs:
1)
Therapeutic (Rx) candidates
: Our drug
discovery program is focused on the development of novel
therapeutic product candidates that target the Mena protein
isoform. We are investigating therapeutic candidates for the
potential to prevent or delay aggressive cancer from spreading and
becoming resistant to other commonly used targeted and cytotoxic
therapies. In targeting the movement of tumor cells from the
primary site to distant sites, we are directly addressing the major
contributor to the deaths of cancer patients. Elevated expression
of Mena
INV
, a Mena protein
isoform also drives resistance to certain Receptor Tyrosine Kinase
(RTK) inhibitors that target EGFR, HGFR, IGF-R1 and other key
receptors, as well as cytotoxic chemotherapeutics, including
anti-microtubule agents, such as docetaxel, paclitaxel and
albumin-bound paclitaxel. We believe co-administration of an
effective anti-Mena therapeutic agent provides an opportunity to
expand the utility of these therapies and addresses a significant
challenge to the clinical management of advanced cancers. RTK and
anti-microtubule drugs are widely used to treat a number of types
of cancer, including ovarian, breast, lung cancer, squamous cell
carcinoma of the lung, colorectal cancer, Kaposi’s sarcoma,
cervical cancer and pancreatic cancer. We are using multiple
targeted approaches including proprietary small molecules,
therapeutic peptides, camelid nanobodies, monoclonal antibodies and
RNA-based technologies to test therapeutic candidates in our
in vitro
and
in vivo
metastatic models for efficacy
in reversing Mena-dependent phenotypes of drug resistance, tumor
cell invasion, dissemination, and metastasis. Our objective is to
select suitable drug candidates to advance into human clinical
studies. We plan to use the
Mena
INV
companion
diagnostic assay to identify and select appropriate patient
populations most likely to benefit from targeted Mena isoform
therapy. Our therapeutic program will be implemented using internal
resources and in partnership with therapeutic biopharmaceutical
companies.
2)
Companion Diagnostics (CDx)
: Our
companion diagnostic or CDx program is focused on developing
companion tests t
o be used
in combination with cancer drugs,
that provide
essential information for the safe and effective use of a
corresponding drug or biological product
to improve patient outcomes
. We
are developing quantitative immunofluorescent, or QIF companion
diagnostic assays using our proprietary monoclonal antibodies, or
Mabs, that predict how well a cancer patient is likely to respond
to treatment with RTK inhibitors and anti-microtubule drugs. Not
everyone responds in the same way to these treatments. Patients
with tumors expressing high levels of Mena have been shown to
develop resistance to treatment with RTK inhibitors (EGFR, HGFR and
IGF-R1inhibitors) and anti-microtubule drugs (docetaxel, paclitaxel
and albumin-bound paclitaxel). Our companion diagnostics aim to
help oncologists refine diagnosis and tailor treatment strategies,
saving patients precious time and expense by predicting response to
these therapies prior to administration. We are exploring business
development opportunities with pharmaceutical and biotechnology
companies developing next generation RTK inhibitors and
anti-microtubule drugs who see the value of companion diagnostics
that identify patients most likely to benefit from these
treatments. We believe using our proprietary companion diagnostics
to target appropriate patient populations creates selective
therapeutic opportunities to repurpose shelved drug candidates that
have previously failed clinical testing or enhance the probability
of success of drugs currently under development.
3)
Prognostic
Diagnostics (PDx)
: Our prognostic diagnostic or
PDx program is focused on developing diagnostic tests
that predict the risk of future metastasis in cancer patients
following initial treatment of their primary tumor. Our first
prognostic diagnostic product candidates, the MetaSite
Breast™ and MenaCalc™ tests, aim to provide actionable
information to early stage breast cancer or ESBC patients and their
physicians regarding the risk of distant metastasis and if the use
of adjuvant chemotherapy is warranted. We are seeking to monetize
or commercialize our CLIA-validated prognostic diagnostic tests for
breast cancer through strategic partnerships. Our MetaSite
Breast™ test has been shown to be complementary to the
Oncotype DX test, the most widely used breast cancer gene panel
assay. These results were presented at the San Antonio Breast
Cancer Symposium in December 2016. We plan to develop
additional prognostic diagnostic tests based on
the Mena
INV
biomarker for
additional indications including lung, prostate and colorectal
cancers
Recent Developments
2017 Common Stock Private Placement
Between June 23, 2017 and August 3, 2017, we completed closings of
a private placement (the “2017 Common Stock Private
Placement”) whereby we issued (i) an aggregate of 811,158
shares of Common Stock, (ii) 229,363.2 shares of our
Series
A-2 Preferred Stock
convertible into
2,293,632 shares of Common Stock and (iii) reduced the exercise
price of
outstanding warrants to purchase 536,434 shares of
Common Stock from $3.00 to $2.00 per share, for
an aggregate purchase price of approximately $2.57
million, including the conversion of approximately $22,000 of
compensation payable to our Chief Executive Officer. After
deducting placement agent fees and other offering expenses, we
received net proceeds of approximately $2.35 million. Additionally,
we issued the placement agent five-year warrants to purchase an
aggregate of 162,487 shares of Common Stock with an exercise price
equal to $1.27 per share, and a cashless exercise
provision.
Convertible Note
On
January 17, 2017, we issued to a convertible promissory note in the
principal amount of $1,000,000 (the “Convertible Note”)
in exchange for the cancellation of (i) $600,000 principal amount
of the Promissory Note (as defined under “The Private
Placements” below) plus $96,000 of accrued and unpaid
interest, and (ii) $290,400 principal amount of the OID Note (as
defined under “The Private Placements” below). The
Convertible Note matured on September 30, 2017 and provides for a
10 business day cure period. We are currently in the process of
negotiating an extension of the maturity date of the Convertible
Note with the holder thereof, which we expect will be finalized
shortly.
Corporate History
We were incorporated on March 28, 2007 under the laws of the State
of Nevada. From inception until November of 2008, our business plan
was to produce and market inexpensive solar cells and in November
2008, our board of directors determined that the implementation of
our business plan was no longer financially feasible. At such time,
we discontinued the implementation of our business plan and pursued
an acquisition strategy, whereby we sought to acquire a business.
Based on these business activities, until February 27, 2012, we
were considered a "blank check" company, with no or nominal assets
(other than cash) and no or nominal operations.
MetaStat BioMedical, Inc. (“MBM”) (formerly known as
MetaStat, Inc.), our Delaware operating subsidiary, was
incorporated in the State of Texas on July 22, 2009 and
re-incorporated in the State of Delaware on August 26, 2010. MBM
was formed to allow cancer patients to benefit from the latest
discoveries in how cancer spreads to other organs in the body. The
Company’s mission is to become an industry leader in the
emerging field of personalized cancer therapy.
On February 27, 2012 (the “Share Exchange Closing
Date”), we consummated a share exchange (the “Share
Exchange”) as more fully described in this prospectus,
whereby we acquired all the outstanding shares of MBM and, MBM
became our wholly owned subsidiary. From and after the share
exchange, our business is conducted through our wholly owned
subsidiary, MBM, and the discussion of our business is that of our
current business which is conducted through MBM.
Prior to April 9, 2012, our company name was Photovoltaic Solar
Cells, Inc. For the sole purpose of changing our name, on April 9,
2012, we merged with a newly-formed, wholly owned subsidiary
incorporated under the laws of Nevada called MetaStat, Inc. As a
result of the merger, our corporate name was changed to MetaStat,
Inc. In May 2012, we changed the name of our Delaware operating
subsidiary to MetaStat BioMedical, Inc. from MetaStat,
Inc.
The Offering
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Common Stock offered by the selling stockholders issued pursuant to
the Private Placements
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5,342,875
shares
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Common Stock outstanding
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5,677,383 shares
(1)
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Common Stock outstanding after the offering
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8,846,142 shares
(2)
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Use of proceeds
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We
will not receive any proceeds from the sale of the shares by the
selling stockholders. However, to the extent that the
Warrants are exercised for cash, we will receive proceeds from any
exercise of the Warrants up to an aggregate of approximately $7.1
million. We intend to use any proceeds received from the exercise
of the Warrants for general working capital and other corporate
purposes.
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Risk Factors
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The securities offered by this prospectus are
speculative and involve a high degree of risk and investors
purchasing securities should not purchase the securities unless
they can afford the loss of their entire investment. See
“Risk Factors” beginning on page 8
of this prospectus.
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Private Placements
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Pursuant to the Private Placements described
below, we are registering 2,174,116
shares of Common Stock, 705,408 shares of Common
Stock issuable upon the conversion of the Series A-2 Preferred
Stock, and 453,585 shares of Common Stock issuable upon the
conversion of the Series B Preferred Stock, and 2,009,766 shares of
Common Stock underlying Warrants.
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_______________
(1)
Based upon the total number of issued and
outstanding shares of common stock as of September
29
, 2017.
(2)
Assumes
exercise in full of the Warrants, and conversion in full of the
Series A-2 Preferred Stock and the Series B Preferred Stock
registered pursuant to this prospectus.
The Private Placements
Series B Preferred Private Placement
Between December 31, 2014 and March 31, 2015, we completed a
private placement (the “Series B Preferred Private
Placement”) of an aggregate of $3,388,250 stated value of
Series B Preferred Stock, convertible into an aggregate of 410,707
shares of Common Stock based on the initial conversion price (the
“Series B Conversion Price”) of $8.25 per share.
380,457 shares of Common Stock underlying the initial Series B
Preferred Stock, based on the initial Series B Conversion Price of
$8.25 per share, were registered in the prospectus on Form S-1
originally filed on April 10, 2015 (Registration No.
333-203361).
The
Series B Preferred Stock is subject to “full ratchet”
anti-dilution price protection adjustments for issuances of our
Common Stock or securities convertible into Common Stock at prices
less than the applicable
Series B
Conversion Price
. The issuance of Common Stock on May 26,
2016, pursuant to the initial closing of the 2016 Unit Private
Placement (as defined below) triggered the “full
ratchet” anti-dilution price protection provision and the
Series B Conversion Price was
automatically adjusted from $8.25 to $2.00 per share. We are
registering 379,167 shares of Common Stock
issuable upon the
conversion of the currently outstanding Series B Preferred Stock
originally issued in the
Series B
Preferred Private Placement with a stated value of $1,001,000,
based on the difference between the Series B Conversion Price of
$2.00 per share and the number of registered shares of Common Stock
underlying the Series B Preferred Stock based on the initial Series
B Conversion Price of $8.25 per share.
The Series B Preferred Stock accrues dividends at a rate of 8% of
per annum, payable quarterly in cash or in kind in
additional shares of Series B Preferred Stock (the “PIK
Dividend Shares”) at our option. We are registering 74,418
shares of Common Stock
issuable
upon the conversion of currently outstanding PIK Dividend Shares,
based on the
current Series B
Conversion Price of $2.00 per share, issued
between March
31, 2015 and September 30, 2016 with an aggregate stated value of
$148,835.
The
issuance of Common Stock pursuant to the closing of the
2017 Common Stock Private
Placement
on August 3, 2017, triggered the anti-dilution
price protection provision and the
Series B Conversion Price was automatically
adjusted from $2.00 to $0.83 per share.
We are
registering 453,585 shares of Common Stock issuable upon the
conversion of the Series B Preferred Stock
issued pursuant to the Series B Preferred Private
Placement.
Promissory Note Private Placements
On July
31, 2015, we entered into a note purchase agreement (the
“Note Purchase Agreement”) with an existing
institutional investor, Dolphin Offshore Partners, LP (the
“Noteholder”) for the issuance and sale in a private
placement (the “Initial Note Private Placement”) of a
non-convertible promissory note in the principal amount of
$1,200,000 (the Promissory Note”) and a warrant (the
“Note Warrant”) to purchase 43,636 shares of Common
Stock
at an initial exercise price of
$8.25 per share
for gross proceeds of $1,200,000. The
Company received net proceeds of approximately $1,116,000.
The
Promissory Note had an initial interest rate of eight percent (8%)
per annum, an initial maturity date of July 30, 2016 and may be
prepaid by us at any time prior to the maturity date without
penalty or premium. Upon the closing of a registered
offering of equity or equity-linked securities resulting in gross
proceeds of at least $5,000,000 (the “Public
Offering”), the Noteholder has the right at its option to
exchange, in lieu of investing new cash proceeds, the outstanding
principal balance of the Promissory Note plus the interest payable
(the “Initial Conversion Interest Amount”) in an amount
equal to all accrued but unpaid interest assuming the Promissory
Note had been held from the issuance date to the maturity date into
such number of securities to be issued in the Public
Offering.
Dolphin
Mgmt. Services, Inc. (“Dolphin Services”) acted as
placement agent in connection with the Initial Note Private
Placement. We paid Dolphin Services a cash fee of $84,000 and we
issued Dolphin Services placement agent warrants to purchase 84,000
shares of Common Stock.
On
February 12, 2016, we entered into an amendment (the “Note
Amendment” and together with the Initial Note Private
Placement, the “Promissory Note Private Placements”)
with the Noteholder to extend the maturity date of the Promissory
Note from July 31, 2016 to December 31, 2016 and increase the
interest rate commencing August 1, 2016 to 12% per
annum.
The
Noteholder agreed to effect a voluntary exchange (the
“Initial Note Voluntary Exchange”) of $600,000
principal amount of the Promissory Note plus the Initial Conversion
Interest Amount of $48,000 into either: (i) a Public Offering, or
(ii) one or a series of offerings of our equity or equity-linked
securities resulting in aggregate gross proceeds of at least
$2,000,000 (the “Qualified Offering”).
Further,
the Noteholder shall have the right to effect a voluntary exchange
with respect to the remaining $600,000 principal amount (the
“Remaining Principal Amount”) plus the Remaining
Conversion Interest Amount (as defined below) into a Qualified
Offering or Public Offering. “Remaining Conversion Interest
Amount” shall mean interest payable in an amount equal to the
sum of (A) all accrued but unpaid interest on such portion of the
Remaining Principal Amount subject to such Voluntary Exchange
assuming such portion of the Remaining Principal Amount had been
held from the original maturity date of July 31, 2016 to the
amended maturity date of December 31, 2016 (for the avoidance of
doubt, such amount that is calculated using the following formula:
(a) 12% multiplied by such portion of the Remaining Principal
Amount subject to such Voluntary Exchange, multiplied by (b) the
actual number of days elapsed in a year of three hundred and
sixty-five (365) days, which amount shall equal $30,000 in the
aggregate assuming the aggregate Remaining Principal Amount of
$600,000 is used in such calculation), plus (B) all accrued but
unpaid interest assuming such portion of the Remaining Principal
Amount had been held from the issuance date to the original
maturity date of July 31, 2016 (for the avoidance of doubt, such
amount that is calculated using the following formula: (a) 8%
multiplied by such portion of the Remaining Principal Amount,
multiplied by (b) the actual number of days elapsed in a year of
three hundred and sixty-five (365) days, which amount shall equal
$48,000 in the aggregate assuming the aggregate Remaining Principal
Amount of $600,000 is used in such calculation).
In
consideration for entering into the Note Amendment, we issued the
Noteholder a warrant (the “Note Amendment Warrant”) to
purchase 43,636 shares of Common Stock
at an initial exercise price of $8.25 per
share
.
The
issuance of Common Stock on May 26, 2016, pursuant to the initial
closing of the 2016 Unit Private Placement (as defined below)
triggered the anti-dilution price protection provisions of the Note
Warrant and the
Note Amendment
Warrant, whereby the exercise price of the Note Warrant was
adjusted from $8.25 to $2.00 per share and the exercise price of
the Note Amendment Warrant was adjusted from $8.25 to $2.20 per
share.
The issuance of Common Stock pursuant to the closing
of the
2017 Common Stock Private
Placement
on August 3, 2017, triggered the anti-dilution
price protection provisions of the Note Warrant and the
Note Amendment Warrant, whereby the
exercise price of the Note Warrant was adjusted from $2.00 to $0.83
per share and the exercise price of the Note Amendment Warrant was
adjusted from $2.20 to $0.91 per share.
We are registering 87,272 shares of Common Stock underlying
warrants issued pursuant to the Promissory Note Private
Placements
.
OID Note Private Placements
On
February 12, 2016, we entered into an OID note purchase agreement
(the “OID Note Purchase Agreement”) with various
accredited investors, including the Noteholder (the “OID
Noteholders”) for the issuance and sale in a private
placement (the “Initial OID Note Private Placement”) of
non-convertible original issue discount promissory notes (the
“OID Notes”) up to an aggregate purchase price of up to
$1,000,000 (the “Purchase Price”) and warrants (the
“OID Note Warrants”) to purchase 7,273 shares of Common
Stock at an initial exercise price of $8.25 per share for every
$100,000 of Purchase Price. The OID Notes shall have an initial
principal balance equal to 120% of the Purchase Price (the
“OID Principal Amount”).
Between
February 12, 2016 and March 15, 2016, we completed closings of the
Initial OID Note Private Placement in which we received in
aggregate a Purchase Price of $625,000 and issued OID Notes in the
aggregate OID Principal Amount of $750,000 and OID Note Warrants to
purchase an aggregate of 45,459 shares of Common
Stock.
The OID
Notes mature six (6) months following the issuance date of each OID
Note and may be prepaid by us at any time prior to the maturity
date without penalty or premium. The OID Noteholders have the right
at their option to exchange (the “OID Note Voluntary
Exchange”), in lieu of investing new cash proceeds, the OID
Principal Amount of the OID Notes into such number of securities to
be issued in a Qualified Offering. The OID Notes rank
pari passu
with the Promissory
Note.
In
August 2016, we entered into amendments (the “OID Note
Amendments” and together with the Initial OID Note Private
Placement, the “OID Promissory Note Private
Placements”) with the OID Noteholders to extend the maturity
date of the OID Notes an additional three (3) months. In
consideration for entering into the Note Amendments, we (i)
increased the principal amount of the OID Notes by 10% to $825,000
in the aggregate from $750,000 in the aggregate, (ii) issued
warrants (the “OID Note Amendment Warrants”) to
purchase an aggregate of 45,459 shares of Common Stock at an
initial exercise price of $2.00 per share, and (iii) modified the
OID Note Voluntary Exchange provision of the OID Notes by reducing
the “Qualified Offering” threshold amount to $500,000
from $2,000,000. Additionally, we have the sole option to extend
the maturity date of the OID Notes an additional three (3) months
in consideration for a further 10% increase in the principal amount
from $825,000 to $907,500 in the aggregate.
No placement agents were used in connection with the OID Note
Private Placements.
The
issuance of Common Stock on May 26, 2016, pursuant to the initial
closing of the 2016 Unit Private Placement (as defined below)
triggered the anti-dilution price protection provisions of the OID
Note Warrants
, whereby the exercise
price was adjusted from $8.25 to $2.00 per share.
The
issuance of Common Stock pursuant to the closing of the
2017 Common Stock Private
Placement
on August 3, 2017, triggered the anti-dilution
price protection provisions of the OID Note Warrants
, whereby the exercise price of the
OID
Note Warrants
was adjusted from $2.00
to $0.83 per share.
We are registering 90,918 shares of Common Stock underlying
warrants issued pursuant to the OID Note Private
Placements
.
2016 Unit Private Placements
On May
26, 2016, entered into a subscription agreement (the “2016
Subscription Agreement”) with a number of accredited
investors
for the issuance and sale in
a private placement (the “2016 Unit Private Placement”)
of up to 500
units, with each unit consisting of (i) 5,000
shares of Common Stock, and (ii) and five-year warrants (the
“2016 Unit Warrants”) to purchase 2,500 shares of
Common Stock at an exercise price of $3.00 per share. The offering
price was $10,000 per unit.
H.C.
Wainwright & Co., LLC (“Wainwright”), a registered
broker dealer, acted as the placement agent in connection with the
2016 Unit Private Placement. Alere Financial Partners, a division
of Cova Capital Partners, LLC (“Cova Capital”), a
registered broker dealer, acted as a select dealer with Wainwright
in connection with the 2016 Unit Private
Placement.
On May
26, 2016, pursuant to the initial closing of the
2016 Unit Private Placement
, we issued an
aggregate of 20 units consisting of an aggregate of 100,000 shares
of Common Stock and 2016 Unit Warrants to purchase 50,000 shares of
Common Stock for aggregate gross proceeds of $200,000. We received
net proceeds of approximately $126,000.
On June
8, 2016, pursuant to the second closing of the
2016 Unit Private Placement
, we issued an
aggregate of 29.5 units consisting of an aggregate of 147,500
shares of Common Stock and 2016 Unit Warrants to purchase 73,750
shares of Common Stock for an aggregate purchase price of $295,000.
We
received net proceeds of
approximately $264,000.
Pursuant
to a registration rights agreement entered into by the parties, we
agreed to file a registration statement with the SEC providing for
the resale of the shares of Common Stock and the shares of Common
Stock underlying the 2016 Unit Warrants issued pursuant to the 2016
Unit Private Placement on or before the date which is ninety (90)
days after the date of the final closing of the 2016 Unit Private
Placement. The Company will use its commercially
reasonable efforts to cause the registration statement to become
effective within one hundred fifty (150) days from the filing date.
The Company has received a waiver from
a majority of the 2016 Unit Private Placement investors extending
the filing date of the registration statement to no later
than
December 15, 2016.
In connection with the 2016 Unit Private Placement, we paid
Wainwright an aggregate cash fee of $9,900 and Cova Capital an
aggregate cash fee of $31,150. Additionally, we issued Wainwright
and/or their registered designees placement agent warrants to
purchase an aggregate of 9,175 shares of Common Stock and Cova
Capital placement agent warrants to purchase an aggregate of 15,575
shares of Common Stock. The placement agent warrants have the
substantially similar terms as the 2016 Unit
Warrants.
On July 12, 2016,
we entered into an exchange agreement
e
ffective July 1, 2016,
(the
“2016 Unit Exchange Agreement”) with a holder of Series
B Preferred Stock (the “Series B Stockholder”), whereby
the Series B Stockholder elected to exercise their Most Favored
Nation exchange right, pursuant to the terms of the Series B
Preferred Stock, into the securities offered pursuant to the 2016
Unit Private Placement (the “2016 Unit Series B
Exchange” and collectively with the 2016 Unit Private
Placement, the “2016 Unit Private
Placements”).
Accordingly,
in connection with the 2016 Unit Series B Exchange, the Series B
Stockholder tendered an aggregate of 19.4837 shares of Series B
Preferred Stock
and $2,143 of accrued
and unpaid dividends for an aggregate
exchange amount of
$109,304, plus warrants to purchase 9,000 shares of Common Stock at
an exercise price of $10.50 per share for the issuance of 54,652
shares of Common Stock and 2016 Unit Warrants to purchase 27,326
shares of Common Stock. Additionally, we entered into a joinder
agreement to the
Additional
2016
Subscription Agreement with the Series B Stockholder,
and the Series B Stockholder was granted all rights and benefits
under the 2016 Unit Private Placement financing agreements,
including the
2016
Subscription
Agreement.
Pursuant
to the
2017 Common Stock Private
Placement, we reduced the exercise price an aggregate of
81,250
2016 Unit Warrants from $3.00 to $2.00 per
share.
We are registering 237,500 shares of Common Stock, 175,826 shares
of Common Stock underlying warrants issued pursuant to the 2016
Unit Private Placements
.
Additional 2016 Unit Private Placement
On August 31, 2016, we entered into an initial subscription
agreement with an accredited investor pursuant to which we may sell
in a private placement (the “Additional 2016 Unit Private
Placement”) up to a maximum of 2,000 units, with each unit
consisting of (i) 5,000 shares of Common Stock at an effective
price of $2.00 per share, and (ii) and five-year warrants (the
“Additional 2016 Unit Warrants”) to purchase 2,500
shares of Common Stock at an exercise price of $3.00 per share. The
offering price is $10,000 per unit. Cova Capital and Sutter
Securities Incorporated (“Sutter Securities”), a
registered broker dealer, each acted as a non-exclusive placement
agent in connection with the Additional 2016 Unit Private
Placement.
On August 31, 2016, pursuant to the initial closing of the
Additional 2016 Unit Private Placement, we issued an aggregate of
8.75 units consisting of 43,750 shares of Common Stock and
Additional 2016 Unit Warrants to purchase 21,875 shares of Common
Stock for an aggregate purchase price of $87,500. We received net
proceeds of approximately $73,000.
On
September 28, 2016
, pursuant
to a second closing of the Additional 2016 Unit Private Placement,
we issued an aggregate of 18 units consisting of 90,000 shares of
Common Stock and Additional 2016 Unit Warrants to purchase 45,000
shares of Common Stock for an aggregate purchase price of $180,000.
We received net proceeds of approximately
$164,000.
On
October 11, 2016, we entered into a revised subscription agreement
(the “
Additional 2016
Subscription Agreement”) with the existing investors and new
accredited and institutional investors, (the “Additional 2016
Investors”), which
amended and
restated the initial subscription agreement. Pursuant to the
Additional 2016
Subscription Agreement, for the benefit of
certain Additional 2016 Investors that would be deemed to have
beneficial ownership in excess of 4.99% or 9.99%, we may issue
shares of our Series A-2 Convertible Preferred Stock (the
“Series A-2 Preferred”) in lieu of issuing shares of
Common Stock to such Additional 2016 Investors. Each share of
Series A-2 Preferred is convertible into 10 shares of Common
Stock.
On
October 11, 2016, pursuant to the third closing of the
Additional 2016 Unit Private Placement
, we
issued an aggregate of 117 units consisting of 102,000 shares of
Common Stock, 48,300 shares of Series A-2 Preferred,
convertible into 483,000
shares of Common
Stock
,
and
Additional 2016 Unit Warrants to purchase 292,500
shares of Common Stock
for an aggregate purchase price of
$1,170,000.
The Company received net
proceeds of approximately $1,066,000.
On
October 21, 2016, pursuant to the fourth closing of the
Additional 2016 Unit Private
Placement
, we issued an aggregate of 116.5 units consisting
of 582,500 shares of Common Stock and
Additional 2016 Unit Warrants to purchase 291,250
shares of Common Stock
for an aggregate purchase price of
$1,165,000.
The Company received net
proceeds of approximately $1,070,000.
Between
October 21, 2016 and October 30, 2016, we entered into the
Additional 2016
Subscription
Agreement with certain accredited vendors of the Company, whereby
we issued an aggregate of 6.5 units consisting of 32,500 shares of
Common Stock and
Additional 2016 Unit
Warrants to purchase 16,250 shares of Common Stock
in
exchange for the cancellation of $65,000 of accounts payable in the
aggregate into the
Additional 2016
Unit Private Placement
(the “Company Payable
Exchange”).
Effective
October 21, 2016, we entered into the
Additional 2016
Subscription Agreement with
the Noteholder in connection with the Initial Note Voluntary
Exchange of $600,000 principal amount plus $48,000 of accrued and
unpaid interest of the Promissory Note into the
Additional 2016 Unit Private Placement
(the
“Promissory Note Exchange”). In connection with the
Promissory Note Exchange, we issued 64.8 units consisting of
230,000 shares of Common Stock, 9,400 shares of Series A-2
Preferred,
convertible into
94,000
shares of Common Stock
,
and Additional 2016 Unit Warrants to purchase 162,000 shares of
Common Stock
in exchange for the cancellation of $600,000
principal amount plus $48,000 of accrued and unpaid interest of the
Promissory Note.
Effective
October 28, 2016, we entered into the
Additional 2016
Subscription Agreement with
certain holders of our OID Notes (the “OID
Noteholders”) in connection with the OID Note Voluntary
Exchange of an aggregate of $553,000 OID Principal Amount (the
“OID Exchange Amount”) into the
Additional 2016 Unit Private Placement (the
“
OID Note Exchange”). In connection with the OID
Note Exchange, we issued an aggregate of 55.3 units consisting of
210,500 shares of Common Stock, 6,600 shares of Series A-2
Preferred,
convertible into
66,000
shares of Common
Stock
and
Additional 2016 Unit
Warrants
to purchase 138,250 shares of Common Stock in
exchange for the cancellation of $553,000 of OID
Notes.
Effective
as of October 30, 2016, we entered into exchange agreements (the
“Additional 2016 Unit Exchange Agreements”) with
certain Series B Stockholders, whereby the Series B Stockholders
elected to exercise their Most Favored Nation exchange right,
pursuant to the terms of the Series B Preferred Stock, into the
securities offered pursuant to the Additional 2016 Unit Private
Placement (the “Additional 2016 Unit Series B
Exchange”).
Accordingly,
in connection with the Additional 2016 Unit Series B Exchange, the
Series B Stockholders tendered an aggregate of 460.6480 shares of
Series B Preferred Stock and an aggregate of $67,890 of accrued and
unpaid dividends for an aggregate exchange amount of $2,601,464,
plus an aggregate of warrants to purchase 208,027 shares of Common
Stock with an exercise price of $10.50 per share for the issuance
of an aggregate of 1,238,339 shares of Common Stock, 6,240.8 shares
of Series A-2 Preferred, convertible into 62,408 shares of Common
Stock and
Additional 2016 Unit
Warrants
to purchase 650,381 shares of Common Stock.
Additionally, we entered into joinder agreements to the
Additional 2016
Subscription
Agreement with the Series B Stockholders, and the Series B
Stockholders were granted all rights and benefits under the
Additional 2016 Unit Private Placement financing agreements,
including the
Additional 2016
Subscription Agreement.
The
Additional 2016 Unit Private
Placement, the
Company Payable Exchange, the Promissory Note
Exchange, the OID Note Exchange, and the Additional 2016 Unit
Series B Exchange shall collectively be referred to as the
“
Additional 2016 Unit Private
Placements”.
Pursuant
to the
Additional 2016
Subscription Agreement, for a period of one hundred eighty (180)
days following the final closing of the
Additional 2016 Unit Private Placement, effective
as of October 30
, 2016, the Additional 2016 Investors shall
have “full-ratchet” anti-dilution price protection
based on certain issuances by us of Common Stock or securities
convertible into shares of Common Stock at an effective price per
share less than the Effective Price of $2.00 per share. This price
protection provision expired on April 30, 2017.
In connection with Additional 2016 Unit Private Placements, we paid
Cova Capital an aggregate cash fee of $202,075 and Sutter
Securities an aggregate cash fee of $15,840. Additionally, we
issued Cova Capital placement agent warrants to purchase an
aggregate 101,038 shares of Common Stock and issued Sutter
Securities, and/or their designees placement agent warrants to
purchase an aggregate of 7,920 shares of Common Stock. The
placement agent warrants have the same terms as the
Additional 2016 Unit
Warrants, but are
not subject to the
anti-dilution price protection provision
granted to the Additional 2016 Investors
.
Pursuant
to the
2017 Common Stock Private
Placement, we reduced the exercise price an aggregate of 448,169
Additional
2016 Unit Warrants from $3.00 to $2.00 per
share.
We are registering
1,936,616
shares of Common Stock,
705,408
shares of Common Stock issuable upon
the conversion of the Series A-2 Preferred, and
1,655,750
shares of Common Stock underlying
warrants issued pursuant to the Additional 2016 Unit Private
Placements.
Investing in our Common Stock involves a high degree of risk. You
should carefully consider the risks described below with all of the
other information included in this prospectus before making an
investment decision. We are subject to various risks that may
materially harm our business, financial condition and results of
operations. They are not, however, the only risks we face.
Additional risks and uncertainties not presently known to us or
that we currently believe not to be material may also adversely
affect our business, financial condition or results of operations.
An investor should carefully consider the risks and uncertainties
described below and the other information in this filing before
deciding to purchase our common stock. If any of these risks or
uncertainties actually occurs, our business, financial condition or
operating results could be materially harmed. In that case, the
trading price of our common stock could decline or we may be forced
to cease operations.
Risks Relating to Our
Financial
Condition and Capital Resources
If we are unable to continue as a going concern, our securities
will have little or no value.
The report of our independent registered public accounting firm
that accompanies our audited consolidated financial statements
for the years ended February 28, 2017 and February 29, 2016 contain
a going concern qualification in which such firm expressed
substantial doubt about our ability to continue as a going concern.
As of May 31, 2017, and February 28, 2017, we had an accumulated
deficit of approximately $26.6 million and $26.3 million,
respectively. At May 31, 2017, we have a negative working capital.
We currently anticipate that our cash and cash equivalents will not
be sufficient to fund our operations for the next twelve
months, without raising additional capital. Our continuation as a
going concern is dependent upon continued financial support from
our shareholders, the ability of us to obtain necessary equity
and/or debt financing to continue operations, and the attainment of
profitable operations. These factors raise substantial doubt
regarding our abilityto continue as a going concern. Although we
are actively working to obtain additional funding, we cannot make
any assurances that additional financings will be available to us
and, if available, completed on a timely basis, on acceptable terms
or at all. If we are unable to complete an equity or debt offering,
or otherwise obtain sufficient financing when and if needed, it
would negatively impact our business and operations, which would
likely cause the price of our common stock to decline. It could
also lead to the reduction or suspension of our operations and
ultimately force us to cease our operations.
We are at an early stage of development as a company and do not
have, and may never have, any products that generate
revenue.
We are a pre-commercial biotechnology company. At this time,
we do not have any commercial products or laboratory services that
generate revenue. Our business has evolved to an integrated
Rx/Dx company focused on developing and commercializing
therapeutics and companion diagnostics from a pure play prognostic
diagnostic company. We are not profitable, and have incurred losses
in each year since our inception and expect we expect to continue
to incur losses for the foreseeable future.
Our therapeutic and companion diagnostic product candidates are at
early stages of development, have not obtained regulatory marketing
approval, have never generated any sales and require extensive
testing before commercialization. Our limited operating history may
adversely affect our ability to implement our business strategy and
achieve our business goals, which include, among others, the
following activities:
●
develop our therapeutic or diagnostic product
candidates;
●
obtain the human and financial resources necessary to develop,
test, commercialize and market our product candidates;
●
continue to build and maintain an intellectual property portfolio
covering our technology and our product candidates;
●
satisfy the requirements of clinical trial protocols, including
patient enrollment, establish and demonstrate the clinical
efficacy, safety and utility of our product candidates and obtain
necessary regulatory approvals;
●
commercialize and
market our product candidates that receive
regulatory approvals to achieve acceptance and use by the medical
community in general;
●
develop and maintain successful collaboration, strategic and other
relationships for the development and commercialization of our
product candidates; and
●
manage our cash flows and any growth we may experience in an
environment where costs and expenses relating to clinical trials,
regulatory approvals and commercialization continue to
increase.
Additionally, our prognostic diagnostic product candidates will
require additional development, analytical validation, clinical
evaluation, additional state and CLIA licensing, potential
regulatory review, significant sales and marketing efforts and
substantial investment or collaboration before they could provide
any revenue.
If we are unsuccessful in accomplishing these objectives, we may
not be able to successfully develop product candidates, raise
capital,
generate significant revenue, or any revenue at
all,
grow our business or continue our
operations.
Even if we achieve profitability in the future,
we may not be able to sustain profitability in subsequent periods.
Our prior losses, combined with expected future losses, have had
and will continue to have an adverse effect on our
stockholders’ equity and working capital.
We have a history of net losses, and we expect to incur net losses
for the foreseeable future and we expect to continue to incur
significant expenses to develop and commercialize our
products.
We have
incurred substantial net losses since our inception. For the fiscal
year ended February 28, 2017 and February 29, 2016, we incurred net
losses of approximately $2.9 million and approximately $4.7
million, respectively. F
or the three
months ended May 31, 2017 and 2016 we incurred net losses of
approximately $0.28 million and approximately $1.22,
respectively.
From our inception in July 2009 through May
31, 2017, we had an accumulated deficit of approximately $26.6
million. To date, we have not achieved, and we may never achieve,
revenue sufficient to offset expenses. We expect to devote
substantially all of our resources to research and development and
commercialization of our product offerings based on our
Rx/Dx strategy
. We expect to
incur additional losses in the future, and we may never achieve
profitability.
We expect our losses to continue as a result of costs relating to
ongoing research and development primarily for our therapeutic drug
discovery and companion diagnostic programs, clinical studies,
operational expenses, and other commercialization costs. These
losses have had, and will continue to have, an adverse effect on
our working capital, total assets and stockholders’ equity.
Because of the numerous risks and uncertainties associated with our
commercialization efforts, we are unable to predict when we will
become profitable, if ever. Even if we do achieve profitability, we
may not be able to sustain or increase profitability on a quarterly
or annual basis.
We have incurred significant indebtedness under our convertible
note with a shareholder.
On
January 17, 2017, we issued to a convertible promissory note in the
principal amount of $1,000,000 (the “Convertible Note”)
in exchange for the cancellation of (i) $600,000 principal amount
of the Promissory Note plus $96,000 of accrued and unpaid interest,
and (ii) $290,400 principal amount of the OID Note. The Convertible
Note accrues interest at a rate of ten percent (10%) per annum
commencing as of January 1, 2017, and may be prepaid upon 10
days’ advanced written notice by us at any time prior to the
maturity date without penalty or premium. The noteholder has
the right to convert the outstanding principal balance of the
Convertible Note plus all accrued and unpaid interest thereon into
shares of our common stock at a conversion price of $2.00 per
share. The Convertible matured on September 30, 2017, and has a ten
(10) business day cure period.
We
are currently in the process of negotiating an extension of the
maturity date of the Convertible Note with the holder thereof,
which we expect will be finalized shortly. In the event we do not
reach an agreement with the noteholder to extend the maturity date
of the Convertible Note, the noteholder may exercise its default
rights. There can be no assurance that we will be able to raise
additional debt or equity financing in an amount sufficient to
enable us to retire these obligations and meet our other
obligations. Following the expiration of the cure period, the
noteholder may bring suit against us and foreclose on all of our
assets and business by reason of our default.
Our
ability to repay or to refinance our indebtedness depends on our
future performance and ability to raise additional sources of cash,
which is subject to economic, financial, competitive and other
factors beyond our control. If we are unable to generate sufficient
cash to service our indebtedness we may be required to adopt one or
more alternatives, such as restructuring our debt or obtaining
additional equity capital on terms that may be onerous or highly
dilutive, or selling assets. If we desire to refinance our
indebtedness, our ability to do so will depend on the capital
markets and our financial condition at such time. We may not be
able to engage in any of these activities or engage in these
activities on desirable terms, which could result in a default on
our debt obligations.
Risks Relating to Our
Business and
Strategy
We expect to continue to incur significant research and development
expenses, which may make it difficult for us to achieve and
maintain profitability.
Our operations have consumed substantial amounts of cash since
inception. We expect to need substantial additional funding to
pursue our development programs and launch and commercialize any
product candidates for which we receive regulatory approval, which
may include building internal sales and marketing forces to address
certain markets.
In recent years, we have incurred significant costs in connection
with the development of our prognostic diagnostic tests, including
the MetaSite
Breast™
and MenaCalc
™
tests. We have initiated research and
development activities focused on our Mena
INV
and related driver-based biomarkers,
which support our integrated Rx/Dx product development strategy
focused on anti-metastatic therapeutics and companion diagnostics.
Research and development activities are central to our business
model and we expect future research and development expenses to be
focused on our Mena
INV
and related biomarkers in support of
our integrated Rx/Dx product development strategy. Our research and
development expenses were a
pproximately
$1.0 million and $1.4 million for the fiscal years
ended February 28, 2017 and February 29, 2016, respectively. Our
research and development expenses were a
pproximately
$0.19 million and $0.27 million for
the three months ended May 31, 2017 and May 31, 2016,
respectively.
We expect our research and development expenses to increase and
remain high for the
foreseeable future as we execute our
Rx/Dx strategy to develop our driver-based biomarkers primarily for
anti-metastatic drugs and companion diagnostics. Additionally,
we may not be able to successfully monetize or commercialization
our
prognostic diagnostic
tests.
As a result, we will need to generate significant
revenue in order to achieve profitability. Our failure to
achieve revenue or profitability in the future could cause the
market price of our common stock to decline. Our prior losses,
combined with expected future losses, have had and will continue to
have an adverse effect on our stockholders’ equity and
working capital.
Our research and development efforts are based on a rapidly
evolving area of science, and our approach to development is novel
and may never lead to marketable products.
Biopharmaceutical
product development is generally a highly speculative undertaking
and involves substantial risk. The field of personalized medicine,
in which we engage, is an emerging field, and the scientific
discoveries that form the basis for our Rx/Dx efforts to develop
product candidates are relatively new. Further, the scientific
evidence to support the feasibility of developing product
candidates based on those discoveries is both preliminary and
limited. The failure of the scientific underpinnings of our
business model to produce viable product candidates would
substantially harm our operations and prospects.
If we are unable to execute our sales and marketing strategy for
our diagnostic tests and are unable to gain market acceptance, we
may be unable to generate sufficient revenue to sustain our
business.
We are a pre-commercial biotechnology company. We do not have
any commercial products or laboratory services that generate
revenue. Our
therapeutic and companion diagnostics programs
are in an early stage of development. Our future success is
substantially dependent on our ability to successfully develop,
obtain regulatory approval for, and then successfully commercialize
our therapeutic and companion diagnostic product products resulting
from these programs and any others we may develop or acquire in the
future, which may never occur.
Before
we could generate any revenues from our therapeutic and companion
diagnostic product candidates, we must complete the following
activities for each of them, any one of which we may not be able to
successfully complete:
●
conduct substantial preclinical development;
●
manage preclinical and clinical activities;
●
achieve regulatory approval;
●
manage manufacturing activates and establish manufacturing
relationships;
●
develop our companion diagnostics and conduct clinical testing and
achieve regulatory approvals for our companion
diagnostics;
●
build a commercial sales and marketing infrastructure, if we choose
to market any such products ourselves, or enter into a
collaboration to access sales and marketing functions;
●
develop and implement marketing and reimbursement strategies;
and
●
invest significant additional cash in each of the above
activities.
If we
are unable to commercialize and generate sales of our product
candidates, or successfully develop, monetize or commercialization
our
prognostic diagnostic
tests
, we will not produce sufficient revenue to become
profitable.
Our product candidates are in various stages of development and may
never be fully developed in a manner suitable for
commercialization. If we do not develop commercially successful
products, our ability to generate revenue will be
limited.
We are a pre-commercial biotechnology company. We do not have
any commercial products or laboratory services that generate
revenue.
All of our product candidates are in various stages
of development, and significant research and development, financial
resources and personnel will be required to develop commercially
viable products and obtain regulatory approvals. If we are unable
to develop, receive approval for, or successfully commercialize any
of our product candidates, we may be unable to generate meaningful
revenue and will incur continued net losses and negative cash
flows, which could substantially harm our operations and
prospects.
We may not be successful in our efforts to build a pipeline of
product candidates.
A key
element of our Rx/Dx strategy is to use and expand our driver-based
biomarker platform to build a pipeline of therapeutic drug
candidates and companion diagnostics, and progress those product
candidates through preclinical and clinical development for the
treatment of epithelial-based solid tumors. We may not be able to
develop product candidates that are safe and effective. Even if we
are successful in building a product pipeline, the potential
product candidates that we identify may not be suitable for
clinical development for a number of reasons, including causing
harmful side effects or demonstrating other characteristics that
indicate a low likelihood of receiving marketing approval or
achieving market acceptance. If our methods of identifying
potential product candidates fail to produce a pipeline of
potentially viable product candidates, then our success as a
business will be dependent on the success of fewer potential
product candidates, which introduces risks to our business model
and potential limitations to any success we may
achieve.
We may expend our limited resources to pursue a particular product
candidate or indication that does not produce any commercially
viable products and may fail to capitalize on product candidates or
indications that may be more profitable or for which there is a
greater likelihood of success.
Because
we have limited financial and operational resources, we must focus
our efforts on particular product candidates for specific
indications. As a result, we may forego or delay pursuit of
opportunities with other product candidates or for other
indications that later prove to have greater commercial potential.
Further, our resource allocation decisions may result in our use of
funds for research and development programs and product candidates
for specific indications that may not yield any commercially viable
products. If we do not accurately evaluate the commercial potential
or target market for a particular product candidate, we may
relinquish valuable rights to that product candidate through
collaboration, licensing or other royalty arrangements in cases in
which it would have been more advantageous for us to retain sole
development and commercialization rights to such product candidate.
Any such failure to properly assess potential product candidates
could result in missed opportunities and/or our focus on product
candidates with low market potential, which would harm our business
and financial condition.
Drug development involves a lengthy and expensive process with
uncertain outcomes, and any of our preclinical development and
clinical trials or studies could produce unsuccessful results or
fail at any stage in the testing process.
Preclinical
development and clinical testing is expensive and can take many
years to complete. The outcomes are inherently uncertain and
failure can occur at any time during the preclinical development
and clinical trial process. Additionally, any positive results of
preclinical studies and early clinical trials of a product
candidate may not be predictive of the results of later-stage
clinical trials, such that product candidates may reach later
stages of clinical trials and fail to show the desired safety and
efficacy traits despite having shown indications of those traits in
earlier studies. A number of companies in the pharmaceutical and
biopharmaceutical industry have suffered significant setbacks in
advanced clinical trials due to lack of efficacy or adverse safety
profiles, notwithstanding promising results in earlier trials. The
results of any preclinical development and clinical trials we
conduct may be delayed or unsuccessful for a variety of
reasons.
If we experience delays or difficulties in the enrollment of
patients in clinical trials, those clinical trials could take
longer than expected to complete and our receipt of necessary
regulatory approvals could be delayed or prevented.
If any of our product candidates enter the clinical development
stage, we may not be able to initiate or continue clinical trials
for our product candidates if we are unable to locate and enroll a
sufficient number of eligible patients to participate in these
trials as required by the FDA or similar regulatory authorities
outside the United States. In particular, because we are primarily
focused on patients with molecularly defined cancers, which may
have relatively low incidence rates, our pool of suitable patients
may be smaller and more selective and our ability to enroll a
sufficient number of suitable patients may be limited or take
longer than anticipated. Additionally, some of our competitors have
ongoing clinical trials for product candidates that treat the same
indications that our product candidates target, and patients who
would otherwise be eligible for our clinical trials may instead
enroll in clinical trials of our competitors’ product
candidates.
The
inability to enroll a sufficient number of patients for our
clinical trials would result in significant delays and could
require us to abandon our clinical trials altogether. Enrollment
delays in our clinical trials would likely result in increased
development costs, and we may not have or be able to obtain
sufficient cash to fund such increased costs when needed, which
could result in the further delay or termination of the
trials.
The approval processes of regulatory authorities are lengthy, time
consuming, expensive and inherently unpredictable. If we are unable
to obtain approval for our product candidates from applicable
regulatory authorities, we will not be able to market and sell
those product candidates in those countries or regions and our
business will be substantially harmed.
The
time required to obtain approval by the FDA and comparable foreign
authorities is unpredictable, but typically takes many years
following the commencement of clinical trials and depends upon
numerous factors, including the substantial discretion of the
regulatory authorities. We have not submitted an NDA or similar
filing or obtained regulatory approval for any product candidate in
any jurisdiction and it is possible that none of our existing
product candidates or any product candidates we may seek to develop
in the future will ever obtain regulatory approval.
Our
product candidates could fail to receive regulatory approval for
many reasons, including any one or more of the
following:
●
the FDA or comparable foreign regulatory authorities may disagree
with the design or implementation of our clinical
trials;
●
we may be unable
to demonstrate to the satisfaction of the FDA or comparable foreign
regulatory authorities that a product candidate is safe and
effective for its proposed indication
;
●
the results of
clinical trials may not meet the level of statistical significance
required by the FDA or comparable foreign regulatory authorities
for approval
;
●
we may be unable
to demonstrate that a product candidate’s clinical and other
benefits outweigh its safety risks
;
●
the FDA or
comparable foreign regulatory authorities may disagree with our
interpretation of data from preclinical studies or clinical
trials
;
●
the data collected
from clinical trials of our product candidates may not be
sufficient to support the submission of an NDA or other submission
or to obtain regulatory approval in the United States or
elsewhere
;
●
the FDA or
comparable foreign regulatory authorities may fail to hold to
previous agreements or commitments;
●
the FDA or
comparable foreign regulatory authorities may fail to approve the
manufacturing processes or facilities of third-party manufacturers
with which we contract for clinical and commercial
supplies;
●
the FDA or
comparable foreign regulatory authorities may fail to approve our
companion diagnostics;
●
invest significant additional cash in each of the above activities;
and
●
the approval
policies or regulations of the FDA or comparable foreign regulatory
authorities may significantly change in a manner rendering our
clinical data insufficient for approval
.
The
time and expense of the approval process, as well as the
unpredictability of clinical trial results and other contributing
factors, may result in our failure to obtain regulatory approval to
market, in one or more jurisdictions, any of our or future product
candidates, which would significantly harm our business, results of
operations and prospects.
In
order to market and sell our products in any jurisdiction, we or
our third-party collaborators must obtain separate marketing
approvals in that jurisdiction and comply with its regulatory
requirements. The approval procedure can vary drastically among
countries, and each jurisdiction may impose different testing and
other requirements to obtain and maintain marketing approval.
Further, the time required to obtain those approvals may differ
substantially among jurisdictions. Approval by the FDA or an
equivalent foreign authority does not ensure approval by regulatory
authorities in any other countries or jurisdictions. As a result,
the ability to market and sell a product candidate in more than one
jurisdiction can involve significant additional time, expense and
effort to undertake separate approval processes, and could subject
us and our collaborators to the numerous and varying post-approval
requirements of each jurisdiction governing commercial sales,
manufacturing, pricing and distribution of our product candidates.
We or any third parties with whom we may collaborate may not have
the resources to pursue those approvals, and we or they may not be
able to obtain any approvals that are pursued. The failure to
obtain marketing approval for our product candidates in foreign
jurisdictions could severely limit their potential markets and our
ability to generate revenue.
In
addition, even if we were to obtain regulatory approval in one or
more jurisdictions, regulatory authorities may approve any of our
product candidates for fewer or more limited indications than we
request, may not approve the prices we may propose to charge for
our products, may grant approval contingent on the performance of
costly post-marketing clinical trials, or may approve a product
candidate with labeling that does not include the claims necessary
or desirable for the successful commercialization of that product
candidate. Any of the foregoing circumstances could materially harm
the commercial prospects for our product candidates.
Our product candidates may cause undesirable side effects or have
other properties that could delay or prevent their regulatory
approval, limit the commercial profile of the approved labeling, or
result in significant negative consequences following marketing
approval, if any.
Results
of future clinical trials of our product candidates could reveal a
high and/or unacceptable severity and frequency of these or other
side effects. In such an event, our trials could be suspended or
terminated and the FDA or comparable foreign regulatory authorities
could order us to cease further development of, or deny approval
of, our product candidates for any or all targeted indications.
Further, any observed drug-related side effects could affect
patient recruitment or the ability of enrolled patients to complete
the trial, or result in potential product liability claims. Any of
these occurrences could materially harm our business, financial
condition and prospects.
Additionally,
if any of our product candidates receives marketing approval, and
we or others later identify undesirable side effects caused by our
products, a number of potentially significant negative consequences
could result, including:
●
regulatory
authorities may withdraw approvals of such product;
●
regulatory
authorities may require additional warnings in the product’s
labeling;
●
we may be required
to create a medication guide for distribution to patients that
outlines the risks of such side effects;
●
we could be sued
and held liable for harm caused to patients; and
●
our reputation may
suffer
.
Any of
these events could prevent us from achieving or maintaining market
acceptance of the particular product, if approved, and could
significantly harm our business, results of operations and
prospects.
Failure to successfully validate, develop and obtain regulatory
approval for our companion diagnostics could harm our business
strategy and operational results.
As one
of the central elements of our Rx/Dx business strategy, we seek to
identify
appropriate patient
populations most likely to benefit from our anti-metastatic
therapeutic agents or next generation RTK inhibitors and
anti-microtubule drugs being developed by potential pharmaceutical
and biotechnology partners
. In order to assist in
identifying those subsets of patients, a companion diagnostic,
which is a test or measurement that evaluates the presence of
biomarkers in a patient, could be used. We anticipate that the
development of companion diagnostics concurrently with our
therapeutic agents or with our drugs
from potential strategic partners will
help us more
accurately identify the patients who belong to the target subset,
both during the clinical trials and in connection with the
commercialization of product candidates.
Companion
diagnostics are subject to regulation by the FDA and comparable
foreign regulatory authorities as medical devices and require
separate regulatory clearance or approval prior to their
commercialization. We may be dependent on the sustained cooperation
and effort of any third-party collaborators with whom we may
partner in the future to develop and obtain clearance or approval
for these companion diagnostics, and we may not be able to
establish arrangements with any such third-party collaborators for
the development and production of companion diagnostics when needed
or on terms that are beneficial to us, or at all. We and our
potential future collaborators may encounter difficulties in
developing and obtaining approval for these companion diagnostics,
including issues relating to the selectivity and/or specificity of
the diagnostic, analytical validation, reproducibility, or clinical
validation.
Since
the FDA generally requires concurrent approval of a companion
diagnostic and therapeutic product, any delay or failure by us or
our potential future collaborators to develop or obtain regulatory
clearance or approval of any companion diagnostics could delay or
prevent approval of our related product candidates. The occurrence
of any delay or failure could adversely affect and/or delay the
development or commercialization of our product
candidates.
If we are unable to execute our sales and marketing strategy for
our products and are unable to gain market acceptance, we may be
unable to generate sufficient revenue to sustain our
business.
We are
a pre-commercial biotechnology company and have yet to begin to
generate revenue from our product candidates. Our therapeutic and
companion diagnostic product candidates are in an early stage of
development, and, if we obtain marketing approval for any of
products in the future, which we anticipate would not occur for
several years, if at all. Additionally, we are seeking to monetize
or
commercialize through
strategic partnerships our
prognostic diagnostics through
our CLIA-certified laboratory, located in Boston,
Massachusetts.
Although we believe that our
prognostic diagnostics
represent a promising commercial
opportunity, we may never gain significant market acceptance and
therefore may never generate substantial revenue or profits for us.
We will need to establish a market for our prognostic diagnostic
tests and build that market through physician education, awareness
programs and the publication of clinical data. Gaining acceptance
in medical communities requires, among other things, publication in
leading peer-reviewed journals of results from studies using our
current tests and/or our planned cancer tests. The process of
publication in leading medical journals is subject to a peer review
process and peer reviewers may not consider the results of our
studies sufficiently novel or worthy of publication. Failure to
have our studies published in peer-reviewed journals would limit
the adoption of our current tests and our planned tests. Our
ability to successfully market our prognostic diagnostic tests that
we may develop will depend on numerous factors,
including:
●
conducting validation studies of such tests in collaboration with
key thought leaders to demonstrate their use and value in important
medical decisions such as treatment selection;
●
conducting clinical utility studies of such tests to demonstrate
economic usefulness to providers and payers;
●
whether our current or future partners, support our
offerings;
●
the success of the sales force and marketing effort;
●
whether
healthcare providers believe such diagnostic tests provide clinical
utility;
●
whether the medical community accepts that such diagnostic tests
are sufficiently sensitive and specific to be meaningful in patient
care and treatment decisions; and
●
whether private health insurers, government health programs and
other third-party payers will cover such diagnostic tests and, if
so, whether they will adequately reimburse us.
Failure to achieve significant market acceptance of our products
would materially harm our business, financial condition and results
of operations.
If third-party payers, including managed care organizations and
Medicare, do not provide reimbursement for our products, our
commercial success could be compromised.
Physicians and patients may decide not to order our prognostic
diagnostic tests unless third-party payers, such as managed care
organizations as well as government payers such as Medicare and
Medicaid, pay a substantial portion or all of the test’s
price. There is significant uncertainty concerning third-party
reimbursement of any test incorporating new technology, including
our prognostic diagnostic tests and any of our future diagnostic
tests. Reimbursement by a third-party payer may depend on a
number of factors, including a payer’s determination that
tests using our technologies are:
●
not experimental or investigational;
●
appropriate for the specific patient;
●
supported by peer-reviewed publications; and
●
provide a clinical utility.
Uncertainty surrounds third-party payor coverage and adequate
reimbursement of any diagnostic test incorporating new technology,
including tests developed using our technologies. Technology
assessments of new medical tests conducted by research centers and
other entities may be disseminated to interested parties for
informational purposes. Third-party payors and health care
providers may use such technology assessments as grounds to deny
coverage for a test or procedure. Technology assessments can
include evaluation of clinical utility studies, which define how a
test is used in a particular clinical setting or situation. Because
each payor generally determines for its own enrollees or insured
patients whether to cover or otherwise establish a policy to
reimburse our cancer diagnostic tests, seeking payor approvals is a
time-consuming and costly process. We cannot be certain that
coverage for our current tests and our planned future tests will be
provided in the future by additional third-party payors or that
existing agreements, policy decisions or reimbursement levels will
remain in place or be fulfilled under existing terms and
provisions. If we cannot obtain coverage and adequate reimbursement
from private and governmental payors such as Medicare and Medicaid
for our current tests, or new tests or test enhancements that we
may develop in the future, our ability to generate revenue could be
limited, which may have a material adverse effect on our financial
condition, results of operations and cash flows. Further, we may
experience delays and interruptions in the receipt of payments from
third-party payors due to missing documentation and/or other
issues, which could cause delay in collecting our
revenue.
In addition, to the extent that our testing is ordered for Medicare
inpatients and outpatients, only the hospital may receive payment
from the Medicare program for the technical component of pathology
services and any clinical laboratory services that we perform,
unless the testing is ordered at least 14 days after discharge and
certain other requirements are met. We therefore must look to the
hospital for payment for these services under these circumstances.
If hospitals refuse to pay for the services or fail to pay in a
timely manner, our ability to generate revenue could be limited,
which may have a material adverse effect on our financial
condition, results of operations and cash flows.
Additionally,
there is significant uncertainty related to the third-party
coverage and reimbursement of newly approved drugs and companion
diagnostics. Market acceptance and sales of any of our product
candidates that obtain regulatory approval in domestic or
international markets will depend significantly on the availability
of adequate coverage and reimbursement from third-party payers and
may be affected by existing and future healthcare reform
measures.
In some
foreign countries, particularly in the European Union, the pricing
of prescription pharmaceuticals is subject to governmental control.
In these countries, pricing negotiations with governmental
authorities can be a long and expensive process after the receipt
of marketing approval for a product candidate. To obtain
reimbursement or pricing approval in some countries, we may be
required to conduct additional clinical trials that compare the
cost-effectiveness of our product candidates to other available
therapies. If reimbursement of our product candidates is
unavailable or limited in scope or amount in a particular country,
or if pricing is set at unsatisfactory levels, we may be unable to
achieve or sustain profitability for sales of any of our product
candidates that are approved for marketing in that
country.
Long payment cycles of Medicare, Medicaid and/or other third-party
payers, or other payment delays, could hurt our cash flows and
increase our need for working capital.
Medicare and Medicaid have complex billing and documentation
requirements that we will need to satisfy in order to receive
payment, and the programs can be expected to carefully audit and
monitor our compliance with these requirements. We will also need
to comply with numerous other laws applicable to billing and
payment for healthcare services, including, for example, privacy
laws. Failure to comply with these requirements may result in,
among other things, non-payment, refunds, exclusion from government
healthcare programs, and civil or criminal liabilities, any of
which may have a material adverse effect on our revenue and
earnings. In addition, failure by third-party payors to properly
process our payment claims in a timely manner could delay our
receipt of payment for our products and services, which may have a
material adverse effect on our cash flows and
business.
We expect to rely on third parties to conduct preclinical and
clinical trials of our therapeutic and companion diagnostic product
candidates. If these third parties do not successfully carry out
their contractual duties or meet expected deadlines, we may not be
able to obtain regulatory approval for or commercialize our product
candidates and our business could be substantially
harmed.
We
rely, and expect to continue to rely, upon third-party
collaborators, including CROs to execute our preclinical
development and clinical trials and to monitor and manage data
produced by and relating to those trials. However, we may not be
able to establish arrangements with collaborators and CROs when
needed or on terms that are acceptable to us, or at all, which
could negatively affect our development efforts with respect to our
drug product candidates and materially harm our business,
operations and prospects.
Our research and development and commercialization efforts for our
prognostic diagnostics will be hindered if we are not able to
contract with third parties for access to clinical
samples.
Under standard clinical practice, tumor biopsies removed from
patients are typically chemically preserved and embedded in
paraffin wax and stored. Our clinical development relies on our
ability to secure access to these archived tumor biopsy samples, as
well as information pertaining to their associated clinical
outcomes. Generally, the agreements under which we gain access to
archival samples are nonexclusive. Other companies study archival
samples and often compete with us for access. Additionally, the
process of negotiating access to archived samples is lengthy since
it typically involves numerous parties and approval levels to
resolve complex issues such as usage rights, institutional review
board approval, privacy rights, publication rights, intellectual
property ownership and research parameters. If we are not able to
negotiate access to clinical samples with hospitals, clinical
partners, pharmaceutical companies, or companies developing
therapeutics on a timely basis, or at all, or if other laboratories
or our competitors secure access to these samples before us, our
ability to research, develop and commercialize future products will
be limited or delayed. In addition, access to these clinical
samples may be costly, and involve large upfront acquisition costs,
which may have a material adverse effect on our cash flows and
business.
We may experience delays in our clinical studies that could
adversely affect our financial position and our commercial
prospects.
Any delays in completing our preclinical development and clinical
studies for any of our product candidates may delay our ability to
raise additional capital or to generate revenue, and we may have
insufficient capital resources to support our
operations. Even if we have sufficient capital
resources, the ability to become profitable will be delayed if
there are problems with the timing or completion of our clinical
studies.
We are conducting,
and expect to conduct,
certain preclinical development, validation
studies and clinical studies alone and/or in collaboration with
select academic institutions and other third-party institutions
through services and collaboration agreements. We may experience
delays that are outside of our control in connection with such
services and collaboration agreements, including, but not limited
to, receiving tissue samples, accompanying medical and clinical
data, preparation, review and sign-off of results and/or
manuscripts in a timely fashion. Any delays in completing our
clinical studies and publishing of results in peer-reviewed
journals will delay our commercialization efforts and may
materially harm our business, financial condition and results of
operations.
If we cannot maintain our current clinical collaborations and enter
into new collaborations, our product development could be
delayed.
We rely on, and expect to continue to rely on, clinical
collaborators, including CROs to perform portions of our clinical
trial functions. If any of our collaborators were to breach or
terminate its agreement with us or otherwise fail to conduct the
contracted activities successfully and in a timely manner, the
research, development or commercialization of the products
contemplated by the collaboration could be delayed or terminated.
If any of our collaboration agreements are terminated, or if we are
unable to renew those agreements on acceptable terms, we would be
required to seek alternatives. We may not be able to negotiate
additional collaborations on acceptable terms, if at all, and these
collaborations may not be successful.
Our success in the future depends in part on our ability to enter
into agreements with other leading cancer organizations. This can
be difficult due to internal and external constraints placed on
these organizations. Some organizations may limit the number of
collaborations they have with any one company so as to not be
perceived as biased or conflicted. Organizations may also have
insufficient administrative and related infrastructure to enable
collaborations with many companies at once, which can prolong the
time it takes to develop, negotiate and implement collaboration.
Additionally, organizations often insist on retaining the rights to
publish the clinical data resulting from the collaboration. The
publication of clinical data in peer-reviewed journals is a crucial
step in commercializing and obtaining reimbursement for products
such as ours, and our inability to control when, if ever, results
are published may delay or limit our ability to derive sufficient
revenue from any product that may result from a
collaboration.
From time to time we expect to engage in discussions with potential
clinical collaborators, which may or may not lead to
collaborations. However, we cannot guarantee that any discussions
will result in clinical collaborations or that any clinical
studies, which may result will be completed in a reasonable time
frame or with successful outcomes. If news of discussions regarding
possible collaborations become known in the medical community,
regardless of whether the news is accurate, failure to announce a
collaboration agreement or the entity’s announcement of a
collaboration with an entity other than us could result in adverse
speculation about us, our products or our technology, resulting in
harm to our reputation and our business.
Clinical utility studies are important in demonstrating to both
customers and payers a test’s clinical relevance and value.
If we are unable to identify collaborators willing to work with us
to conduct clinical utility studies, or the results of those
studies do not demonstrate that a product provides clinically
meaningful information and value, commercial adoption of such test
may be slow, which would negatively impact our
business.
Clinical utility studies show when and how to use a clinical test,
and describe the particular clinical situations or settings in
which it can be applied and the expected results. Clinical utility
studies also show the impact of the product results on patient care
and management. Clinical utility studies are typically performed
with collaborating oncologists or other physicians at medical
centers and hospitals, analogous to a clinical trial, and generally
result in peer-reviewed publications. Sales and marketing
representatives use these publications to demonstrate to customers
how to use a clinical test, as well as why they should use it.
These publications are also used with payers to obtain coverage for
a test, helping to assure there is appropriate reimbursement. We
anticipate commencing clinical utility studies for our prognostic
diagnostic tests following product launch. We will need to conduct
additional studies for our prognostic diagnostic tests, and other
tests we plan to introduce, to increase the market adoption and
obtain coverage and adequate reimbursement. Should we not be able
to perform these studies, or should their results not provide
clinically meaningful data and value for oncologists and other
physicians, adoption of our product could be impaired and we may
not be able to obtain coverage and adequate reimbursement for
them.
If our sole laboratory facility becomes inoperable, we will be
unable to perform our research and development and commercial
activities and our business will be harmed.
Our state-of-the-art research and development and commercial
laboratory facility located in Boston, Massachusetts received CLIA
certification and licensing from Massachusetts, California,
Florida, Pennsylvania and Rhode Island. We are seeking licensing
from other states including New York and Maryland, in order to
process samples from such states, however we cannot guarantee that
we will receive the necessary certifications and approvals in a
timely fashion. Delays in receiving the necessary state
certifications may delay commercialization efforts in these states
and may materially harm our business, financial condition and
results of operations.
The laboratory facility may be harmed or rendered inoperable by
natural or man-made disasters, including earthquakes, flooding,
fire and power outages, or loss of our commercial lease, which may
render it difficult or impossible for us to perform our testing
services for some period of time. The inability to perform our
research and development and/or commercial activities even for a
short period of time, may result in the loss of customers or harm
our reputation or relationships with scientific or clinical
collaborators, and we may be unable to regain those customers or
repair our reputation in the future. Although we possess
insurance for damage to our property and the disruption of our
business, this insurance may not be sufficient to cover all of our
potential losses and may not continue to be available to us on
acceptable terms, or at all.
In order to rely on a third party to perform our tests, we could
only use another facility with established CLIA certification and
state licensure under the scope of which our diagnostic tests could
be performed following validation and other required
procedures. We cannot assure you that we would be able to find
another CLIA-certified and state-licensed laboratory facility
willing to license, transfer or adopt our diagnostic tests and
comply with the required procedures, or that such partner or
laboratory would be willing to perform the tests for us on
commercially reasonable terms.
In order to establish a redundant laboratory facility, we would
have to spend considerable time and money securing adequate space,
constructing the facility, recruiting and training employees, and
establishing the additional operational and administrative
infrastructure necessary to support a second
facility. Additionally, any new clinical laboratory facility
opened by us would be subject to certification under
CLIA, licensing by several states, including New York,
California, Florida, Maryland, Pennsylvania and Rhode Island, which
can take a significant amount of time and result in delays in our
ability to begin operations.
We may experience limits on our revenue if oncologists and other
physicians decide not to order our prognostic diagnostic tests or
our future tests, we may be unable to generate sufficient revenue
to sustain our business.
If medical practitioners do not order our prognostic diagnostic
assays or any future tests developed by us, we will likely not be
able to create demand for our products in sufficient volume for us
to become profitable. To generate demand, we will need to
continue to make oncologists, surgeons, pathologists and other
health care professionals aware of the benefits, value and clinical
utility of our diagnostic tests and any products we may develop in
the future through published papers, presentations at scientific
conferences and one-on-one education by our sales force. We
need to hire or outsource commercial, scientific, technical and
other personnel to support this process. Some physicians may decide
not to order our test due to its price, part or all of which may be
payable directly by the patient if the applicable payer denies
reimbursement in full or in part. Even if patients recommend their
physicians use our diagnostic tests, physicians may still decide
not to order them, either because they have not been made aware of
their utility or they wish to pursue a particular course of
treatment and/or therapy regardless. If only a small portion
of the physician population decides to use our tests, we will
experience limits on our revenue and our ability to achieve
profitability. In addition, we will need to demonstrate our
ability to obtain adequate reimbursement coverage from third-party
payers.
We may experience limits on our revenue if patients decide not to
use our prognostic diagnostic tests.
Some patients may decide not to order our prognostic diagnostic
tests due to its price, part or all of which may be payable
directly by the patient if the applicable payer denies
reimbursement in full or in part. Even if medical
practitioners recommend that their patients use our test, patients
may still decide not to use our prognostic diagnostic tests, either
because they do not want to be made aware of the likelihood of
metastasis or they wish to pursue a particular course of therapy
regardless of test results. If only a small portion of the patient
population decides to use our test, we will experience limits on
our revenue and our ability to achieve profitability.
If we are unable to develop our product candidates to keep pace
with rapid technological, medical and scientific change, our
operating results and competitive position would be
harmed.
In recent years, there have been numerous advances in technologies
relating to the diagnosis, prognosis and treatment of
cancer. These advances require us to continuously develop new
products and enhance existing products to keep pace with evolving
standards of care. Several new cancer drugs have been
approved, and a number of new drugs in clinical development may
increase patient survival time. There have also been advances in
methods used to identify patients likely to benefit from these
drugs based on analysis of biomarkers. Our tests could become
obsolete unless we continually innovate and expand our products to
demonstrate benefit in the diagnosis, monitoring or prognosis of
patients with cancer. New treatment therapies typically have
only a few years of clinical data associated with them, which
limits our ability to develop cancer diagnostic tests based on for
example, biomarker analysis related to the appearance or
development of resistance to those therapies. If we cannot
adequately demonstrate the applicability of our current tests and
our planned tests to new treatments, by incorporating important
biomarker analysis, sales of our tests could decline, which would
have a material adverse effect on our business, financial condition
and results of operations.
If we become subject to product liability claims, the damages may
exceed insurance coverage levels.
We could be subject to product liability lawsuits based on the use
of our product candidates in clinical testing or, if obtained,
following marketing approval and commercialization. If product
liability lawsuits are brought against us, we may incur substantial
liabilities and may be required to cease clinical testing or limit
commercialization of our product candidates. We plan to obtain
liability insurance for our product candidates as each is entered
into clinical studies, large population validation studies and/or
any other studies where such liability insurance is
needed.
We cannot predict all of the possible harms or side effects that
may result from the use of our products and, therefore, the amount
of insurance coverage we currently hold, or that we or our
collaborators may obtain, may not be adequate to protect us from
any claims arising from the use of our products that are beyond the
limit of our insurance coverage. If we cannot protect against
potential liability claims, we or our collaborators may find it
difficult or impossible to commercialize our products, and we may
not be able to renew or increase our insurance coverage on
reasonable terms, if at all.
The marketing, sale and use of our products and our planned future
products could lead to the filing of product liability claims
against us if someone alleges that our products failed to perform
as designed. We may also be subject to liability for errors in the
test results we provide to physicians or for a misunderstanding of,
or inappropriate reliance upon, the information we provide. A
product liability or professional liability claim could result in
substantial damages and be costly and time-consuming for us to
defend.
Any product liability or professional liability claim brought
against us, with or without merit, could increase our insurance
rates or prevent us from securing insurance coverage. Additionally,
any product liability lawsuit could damage our reputation, result
in the recall of tests, or cause current partners to terminate
existing agreements and potential partners to seek other partners,
any of which could impact our results of operations.
Our dependence on commercialization partners for sales of our
prognostic diagnostic tests could limit our success in realizing
revenue growth.
We are seeking to monetize or commercialize through
the use of distribution and
commercialization partners for the sales, marketing and
distribution, billing, collection and reimbursement efforts, and to
do so we must enter into agreements with these partners to sell,
market or commercialize our tests. We may experience launch delays
as a result of the timing of clinical data, establishment of a
final product profile, and the lead time required to
execute commercialization agreements. These agreements may
contain exclusivity provisions and generally cannot be terminated
without cause during the term of the agreement. We may need to
attract additional partners to expand the markets in which we sell
tests. These partners may not commit the necessary resources to
market and sell our cancer diagnostics tests to the level of our
expectations, and we may be unable to locate suitable alternatives
should we terminate our agreement with such partners or if such
partners terminate their agreement with us. Any relationships we
form with commercialization partners are subject to change over
time. If current or future commercialization partners do not
perform adequately, or we are unable to locate commercialization
partners, we may not realize revenue growth.
If we are unable to develop adequate sales, marketing or
distribution capabilities or enter into agreements with third
parties to perform some of these functions, we will not be able to
commercialize our products effectively.
We likely will have a limited infrastructure in sales, marketing
and distribution. Initially, we are not planning to directly market
and distribute our products. We may not be able to enter into
sales, marketing and distribution capabilities of our own or enter
into such arrangements with third parties in a timely manner or on
acceptable terms.
Our sales force collaborator with marketing and distribution rights
to one or more of our products may not commit enough resources to
the marketing and distribution of our products, limiting our
potential revenue from the commercialization of these products.
Disputes may arise delaying or terminating the commercialization or
sales of our diagnostic tests that may result in significant legal
proceedings that may harm our business, limit our revenue and our
ability to achieve profitability.
We depend on third parties for the supply of tissue samples and
other biological materials that we use in our research and
development efforts. If the costs of such tissue samples and
materials increase or our third-party suppliers terminate their
relationship with us, our business may be materially
harmed.
We have relationships and plan to enter into new relationships with
suppliers and institutions that provide us with tissue samples,
tissue microarrays (TMA’s), and other biological materials
including antibodies that we use in developing and validating our
product candidates tests. If one or more suppliers terminate their
relationship with us or are unable to meet our requirements for
samples, we will need to identify other third parties to provide us
with samples and biological materials, which could result in a
delay in our research and development activities, clinical studies
and negatively affect our business. In addition, as we grow, our
research and academic institution collaborators may seek additional
financial contributions from us, which may negatively affect our
results of operations.
We rely on a limited number of suppliers or, in some cases, a sole
supplier, for some of our laboratory instruments and materials and
may not be able to find replacements in the event our supplier no
longer supplies that equipment.
We expect to rely on several vendors, including, but not limited to
Perkin Elmer, ThermoFisher Scientific and VisioPharm AS to supply
some of the laboratory equipment and software on which we perform
our diagnostic tests. We will periodically forecast our needs
for laboratory equipment and software and enter into standard
purchase orders or leasing arrangements based on these
forecasts. We believe that there are relatively few equipment
manufacturers that are currently capable of supplying the equipment
necessary for our prognostic diagnostics tests. Even if we
were to identify other suppliers, there can be no assurance that we
will be able to enter into agreements with such suppliers on a
timely basis on acceptable terms, if at all. If we should
encounter delays or difficulties in securing from key vendors the
quality and quantity of equipment and software we require for our
diagnostic tests, we may need to reconfigure our test process,
which would result in delays in commercialization or an
interruption in sales. If any of these events occur, our
business and operating results could be harmed. Additionally,
if key vendors including Perkin Elmer and other vendors deem us to
have become uncreditworthy, they have the right to require
alternative payment terms from us, including payment in
advance. We may also be required to indemnify key vendors
including Perkin Elmer and other vendors against any damages caused
by any legal action or proceeding brought by a third party against
such vendors for damages caused by our failure to obtain required
approval with any regulatory agency.
We may also rely on several sole suppliers for certain laboratory
materials such as reagents, which we use to perform our diagnostic
tests. Although we believe that we will be able to develop
alternate sourcing strategies for these materials, we cannot be
certain that these strategies will be effective. If we should
encounter delays or difficulties in securing these laboratory
materials, delays in commercialization or an interruption in sales
could occur.
We currently rely, and expect to continue to rely, on third-party
suppliers for critical materials needed to perform research and
development activities and our prognostic diagnostic tests and our
planned future products and any problems experienced by them could
result in a delay or interruption of their supply to
us.
We currently purchase raw materials, including Mabs for our
driver-based biomarkers and testing reagents under purchase orders
and do not have long-term commercial contracts with the suppliers
of these materials. If suppliers were to delay or stop producing
our materials or reagents, or if the prices they charge us were to
increase significantly, or if they elected not to sell to us, we
would need to identify other suppliers. We could experience delays
in our research and development efforts and delays in performing
our prognostic diagnostic tests while finding another acceptable
supplier, which could impact our results of operations. The changes
could also result in increased costs associated with qualifying the
new materials or reagents and in increased operating costs.
Further, any prolonged disruption in a supplier’s operations
could have a significant negative impact on our ability to perform
our prognostic diagnostic tests in a timely manner. Some of the
components used in our current or planned products are currently
sole-source, and substitutes for these components might not be able
to be obtained easily or may require substantial design or
manufacturing modifications. Any significant problem experienced by
one of our sole source suppliers may result in a delay or
interruption in the supply of components to us until that supplier
cures the problem or an alternative source of the component is
located and qualified. Any delay or interruption would likely lead
to a delay or interruption in our operations. The inclusion of
substitute components must meet our product specifications and
could require us to qualify the new supplier with the appropriate
government regulatory authorities.
Our success depends on retention of key personnel and the hiring of
additional key personnel. The loss of key members of our executive
management team could adversely affect our business.
We are dependent on our management team members, including Douglas
A. Hamilton, our president and chief executive officer. Our future
success also will depend in large part on our continued ability to
attract and retain other highly qualified personnel. We intend to
recruit and hire other senior executives, scientific, technical and
management personnel, as well as personnel with expertise in sales
and marketing including reimbursement, clinical testing, and
governmental regulation. Such a management transition subjects us
to a number of risks, including risks pertaining to coordination of
responsibilities and tasks, creation of new management systems and
processes, differences in management style, effects on corporate
culture, and the need for transfer of historical
knowledge.
In addition, Douglas A. Hamilton has not previously been the chief
executive officer of a public or private company. While he has had
experience as a chief financial officer, chief operating officer
and other executive level positions in public companies, a lack of
significant experience in being the chief executive officer of a
public company could have an adverse effect on our ability to
quickly respond to problems or effectively manage issues
surrounding the operation of a public company. Our success in
implementing our business strategy depends largely on the skills,
experience and performance of key members of our executive
management team and others in key management positions. The
collective efforts of our executive management and others working
with them as a team are critical to us as we continue to develop
our technologies, diagnostic tests, research and development
efforts and sales and marketing programs. As a result of the
difficulty in locating qualified new management, the loss or
incapacity of existing members of our executive management team
could adversely affect our operations. If we were to lose one or
more of our key employees, we could experience difficulties in
finding qualified successors, competing effectively, developing our
technologies and implementing our business strategy. We do not
maintain “key person” life insurance on any of our
employees.
In addition, we rely on collaborators, consultants and advisors,
including scientific and clinical advisors, to assist us in our
research and development and commercialization strategy. Our
collaborators, consultants and advisors are generally employed by
employers other than us and may have commitments under agreements
with other entities that may limit their availability to
us.
The loss of a key employee, the failure of a key employee to
perform in his or her current position or our inability to attract
and retain skilled employees could result in our inability to
continue to grow our business or to implement our business
strategy.
There is a scarcity of experienced professionals in our industry.
If we are not able to retain and recruit personnel with the
requisite technical skills, we may be unable to successfully
execute our business strategy.
The specialized nature of our industry results in an inherent
scarcity of experienced personnel in the field. Our future success
depends upon our ability to attract and retain highly skilled
personnel, including scientific, technical, commercial, business,
regulatory and administrative personnel, necessary to support our
anticipated growth, develop our business and perform certain
contractual obligations. Given the scarcity of professionals with
the scientific knowledge that we require and the competition for
qualified personnel among life science businesses, we may not
succeed in attracting or retaining the personnel we require to
continue and grow our operations.
Our operations may involve hazardous materials, and compliance with
environmental laws and regulations is expensive.
Our future research and development and commercial activities may
involve the controlled use of hazardous materials, including
chemicals that cause cancer, volatile solvents, radioactive
materials and biological materials including human tissue samples
that have the potential to transmit diseases. Our operations
may also produce hazardous waste products. We are subject to a
variety of federal, state and local regulations relating to the
use, handling and disposal of these materials. We generally
may contract with third parties for the disposal of such substances
and may store certain low level radioactive waste at our facility
until the materials are no longer considered
radioactive. While we believe that we will comply with then
current regulatory requirements, we cannot eliminate the risk of
accidental contamination or injury from these materials. We
may be required to incur substantial costs to comply with current
or future environmental and safety regulations. If an accident
or contamination occurred, we would likely incur significant costs
associated with civil penalties or criminal fines and in complying
with environmental laws and regulations.
If we use biological and hazardous materials in a manner that
causes injury, we could be liable for damages.
Our activities may require the controlled use of potentially
harmful biological materials, hazardous materials and chemicals and
may in the future require the use of radioactive compounds. We
cannot eliminate the risk of accidental contamination or injury to
employees or third parties from the use, storage, handling or
disposal of these materials. In the event of contamination or
injury, we could be held liable for any resulting damages, and any
liability could exceed our resources or any applicable insurance
coverage we may have. Additionally, we are subject on an
ongoing basis to federal, state and local laws and regulations
governing the use, storage, handling and disposal of these
materials and specified waste products. The cost of compliance
with these laws and regulations might be significant and could
negatively affect our operating results. In the event of an
accident or if we otherwise fail to comply with applicable
regulations, we could lose our permits or approvals or be held
liable for damages or penalized with fines.
Security breaches, loss of data and other disruptions could
compromise sensitive information related to our business or prevent
us from accessing critical information and expose us to liability,
which could adversely affect our business and our
reputation.
We expect to along with certain third party vendors that we
contract with to collect and store sensitive data, including
legally protected health information, credit card information,
personally identifiable information about our employees, customers
and patients, intellectual property, and our proprietary business
information and that of our customers, payers and collaboration
partners. We expect to manage and maintain our
applications and data utilizing a combination of on-site systems,
managed data center systems and cloud-based data center systems.
These applications and data encompass a wide variety of
business-critical information including research and development
information, commercial information and business and financial
information. We face four primary risks relative to protecting this
critical information, including loss of access risk, inappropriate
disclosure risk and inappropriate modification risk combined with
the risk of our being able to identify and audit our controls over
the first three risks.
The secure processing, storage, maintenance and transmission of
this critical information will be vital to our operations and
business strategy. As such we plan to devote significant resources
to protecting such information. Although we plan to take measures
to protect sensitive information from unauthorized access or
disclosure, our information technology and infrastructure, and that
of our third-party vendors, may be vulnerable to attacks by hackers
or viruses or breached due to employee error, malfeasance or other
disruptions. Any such breach or interruption could compromise our
networks and the information stored there could be accessed by
unauthorized parties, publicly disclosed, lost or stolen. Any such
access, disclosure or other loss of information could result in
legal claims or proceedings, liability under laws that protect the
privacy of personal information, such as the Health Insurance
Portability and Accountability Act of 1996, and regulatory
penalties. Unauthorized access, loss or dissemination could also
disrupt our operations, including our ability to process tests,
provide test results, bill payers or patients, process claims and
appeals, provide customer assistance services, conduct research and
development activities, collect, process and prepare company
financial information, provide information about our tests and
other patient and physician education and outreach efforts through
our website, manage the administrative aspects of our business and
damage our reputation, any of which could adversely affect our
business.
In addition, the interpretation and application of consumer,
health-related and data protection laws in the U.S., Europe and
elsewhere are often uncertain, contradictory and in flux. It is
possible that these laws may be interpreted and applied in a manner
that is inconsistent with our practices. If so, this could result
in government imposed fines or orders requiring that we change our
practices, which could adversely affect our business. Complying
with these various laws could cause us to incur substantial costs
or require us to change our business practices and compliance
procedures in a manner adverse to our business.
We depend on our information technology and telecommunications
systems, and any failure of these systems could harm our
business.
We depend on information technology or IT, and telecommunications
systems for significant aspects of our operations. In addition, we
expect to outsource aspects of our billing and collections to a
third-party provider, whom maybe dependent upon telecommunications
and data systems provided by outside vendors and information we
provide on a regular basis. These information technology and
telecommunications systems will support a variety of functions,
including test processing, sample tracking, quality control,
customer service and support, billing and reimbursement, research
and development activities and our general and administrative
activities. Information technology and telecommunications systems
are vulnerable to damage from a variety of sources, including
telecommunications or network failures, malicious human acts and
natural disasters. Moreover, despite network security and back-up
measures we plan to implement, some or all of our servers are
potentially vulnerable to physical or electronic break-ins,
computer viruses and similar disruptive problems. Despite the
precautionary measures we plan on taking to prevent unanticipated
problems that could affect our information technology and
telecommunications systems, failures or significant downtime of our
information technology or telecommunications systems or those used
by our third-party service providers could prevent us from
processing tests, providing test results to oncologists,
pathologists, billing payers, processing reimbursement appeals,
handling patient or physician inquiries, conducting research and
development activities and managing the administrative aspects of
our business. Any disruption or loss of information technology or
telecommunications systems on which critical aspects of our
operations depend could have an adverse effect on our
business.
We may acquire other businesses or form joint ventures or make
investments in other companies or technologies that could harm our
operating results, dilute our stockholders’ ownership,
increase our debt or cause us to incur significant
expense.
As part of our business strategy, we may pursue acquisitions of
businesses and assets. We also may pursue strategic alliances and
joint ventures that leverage our core Rx/Dx technology and
expertise to expand our offerings or distribution. We have minimal
experience with acquiring and integrating other companies or assets
and limited experience with forming strategic alliances and joint
ventures. We may not be able to find suitable partners or
acquisition candidates, and we may not be able to complete such
transactions on favorable terms, if at all. If we make any
acquisitions, we may not be able to integrate these acquisitions
successfully into our existing business, and we could assume
unknown or contingent liabilities. Any future acquisitions also
could result in significant write-offs or the incurrence of debt
and contingent liabilities, any of which could have a material
adverse effect on our financial condition, results of operations
and cash flows. Integration of an acquired company also may disrupt
ongoing operations and require management resources that would
otherwise focus on developing our existing business. We may
experience losses related to investments in other companies, which
could have a material negative effect on our results of operations.
We may not identify or complete these transactions in a timely
manner, on a cost-effective basis, or at all, and we may not
realize the anticipated benefits of any acquisition, technology
license, strategic alliance or joint venture.
To finance any acquisitions or joint ventures, we may choose to
issue shares of our common stock or securities convertible into
shares of our common stock as consideration, which would dilute the
ownership of our stockholders. If the price of our common stock is
low or volatile, we may not be able to acquire other companies or
fund a joint venture project using our stock as consideration.
Alternatively, it may be necessary for us to raise additional funds
for acquisitions through public or private financings. Additional
funds may not be available on terms that are favorable to us, or at
all.
We may not be able to support demand for our diagnostic
tests
or future
tests. We may have difficulties managing the evolution of our
technology and manufacturing platforms, which could cause our
business to suffer.
We anticipate that our diagnostic tests may will be well received
by the marketplace, and demand will increase as market acceptance
grows. As expected test volumes grow, we will need to increase our
testing capacity, increase our scale and related processing,
customer service, billing, collection and systems process
improvements and expand our internal quality assurance program and
technology to support testing on a larger scale. We will also need
additional clinical laboratory scientists, pathologists and other
scientific and technical personnel to process these additional
tests. Any increases in scale, related improvements and quality
assurance may not be successfully implemented and appropriate
personnel may not be available. We will also need to add capacity
to our information technology infrastructure, which may be costly.
As diagnostic tests for additional cancer indications are
commercialized, we may need to bring new equipment on line,
implement new systems, technology, controls and procedures and hire
personnel with different qualifications. Failure to implement
necessary procedures or to hire the necessary personnel could
result in a higher cost of processing or an inability to meet
market demand. We cannot assure you that we will be able to perform
tests on a timely basis at a level consistent with demand, that our
efforts to scale our commercial operations will not negatively
affect the quality of our test results or that we will respond
successfully to the growing complexity of our testing operations.
If we encounter difficulty meeting market demand or quality
standards for our current tests and our planned future tests, our
reputation could be harmed and our future prospects and business
could suffer, which may have a material adverse effect on our
financial condition, results of operations and cash
flows.
Declining general economic or business conditions may have a
negative impact on our business.
Continuing concerns over United States health care reform
legislation and energy costs, geopolitical issues, the availability
and cost of credit and government stimulus programs in the United
States and other countries have contributed to increased volatility
and diminished expectations for the global economy. These factors,
combined with low business and consumer confidence and high
unemployment, precipitated an economic slowdown and recession. If
the economic climate does not improve, or it deteriorates, our
business, including our access to patient samples and the
addressable market for diagnostic tests that we may successfully
develop, as well as the financial condition of our suppliers and
our third-party payers, could be adversely affected, resulting in a
negative impact on our business, financial condition and results of
operations.
International expansion of our business exposes us to business,
regulatory, political, operational, financial and economic risks
associated with doing business outside of the United
States.
Our business strategy contemplates potential international
expansion, including partnering with academic and commercial
testing partners for research and development and clinical studies,
and commercializing our diagnostic tests outside the United States
and expanding relationships with international payers and
distributors. Doing business internationally involves a number of
risks, including:
●
multiple, conflicting and changing laws and regulations such as tax
laws, export and import restrictions, employment laws, regulatory
requirements and other governmental approvals, permits and
licenses;
●
competition from local and regional product offerings;
●
failure by us or our distributors to obtain regulatory approvals
for the use of our tests in various countries;
●
difficulties in staffing and managing foreign
operations;
●
complexities associated with managing multiple payer reimbursement
regimes, government payers or patient self-pay
systems;
●
logistics and regulations associated with shipping tissue samples,
including infrastructure conditions and transportation
delays;
●
limits in our ability to penetrate international markets if we are
not able to process tests locally;
●
lack of intellectual property protection in certain
markets;
●
financial risks, such as longer payment cycles, difficulty
collecting accounts receivable, the impact of local and regional
financial crises on demand and payment for our tests and exposure
to foreign currency exchange rate fluctuations;
●
natural disasters, political and economic instability, including
wars, terrorism, and political unrest, outbreak of disease,
boycotts, curtailment of trade and other business restrictions;
and
●
regulatory and compliance risks that relate to maintaining accurate
information and control over the activities of our sales force and
distributors that may fall within the purview of the FCPA, its
books and records provisions or its anti-bribery
provisions.
Any of these factors could significantly harm our future
international expansion and operations and, consequently, our
revenue and results of operations.
If we cannot compete successfully with our competitors, we may be
unable to generate, increase or sustain revenue or achieve and
sustain profitability.
We believe our principal competition for our prognostic
diagnostic assays will come from existing diagnostic methods
used by pathologists and oncologists. These methods have been used
for many years and are therefore difficult to change or supplement.
In addition, companies offering capital equipment and kits or
reagents to local pathology laboratories represent another source
of potential competition. These kits are used directly by the
pathologist, which potentially facilitates adoption more readily
than tests like ours that are performed outside the pathology
laboratory.
We also face competition from companies that offer products or have
conducted research to profile genes, gene expression or protein
expression in breast, lung, prostate and colorectal cancer,
including public companies such as Genomic Health Inc., Agendia
Inc., GE Healthcare, a business unit of General Electric Company,
Hologic Inc., Myriad Genetics Inc., NanoString Technologies Inc.,
Novartis AG, Qiagen N.V., and Response Genetics Inc., and many
other public and private companies. We also face competition from
commercial laboratories with strong distribution networks for
diagnostic tests, such as Laboratory Corporation of America
Holdings and Quest Diagnostics Incorporated. We may also face
competition from Illumina Inc. and Thermo Fisher Scientific Inc.,
both of which have announced their intention to enter the clinical
diagnostics market. Other potential competitors include companies
that develop diagnostic tests such as Roche Diagnostics, a division
of Roche Holding Ltd., Siemens AG and Veridex LLC, a Johnson &
Johnson company, as well as other companies and academic and
research institutions.
Others may invent and commercialize technology platforms such as
next generation sequencing approaches that will compete with our
test. Projects related to cancer genomics have received government
funding, both in the United States and internationally. As more
information regarding cancer genomics becomes available to the
public, we anticipate that more products aimed at identifying
targeted treatment options will be developed and that these
products may compete with ours. In addition, competitors may
develop their own versions of our tests in countries where we did
not apply for patents, where our patents have not been issued or
where our intellectual property rights are not recognized and
compete with us in those countries, including encouraging the use
of their test by physicians or patients in other
countries.
The list price of our test may change as well as the list price of
our competitor’s products. Any increase or decrease in
pricing could impact reimbursement of and demand for our tests.
Many of our present and potential competitors have widespread brand
recognition and substantially greater financial and technical
resources and development, production and marketing capabilities
than we do. Others may develop lower
-
priced tests that could be viewed by physicians
and payers as functionally equivalent to our tests, or offer tests
at prices designed to promote market penetration, which could force
us to lower the list prices of our tests and impact our operating
margins and our ability to achieve sustained profitability. Some
competitors have developed tests cleared for marketing by the FDA.
There may be a marketing differentiation or perception that an
FDA
-
cleared test is more desirable than our
diagnostic test, and that may discourage adoption of and
reimbursement for our diagnostic test. If we are unable to
compete successfully against current or future competitors, we may
be unable to increase market acceptance for and sales of our tests,
which could prevent us from increasing or sustaining our revenue or
achieving sustained profitability and could cause the market price
of our common stock to decline.
Regulatory Risks Relating to Our Business
Healthcare policy changes, including recently enacted legislation
reforming the U.S. healthcare system, may have a material adverse
effect on our financial condition and results of
operations.
There have been, and may continue to be, legislative and regulatory
proposals at the federal and state levels and in foreign
jurisdictions directed at broadening the availability and
containing or lowering the cost of healthcare. The continuing
efforts of the government, insurance companies, managed care
organizations and other payers to contain or reduce costs of
healthcare may adversely affect our ability to set prices for our
products that would allow us to achieve or sustain profitability.
In addition, governments may impose price controls on any of our
product candidates that obtain marketing approval, which may
adversely affect our future profitability.
In the United States, there have been and continue to be a number
of legislative initiatives to contain healthcare costs. For
example, in March 2010, the Patient Protection and Affordable Care
Act, as amended by the Health Care and Education Reconciliation
Act, or the Affordable Care Act, was passed, which substantially
changed the way health care is financed by both governmental and
private insurers, and significantly impacted the U.S.
pharmaceutical industry. The Affordable Care Act, among other
things, increased the minimum Medicaid rebates owed by
manufacturers under the Medicaid Drug Rebate Program and extended
the rebate program to individuals enrolled in Medicaid managed care
organizations, established annual fees and taxes on manufacturers
of certain branded prescription drugs, and established a new
Medicare Part D coverage gap discount program, in which
manufacturers must agree to offer 50% point-of-sale discounts off
negotiated prices of applicable brand drugs to eligible
beneficiaries during their coverage gap period, as a condition for
the manufacturer’s outpatient drugs to be covered under
Medicare Part D.
We expect that the new presidential administration and U.S.
Congress will seek to modify, repeal, or otherwise invalidate all,
or certain provisions of, the Affordable Care Act. Since taking
office, President Trump has continued to support the repeal of all
or portions of the Affordable Care Act. In January 2017, the House
and Senate passed a budget resolution that authorizes congressional
committees to draft legislation to repeal all or portions of the
Affordable Care Act and permits such legislation to pass with a
majority vote in the Senate. In May 2017, the House passed
legislation to repeal and replace the Affordable Care Act, which
will proceed to the Senate for vote. President Trump has also
recently issued an executive order in which he stated that it is
his administration’s policy to seek the prompt repeal of the
Affordable Care Act and directed executive departments and federal
agencies to waive, defer, grant exemptions from, or delay the
implementation of the provisions of the Affordable Care Act to the
maximum extent permitted by law. There is still uncertainty with
respect to the impact President Trump’s administration and
the U.S. Congress may have, if any, and any changes will likely
take time to unfold, and could have an impact on coverage and
reimbursement for healthcare items and services covered by plans
that were authorized by the Affordable Care Act. However, we cannot
predict the ultimate content, timing or effect of any healthcare
reform legislation or the impact of potential legislation on
us.
In addition, other legislative changes have been proposed and
adopted in the United States since the Affordable Care Act was
enacted. These changes include aggregate reductions of Medicare
payments to providers of 2% per fiscal year, which went into effect
on April 1, 2013 and, due to subsequent legislative amendments to
the statute, will remain in effect through 2025 unless additional
Congressional action is taken. On January 2, 2013, the American
Taxpayer Relief Act of 2012 was signed into law, which, among other
things, further reduced Medicare payments to several types of
providers, including hospitals, imaging centers and cancer
treatment centers, and increased the statute of limitations period
for the government to recover overpayments to providers from three
to five years. Recently there has also been heightened governmental
scrutiny over the manner in which manufacturers set prices for
their marketed products, which has resulted in several
Congressional inquiries and proposed bills designed to, among other
things, bring more transparency to product pricing, review the
relationship between pricing and manufacturer patient programs, and
reform government program reimbursement methodologies for drug
products.
Moreover, payment methodologies, including payment for companion
diagnostics, may be subject to changes in healthcare legislation
and regulatory initiatives. For example, CMS began bundling the
Medicare payments for certain laboratory tests ordered while a
patient received services in a hospital outpatient setting.
Additionally, on April 1, 2014, the Protecting Access to Medicare
Act of 2014, or PAMA, was signed into law, which, among other
things, significantly alters the current payment methodology under
the CLFS. Under the new law, starting January 1, 2017 and every
three years thereafter (or annually in the case of advanced
diagnostic lab tests), clinical laboratories must report laboratory
test payment data for each Medicare-covered clinical diagnostic lab
test that it furnishes during a time period to be defined by future
regulations. The reported data must include the payment rate
(reflecting all discounts, rebates, coupons and other price
concessions) and the volume of each test that was paid by each
private payer (including health insurance issuers, group health
plans, Medicare Advantage plans and Medicaid managed care
organizations). Beginning in 2018, the Medicare payment rate for
each clinical diagnostic lab test, with some exceptions, will be
equal to the weighted median private payer payment for the test, as
calculated using data collected by applicable laboratories during
the data collection period and reported to CMS during a specified
data reporting period. Also under PAMA, CMS is required to adopt
temporary billing codes to identify new clinical diagnostic
laboratory tests and advanced diagnostic laboratory tests that do
not already have unique diagnostic codes, and that have been
cleared or approved by the FDA.
We expect that additional state and federal healthcare reform
measures will be adopted in the future, any of which could limit
the amounts that federal and state governments will pay for
healthcare products and services, which could result in reduced
demand for our therapeutic and diagnostic products or additional
pricing pressures.
If the FDA were to
begin regulating our prognostic diagnostic tests, including
the
MetaSite
Breast
™
and MenaCalc
TM
tests, we could experience
significant delays in commercializing our prognostic diagnostics,
be forced to stop our sales, experience significant delays in
commercializing any future products, incur substantial costs and
time delays associated with meeting requirements for pre-market
clearance or approval as well as experience decreased demand for
our prognostic diagnostic tests and demand for reimbursement of our
prognostic diagnostic tests.
Clinical laboratory tests, like our prognostic diagnostic tests
including the MetaSite
Breast
™ and MenaCalc
TM
assays, are regulated under the Clinical
Laboratory Improvement Amendments of 1988, or CLIA, as administered
through the CMS, as well as by applicable state
laws. Diagnostic kits that are sold and distributed through
interstate commerce are regulated as medical devices by
FDA. Clinical laboratory tests that are developed and
validated by a laboratory for its own use are called Laboratory
Development Tests, or “LDTs". Most LDTs currently are
not subject to FDA regulation, although reagents or software
provided by third parties and used to perform LDTs may be subject
to regulation. We believe that our prognostic diagnostic tests
are not a diagnostic kit and we also believe that they are
LDTs. As a result, we believe our prognostic diagnostic tests
should not be subject to regulation under established FDA
policies.
At various times since 2006, the FDA has issued guidance documents
or announced draft guidance regarding initiatives that may require
varying levels of FDA oversight of our tests. In October 2014,
the FDA issued draft guidance that sets forth a proposed risk-based
regulatory framework that would apply varying levels of FDA
oversight to LDTs. On November 18, 2016, the FDA announced that it
would not finalize the draft guidance documents for LDTs prior to
the end of the Obama administration. The decision of whether and
how to proceed with the draft guidance will be left to the new
administration, which began on January 20, 2017. In January 2017,
the FDA released a discussion paper synthesizing public comments on
the 2014 draft guidance documents and outlining a possible approach
to regulation of LDTs. The discussion paper has no legal status and
does not represent a final version of the LDT draft guidance
documents. It is unclear at this time if or when the draft guidance
will be finalized, and even then, the new regulatory requirements
are proposed to be phased-in consistent with the schedule set forth
in the guidance. If this draft guidance is finalized as presently
written, it includes an oversight framework that would require
pre-market review for high and moderate risk LDTs
Legislative proposals addressing oversight of genetic testing and
LDTs have been introduced in previous Congresses and we expect that
new legislative proposals will be introduced from time to time in
the future. We cannot provide any assurance that FDA regulation,
including pre-market review, will not be required in the future for
our tests, whether through finalization of guidance issued by the
FDA, new enforcement policies adopted by the FDA or new legislation
enacted by Congress. It is possible that legislation will be
enacted into law or guidance could be issued by the FDA which may
result in increased regulatory burdens for us to continue to offer
our tests or to develop and introduce new tests. If pre-market
review is required, our business could be negatively impacted until
such review is completed and clearance or approval is obtained, and
the FDA could require that we stop selling our tests pending
pre-market clearance or approval. If our tests are allowed to
remain on the market but there is uncertainty about the regulatory
status of our tests, if they are labeled investigational by the
FDA, or if labeling claims the FDA allows us to make are more
limited than the claims we currently make, orders or reimbursement
may decline. The regulatory approval process may involve, among
other things, successfully completing additional clinical studies
and submitting a pre-market clearance notice or filing a pre-market
approval application with the FDA. If pre-market review is required
by the FDA, there can be no assurance that our tests will be
cleared or approved on a timely basis, if at all. Ongoing
compliance with FDA regulations would increase the cost of
conducting our business, and subject us to inspection by and the
regulatory requirements of the FDA, for example registration and
listing and medical device reporting, and penalties for failure to
comply with these requirements. We may also decide voluntarily to
pursue FDA pre-market review of our tests if we determine that
doing so would be appropriate.
We cannot predict the ultimate timing or form of final FDA guidance
or regulations addressing LDTs and the potential impact on our
diagnostic tests, our diagnostic tests in development or the
materials used to perform our tests. While we expect to qualify all
materials used in our tests according to CLIA regulations, we
cannot be certain that the FDA will not enact rules or
guidance documents which could impact our ability to purchase
certain materials necessary for the performance of our tests, such
as products labeled for research use only. Should any of the
reagents obtained by us from suppliers and used in conducting our
tests be affected by future regulatory actions, our business could
be adversely affected by those actions, including increasing the
cost of testing or delaying, limiting or prohibiting the purchase
of reagents necessary to perform testing.
Testing of potential products may be required and there is no
assurance of FDA or any other regulatory approval.
The FDA and comparable agencies in foreign countries impose
substantial requirements upon the introduction of both therapeutic
and diagnostic biomedical products, through lengthy and detailed
laboratory and clinical testing procedures, sampling activities and
other costly and time-consuming procedures. Satisfaction of
these requirements typically takes several years or more and varies
substantially based upon the type, complexity, and novelty of the
product. The effect of government regulation and the need for FDA
approval may be to delay marketing of new products for a
considerable period of time, to impose costly procedures upon our
activities, and to provide an advantage to larger companies that
compete with us. There can be no assurance that FDA or other
regulatory approval for any products developed by us will be
granted on a timely basis or at all. Any such delay in obtaining,
or failure to obtain, such approvals would materially and adversely
affect the marketing of any contemplated products and the ability
to earn product revenue. Further, regulation of manufacturing
facilities by state, local, and other authorities is subject to
change. Any additional regulation could result in limitations or
restrictions on our ability to utilize any of our technologies,
thereby adversely affecting our operations. Human diagnostic and
pharmaceutical products are subject to rigorous preclinical testing
and clinical studies and other approval procedures mandated by the
FDA and foreign regulatory authorities. Various federal and foreign
statutes and regulations also govern or influence the
manufacturing, safety, labeling, storage, record keeping and
marketing of pharmaceutical products. The process of obtaining
these approvals and the subsequent compliance with appropriate
United States and foreign statutes and regulations are
time-consuming and require the expenditure of substantial
resources. In addition, these requirements and processes vary
widely from country to country. Among the uncertainties and risks
of the FDA approval process are the following: (i) the possibility
that studies and clinical studies will fail to prove the safety and
efficacy of the product, or that any demonstrated efficacy will be
so limited as to significantly reduce or altogether eliminate the
acceptability of the product in the marketplace, (ii) the
possibility that the costs of development, which can far exceed the
best of estimates, may render commercialization of the drug
marginally profitable or altogether unprofitable, and (iii) the
possibility that the amount of time required for FDA approval of a
product may extend for years beyond that which is originally
estimated. In addition, the FDA or similar foreign regulatory
authorities may require additional clinical studies, which could
result in increased costs and significant development delays.
Delays or rejections may also be encountered based upon changes in
FDA policy and the establishment of additional regulations during
the period of product development and FDA review. Similar delays or
rejections may be encountered in other countries.
If we were required to conduct additional clinical studies prior to
marketing our prognostic diagnostic tests, those studies could lead
to delays or failure to obtain necessary regulatory approvals and
harm our ability to become profitable.
If the FDA decides to regulate our prognostic diagnostic tests, it
may require additional pre-market clinical testing before clearing
or approving our prognostic diagnostic tests for commercial sales.
Such pre-market clinical testing could delay the commencement or
completion of clinical testing, significantly increase our test
development costs, delay commercialization of any future tests, and
potentially interrupt sales of our tests. Although, we plan on
performing our future clinical studies at such FDA standards, there
is no assurance that such clinical studies will meet certain FDA
standards. Many of the factors that may cause or lead to a delay in
the commencement or completion of clinical studies may also
ultimately lead to delay or denial of regulatory clearance or
approval. The commencement of clinical studies may be delayed due
to access to adequate tissue samples and corresponding clinical
data, insufficient patient enrollment, which is a function of many
factors, including the size of the patient population, the nature
of the protocol, the proximity of patients to clinical sites and
the eligibility criteria for the clinical trial. Moreover, the
clinical trial process may fail to demonstrate that our breast
cancer tests and our planned future tests are effective for the
proposed indicated uses, which could cause us to abandon a test
candidate and may delay development of other tests.
We may find it necessary to engage CROs to perform data collection
and analysis and other aspects of our clinical studies, which might
increase the cost and complexity of our studies. We may also depend
on clinical investigators, medical institutions, academic
institutions and contract research organizations to perform the
studies. If these parties do not successfully carry out their
contractual duties or obligations or meet expected deadlines, or if
the quality, completeness or accuracy of the clinical data they
obtain is compromised due to the failure to adhere to our clinical
protocols or for other reasons, our clinical studies may have to be
extended, delayed, repeated or terminated. Many of these factors
would be beyond our control. We may not be able to enter into
replacement arrangements without undue delays or considerable
expenditures. If there are delays in testing or approvals as a
result of the failure to perform by third parties, our research and
development costs would increase, and we may not be able to obtain
regulatory clearance or approval for our tests. In addition, we may
not be able to establish or maintain relationships with these
parties on favorable terms, if at all. Each of these outcomes would
harm our ability to market our tests, or to achieve sustained
profitability.
Complying with numerous regulations pertaining to our business is
an expensive and time-consuming process, and any failure to comply
could result in substantial penalties.
We believe our prognostic diagnostic tests are subject to CLIA, a
federal law that regulates clinical laboratories that perform
testing on specimens derived from humans for the purpose of
providing information for the diagnosis, prevention or treatment of
disease. CLIA is intended to ensure the quality and
reliability of clinical laboratories in the United States by
mandating specific standards in the areas of personnel
qualifications, administration, and participation in proficiency
testing, patient test management, quality control, quality
assurance and inspections. Effective October 2015, we received
a certificate of accreditation under CLIA to perform testing of our
prognostic diagnostic tests for breast cancer. In order to
renew the certificate of accreditation, we will be subject to
survey and inspection every two years. Moreover, CLIA
inspectors may make random inspections of our laboratory outside of
the renewal process. The failure to comply with CLIA requirements
can result in enforcement actions, including the revocation,
suspension, or limitation of our CLIA certificate of accreditation,
as well as a directed plan of correction, state on-site monitoring,
civil money penalties, civil injunctive suit and/or criminal
penalties. We must maintain CLIA compliance and certification to be
eligible to bill for tests provided to Medicare beneficiaries. If
we were to be found out of compliance with CLIA program
requirements and subjected to sanctions, our business and
reputation could be harmed. Even if it were possible for us to
bring our laboratory back into compliance, we could incur
significant expenses and potentially lose revenue in doing so.
Additionally, we expect to seek to have our laboratory accredited
by the College of American Pathologists, or CAP, one of six
CLIA-approved accreditation organizations.
In addition, our laboratory is located in Boston, Massachusetts and
is required by state law to have a Massachusetts state license; as
we expand our geographic focus, we may need to obtain laboratory
licenses from additional states.
In addition, we need to have licenses from other states including
the states of California, New York, Pennsylvania, Florida, Maryland
and Rhode Island among others to test specimens from patients in
those states or received from ordering physicians in those states.
Other states may have similar requirements or may adopt similar
requirements in the future. Finally, we may be subject to
regulation in foreign jurisdictions if we seek to expand
international distribution of our tests outside the United
States.
If we were to lose our CLIA certification or appropriate state
license(s), whether as a result of a revocation, suspension or
limitation, we would no longer be able to sell our prognostic
diagnostic tests, or other diagnostic tests, which would
significantly harm our business. If we were to lose our license in
other states where we are required to hold licenses, we would not
be able to test specimens from those states.
We are subject, directly or indirectly, to federal and state
healthcare fraud and abuse laws, false claims laws, physician
payments transparency and health information privacy and security
laws. If we are unable to comply with any such laws, we could face
substantial penalties.
We are subject to various federal and state fraud and abuse laws,
including, without limitation, anti-kickback and false claims
statutes. Including, but not limited to:
●
Medicare billing and payment regulations applicable to clinical
laboratories;
●
the federal Medicare and Medicaid Anti-kickback Law and state
anti-kickback prohibitions;
●
the federal physician self-referral prohibition, commonly known as
the Stark Law, and the state equivalents;
●
the federal Health Insurance Portability and Accountability Act of
1996;
●
the Medicare civil money penalty and exclusion requirements;
and
●
the federal civil and criminal False Claims Act.
We have and will continue to adopt policies and procedures designed
to comply with these laws, including policies and procedures
relating to financial arrangements between us and physicians who
refer patients to us. In the ordinary course of our business,
we conduct internal reviews of our compliance with these
laws. Our compliance is also subject to governmental
review. The growth of our business and sales organization may
increase the potential of violating these laws or our internal
policies and procedures. The risk of our being found in
violation of these laws and regulations is further increased by the
fact that many of them have not been fully interpreted by the
regulatory authorities or the courts, and their provisions are open
to a variety of interpretations. Any action brought against us
for violation of these laws or regulations, even if we successfully
defend against it, could cause us to incur significant legal
expenses and divert our management’s attention from the
operation of our business. If our operations are found to be
in violation of any of these laws and regulations, we may be
subject to any applicable penalty associated with the violation,
including civil and criminal penalties, damages and fines, we could
be required to refund payments received by us, and we could be
required to curtail or cease our operations. Any of the
foregoing consequences could seriously harm our business and our
financial results.
Our corporate compliance program cannot guarantee that we are in
compliance with all potentially applicable
regulations.
The development, manufacturing, pricing, sales, and reimbursement
of our products, together with our general operations, are subject
to extensive regulation by federal, state and other authorities
within the United States and numerous entities outside of the
United States. While we have developed, and instituted a
corporate compliance program based on what we believe are the
current best practices, we cannot assure you that we are or will be
in compliance with all potentially applicable regulations. If
we fail to comply with any of these regulations, we could be
subject to a range of regulatory actions, including suspension or
termination of clinical studies, the failure to approve a product
candidate, restrictions on our products or manufacturing processes,
withdrawal of products from the market, significant fines, or other
sanctions or litigation.
Risks Relating to our Intellectual Property
If we are unable to protect our intellectual property, we may not
be able to compete effectively.
We rely upon a combination of patents, patent applications, trade
secret protection, and confidentiality agreements to protect the
intellectual property related to our technologies, products and
services. Our success will depend in part on our ability to obtain
or license patents and enforce patent protection of our products
and licensed technologies, as well as the ability of the Licensors
to enforce patent protection covering the patents which we license
pursuant to the License Agreement, Second License Agreement, the
Alternative Splicing License Agreements, and the Antibody License
Agreement or other such license agreements we may enter into both
in the United States and other countries to prevent our competitors
from developing, manufacturing and marketing products based on our
technology.
The patent positions of biotechnology and molecular diagnostic
companies, such as us, are generally uncertain and involve complex
legal and factual questions. We will be able to protect our
intellectual property rights from unauthorized use by third parties
only to the extent that our licensed technologies are covered by
any valid and enforceable patents or are effectively maintained as
trade secrets. We could incur substantial costs in seeking
enforcement of any eventual patent rights against infringement, and
we cannot guarantee that patents that we obtain or in-license will
successfully preclude others from using technology that we rely
upon. We have applied and intend to apply for patents in the
United States and other countries covering our technologies and
products as and when we deem appropriate. However, these
applications may be challenged or may fail to result in issued
patents. We cannot predict the breadth of claims that maybe
allowed and issued in patents related to biotechnology
applications. The laws of some foreign countries do not
protect intellectual property rights to the same extent as the laws
of the United States, and many companies have encountered
significant problems in protecting and defending such rights in
foreign jurisdictions. For example, methods of treating humans
are not patentable in many countries outside of the United
States.
The coverage claimed in a patent application can be significantly
narrowed before a patent is issued, both in the United States and
other countries. We do not know whether any of the pending or
future patent applications will result in the issuance of
patents. Any patents we or the Licensors obtain may not be
sufficiently broad to prevent others from using our technologies or
from developing competing therapeutic products based on our
technology or proprietary therapies. Once any such patents
have issued, we cannot predict how the claims will be construed or
enforced. Furthermore, others may independently develop
similar or alternative technologies or design around our
patents.
To the extent patents have been issued or may be issued, we do not
know whether these patents will be subject to further proceedings
that may limit their scope, provide significant proprietary
protection or competitive advantage, or cause them to be
circumvented or invalidated. Furthermore, patents that have or
may issue on our or the Licensors patent applications may become
subject to dispute, including interference, reissue or
reexamination proceedings in the United States, or opposition
proceedings in foreign countries. Any of these proceedings
could result in the limitation or loss of rights.
We may rely on trade secret protection for our confidential and
proprietary information. We have taken measures to protect our
proprietary information and trade secrets, but these measures may
not provide adequate protection. While we seek to protect our
proprietary information by entering into confidentiality agreements
with employees, collaborators and consultants, we cannot assure
that our proprietary information will not be disclosed, or that we
can meaningfully protect our trade secrets. In addition,
competitors may independently develop or may have already developed
substantially equivalent proprietary information or may otherwise
gain access to our trade secrets.
The pending patent applications that we have in-licensed or that we
may in-license in the future may not result in issued patents, and
we cannot assure you that our issued patents or any patents that
might ultimately be issued by the United States Patent and
Trademark Office, or USPTO will protect our technology. Any patents
that may be issued to us might be challenged by third parties as
being invalid or unenforceable, or third parties may independently
develop similar or competing technology that avoids our patents. We
cannot be certain that the steps we have taken will prevent the
misappropriation and use of our intellectual property, particularly
in foreign countries where the laws may not protect our proprietary
rights as fully as in the United States.
Inventions, and the intellectual property rights covering them,
that are discovered under research, material transfer or other such
collaboration agreements may become solely owned by us in some
cases, jointly owned by us and the other party to such agreements
in some cases, and may become the exclusive property of other party
to such agreements in other cases. Under some circumstances, it may
be difficult to determine which party owns a particular invention,
or whether it is jointly owned, and disputes could arise regarding
ownership of those inventions. These disputes could be costly and
time consuming and an unfavorable outcome could have a significant
adverse effect on our business if we were not able to protect or
license rights to these inventions.
Unauthorized uses of our proprietary intellectual property by any
such research collaborators, and publications by our research
collaborators and scientific advisors containing such information,
either with our permission or in contravention of the terms of
their agreements with us, may limit or harm our ability to obtain
patent protection for our product candidates or protect our
proprietary information, which could materially harm our business,
prospects, financial condition and results of
operations.
Patent policy and rule changes could increase the uncertainties and
costs surrounding the prosecution of our patent applications and
the enforcement or defense of our issued patents.
Changes in either the patent laws or interpretation of the patent
laws in the United States and other countries may diminish the
value of our patents or narrow the scope of our patent protection.
The laws of foreign countries may not protect our rights to the
same extent as the laws of the United States. Publications of
discoveries in the scientific literature often lag behind the
actual discoveries, and patent applications in the United States
and other jurisdictions are typically not published until 18 months
after filing, or in some cases not at all. We therefore cannot be
certain that we or our licensors were the first to make the
invention claimed in our owned and licensed patents or pending
applications, or that we or our licensor were the first to file for
patent protection of such inventions. Assuming the other
requirements for patentability are met, in the United States prior
to March 15, 2013, the first to make the claimed invention is
entitled to the patent, while outside the United States, the first
to file a patent application is entitled to the patent. After March
15, 2013, under the Leahy-Smith America Invents Act, or the
Leahy-Smith Act, enacted on September 16, 2011, the United States
has moved to a first to file system. The Leahy-Smith Act also
includes a number of significant changes that affect the way patent
applications will be prosecuted and may also affect patent
litigation. The effects of these changes are currently unclear as
the USPTO must still implement various regulations, the courts have
yet to address any of these provisions and the applicability of the
act and new regulations on specific patents discussed herein have
not been determined and would need to be reviewed. In general, the
Leahy-Smith Act and its implementation could increase the
uncertainties and costs surrounding the prosecution of our patent
applications and the enforcement or defense of our issued patents,
all of which could have a material adverse effect on our business
and financial condition.
Litigation or third party claims of intellectual property
infringement could impair our ability to develop and commercialize
our products successfully.
Our research, development and commercialization activities, as well
as any product candidates or products resulting from those
activities, may infringe or be alleged to infringe a patent or
other form of intellectual property under which we do not hold a
license or other rights. Third parties may assert that we are
employing their proprietary technology without authorization. Our
success will depend in part on our ability to avoid infringing
patents and proprietary rights of third parties, and not breaching
any licenses that we have entered into with regard to our
technologies. A number of pharmaceutical companies,
biotechnology companies, independent researchers, universities and
research institutions may have filed patent applications or may
have been granted patents that cover technologies similar to the
technologies owned by or licensed to us. For instance, a
number of patents may have issued and may issue in the future on
tests and technologies that we have developed or intend to
develop. If patents covering technologies required by our
operations are issued to others, we may have to rely on licenses
from third parties, which may not be available on commercially
reasonable terms, or at all.
We have no knowledge of any infringement or patent litigation,
threatened or filed at this time. It is possible that we may
infringe on intellectual property rights of others without being
aware of the infringement. If a patent holder believes that
one of our product candidates infringes on our patent, it may sue
we even if we have received patent protection for our
technology. Third parties may claim that we are employing our
proprietary technology without authorization. In addition,
third parties may obtain patents that relate to our technologies
and claim that use of such technologies infringes these
patents. Regardless of their merit, such claims could require
us to incur substantial costs, including the diversion of
management and technical personnel, in defending ourselves against
any such claims or enforcing our patents. In the event that a
successful claim of infringement is brought against us, we may be
required to pay damages and obtain one or more licenses from third
parties. We may not be able to obtain these licenses at a
reasonable cost, or at all. Defense of any lawsuit or failure
to obtain any of these licenses could adversely affect our ability
to develop and commercialize our products. Although we carry
general liability insurance, our insurance may not cover potential
claims of this type. The occurrence of any of the above events
could prevent us from continuing to develop and commercialize one
or more of our product candidates or practice our related methods,
and our business could materially suffer.
Our rights to use technologies licensed from third parties are not
within our control, and we may not be able to develop,
commercialize, and sell our products if we lose our existing rights
or cannot obtain new rights on reasonable terms.
We license technology necessary to develop certain products from
third parties. For example, we license technology from MIT,
AECOM, Cornell and IFO-Regina located in Rome, Italy, that we use
in certain diagnostic products and that we may use to develop
certain additional products. As a result, our current business
plans are dependent upon our satisfaction of certain conditions to
the maintenance of those license agreements and the rights we
license under them. Each of the license agreements provides that we
are subject to diligence obligations relating to the development
and commercialization of product candidates, milestone payments,
royalty payments and other obligations. In addition to these
license agreements, we may seek to enter into additional agreements
with other third parties in the future granting similar license
rights with respect to other potential product candidates. If we
fail to comply with any of the conditions or obligations or
otherwise breach the terms of any of these license agreements, or
any future license agreement we may enter on which our business or
product candidates are dependent, the licensor may have the right
to assert a claim for damages against us or terminate the
applicable agreement in whole or in part and thereby extinguish our
rights to the licensed technology and intellectual property and/or
any rights we have acquired to develop and commercialize certain
product candidates. If we become liable for material damages under
any of these license agreements, this could materially harm our
business, prospects, financial condition and results of operations.
Similarly, the loss of the rights licensed to us under these
license agreements, or any future license agreement that we may
enter granting us rights on which our business or product
candidates are dependent, would eliminate our ability to further
develop the applicable product candidates and would materially harm
our business, prospects, financial condition and results of
operations.
Our liquidity issues in the past have sometimes caused a delay in
payment under our existing license agreements. Our business may
suffer if we are unable to meet our obligations, financial or
otherwise, under our existing license agreements and if these
licenses terminate, if the licensors fail to abide by the terms of
the licenses or fail to prevent infringement by third parties, if
the licensed patents or other rights are found to be invalid or if
we are unable to enter into necessary additional licenses on
acceptable terms.
We may be subject to claims that our employees, consultants, or
independent contractors have wrongfully used or disclosed
confidential information of third parties or that our employees
have wrongfully used or disclosed alleged trade secrets of their
former employers.
We employ certain individuals who were previously employed at
universities, medical institutions, other diagnostic and
biotechnology companies, including potential competitors. Although
we try to ensure that our employees, consultants, and independent
contractors do not use the proprietary information or know-how of
others in their work for us, and we are not currently subject to
any claims that our employees, consultants, or independent
contractors have wrongfully used or disclosed confidential
information of third parties, we may in the future be subject to
such claims. Litigation may be necessary to defend against these
claims. If we fail in defending any such claims, in addition to
paying monetary damages, we may lose valuable intellectual property
rights or personnel, which could adversely impact our business.
Even if we are successful in defending against such claims,
litigation could result in substantial costs and be a distraction
to management and other employees.
We may be subject to claims challenging the inventorship of our
patents and other intellectual property.
Although we are not currently experiencing any claims challenging
the inventorship of our licensed patents, or ownership of our
intellectual property, we may in the future be subject to claims
that former employees, collaborators or other third parties have an
interest in our licensed patents, future patent applications or
other intellectual property as an inventor or co-inventor. For
example, we may have inventorship disputes arise from conflicting
obligations of consultants or others who are involved in developing
our products or services including clinical studies. Litigation may
be necessary to defend against these and other claims challenging
inventorship. If we fail in defending any such claims, in addition
to paying monetary damages, we may lose valuable intellectual
property rights, such as exclusive ownership of, or right to use,
valuable intellectual property. Such an outcome could have a
material adverse effect on our business. Even if we are successful
in defending against such claims, litigation could result in
substantial costs and be a distraction to management and other
employees.
We may desire, or be forced, to seek additional licenses to use
intellectual property owned by third parties, and such licenses may
not be available on commercially reasonable terms or at
all.
A third party may hold intellectual property, including patent
rights, that are important or necessary to the development or
commercialization of our product candidates or to practice our
related methods, in which case we would need to obtain a license
from that third party or develop a different method relating to the
product candidate that does not infringe the applicable
intellectual property, which may not be possible. Additionally, we
may identify product candidates that we believe are promising and
whose composition of matter, use or manufacture are covered by the
intellectual property rights of third parties. In such a case, we
may desire to seek a license to pursue the development and
commercialization of those product candidates. Any license that we
may desire to obtain, or that we may be forced to pursue, may not
be available when needed on commercially reasonable terms, or at
all. Any inability to secure a license that we need or desire could
have a material adverse effect on our business, financial condition
and prospects.
Changes in U.S. patent law could diminish the value of patents in
general, thereby impairing our ability to protect our
products.
As is the case with other diagnostic and biopharmaceutical
companies, our success is heavily dependent on intellectual
property, particularly patents. Obtaining and enforcing patents in
the diagnostic and biopharmaceutical industry involves both
technological and legal complexity. Therefore, obtaining and
enforcing diagnostic and biotechnology patents is costly, time
consuming, and inherently uncertain. In addition, the United States
has recently enacted and is currently implementing wide-ranging
patent reform legislation. Recent U.S. Supreme Court rulings have
narrowed the scope of patent protection available in certain
circumstances and weakened the rights of patent owners in certain
situations. In addition to increasing uncertainty with regard to
our ability to obtain patents in the future, this combination of
events has created uncertainty with respect to the value of
patents, once obtained. Depending on future actions by the U.S.
Congress, the federal courts, and the USPTO, the laws and
regulations governing patents could change in unpredictable ways
that would weaken our ability to obtain new patents or to enforce
our existing patents and patents that we might obtain in the
future.
Our collaborators may assert ownership or commercial rights to
inventions we develop from our use of the biological materials,
which they provide to us, or otherwise arising from the
collaboration.
We collaborate with several institutions, universities, medical
centers, physicians and researchers in scientific matters and
expect to continue to enter into additional collaboration
agreements. In certain cases, we do not have written agreements
with certain of such collaborators, or the written agreements we
have do not cover intellectual property rights. Also, we rely on
numerous third parties to provide us with tissue samples and
biological materials that we use to develop products. If we cannot
successfully negotiate sufficient ownership and commercial rights
to any inventions that result from our use of a third-party
collaborator’s materials, or if disputes arise with respect
to the intellectual property developed with the use of a
collaborator’s samples, or data developed in a
collaborator’s study, we may be limited in our ability to
capitalize on the market potential of these inventions or
developments.
We may be involved in lawsuits or administrative proceedings to
protect or enforce our patents or the patents of our licensors,
which could be expensive, time-consuming and
unsuccessful.
Competitors may infringe our patents or the patents of our current
or potential licensors. We cannot predict if, when or where a third
party may infringe one or more of our issued patents. To attempt to
stop infringement or unauthorized use, we may need to enforce one
or more of our patents, which can be expensive and time-consuming,
a significant diversion of employee resources, and distract our
management. There is no assurance such action will ultimately be
successful in halting third party infringing activities, for
example, through a permanent injunction, or that we would be fully
or even partially financially compensated for any harm to our
business caused by such third-party infringement. Even if such
action were initially successful, it could be overturned upon
appeal. Even if we are successful in proving in a court of law that
a third party is infringing one or more of our issued patents we
may be forced to enter into a license or other agreement with the
infringing third party on terms less commercially acceptable to us
than if the license or agreement were negotiated under conditions
between those of a willing licensee and a willing licensor. We may
not become aware of a third-party infringer within legal timeframes
that would enable us to seek adequate compensation, or at all,
thereby possibly losing the ability to be compensated for any harm
to our business. Such a third-party may be operating in a foreign
country where the infringer is difficult to locate, where we do not
have issued patents and/or the patent laws may be more difficult to
enforce. If we pursue any litigation, a court may decide that a
patent of ours or our licensor’s is not of sufficient breath,
is invalid, or is unenforceable, or may refuse to stop the other
party from using the relevant technology on the grounds that our
patents do not cover the technology in question. Further, the legal
systems of certain countries, particularly certain developing
countries, do not favor the enforcement of patents, which could
reduce the likelihood of success of any infringement proceeding we
pursue in any such jurisdiction. An adverse result in any patent
litigation could put one or more of our patents at risk of being
invalidated, held unenforceable, or interpreted narrowly and could
put our pending patent applications at risk of not issuing, which
could limit our ability to exclude competitors from directly
competing with us in the applicable jurisdictions.
Certain administrative proceedings may be provoked by third parties
before the USPTO and certain foreign patent offices, such as
interference proceedings, opposition proceedings, re-examination
proceedings, inter parties review, post-grant review, derivation
proceedings and pre-grant submissions, in which third parties may
challenge the validity or breadth of claims contained in our
patents or those of our licensors. An adverse result in any such
administrative proceeding could put one or more of our patents at
risk of being canceled or invalidated or interpreted narrowly and
could put our pending patent applications at risk of not issuing,
which could limit our ability to exclude competitors from directly
competing with us in the applicable jurisdictions.
Interference proceedings provoked by third parties or brought by us
or the USPTO may be necessary to determine the priority of
inventions with respect to our patents or patent applications or
those of our licensors. Derivation proceedings may be brought by us
or a third party to determine whether a patent or application was
filed by the true inventor. An unfavorable outcome in an
interference or derivation proceeding could require us to cease
using the related technology or to attempt to license rights to use
it from the prevailing party. Our business could be harmed if the
prevailing party does not offer us a license on commercially
reasonable terms, or at all. Litigation, interference, or
derivation proceedings may have undesirable outcomes and, even if
successful, may result in substantial costs, be a significant
diversion of employee resources, and distract our
management.
We may not be able to protect our intellectual property rights
throughout the world.
Filing, prosecuting, and defending patents on products and services
in all countries throughout the world would be prohibitively
expensive, and our intellectual property rights in some countries
outside the United States can be less extensive than those in the
United States. In addition, the laws of some foreign countries do
not protect intellectual property rights to the same extent as
federal and state laws in the United States. Consequently, we may
not be able to prevent third parties from practicing our inventions
in all countries outside the United States, or from selling or
importing products made using our inventions in and into the United
States or other jurisdictions. Competitors may use our technologies
in jurisdictions where we have not obtained patent protection to
develop their own products and may also export infringing products
to territories where we have patent protection, but enforcement is
not as strong as that in the United States. These products may
compete with our products and our patents or other intellectual
property rights may not be effective or sufficient to prevent them
from competing.
Many companies have encountered significant problems in protecting
and defending intellectual property rights in foreign
jurisdictions. The legal systems of certain countries, particularly
certain developing countries, do not favor the enforcement of
patents, trade secrets, and other intellectual property protection,
particularly those relating to biotechnology products, which could
make it difficult for us to stop the infringement of our patents or
marketing of competing products in violation of our proprietary
rights generally. Proceedings to enforce our patent rights in
foreign jurisdictions, whether or not successful, could result in
substantial costs and divert our efforts and attention from other
aspects of our business, could put our patents at risk of being
invalidated or interpreted narrowly and our patent applications at
risk of not issuing and could provoke third parties to assert
claims against us. We may not prevail in any lawsuits that we
initiate and the damages or other remedies awarded, if any, may not
be commercially meaningful. Accordingly, our efforts to enforce our
intellectual property rights around the world may be inadequate to
obtain a significant commercial advantage from the intellectual
property that we develop or license.
Risks Relating to our Securities
The market price of our common stock may be volatile.
The market price of our common stock has been and will likely
continue to be highly volatile, as is the stock market in general
and the market for OTC or “bulletin board” quoted
stocks in particular. Market prices for securities of
early-stage life sciences companies have historically been
particularly volatile Some of the factors that may materially
affect the market price of our common stock are beyond our control,
may include, but are not limited to:
●
progress, or lack of progress, in developing and commercializing
our current tests and our planned future cancer diagnostic
tests;
●
favorable or unfavorable decisions about our tests from government
regulators, insurance companies or other third-party
payers;
●
changes in key personnel and our ability to recruit and retain
qualified research and development personnel;
●
changes in investors’ and securities analysts’
perception of the business risks and conditions of our
business;
●
changes in our relationship with key collaborators;
●
changes in the market valuation or earnings of our competitors or
companies viewed as similar to us;
●
depth of the trading market in our common stock;
●
termination of the lock-up agreements or other restrictions on the
ability of our existing stockholders to sell shares;
●
changes in our capital structure, such as future issuances of
securities or the incurrence of additional debt;
●
the granting or exercise of employee stock options or other equity
awards;
●
realization of any of the risks described under this section
entitled “Risk Factors”; and
●
general market and economic conditions.
In addition, the equity markets have experienced significant price
and volume fluctuations that have affected the market prices for
the securities for a number of reasons, including reasons that may
be unrelated to our business or operating performance. These broad
market fluctuations may result in a material decline in the market
price of our common stock and you may not be able to sell your
shares at prices you deem acceptable. In the past, following
periods of volatility in the equity markets, securities class
action lawsuits have been instituted against public companies. Such
litigation, if instituted against us, could result in substantial
cost and the diversion of management attention.
We cannot assure you that our common stock will become liquid or
that it will be listed on a national securities exchange. In
addition,
there may
not be sufficient liquidity in the market for our securities in
order for investors to sell their securities.
Currently, our common stock trades on the OTCQB venture stage
marketplace for early stage and developing U.S. and international
companies. Investors may find it difficult to obtain accurate
quotations as to the market value of our common stock. In
addition, if we fail to meet the criteria set forth in SEC
regulations, by law, various requirements would be imposed on
broker-dealers who sell its securities to persons other than
established customers and accredited investors. Consequently,
such regulations may deter broker-dealers from recommending or
selling our common stock, which may further affect its
liquidity. In addition, there is currently only a limited
public market for our common stock and there can be no assurance
that a trading market will develop further or be maintained in the
future.
We anticipate listing our common stock on a national securities
exchange in the future and have applied to list our common
stock on the NASDAQ Capital Market, however we cannot make any
assurances that we satisfy the listing requirements of such
national securities exchange, including, but not limited
to:
●
closing or bid price requirements;
●
stockholders’ equity requirement;
●
market value of publicly held shares;
●
number of shareholders;
●
number of market makers; and
●
market value of listed securities.
In order to raise sufficient funds to expand our operations, we may
have to issue additional securities at prices which may result in
substantial dilution to our shareholders.
If we raise additional funds through the sale of equity or
convertible debt, our current stockholders’ percentage
ownership will be reduced. In addition, these transactions may
dilute the value of our outstanding securities. We may have to
issue securities that may have rights, preferences and privileges
senior to our common stock. We cannot provide assurance that
we will be able to raise additional funds on terms acceptable to
us, if at all. If future financing is not available or is not
available on acceptable terms, we may not be able to fund our
future needs, which would have a material adverse effect on our
business plans, prospects, results of operations and financial
condition.
Future sales of our common stock, or the perception that future
sales may occur, may cause the market price of our common stock to
decline, even if our business is doing well.
Sales of substantial amounts of our common stock, or the perception
that these sales may occur, could materially and adversely affect
the price of our common stock and could impair our ability to raise
capital through the sale of additional equity
securities. As of
August 31, 2017, we had outstanding
5,677,383 shares of common stock, 4,422,057 of which are
restricted securities that may be sold only in accordance with the
resale restrictions under Rule 144 of the Securities Act of 1933,
as amended. In addition, as of
August 31, 2017, we had outstanding
convertible preferred stock, convertible into 4,060,095 shares of
common stock, outstanding options to purchase 961,474 shares of our
common stock, outstanding warrants to purchase 2,931,509 shares of
our common stock, and outstanding convertible debt convertible into
533,151 shares of our common stock. Shares issued upon the exercise
of stock options and warrants will be eligible for sale in the
public market, except that affiliates will continue to be subject
to volume limitations and other requirements of Rule 144 under the
Securities Act. The issuance or sale of such shares could depress
the market price of our common stock.
In the future, we also may issue our securities if we need to raise
additional capital. The number of new shares of our common stock
issued in connection with raising additional capital could
constitute a material portion of the then-outstanding shares of our
common stock.
Rule 144 Related Risk
The SEC adopted amendments to Rule 144 which became effective on
February 15, 2008 that apply to securities acquired both before and
after that date. Under these amendments, a person who has
beneficially owned restricted shares of our common stock for at
least six months would be entitled to sell their securities
provided that: (i) such person is not deemed to have been one of
our affiliates at the time of, or at any time during the three
months preceding a sale, (ii) we are subject to the Exchange Act
periodic reporting requirements for at least 90 days before the
sale and (iii) if the sale occurs prior to satisfaction of a
one-year holding period, we provide current information at the time
of sale. Persons who have beneficially owned restricted shares of
our common stock for at least six months but who are our affiliates
at the time of, or at any time during the three months preceding a
sale, would be subject to additional restrictions, by which such
person would be entitled to sell within any three-month period only
a number of securities that does not exceed the greater of either
of the following:
●
1% of the total number of securities of the same class then
outstanding; or closing or bid price requirements;
●
the average weekly trading volume of such securities during the
four calendar weeks preceding the filing of a notice on Form 144
with respect to the sale;
provided, in each case, that we are subject to the Exchange Act
periodic reporting requirements for at least three months before
the sale. Such sales by affiliates must also comply with the manner
of sale, current public information and notice provisions of Rule
144.
Restrictions on the reliance of Rule 144 by shell companies or
former shell companies.
We are a former shell company. Historically, the SEC staff has
taken the position that Rule 144 is not available for the resale of
securities initially issued by companies that are, or previously
were, blank check companies. The SEC has codified and expanded this
position in amendments to Rule 144 which became effective in
February 2008 by prohibiting the use of Rule 144 for resale of
securities issued by any shell companies (other than
business-combination related shell companies) or any issuer that
has been at any time previously a shell company. The SEC has
provided an important exception to this prohibition, however, if
the following conditions are met:
●
The issuer of the securities that was formerly a shell company has
ceased to be a shell company;
●
The issuer of the securities is subject to the reporting
requirements of Section 13 or 15(d) of the Exchange
Act;
●
The issuer of the securities has filed all Exchange Act reports and
material required to be filed, as applicable, during the preceding
12 months (or such shorter period that the issuer was required to
file such reports and materials), other than Current Reports on
Form 8-K; and
●
At least one year has elapsed from the time that the issuer has
filed current comprehensive disclosure with the SEC reflecting its
status as an entity that is not a shell company.
As a result, it is possible that pursuant to Rule 144, stockholders
may not be able to sell our shares without registration if one of
the aforementioned conditions are not satisfied.
Because we became a public company by means of a “reverse
merger,” we may not be able to attract the attention of major
brokerage firms.
Additional risks may exist since we became public through a
“reverse takeover.” Securities analysts of major
brokerage firms may not provide coverage of our securities since
there is little incentive to brokerage firms to recommend the
purchase of our common stock. No assurance can be given that
brokerage firms will want to conduct any secondary offerings on our
behalf in the future.
We have incurred and will continue to incur significant increased
costs as a result of operating as a public company, and our
management will be required to devote substantial time to new
compliance initiatives.
As a public company, we are subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended, the Dodd-Frank
Wall Street Reform and Consumer Protection Act, or the Dodd-Frank
Act, the listing requirements of the OTCQB venture stage
marketplace and other applicable securities rules and regulations.
Compliance with these rules and regulations has increased and will
continue to increase our legal and financial compliance costs, make
some activities more difficult, time-consuming or costly, and
increase demand on our systems and resources. The Sarbanes-Oxley
Act requires, among other things, that we maintain effective
disclosure controls and procedures and internal control over
financial reporting. In order to maintain and, if required, improve
our disclosure controls and procedures and internal control over
financial reporting to meet this standard, significant resources
and management oversight may be required. As a result,
management’s attention may be diverted from other business
concerns, which could harm our business and operating results.
Further, there are significant corporate governance and executive
compensation related provisions in the Dodd-Frank Wall Street
Reform and Consumer Protection Act, enacted in 2010, that require
the SEC to adopt additional rules and regulations in these areas
such as “say on pay” and proxy access. Recent
legislation permits smaller “emerging growth companies”
to implement many of these requirements over a longer period. We
intend to take advantage of this new legislation but cannot
guarantee that we will not be required to implement these
requirements sooner than budgeted or planned and thereby incur
unexpected expenses. Stockholder activism, the current political
environment and the current high level of government intervention
and regulatory reform may lead to substantial new regulations and
disclosure obligations, which may lead to additional compliance
costs and impact the manner in which we operate our business in
ways we cannot currently anticipate.
In addition, changing laws, regulations and standards relating to
corporate governance and public disclosure are creating uncertainty
for public companies, increasing legal and financial compliance
costs and making some activities more time consuming. These laws,
regulations and standards are subject to varying interpretations,
in many cases due to their lack of specificity, and, as a result,
their application in practice may evolve over time as new guidance
is provided by regulatory and governing bodies. This could result
in continuing uncertainty regarding compliance matters and higher
costs necessitated by ongoing revisions to disclosure and
governance practices. We intend to invest resources to comply with
evolving laws, regulations and standards, and this investment may
result in increased general and administrative expenses and a
diversion of management’s time and attention from
revenue-generating activities to compliance activities. If our
efforts to comply with new laws, regulations and standards differ
from the activities intended by regulatory or governing bodies due
to ambiguities related to practice, regulatory authorities may
initiate legal proceedings against us and our business may be
harmed.
Additionally, we may be subject to increased corporate governance
requirements in connection with the listing of our common stock on
a national securities exchange, such as the NASDAQ Capital Market,
which may lead to additional compliance costs and impact the manner
in which we operate our business.
If we fail to maintain an effective system of internal control over
financial reporting, we may not be able to accurately report our
financial results. As a result, current and potential investors
could lose confidence in our financial reporting, which could harm
our business and have an adverse effect on our stock
price.
Effective internal controls over financial reporting are necessary
for us to provide reliable financial reports and, together with
adequate disclosure controls and procedures, are designed to
prevent fraud. Any failure to implement required new or improved
controls, or difficulties encountered in their implementation could
cause us to fail to meet our reporting obligations. In addition,
pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we
are required to annually furnish a report by our management on our
internal control over financial reporting. Such report must
contain, among other matters, an assessment by our principal
executive officer and our principal financial officer on the
effectiveness of our internal control over financial reporting,
including a statement as to whether or not our internal control
over financial reporting is effective as of the end of our fiscal
year. This assessment must include disclosure of any material
weakness in our internal control over financial reporting
identified by management. Performing the system and process
documentation and evaluation needed to comply with Section 404 is
both costly and challenging. During the course of our testing
we may identify deficiencies which we may not be able to remediate
in time to meet the deadline imposed by the Sarbanes-Oxley Act of
2002 for compliance with the requirements of Section 404. In
addition, if we fail to maintain the adequacy of our internal
controls, as such standards are modified, supplemented or amended
from time to time, we may not be able to ensure that we can
conclude on an ongoing basis that we have effective internal
controls over financial reporting in accordance with Section 404 of
the Sarbanes-Oxley Act of 2002. Failure to achieve and
maintain an effective internal control environment could also cause
investors to lose confidence in our reported financial information,
which could have a material adverse effect on the price of our
common stock.
Our common stock is considered “penny
stock”.
The SEC has adopted regulations, which generally define
“penny stock” to be an equity security that has a
market price of less than $5.00 per share, subject to specific
exemptions. The market price of our common stock is currently
less than $5.00 per share and therefore may be a “penny
stock.” Brokers and dealers effecting transactions in
“penny stock” must disclose certain information
concerning the transaction, obtain a written agreement from the
purchaser and determine that the purchaser is reasonably suitable
to purchase the securities. These rules may restrict the
ability of brokers or dealers to sell the common stock and may
affect your ability to sell shares.
The market for penny stocks has experienced numerous frauds and
abuses, which could adversely impact investors in our
stock.
Our common stock trades on the OTCQB venture stage marketplace for
early stage and developing U.S. and international companies. OTCQB
securities and other “bulletin board” securities are
frequent targets of fraud or market manipulation, both because of
their generally low prices and because OTCQB and other bulletin
board” reporting requirements are less stringent than those
of national securities exchanges, including the NASDAQ Capital
Market.
Patterns of fraud and abuse include:
●
Control of the market for the security by one or a few
broker-dealers that are often related to the promoter or
issuer;
●
Manipulation of prices through prearranged matching of purchases
and sales and false and misleading press releases;
●
“Boiler room” practices involving high pressure sales
tactics and unrealistic price projections by inexperienced sales
persons;
●
Excessive and undisclosed bid-ask differentials and markups by
selling broker-dealers; and
●
Wholesale dumping of the same securities by promoters and
broker-dealers after prices have been manipulated to a desired
level, along with the inevitable collapse of those prices with
consequent investor losses.
Our quarterly operating results may fluctuate
significantly.
We expect our operating results to be subject to quarterly
fluctuations. Our net loss and other operating results will be
affected by numerous factors, including:
●
the rate of adoption and/or continued use of our current tests and
our planned future tests by healthcare practitioners;
●
variations in the level of expenses related to our development and
commercialization programs;
●
addition or reduction of resources for product
commercialization;
●
addition or termination of clinical validation studies and clinical
utility studies;
●
any intellectual property infringement lawsuit in which we may
become involved;
●
third party payer determinations affecting our tests;
and
●
regulatory developments affecting our tests.
We expect operating results to be subject to quarterly
fluctuations. Our net loss and other operating results will be
affected by numerous factors, including:
If our quarterly operating results fall below the expectations of
investors or securities analysts, the price of our common stock
could decline substantially. Furthermore, any quarterly
fluctuations in our operating results may, in turn, cause the price
of our stock to fluctuate substantially.
Because we do not expect to pay cash dividends to our common
stockholders for the foreseeable future, you must rely on
appreciation of our common stock price for any return on your
investment. Even if we change that policy, we may be restricted
from paying dividends on our common stock.
We do not intend to pay cash dividends on shares of our common
stock for the foreseeable future. Any determination to pay
dividends in the future will be at the discretion of our board of
directors and will depend upon results of operations, financial
performance, contractual restrictions, restrictions imposed by
applicable law and other factors our board of directors deems
relevant. Accordingly, you will have to rely on capital
appreciation, if any, to earn a return on your investment in our
common stock. Investors seeking cash dividends in the foreseeable
future should not purchase our common stock.
Cumulative dividends on the Series B Preferred Stock accrue at the
rate of 8% of the Stated Value per annum, payable quarterly on
March 31, June 30, September 30, and December 31 of each year, from
and after the date of the initial issuance. Dividends
are payable in kind in additional shares of Series B Preferred
Stock valued at the Stated Value or in cash at the sole option of
the Company. At May 31, 2017 and February 28, 2017, the dividends
payable to the holders of the Series B Preferred Stock amounted to
approximately $16,000 and $16,000, respectively. During the three
months ended May 31, 2017 and May 31, 2016, the Company issued
4.2648 and 13.1771 shares of Series B Preferred Stock,
respectively, for payment of dividends amounting to approximately
$23,000 and $72,000, respectively.
Our ability to use our net operating loss carryforwards and certain
other tax attributes may be limited.
Our ability to utilize our federal net operating loss,
carryforwards and federal tax credits may be limited under Sections
382 and 383 of the Internal Revenue Code of 1986, as amended, or
the Code. The limitations apply if an “ownership
change,” as defined by Section 382 of the Code, occurs.
If we have experienced an “ownership change” at any
time since our formation, we may already be subject to limitations
on our ability to utilize our existing net operating losses and
other tax attributes to offset taxable income. In addition, future
changes in our stock ownership (including in connection with this
or future offerings, as well as other changes that may be outside
of our control), may trigger an “ownership change” and,
consequently, limitations under Sections 382 and 383 of the
Code. As a result, if we earn net taxable income, our ability to
use our pre-change net operating loss carryforwards and other tax
attributes to offset United States federal taxable income may be
subject to limitations, which could potentially result in increased
future tax liability to us. As of February 28, 2017, we had federal
net operating loss tax credit carryforwards of approximately
$18.7
million, which could be
limited if we have experienced or do experience any
“ownership changes.” We have not completed a study to
assess whether an “ownership change” has occurred or
whether there have been multiple “ownership changes”
since our formation, due to the complexity and cost associated with
such a study, and the fact that there may be additional ownership
changes in the future.
We could be subject to securities class action
litigation.
In the past, securities class action litigation has often been
brought against a company following a decline in the market price
of its securities. This risk is especially relevant for us because
early-stage life sciences and diagnostic companies have experienced
significant stock price volatility in recent years. If we face such
litigation, it could result in substantial costs and a diversion of
management’s attention and resources, which could harm our
business.
We will not receive any proceeds from the sale of shares of Common
Stock offered by the selling stockholders. However, we
will receive proceeds from the exercise of Warrants to purchase up
to 2,009,766 shares of our Common Stock offered under this
prospectus to the extent any of the Warrants are exercised for
cash. We intend to use any such proceeds for general working
capital and other corporate purposes. There can be no assurance
that any Warrants will be exercised.
We have never paid any cash dividends on our capital
stock. We anticipate that we will retain earnings, if
any, to support operations and to finance the growth and
development of our business and do not anticipate paying any cash
dividends on our Common Stock for the foreseeable
future.
Future cash dividends, if any, will be at the discretion of our
board of directors and will depend upon our future operations and
earnings, capital requirements and surplus, general financial
condition, contractual restrictions and other factors as our board
of directors may deem relevant. We can pay dividends only out of
our profits or other distributable reserves and dividends or
distribution will only be paid or made if we are able to pay our
debts as they fall due in the ordinary course of
business.
Cumulative dividends on the Series B Preferred Stock accrue at the
rate of 8% of the Series B Stated Value per annum, payable
quarterly on March 31, June 30, September 30, and December 31 of
each year, from and after the date of the initial
issuance. Dividends are payable in kind in additional
shares of Series B Preferred Stock valued at the Series B Stated
Value or in cash at the sole option of the Company. At May 31, 2017
and February 28, 2017, the dividends payable to the holders of the
Series B Preferred Stock amounted to approximately $16,000 and
$16,000, respectively. During the three months ended May 31, 2017
and May 31, 2016, the Company issued 4.2648 and 13.1771 shares of
Series B Preferred Stock, respectively, for payment of dividends
amounting to approximately $23,000 and $72,000,
respectively.
MANAGEMENT’S DISCUSSION AN
D
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion and analysis of our
financial condition and results of operations in conjunction with
our audited consolidated financial statements and the related notes
to the consolidated financial statements included elsewhere in this
prospectus. Our audited consolidated financial statements have been
prepared in accordance with U.S. GAAP. In addition, our audited
consolidated financial statements and the financial data included
in this prospectus reflect our reorganization and have been
prepared as if our current corporate structure had been in place
throughout the relevant periods. The following discussion and
analysis contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including, without limitation,
statements regarding our expectations, beliefs, intentions or
future strategies that are signified by the words
“expect,” “anticipate,”
“intend,” “believe,” or similar language.
All forward-looking statements included in this document are based
on information available to us on the date hereof, and we assume no
obligation to update any such forward-looking statements. Our
business and financial performance are subject to substantial risks
and uncertainties. Actual results could differ materially from
those projected in the forward-looking statements. In evaluating
our business, you should carefully consider the information set
forth under the heading “Risk Factors” and elsewhere in
this prospectus. Readers are cautioned not to place
undue reliance on these forward-looking statements.
Business Overview
We are a pre-commercial biotechnology company focused on
discovering and developing personalized therapeutic (Rx) and
diagnostic (Dx) treatment solutions for cancer patients. Our Mena
isoform “driver-based” diagnostic biomarkers also serve
as novel therapeutic targets for anti-metastatic drugs. MetaStat is
developing therapeutic product candidates and paired companion
diagnostics based on a novel approach that makes the Mena isoform
protein a drugable target. Our core expertise includes an
understanding of the mechanisms and pathways that drive tumor cell
invasion and metastasis, as well as drug resistance to certain
targeted therapies and cytotoxic chemotherapies.
Going Concern
Since our inception, we have generated significant net losses. As
of May 31, 2017, we had an accumulated deficit of approximately
$26.6 million. At May 31, 2017, we have negative working capital.
We incurred net losses of approximately $0.28 million and
approximately $1.22 million for the three months ended May 31, 2017
and 2016, respectively. We incurred net losses of
approximately $2.9 million and approximately $4.7 million for the
year ended February 28, 2017 and February 29, 2016, respectively We
expect our net losses to continue for at least the next several
years as we develop our pre-commercial product candidates. We
anticipate that a substantial portion of our capital resources and
efforts will be focused on research and development activities and
other general corporate purposes.
Including the net proceeds of approximately $2.35 million from our
2017 Common Stock Private Placement, we currently anticipate that
our cash and cash equivalents will not be sufficient to
fund our operations for the next twelve months, without
raising additional capital. Our continuation as a going concern is
dependent upon continued financial support from our
shareholders, our ability to obtain necessary equity and/or
debt financing to continue operations, and the attainment of
profitable operations. These factors raise substantial doubt
regarding our ability to continue as a going concern. We cannot
make any assurances that additional financings will be available to
us and, if available, completed on a timely basis, on acceptable
terms or at all. If we are unable to complete a debt or equity
offering, or otherwise obtain sufficient financing when and if
needed, it would negatively impact our business and operations and
could also lead to the reduction or suspension of our operations
and ultimately force us to cease our operations.
Critical Accounting Policies and Significant Judgments and
Estimates
This discussion and analysis of our financial condition and results
of operations is based on our consolidated financial statements,
which have been prepared in accordance with United
States generally accepted accounting principles. The
preparation of these financial statements requires management to
make estimates and judgments that affect the reported amounts of
assets, liabilities and expenses and the disclosure of contingent
assets and liabilities at the date of the financial statements, as
well as revenues and expenses during the reporting periods. We
evaluate our estimates and judgments on an ongoing basis. We
base our estimates on historical experience and on various other
factors we believe are reasonable under the circumstances, the
results of which form the basis for making judgments about the
carrying value of assets and liabilities that are not readily
apparent from other sources. Actual results could therefore
differ materially from those estimates under different assumptions
or conditions.
Our significant accounting policies are described in Note 2 of
our consolidated financial statements for the year ended February
28, 2017. We believe the following critical accounting
policies reflect our more significant estimates and assumptions
used in the preparation of our financial statements.
Stock-based Compensation
We account for share-based payment awards issued to employees and
members of our Board by measuring the fair value of the award on
the date of grant and recognizing this fair value as stock-based
compensation using a straight-line basis over the requisite service
period, generally the vesting period. For awards issued
to non-employees, the measurement date is the date when the
performance is complete or when the award vests, whichever is the
earliest. Accordingly, non-employee awards are remeasured at each
reporting period until the final measurement date. The fair value
of the award is recognized as stock-based compensation over the
requisite service period, generally the vesting
period.
Debt and Equity Instruments
We analyze debt and equity instruments for various features that
would generally require either bifurcation and derivative
accounting, or recognition of a debt discount or premium under
authoritative guidance.
Detachable warrants issued in conjunction with debt are measured at
their relative fair value, if they are determined to be equity
instrument, or their fair value, if they are determined to be
liability instruments, and recorded as a debt
discount.
Conversion features that are in the money at the commitment date
constitute a beneficial conversion feature that is measured at its
intrinsic value and recognized as debt discount or deemed dividend.
Debt discount is amortized as interest expense over the maturity
period of the debt using the effective interest
method.
Any contingent beneficial conversion feature would be recognized
when and if the contingent event occurs based on its intrinsic
value at the commitment date.
Derivative Financial Instruments and Fair Value
We account for certain warrants and exchange features embedded in
notes payable that are not deemed to be indexed to the
Company’s own stock in accordance with the guidance contained
in the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) Topic
815,
Derivatives and Hedging
(“ASC 815”) and ASC Topic
480,
Distinguishing Liabilities
From Equity
(“ASC
480”). Such instruments are classified as liabilities and
measured at their fair values at the time of issuance and at each
reporting period, which change in fair value being recognized in
the statement of operations. The fair values of these instruments
have been estimated using Monte Carlo simulations and other
valuation techniques.
Research and Development Reimbursements
From time to time, we may enter into research and development
agreements in which we share expenses or are reimbursed for
research and development expenses with a collaborative partner. We
analyze revenue recognition in connection with collaborative
arrangements in accordance with the guidance contained ASC Topic
808,
Collaborative
Arrangements
(“ASC
808”) and ASC Topic 605,
Revenue Recognition
(“ASC 605”). We record
payments received from our collaborative partners as an offset to
research and development expenses, which are discussed in Note 11,
Collaborative and Other Relationships, of our consolidated
financial statements for the year ended February 28,
2017.
Research Collaboration Revenue
We currently do not sell any products and do not have any
product-related revenue.
From time to time, we may enter
into
research and development
collaboration arrangements, in which we are reimbursed for either
all or a portion of the research and development costs incurred. We
record these payments as revenue in the statement of operations. We
recognize revenue upon delivery and acceptance of the test results
or other deliverables.
Financial Operations Overview
General and Administrative Expenses
Our general and administrative expenses primarily consist of
personnel and related costs,
including stock-based
compensation,
legal
fees
relating to both
intellectual property
an
d corporate matters
,
accounting and audit related costs, insurance, corporate
communications and investor relations expenses, information
technology and internet related costs, office and facility rents
and related expenses, and fees for
consulting and other
professional services
.
We
anticipate that our general and administrative expenses will
increase in the future to support continued research, development
and commercialization activities, including potential partnership
and/or collaboration agreements,
intellectual property and corporate legal
expenses,
and public company operating costs, including
offering and related expenses in
connection with a potential uplisting to a national stock exchange,
SEC and exchange compliance, insurance, and investor relations and
corporate communication costs
. These increases will likely
also include increased costs related to facilities and information
technology expansion, the hiring of additional personnel and
increased fees to outside consultants, lawyers and accountants,
among other expenses
.
Research and Development Expenses
Historically, the majority of research and development expenses
were focused on our prognostic diagnostic tests for breast cancer,
including the MetaSite
Breast
™ and MenaCalc™ tests. We have
initiated research and development activities focused on our
Mena
INV
and related driver-based biomarkers,
which support our integrated Rx/Dx product development strategy
focused on anti-metastatic therapeutics and companion diagnostics.
Research and development activities are central to our business
model and we expect future research and development expenses to be
focused on our Mena
INV
and related biomarkers in support of
our integrated Rx/Dx product development
strategy.
We charge all research and development expenses to operations as
they are incurred. Any nonrefundable advance payments for goods or
services to be received in the future for use in research and
development activities will be deferred and capitalized. Such
capitalized amounts will be expensed as the related goods are
delivered or the services are performed.
We do not record or maintain information regarding costs incurred
in research and development on a program or project specific
basis. Our research and development staff, outside consultants
and contract research organizations are deployed across several
programs and/or indications. Additionally, many of our costs
are not attributable to individual programs and/or
indications. Therefore, we believe that allocating costs on
the basis of time incurred by our employees does not accurately
reflect the actual costs of a project.
Our therapeutic and companion diagnostic product development
programs are in early development stages. Since product candidates
in later stages of development generally have higher development
costs than those in earlier stages of development, we expect
research and development costs relating to therapeutic and
companion diagnostic programs to increase significantly for the
foreseeable future as those programs progress. We are unable to
determine the duration and completion costs of our research and
development programs or when, if ever, and to what extent we will
receive cash inflows from the commercialization and sale of any
product candidate.
Results of Operations
Comparison
of the Three Months Ended
May
31,
2017 and
May
31,
2016
Revenues
. Research
collaboration revenue in connection with certain research and
development activities was approximately $23,000 for the three
months ended May 31, 2017. There were no revenues for the three
months ended May 31, 2016.
General and Administrative Expenses.
General and administrative expense was
approximately $571,000 for the three months ended May 31, 2017 as
compared to approximately $556,000 for the three months ended May
31, 2016. This represents an aggregate increase of
approximately $15,000. Stock-based compensation was
approximately $17,000 for the three months ended May 31, 2017 as
compared to approximately $88,000 for the three months ended May
31, 2016. Excluding non-cash stock-based compensation expense
and depreciation expense, general and administrative expenses
increased by approximately $88,000 to approximately $552,000 for
the three months ended May 31, 2017 from approximately $464,000 for
the three months ended May 31, 2016.
Increased general and administrative spending was primarily due to
increases in payroll and related costs including a bonus of
approximately $57,000, consulting expense of approximately $22,000,
corporate legal expenses of approximately $13,000, and rent of
approximately $10,000. These increased general and administrative
costs were partially offset by decreases related to intellectual
property legal expenses of approximately $17,000, and investor
relations and corporate communications costs of approximately
$10,000. We expect general and administrative expenses to increase
slightly for the remainder of the fiscal year ending February 28,
2018 with projected increases in rent and office related costs,
consulting expenses, and professional fees related to intellectual
property and patents, among others, as compared to the fiscal year
ended February 28, 2017.
Research and Development Expenses.
Research and development expenses decreased by
approximately $82,000 to approximately $189,000 for the three
months ended May 31, 2017 from approximately $271,000 for the three
months ended May 31, 2016. Excluding non-cash stock-based
compensation expense and depreciation expense, research
and development expenses decreased by
approximately $82,000 to approximately $152,000
for the three months ended May 31, 2017 from approximately $234,000
for the three months ended May 31, 2016.
Reduced research and development spending was primarily due to
decreases in consulting expense of approximately $65,000 and
payroll and related costs of approximately $26,000 partially offset
by increases in laboratory and consumables of approximately $5,000
and rent and office related costs of approximately $3,000. We
expect research and development expenses to increase for the
remainder of this fiscal year ending February 28, 2018 as we
conduct research and development activities based on our integrated
Rx/Dx strategy and incur payroll and related expense for new
employees and increased consulting expenses. Research and
development expenses include approximately $113,000 of amortized
deferred research and development reimbursement earned by us in
connection with our collaborative arrangement as described in Note
11 of our consolidated financial statements for the three months
ended May 31, 2017.
Other (Income) Expense.
Other
expense amounted to income of approximately $461,000 for the three
months ended May 31, 2017, as compared to expense of approximately
$393,000 for the three months ended May 31, 2016. This
represents a change of approximately $854,000. This change was due
in part to an increase of approximately $525,000 in the change in
fair value of the warrant liability, a decrease of approximately
$275,000 due to the decrease in interest expense and a decrease of
approximately $54,000 in the change in fair value of the put
liability on the notes payable.
Net Loss.
As a result of
the factors described above, we had a net loss of approximately
$0.28 million for the three months ended May 31, 2017 as compared
to a net loss of approximately $1.22 million for the three months
ended May 31, 2016.
Comparison of the Years Ended February 28, 2017 and February 29,
2016
Revenue
. There were
no revenues for the years ended February 28, 2017 and February 29,
2016, respectively.
General and Administrative Expenses.
General and administrative expenses totaled
approximately $2.3 million for the year ended February 28, 2017 as
compared to approximately $3.4 million for the year ended February
29, 2016. This represents a decrease of approximately $1.1
million or approximately 32% for the year ended February 28, 2017,
as compared to the year ended February 29, 2016. Stock-based
compensation and depreciation was approximately $495,000 and
approximately $15,000, respectively for the year ended February 28,
2017, as compared to approximately $711,000 and approximately
$15,000, respectively for the year ended February 29,
2016. Excluding non-cash stock-based compensation related to
stock options and depreciation expenses, general and administrative
expenses decreased by approximately $0.9 million or approximately
32% to approximately $1.8 million for the year ended February 28,
2017 from approximately $2.7 million for the year ended February
29, 2016.
Reduced general and administrative spending was primarily due to
decreases in consulting expense of approximately $252,000,
corporate communications and investor relations costs of
approximately $225,000, aborted offering costs of approximately
$171,000, accounting and auditing expenses of approximately
$110,000, travel and related expenses of approximately $53,000,
dues and subscription fees of approximately $52,000, and corporate
legal expenses of approximately $41,000. These reduced general and
administrative expenses were partially offset by increases related
to intellectual property legal expenses of approximately $41,000,
directors and officers (D&O) insurance of approximately
$38,000, rent of approximately $29,000, and information technology
and internet related expenses of approximately
$20,000.
Research and Development Expenses.
Research and development totaled approximately
$1.0 million for the year ended February 28, 2017, as compared to
approximately $1.4 million for the year ended February 29, 2016.
This represents a decrease of approximately $0.4 million or
approximately 26% for the year ended February 28, 2017, as compared
to the year ended February 29, 2016. Stock-based compensation and
depreciation was approximately $85,000 and approximately $81,000,
respectively for the year ended February 28, 2017, as compared to
approximately $112,000 and approximately $81,000, respectively for
the year ended February 29, 2016. Excluding non-cash stock-based
compensation related to stock options and depreciation expenses,
research and development expenses decreased by approximately $0.3
million or approximately 28% to approximately $0.8 million for the
year ended February 28, 2017 from approximately $1.1 million for
the year ended February 29, 2016.
Reduced research and development spending was primarily due to
decreases in personnel and related costs of approximately $179,000,
diagnostic related expenses of approximately $111,000, and
consulting expense of approximately $26,000.
Other Expenses (Income).
Other
income was approximately $406,000 for the year ended February 28,
2017, as compared to other income of approximately $125,000 for the
year ended February 29, 2016. This represents a change of
approximately $281,000. Other income for the year ended February
28, 2017 mostly comprised of approximately $2.4 million gain from
the change in fair value of the warrant liability, and
approximately $614,000 gain on the change in fair value of the
embedded put feature related to the notes payable, offset by
approximately $1.4 million loss on extinguishment related to the
exchanges of notes payable, approximately $1.1 million of interest
expense on the notes payable, and approximately $112,000 loss
on sale of ASET note receivable. Other income for the year ended
February 29, 2016 mostly comprised of approximately $150,000 gain
on the ASET transaction and approximately $350,000 gain from the
change in fair value of the warrant liability, offset by
approximately $317,000 of interest expense on the notes
payable, and approximately $39,000 loss related to the settlement
with two affiliated shareholders.
Net Loss.
As a result of the
factors described above, our net loss decreased by approximately
$1.8 million to approximately $2.9 million for the year ended
February 28, 2017 as compared to approximately $4.7 million for the
year ended February 29, 2016.
Liquidity and Capital Resources
Since our inception, we have incurred significant losses and, as of
May 31, 2017, we had an accumulated deficit of approximately $26.6
million. We have not yet achieved profitability and anticipate
that we will continue to incur net losses for the foreseeable
future. We expect that our research and development, general
and administrative and commercialization expenses will continue to
grow and, as a result, we will need to generate significant product
revenues to achieve profitability. We may never achieve
profitability.
Sources of Liquidity
Since our inception, substantially all of our operations have been
financed through the sale of our common stock, preferred stock, and
promissory notes. Through May 31, 2017, we had received net
proceeds of approximately $9.23 million through the sale of common
stock to investors, approximately $0.26 million through the sale of
Series A Preferred Stock to investors, approximately $3.39 million
through the sale of Series B Preferred Stock to investors,
approximately $3.46 million from the issuance of convertible
promissory notes and approximately $1.82 million from the issuance
of non-convertible promissory notes. As of May 31, 2017,
we had cash and cash equivalents of approximately $152,000 and debt
of approximately $1.0 million. Through May 31, 2017, we had
issued and outstanding warrants to purchase 2,731,523 shares of our
common stock at a weighted average exercise price of $5.04 per
share, which could result in proceeds to us of approximately $13.8
million if all outstanding warrants were exercised for cash.
Subsequent
to May 31, 2017, we have received net proceeds of approximately
$2.35 million from the sale of common stock to investors in the
2017 Common Stock Private Placement.
Cash Flows
At May 31, 2017, we had approximately $152,000 in cash and cash
equivalents, compared to approximately $154,000 at May 31,
2016.
Net cash used in operating activities was approximately $0.63
million for the three months ended May 31, 2017, compared to
approximately $0.42 million for the three months ended May 31,
2016. The increase in cash used of approximately $0.21 million was
primarily due to increased operating expenses. We expect amounts
used in operating activities to increase in fiscal year 2018 and
beyond as we grow our corporate operations.
Net cash provided by financing activities for the three months
ended May 31, 2017 was $0 compared to approximately $0.21 million
for the three months ended May 31, 2016. Financing activities
for the three months ended May 31, 2016 consisted primarily of
proceeds from issuance of non-convertible OID promissory notes and
warrants and common stock and warrants for the three months ended
May 31, 2016 partially offset by the payment of short-term
debt.
Operating Capital and Capital Expenditure Requirements
We currently anticipate that our cash and cash equivalents will not
be sufficient to fund our operations for the next twelve
months, without raising additional capital. We expect to continue
to incur substantial operating losses in the future and to make
capital expenditures to keep pace with the expansion of our
research and development programs and to scale up our commercial
operations, which we expect to fund in part with the proceeds of
the recent financing activities. It may take several years to
move any one of a number of product candidates in clinical research
through the development and validation phases to
commercialization. We expect that the remainder of the net
proceeds and our existing cash and cash equivalents will be used to
fund working capital and for capital expenditures and other general
corporate purposes, such as licensing technology rights, partnering
arrangements for the processing of tests outside the United States
or reduction of contractual obligations. A portion of the net
proceeds may also be used to acquire or invest in complementary
businesses, technologies, services or products. We have no
current plans, agreements or commitments with respect to any such
acquisition or investment, and we are not currently engaged in any
negotiations with respect to any such transaction.
The amount and timing of actual expenditures may vary significantly
depending upon a number of factors, such as the progress of our
product development, regulatory requirements, commercialization
efforts, the amount of cash used by operations and progress in
reimbursement.
We cannot be certain that any of our future efforts to develop
future products will be successful or that we will be able to raise
sufficient additional funds to see these programs through to a
successful result.
Our future funding requirements will depend on many factors,
including the following:
●
the rate of progress and cost of research and development
activities associated with our therapeutic and companion diagnostic
product development strategy;
●
the rate of progress and cost of research and development
activities associated with our prognostic diagnostic tests for
breast and other cancers;
●
the rate of progress in establishing reimbursement arrangements
with third-party payers;
●
the success of billing, and collecting receivables;
and;
●
the cost of expanding our commercial and laboratory operations,
including our selling and marketing efforts;
Until we can generate a sufficient amount of revenues to finance
our cash requirements, which we may never do, we expect to finance
future cash needs primarily through public or private equity
offerings, debt financings, borrowings or strategic collaborations.
The issuance of equity securities may result in dilution to
stockholders. We cannot make any assurances that additional
financings will be completed on a timely basis, on acceptable terms
or at all. If we are unable to complete a debt or equity offering,
or otherwise obtain sufficient financing when and if needed, it
would negatively impact our business and operations, which could
cause the price of our common stock to decline. It could also lead
to the reduction or suspension of our operations and ultimately
force the Company to cease operations.
Income Taxes
Since inception, we have incurred operating losses and,
accordingly, have not recorded a provision for income taxes for any
of the periods presented. As of February 28, 2017, we had
cumulative net operating loss carryforwards for federal income tax
purposes of approximately $18.7 million. If not utilized, the
federal net operating loss and tax credit carryforwards will expire
beginning in the year 2029. Utilization of net operating loss
and credit carryforwards may be subject to a substantial annual
limitation due to restrictions contained in the Internal Revenue
Code that are applicable if we experience an “ownership
change.” The annual limitation may result in the expiration
of our net operating loss and tax credit carryforwards before they
can be used.
Recent Accounting Pronouncements
We have implemented all new relevant accounting pronouncements that
are in effect through the date of these financial
statements. These pronouncements did not have any material
impact on the financial statements unless otherwise disclosed. We
are currently assessing the impact of the new accounting
pronouncements disclosed in Note 2 of our consolidated financial
statements for the year ended February 28, 2017 and do not know
whether they might have a material impact on our financial position
or results of operations.
Overview
MetaStat is a biotechnology company focused on discovering and
developing personalized therapeutic (Rx) and diagnostic (Dx)
treatment solutions for cancer patients. Our Mena protein isoform
“driver-based” diagnostic biomarkers also serve as
novel therapeutic targets for anti-metastatic drugs. Unlike
surrogate cancer markers, which are indirect measures of cancer and
its progression, our driver-based biomarkers are the critical
components of intracellular cancer pathways responsible for driving
the aggressive activity of cancer cells. Our core expertise
includes a deep understanding of the mechanisms and pathways that
drive tumor cell invasion and metastasis, as well as drug
resistance to certain targeted therapies and cytotoxic
chemotherapies. We are developing therapeutic product candidates
and paired companion diagnostics based on a novel approach that
makes the Mena isoform protein a druggable target.
Our
integrated Rx/Dx strategy for treating cancer patients has
three key product development
programs:
1.
Therapeutic (Rx) candidates
: Our drug
discovery program is focused on the development of novel
therapeutic product candidates that target the Mena protein
isoform. We are investigating therapeutic candidates for the
potential to prevent or delay aggressive cancer from spreading and
becoming resistant to other commonly used targeted and cytotoxic
therapies. In targeting the movement of tumor cells from the
primary site to distant sites, we are directly addressing the major
contributor to the deaths of cancer patients. Elevated expression
of Mena
INV
, a Mena protein
isoform also drives resistance to certain Receptor Tyrosine Kinase
(RTK) inhibitors that target EGFR, HGFR, IGF-R1 and other key
receptors, as well as cytotoxic chemotherapeutics, including
anti-microtubule agents, such as docetaxel, paclitaxel and
albumin-bound paclitaxel. We believe co-administration of an
effective anti-Mena therapeutic agent provides an opportunity to
expand the utility of these therapies and addresses a significant
challenge to the clinical management of advanced cancers. RTK and
anti-microtubule drugs are widely used to treat a number of types
of cancer, including ovarian, breast, lung cancer, squamous cell
carcinoma of the lung, colorectal cancer, Kaposi’s sarcoma,
cervical cancer and pancreatic cancer. We are using multiple
targeted approaches including proprietary small molecules,
therapeutic peptides, camelid nanobodies, monoclonal antibodies and
RNA-based technologies to test therapeutic candidates in our
in vitro
and
in vivo
metastatic models for efficacy
in reversing Mena-dependent phenotypes of drug resistance, tumor
cell invasion, dissemination, and metastasis. Our objective is to
select suitable drug candidates to advance into human clinical
studies. We plan to use the Mena
INV
companion
diagnostic assay to identify and select appropriate patient
populations most likely to benefit from targeted Mena isoform
therapy. Our therapeutic program will be implemented using internal
resources and in partnership with therapeutic biopharmaceutical
companies.
2.
Companion Diagnostics (CDx):
Our
companion diagnostic program is focused on developing companion
tests t
o be used in
combination with cancer drugs,
that provide essential
information for the safe and effective use of a corresponding drug
or biological product
to
improve patient outcomes
. We are developing quantitative
immunofluorescent, or QIF companion diagnostic assays using our
proprietary monoclonal antibodies, or Mabs, that predict how well a
cancer patient is likely to respond to treatment with RTK
inhibitors and anti-microtubule drugs. Not everyone responds in the
same way to these treatments. Patients with tumors expressing high
levels of Mena have been shown to develop resistance to treatment
with RTK inhibitors (EGFR, HGFR and IGF-R1inhibitors) and
anti-microtubule drugs (docetaxel, paclitaxel and albumin-bound
paclitaxel). Our companion diagnostics aim to help oncologists
refine diagnosis and tailor treatment strategies, saving patients
precious time and expense by predicting response to these therapies
prior to administration. We are exploring business development
opportunities with pharmaceutical and biotechnology companies
developing next generation RTK inhibitors and anti-microtubule
drugs who see the value of companion diagnostics that identify
patients most likely to benefit from these treatments. We believe
using our proprietary companion diagnostics to target appropriate
patient populations creates selective therapeutic opportunities to
repurpose shelved drug candidates that have previously failed
clinical testing or enhance the probability of success of drugs
currently under development.
3.
Prognostic Diagnostics
(PDx):
Our prognostic diagnostic
program is focused on developing diagnostic tests
that
predict
the
risk of future metastasis in cancer patients following
initial treatment of their primary tumor
.
Our first prognostic
diagnostic product candidates, the MetaSite
Breast™
and MenaCalc™
tests, aim to provide actionable information to early stage breast
cancer or ESBC patients and their physicians regarding the risk of
distant metastasis and if the use of adjuvant chemotherapy is
warranted.
We are seeking
to monetize or commercialize our CLIA-validated prognostic
diagnostic tests for breast cancer through strategic partnerships.
Our MetaSite
Breast
™
test has been shown to
be complementary to the Oncotype DX test, the most widely used
breast cancer gene panel assay. These results were presented
at the San Antonio Breast Cancer Symposium in December
2016. We plan to develop additional prognostic diagnostic
tests based on the
Mena
INV
biomarker for
additional indications including lung, prostate and colorectal
cancers.
Business Strategy
Our vision is to become a leading healthcare company focused on
advancing the field of personalized medicine. Since discovering a
methodology to make Mena protein isoform targets druggable, our
business strategy evolved from a pure play prognostic diagnostic
company to a value-added integrated Rx/Dx company focused on
therapeutics and companion diagnostics. We have leveraged our
technology and core expertise to broaden our intellectual property
position through a deep understanding of the functionality of Mena
protein isoforms and their roles in shaping the tumor
microenvironment and driving the spread of aggressive cancers. To
this end, we are currently testing several therapeutic product
candidates in our research and development laboratories and have
filed provisional methods, use and composition of matter
patents.
Key elements of our integrated Rx/Dx strategy are to:
●
Continue advancing our pre-clinical therapeutic discovery and
development programs focused on the Mena protein isoform drug
targets using different approaches developed (i) internally or
through in-licensing, and (ii) in collaboration with strategic
partners. These therapeutic approaches include small molecule
inhibitors, therapeutic peptides, camelid nanobodies, monoclonal
antibodies, and RNA-based technologies;
●
Expand access to the
Mena
INV
companion diagnostic test to ensure broad
adoption through development of alternative test methods and kits
that can be run on a wide variety of different instrument platforms
and seeking marketing authorization approvals from applicable
regulatory agencies including the FDA and EMA;
●
Use our driver-based biomarkers to identify shelved drug candidates
that have previously failed clinical testing or drug candidates
currently under development that represent suitable candidates for
co-development with our companion diagnostics;
●
Innovate and advance our patent and intellectual property portfolio
supporting our licensed platform technologies. We plan to augment
our internal capabilities through product in-licensing, selective
acquisitions, R&D collaborations and strategic partnerships to
facilitate broadening of our product pipeline and extension of our
novel proprietary technologies;
●
Commercialize our diagnostic assays through our state-of-the-art
CLIA-certified and state-licensed laboratory. We plan to maintain
our commercial CLIA-certified laboratory and in parallel pursue
non-exclusive strategic partnerships with organizations that have
established high complexity, IHC, QIF compatible digital
CLIA-certified labs; and
●
Pursue a de-risked
commercialization strategy of our diagnostic tests based on
non-exclusive agreements with strategic partners and/or Contract
Sales Organizations (CSO) in the U.S. and distributors in Europe
and throughout the rest-of-world. We seek commercialization
partners that have existing commercialization infrastructure,
established distribution channels, and strong relationships with
our target audience in the medical community. Our goal is to avoid
the cost and risk associated with building a new sales and
marketing infrastructure. Initially, we plan to build the necessary
commercial infrastructure only when needed to supplement existing
partnerships and not economically available through third party
vendors. As profitability and market penetration grow, we may
supplement our strategic partnership/CSO strategy with a phased-in
internal sales and marketing effort.
Scientific Background and Technology
Our proprietary and patented platform technologies are derived from
novel ways of observing cancer cell behavior in living functioning
tumors in live animals and are based on the discovery of a common
pathway for the development of aggressive or metastatic cancer in
solid epithelial-based tumors. These technologies are the result of
nearly 20 years of study and collaboration among four
scientific/academic institutions, including Massachusetts Institute
of Technology (“MIT”), Albert Einstein College of
Medicine (“AECOM”), Cornell University
(“Cornell”), and the IFO-Regina Elena Cancer Institute
in Rome, Italy (“IFO-Regina” and, collectively with
MIT, AECOM, and Cornell, the “Licensors”). This
collaboration has enabled us to understand the underlying biology,
including the direct mechanisms of action and specific
microenvironmental factors that drive systemic metastasis and drug
resistance to certain cancer treatments.
As described in
Nature Reviews Cancer
(Condeelis and Segall, 2003),
multiphoton-based intravital imaging was used to capture real-time
high-resolution, three-dimensional images of cancer cell behavior
in live breast cancer tumors. This led to new insights about the
mechanisms or drivers of cell migration during invasion and
intravasation, and information about the microenvironment that is
required for driving these key steps in
metastasis.
The
Licensors were the first to discover the mechanism by which
metastatic breast cancer cells polarize, move toward and invade
blood vessels and intravasate into circulating blood in search of a
new host or metastatic site. As described in
Cancer Research
(Wyckoff et al., 2004)
and further detailed in
Cell
(Condeelis and Pollard, 2006),
breast cancer migration, invasion and metastasis is driven by a
self-propagating paracrine loop between perivascular macrophages
that secrete epidermal growth factor (EGF) and tumor cells, which
secrete colony-stimulating factor (CSF)-1. EGF elicits several
responses including chemotaxis (chemical-induced movement) that
recruits cancer cells along the extra-cellular matrix towards and
into blood vessels. An artificial blood vessel was developed using
a microneedle that mimics this chemotactic signaling to attract,
capture, and isolate a discrete population of metastatic cancer
cells, which was first described in
Cancer Research
(Wyckoff et al., 2000).
As first published in
Cancer
Research
(Wang et al
., 2004),
gene expression analysis of these invasive cancer cells was
performed and compared against a general population of cancer cells
that resulted in the identification of a specific gene expression
profile or “invasion signature” of highly metastatic
breast cancer cells that exhibit a rapid amoeboid migratory
phenotype. Analysis of the invasion signature showed that number of
genes were identified that must be coordinately up or downregulated
in the invasive tumor cells in order for their invasion to lead to
cancer metastasis. One of the key upregulated genes in invasive
tumor cells encodes Mena, an actin regulatory protein, which is
central in the regulation of the pathways encoded by the invasion
signature.
Further intravital imaging led to the discovery of the
micro-anatomical site in the tumor microenvironment, or
“portal” in the blood vessels that metastatic cells
squeeze through to enter the blood stream. This portal was
originally named the “Tumor Microenvironment of Metastasis
(TMEM)”, however we have re-named this site of metastasis in
breast cancer the “MetaSite™”. The
MetaSite™ is consists of three cells in direct apposition: an
endothelial cell (a type of cell that lines the blood vessels), a
peri-vascular macrophage (a type of immune cell found near blood
vessels), and a tumor cell that expresses the Mena protein.
Clinical data initially presented in
Clinical Cancer
Research
(Robinson
et
al.
, 2009) showed the density
of these “portals” or MetaSites™ present in a
tumor tissue sample correlated to the probability of distant cancer
metastasis. This is the basis of our prognostic diagnostic test for
breast cancer, the MetaSite
Breast
™ test, which is more fully described
herein.
The Mena protein isoforms and our driver-based
biomarkers
Mena, a member of the Ena/VASP family of proteins, regulates
cytoskeletal dynamics, membrane protrusion, and cell movement,
adhesion and shape change in a variety of cell types and contexts
by influencing the geometry and assembly of actin filament
networks. The growth and elongation of actin fibers, part of the
cell’s cytoskeleton, are controlled by a process that caps
their ends. Mena interferes with the actin capping allowing the
actin fibers to lengthen by continuously polymerizing, thus pushing
forward the leading edge of the cell. A detailed summary of the
Mena protein was published in
Trends in Cell Biology
(Gertler and Condeelis,
2011).
The
Mena gene can be alternatively spliced to produce multiple isoforms
of which the Mena
11a
and
Mena
INV
isoforms dominate. Alternative splicing is the process by which
exons within a pre-mRNA transcript of a gene are differentially
spliced, resulting in multiple protein isoforms being encoded by a
single gene. Post-transcriptional processing of the Mena gene
provides an opportunity for gene regulation and increases the
functional informational capacity of the gene. These small
differences in Mena structure produce large differences in Mena
protein function. The Mena gene corresponds to a 570-amino acid
protein with the Mena
INV
isoform containing
a supplementary exon corresponding to a 19-amino acid addition to
the EVH1 domain of the protein. Mena
11a
contains a
supplementary exon corresponding to a 21-amino acid addition to the
EVH2 domain of the protein. The invasive Mena isoform,
Mena
INV
, and the
less dangerous Mena isoform, Mena11, a play distinct roles in
cancer morphology. In research published in
Development Cell
(Philippar
et al
., 2008),
Mena
INV
was shown to promote invasion and metastasis by helping cancer
cells subvert normal regulatory networks regulating cell motility
and increasing sensitivity to the chemo-attractant EGF by up to
forty (40x) times. Mena
INV
allows cancer
cells to respond to lower EGF concentrations.
Results
published in
Clinical Experimental
Metastasis
(Roussos
et
al.
, 2011) showed that Mena
INV
expressing tumor
cells are significantly less cohesive and have discontinuous
cell-cell contacts compared to Mena11a expressing tumor cells.
Metastatic breast cancer cells expressed 7.5-fold more
Mena
INV
than non-metastatic cells. Furthermore, Mena
INV
expression
correlated with MetaSite™ score, while Mena11a did not. These
results suggest that Mena
INV
, but not Mena11a,
is associated with intravasation and metastasis. Our
MenaCalc™ test, is based on determining the relative levels
of the Mena protein isoforms, which is more fully described
herein.
Further, in a nonclinical proof-of-concept study published
in
Breast
Cancer Research
(Roussos
et
al.
, 2010), the role of Mena in
tumor progression and metastasis was investigated. A “Mena
null” mouse, a mouse unable to produce the Mena protein or
its isoforms was developed. These Mena null mice were crossbred
with polyoma middle T oncoprotein or “PyMT” mice (mice
genetically predisposed to spontaneously develop highly metastatic
breast cancer tumors). The resulting Mena null PyMT mice were
compared to control PyMT mice. Both groups of mice developed breast
cancer tumors, however, the Mena null mice’s tumors stayed
localized while the control mice developed systemic metastasis.
More importantly, all the control mice succumbed to metastatic
disease while the Mena null mice showed significant survival
advantage with most dying of old age.
As described in
Nature Reviews Cancer
(Kavallaris, 2010), microtubules are
critical cytoskeletal structures that mediate cell division. The
primary building block of microtubules is tubulin and Tubulin
Binding Agents (TBAs), such as taxanes, which are potent
anti-mitotic agents that inhibit cellular growth, drug binding,
and/or cell signaling. TBAs, in part, act to stabilize
microtubules thus preventing dynamic microtubule polymerization and
activity. Although TBAs are a widely used
chemotherapeutic regimen, predicting patients who are resistant
and/or who will become resistant is problematic and largely
unresolved. Although there are several possible mechanisms of
resistance, one possible mechanism is augmenting the actin
cytoskeleton as these two independent cytoskeletal systems have
been shown to interact and influence one another as detailed
in
Nature
Cell Biology
(Rodriguez
et
al
., 2003) and
Cancer Metastasis
Review
(Hall
et
al.
,
2009). Specifically, agents that inhibit actin
de-polymerization as shown in
Cancer Research
(Dan
et al.
, 2002) and/or promote actin polymerization,
like
Mena
INV
, may confer and therefore be used to predict
resistance to TBAs or taxane-based drugs.
As
described above, Mena promotes cancer cell invasion and migration
toward blood vessels by potentiating EGF signaling. Data published
in November 2015 in
Molecular
Biology of the Cell
(Hughes
et al.
, 2015) describes how Mena
associates constitutively with the tyrosine phosphatase PTP1B to
mediate a novel negative feedback mechanism that attenuates RTK
signaling. On EGF stimulation, complexes containing Mena and PTP1B
are recruited to the EGF receptor, or EGFR, causing receptor
dephosphorylation (the removal of phosphate groups that can prevent
ligation) and leading to decreased motility responses. When
Mena
INV
is
expressed, PTP1B recruitment to the EGFR is impaired, providing a
mechanism for growth factor sensitization to EGF, as well as HGF
and IGF, and increased resistance to EGFR and Met inhibitors.
Notably, Mena
INV
disrupts this
negative feedback mechanism to drive sensitivity to EGF, HGF, and
IGF growth factors and resistance to RTKs that target EGFR, HGFR
(c-Met), and IGF-R1. Disruption of this attenuation by
Mena
INV
sensitizes tumor cells to low growth factor concentrations, thereby
increasing the migration and invasion responses that contribute to
metastasis.
Genetic, epigenetic, and gene expression alterations often fail to
explain adaptive drug resistance in cancer. Kinase inhibitor
resistance often involves upregulation of poorly understood
"bypass" signaling pathways. Results published in April 2016
in
Cancer
Discovery
(Miller et al., 2016)
show that extracellular proteomic adaptation is one path to bypass
signaling and drug resistance. Kinase inhibitors, particularly
targeting MAPK signaling, increase tumor cell surface receptor
levels due to widely reduced proteolysis, allowing tumor signaling
to circumvent intended drug action.
Results published in
Clinical Experimental
Metastasis
in March 2016 (Oudin
et al., 2016) demonstrated the specificity and utility of a
Mena
INV
isoform-specific monoclonal antibody
in
in
vitro
models.
As described in a study published in
Molecular Biology of the
Cell
in October 2016, (Oudin et
al., 2016)
Mena
INV
was associated with metastasis by driving
chemotaxis via dysregulation of phosphatase PTP1B and more recently
in haptotaxis via interaction with integrin a5b1. The results
demonstrate that
Mena
INV
-driven haptotaxis on fibronectin gradients
requires intact signaling between a5b1 integrin and EGFR, which is
influenced by PTP1B. Furthermore,
Mena
INV
-driven haptotaxis and
extracellular
matrix
reorganization both
require the Rab-coupling protein RCP, which mediates a5b1 and EGFR
recycling. Finally,
Mena
INV
promotes synergistic migratory response to
combined EGF and
fibronectin
in vitro
and
in vivo
, leading to hyperinvasive phenotypes. This
demonstrates that
Mena
INV
is a shared component of multiple prometastatic
pathways that amplifies their combined effects, promoting
synergistic cross-talk between RTKs and
integrins.
Data
published in January 2017 in
Molecular Cancer Therapeutic
s (Oudin
et al., 2017) show Mena/ Mena
INV
confer resistance
to the taxane paclitaxel, but not to the widely-used DNA-damaging
agents doxorubicin or cisplatin. Furthermore, paclitaxel treatment
does not attenuate growth of
Mena
INV
-driven metastatic lesions.
Mechanistically, Mena isoform expression alters the ratio of
dynamic and stable microtubule populations in paclitaxel-treated
cells. Mena expression also increases MAPK signaling in response to
paclitaxel treatment. Decreasing ERK phosphorylation by
co-treatment with a MEK inhibitor restored paclitaxel sensitivity
by driving microtubule stabilization in Mena isoform-expressing
cells. These results reveal a novel mechanism of taxane resistance
in highly metastatic breast cancer cells and identify a potential
combination therapy to overcome such resistance.
As a result of the above, we believe there is a scientific
rationale and biological basis to develop and explore
anti-metastatic drugs that target the Mena protein isoforms, and
the utility of
Mena
INV
tests to predict patient response to select RTKs
and taxane-based chemotherapies in the treatment of breast cancer,
colorectal, non-small cell lung cancer or NSCLC, pancreatic and
other cancers.
Cancer Background
Cancer is a complex disease characterized most simply by
uncontrolled growth and spread of abnormal cells. Cancer remains
one of the world's most serious health problems and is the second
most common cause of death in the United States after heart
disease. The American Cancer Society, or ACS estimates in 2017,
there will be nearly 1.7 million new cases of cancer and
approximately 600,000 deaths from cancer in the United States
alone.
When dealing with cancer, patients and physicians need to develop
strategies for local, regional, and distant control of the disease.
Ultimately, however, aggressive cancer that spreads or
“metastasizes" to other parts of the body is responsible for
more than 90% of all cancer related deaths in patients with such
common types of solid tumors as breast, lung, prostate and colon.
The most common methods of treating cancer are surgery, radiation
and drug therapy, or a combination of these methods, with varying
degrees of benefit and side effects that may not always justify the
expense and burden of the therapy.
MetaStat’s therapeutic drug targets and driver-based cancer
biomarkers are common to a type of cancer called carcinoma which
are malignancies of epithelial tissue and represent approximately
80-90% of all cancer cases. Our product candidates have the
potential to have broad pan-cancer applicability to redefine
diagnosis and tailor treatment.
the same treatment, which historically consisted of cytotoxic
chemotherapies, including taxanes, such as paclitaxel and
docetaxel. These chemotherapies kill rapidly proliferating cancer
cells through non-specific mechanisms, such as deterring cell
metabolism or causing damage to cellular components required for
survival and rapid growth. While these drugs have been effective in
the treatment of some cancers, many unmet medical needs remain.
This approach is not optimal as some treatments worked well for
some patients but not for others.
Differences in the genome and how these genes are expressed, called
the expressome, explain many of these differences in response to
treatment. The convergence between understanding the expressome and
our ability to identify and develop biomarkers for certain disease
is accelerating growth and interest in personalized medicine and
the attractiveness of our intergraded Rx/Dx strategy.
Advances in personalized medicine and cancer treatment are
progressing rapidly and are enabling a shift in clinical treatment
from a one-size-fits-all approach to one that is highly
individualized. Recently, more targeted therapies and
immunotherapies have represented some of the most promising agents
in development for the treatment of cancer. Targeted therapies are
drugs that block the growth and spread of cancer by interfering
with specific molecules that are involved in the growth,
progression and spread of cancer. Targeted therapies, such as RTK
inhibitors that selectively target kinase signaling pathways, are
designed to preferentially kill cancer cells and spare normal
cells, improve efficacy and minimize side effects. RTK inhibitors
typically have less severe side effects than cytotoxic
chemotherapies, however, a main limitation is that a significant
number of patients do not respond to treatment, and the emergence
of secondary drug resistance for those patients that do show an
initial benefit. The use of predictive biomarkers allows
oncologists to better understand and overcome drug resistance
through the clinical assessment of rational therapeutic drug
combinations. The ability to treat the patient relying on validated
data will improve patient outcomes and eliminate excessive cost in
the health care system.
Research and development of targeted therapies and immunotherapies
is rapidly accelerating. Between the 2005 and 2013, there were
approximately 680 clinical trials in the United States
investigating personalized medicine in oncology. In 2016, we
believe this number exceeded 3,000 clinical trials. To keep pace
with this shift to personalized medicine, there is an increasing
focus on the use of companion diagnostics to guide physicians in
selecting the most appropriate therapy for each
patient.
We believe as the number of available targeted therapies expands
and as physicians gain further experience using molecular
biomarkers in their routine treatment decisions, the market
potential of our anti-metastatic drugs and companion diagnostics
will grow.
Product Pipeline
Based on our integrated Rx/Dx strategy, we are developing
anti-metastatic therapeutics, companion diagnostics to predict drug
response and define patient populations, and prognostic diagnostics
for risk of cancer metastasis.
Therapeutics (Rx)
During
2016, we developed a methodology that makes the Mena protein
isoform a druggable target. We are testing preclinical therapeutic
candidates in our research and development laboratory using our
in vitro
and
in vivo
metastatic models for efficacy
in reversing Mena-dependent phenotypes of drug resistance, tumor
cell invasion, dissemination, and metastasis. Our objective is to
select suitable drug candidates to advance into human clinical
studies either alone or in combination with strategic clinical
development partners.
Rationale for targeting Mena protein isoforms
The
goal of treatment with anti-Mena therapeutics is to reduce the
activity or expression of the Mena protein and thereby reverse the
Mena-dependent cancer phenotypes of drug resistance, tumor cell
invasion, dissemination, and metastasis. In targeting the movement
of tumor cells from the primary site to distant sites, we are
directly addressing the major contributor to the deaths of cancer
patients. Since elevated expression of Mena protein isoforms also
drives resistance to certain RTK inhibitors and cytotoxic
chemotherapeutics, co-administration of an effective anti-Mena
therapeutic provides an opportunity to expand the utility and
effectiveness of these drugs by addressing a significant challenge
to the clinical management of advanced cancers. These drugs are
widely used to treat a number of types of cancer including ovarian,
breast, lung cancer, squamous cell carcinoma of the lung,
colorectal cancer, Kaposi’s sarcoma, cervical cancer and
pancreatic cancer.
Diagnostics (Dx)
Mena
INV
Assay
We are currently developing a
Mena
INV
assay for use as both a companion diagnostic and
prognostic diagnostic. The
Mena
INV
assay is currently undergoing analytical
validation.
The
Mena
INV
assay
is a tissue-based QIF assay that measures
expression levels of the
Mena
INV
protein isoform and is broadly applicable to many
epithelial-based solid tumors, including breast, lung, colorectal
and prostate cancers, among others. The
Mena
INV
protein isoform is key potentiator and modulator
of cellular phenotype and behavior, including increasing cell
chemotaxis, motility, migration and invasiveness and are central to
the metastatic cascade. Overexpression of
Mena
INV
and down regulation of Mena11a
in tumor cells correlate with increased metastatic
potential and decreased overall survival.
Mechanism-of-action for use as a companion diagnostic to predict
RTK inhibitor drug response
Mena participates in a mechanism that attenuates RTK signaling by
interacting with the tyrosine phosphatase PTP1B and the 5‟
inositol phosphatase SHIP2. Elevated expression of
Mena
INV
disrupts this regulation, and results
in a pro-metastatic phenotype characterized by increased RTK
activation signaling from low ligand stimulation and resistance to
targeted RTK inhibitors.
A main
limitation of therapies that selectively target kinase signaling
pathways is a significant number of patients do not respond and for
those patients that do respond the emergence of secondary drug
resistance after an initial benefit. We believe the
Mena
INV
assay has the potential to be used as a highly actionable clinical
biomarker and/or companion diagnostic to predict response to
targeted RTK inhibitors.
Mechanism-of-action for use as a companion diagnostic to predict
anti-microtubule drug response
Taxane-based drugs, including paclitaxel and docetaxel are widely
used and highly efficacious as single chemotherapy agents or in
combination with other chemotherapeutic drugs to treat breast,
lung, ovarian, pancreatic and other cancers. Side effects
associated with taxane-based treatment include bone marrow
suppression, nausea, vomiting, hair loss and peripheral neuropathy.
Taxanes interfere with the normal breakdown of microtubules which
are critical cytoskeletal structures that mediate cell division.
The primary building block of microtubules is tubulin and TBAs such
as taxanes, which are potent anti-mitotic agents that inhibit
cellular growth, drug binding, and/or cell signaling. The Mena
protein participates in a mechanism of dynamic cytoskeletal changes
through actin polymerization allowing for active cell motility and
thus invasion. Taxane-based chemotherapeutic treatments act to
stabilize cytoskeletal elements thus preventing active mitosis
(cell division) and/or motility (cell movement).
In vitro
and
in vivo
studies have demonstrated increased expression of
the Mena protein isoforms desensitize cells to taxane-based
treatments.
There is a significant clinical need to develop biomarkers that
predict response to initial treatment or the development of
secondary resistance to taxane-based chemotherapy, while minimizing
the risk of unnecessary side effects. We believe the
Mena
INV
assay has the potential to be used as
a highly actionable clinical biomarker and/or companion diagnostic
to predict response to taxane-based drugs.
Liquid blood-based biopsy
There is excitement within the oncology community about the promise
of liquid biopsy assays for their potential to improve cancer
diagnosis and optimize patient care. Should the prognostic and
predictive role of
Mena
INV
be clinically validated using FFPE tissue for
patients treated with RTKs and taxane-based chemotherapies, we
believe there will be a compelling need for the development of a
blood-based version of the
Mena
INV
assay. In addition to allowing for repeat
non-invasive testing, a blood-based
Mena
INV
test would be especially useful for patients with
advanced cancer undergoing multiple cycles of treatment to predict
initial drug response or the development of secondary resistance.
We intend to evaluate the potential for developing the blood-based
version of the
Mena
INV
assay through collaborative research and
development partnerships with companies developing compatible
exosome and/or circulating tumor cell (CTC) technology
platforms.
MenaCalc™ Assay
The MenaCalc™ test has been analytically validated under
CLIA, tested in 3 clinical studies in over 1,400 patients, and is
available for clinical use in most states. The MenaCalc™
assay is being developed as a prognostic diagnostic and intended
for all patients with early stage invasive breast cancer,
independent of molecular subtype and other clinical factors,
including nodal status. This includes triple negative (TNC), and
HER2-positive breast cancer patients, for whom there are no
clinically available diagnostic assays. The MenaCalc™ test is
also intended for all patients with early stage squamous cell
carcinoma of the lung.
The
MenaCalc™ assay is a tissue-based QIF assay which measures
expression levels of the Mena protein and the non-invasive isoform
Mena
11a
. The Mena protein and
its isoforms are key potentiators and modulators of cellular
phenotype and behavior, including increasing cell chemotaxis,
motility, migration and invasiveness and are central to the
metastatic cascade. Mena is expressed in multiple isoforms,
including Mena
INV
and
Mena
11a
.
Overexpression of Mena
INV
and down
regulation of Mena
11a
in tumor cells
correlate with increased metastatic potential and decreased overall
survival.
MenaCalc™ Clinical Studies
In
September 2012, the positive results of a combined 797 (cohort 1
with 501 and cohort 2 with 296) breast cancer patient clinical
study using the MenaCalc™ assay on tissue microarrays (TMAs)
were published in
Breast Cancer
Research
(Agarwal
et
al
., 2012). The prognostic impact of MenaCalc™ using
20-year follow-up for association with risk of disease-specific
death was tested. Results showed that relatively high
MenaCalc™ scores are associated with poor outcome in two
independent cohorts (P=0.0004 for cohort 1 and P=0.0321 for cohort
2). Multivariate analysis on the combined cohorts of 797 patients
revealed that high MenaCalc™ scores are associated with poor
outcome, independent of age, node status, receptor status and tumor
size. MenaCalc™ retained its prognostic value such that
patients in the highest quartile had a 60% increase in risk of
breast cancer death compared to those in the lowest three quartiles
[HR=1.597 (95% CI = 1.2-2.13); P=0.0015]. The linear trend in risk
across MenaCalc™ scores was statistically significant
[HR=1.211 (95% CI = 1.08-2.36); P=0.00164]. The conclusion from
this study is that MenaCalc™ can be used successfully to
stratify patients into high and low-risk for developing metastasis
and may have value in node-positive and ER-negative breast cancer
patients.
In April 2015, we presented positive results from a clinical study
of 201 patients demonstrating MenaCalc™ as an independent
prognostic factor and predictor of metastasis in patients with
early stage NSCLC at the American Association for Cancer Research
(AACR) Annual Meeting 2015. Results from this study demonstrated
that MenaCalc™ scores were significantly (p=0.001) higher in
patients with Squamous Cell Carcinoma (N=32) as compared to other
subtypes. High MenaCalc™ scores were associated (10%
significance level) with decrease 5-year disease specific survival
in all patients [HR=1.78 (95% CI: 0.92-3.43); P=0.08], and were
significantly associated with survival when either corrected for
histological subtype [HR=2.10 (95% CI: 1.04-4.26); P=0.04] or in
the squamous-only population [HR=6.60 (95% CI: 1.22-53.75);
P=0.04].
In June 2015, positive results from a clinical study of
MenaCalc™ in patients with axillary node negative (ANN)
invasive breast cancer was published in
BMC Cancer
(Forse
et al.
, 2015). Data from this study confirmed earlier
results that MenaCalc™ scores are a strong predictor of
disease-specific overall survival in patients with node-negative
invasive breast cancer (P=0.0199), and had good performance in a
subset of patients who did not receive hormone or chemotherapy
(P=0.0052). This clinical study of 403 patients, compared 261 women
who received adjuvant treatment (chemotherapy and/or hormone
therapy) to 142 patients did not received adjuvant treatment. Women
who had high MenaCalc™ scores had a 2.2-fold greater risk of
death compared to patients with low MenaCalc™ scores
(P=0.0199) when controlled for other traditional clinical factors.
A similar association was found with the subgroup who did not
receive adjuvant treatment P=0.0353; n=142), but as expected, the
association with patients who received adjuvant treatment was not
significant, providing preliminary evidence that patients with high
MenaCalc™
scores may benefit from added
therapy.
In
January 2016, we announced positive results from the analytic
validation study of our fully-automated
commercial
MenaCalc™
assay,
which confirmed the test’s
overall assay performance and precision. In this study, we assessed
the overall assay performance, imaging, and scoring performance of
our commercial MenaCalc™ test using FFPE tissue samples
(n=28) from patients with invasive breast cancer. The
MenaCalc™ test demonstrated strong assay performance
(day-to-day reproducibility) as measured by linear regression
analysis showing Pearson’s R greater than 0.85 and linear
slopes greater than 0.98 with a mean
%CV
of 2.3% (Range 0.07-6.95). Further,
imaging and scoring performance (run-to-run precision) was also
highly precise with Pearson’s R and linear slopes greater
than 0.99 as well as %CV of 0.45% (Range 0.02-2.32).
MetaSite Breast™ Assay
The MetaSite
Breast
™ test has been analytically validated under
CLIA, tested in 6 clinical studies in over
1,700
patients, and is available for clinical use in
most states. The MetaSite
Breast
™ test is a tissue-based
immunohistochemistry, or IHC assay performed on formalin-fixed
paraffin-embedded, or FFPE tissue from a biopsy that directly
identifies and quantifies the active sites of the metastatic
process. The MetaSite
Breast
™ test is intended for patients with early
stage (stage 1-3) invasive breast cancer who have node-negative or
node-positive (1-3), ER-positive, HER2-negative
disease.
Mechanism of action for use as a prognostic diagnostic to predict
risk of cancer metastasis
In order for breast cancer tumor cells to enter a blood vessel
(intravasate), three types of cells must self-assemble in
apposition to each other in individual three-cell
structures. This structure termed a
“MetaSite™”, is composed of an endothelial cell
(cells that lines blood vessels), a perivascular macrophage (a type
of immune cell), and a tumor cell that expresses the Mena protein.
We have demonstrated in clinical studies that the number of
MetaSites™ correlates with increased risk of cancer
metastasis.
MetaSite Breast™ Clinical Studies
In April 2009, the positive results of a clinical study using the
MetaSite
Breast
™ assay on patient tumor samples with
invasive breast cancer was published in
Clinical Cancer
Research
(Robinson
, et al.
, 2009). In this case-controlled 5-year
retrospective study, a cohort of 60 patients with invasive ductal
breast carcinoma, including 30 patients who developed metastatic
disease was studied using the MetaSite
Breast
™ assay. The results from this
study demonstrated MetaSite™ score density was statistically
significantly greater in patients who subsequently developed
systemic metastasis compared with the patients who had only
localized breast cancer (median, 105 vs. 50, respectively;
P=0.00006). For every 10-unit increase in MetaSites™ the odds
ratio of systemic metastasis increased by 1.9 (95% confidence
interval, 1.1-3.4). The number of MetaSites™ observed per
patient ranged from 12 to 240 and the odds of metastasis nearly
doubled for every increase of 10
MetaSites™. Importantly, the MetaSite™ score
density was not correlated with tumor size, lymph node metastasis,
lymphovascular invasion, or hormone receptor
status.
In August 2014, the positive results of a 481-patient clinical
study demonstrating the prognostic utility of the MetaSite
Breast
™ assay was published in the
Journal of the
National Cancer Institute
(Rohan
et al.
, 2014) In a case-controlled nested
prospective-retrospective study, a cohort of 3,760 patients was
examined with invasive ductal breast carcinoma diagnosed between
1980 and 2000 and followed through 2010. The association between
the MetaSite™ score from the MetaSite
Breast
™ assay and risk of distant metastasis was
prospectively examined. A total of 481 blocks
representing 259 case-controlled pairs were usable and selected for
inclusion in this study. Control and case subjects had very similar
distributions with respect baseline characteristics such as age and
tumor size. Results from this study demonstrated a
statistically significant association between increasing
MetaSite™ score and risk of metastasis in the ER-positive,
HER2-negative subpopulation (N=295) (OR high vs. low tertile =
2.70, 95% CI=1.39 to 5.26, Ptrend 0.004; OR per 10-unit increase in
MetaSite™ score = 1.16, 95% CI = 1.03 to 1.30). The absolute
risk of distant metastasis for the low, medium and high-risk groups
was estimated to be 5.9% (95% CI=5.1-6.9%), 14.1% (95%
CI=13.0-15.0%), and 30.3% (95% CI=26.1-35.4%), respectively.
Statistical significance was not achieved in the triple negative
(TNC) (N=98) or HER2-positive subpopulations (N=75). The conclusion
from this study was the MetaSite™ score predicted the risk of
distant metastasis in ER-positive, HER2-negative breast cancer
patients independently of traditional clinicopathologic features
such as age and tumor size.
In September 2015, we announced topline data from a prospectively
defined case-controlled nested cohort of 3,760 patients with
invasive ductal carcinoma of the breast diagnosed between 1980 and
2000 followed through 2010 from the Kaiser Permanente Northwest
health care system. Of the 3,760 patients treated in this
cohort, we received 573 breast cancer tissue blocks of which 481,
representing 259 case-controlled pairs, were usable and included in
the study. In this study, the MetaSite
Breast
™ Score was found to be significantly and
directly associated with increased risk of distant metastasis in
ER-positive, HER2-negative invasive breast cancer for both high
(>35 MetaSites™) versus low (<12 MetaSites™)
MetaSite™ scores (OR = 3.4; 95% CI = 2.8-4.1; P=0.0002) as
well as between intermediate (12-35 MetaSites™) and low
MetaSite™ scores (OR=3.24; 95% CI = 2.6-3.9; P=0.0006). This
study demonstrated the MetaSite
Breast
™ Score predicted risk of distant metastasis
in ER-positive, HER2-negative early stage invasive breast cancer
independent of traditional clinical factors. Data from this study
was presented at the San Antonio Breast Cancer Symposium (SABCS) in
December 2016.
In December 2015, we presented results from the
analytic
validation study of our
fully-automated commercial
MetaSite
Breast
™ assay at the
Tumor Metastasis meeting of the American Associations for Cancer
Research (AACR). The reliability of our commercial MetaSite
Breast
™ test was
supported by confirming the test’s analytical accuracy,
reproducibility, and precision. Reproducibility across operators,
instruments and different sections of a tumor sample ranged from
91% to 97% and analytical precision was found to be greater than
97%
with a mean percent coefficient of
variation (%CV) of 6.6% (n=35)
.
Our commercial MetaSite
Breast
™ assay
showed a high degree of
analytical accuracy with the reference standard with AUCs of 0.84
and 0.90 for low and high risk cut-points, respectively. The
gold standard method
was
originally developed at
AECOM,
where results from their study published in August 2014 in the
Journal of the National Cancer
Institute
(Rohan
et
al
., 2014) demonstrated the number of MetaSites
™
in tumors was predictive of
metastatic disease in ER-positive breast cancer.
In December 2016, Dr. Joseph Sparano, principal investigator for
MetaStat’s ECOG 2197 Cohort Study, presented study results at
the 39th
annual San Antonio
Breast Cancer Symposium (SABCS). In this study, MetaSite
Breast
™ test was prognostic for distant metastatic
recurrence within 5 years and provided complementary prognostic and
potentially clinically actionable information to the low/mid-range
Recurrence Score from Genomic Health’s Oncotype DX, breast
cancer test. The ECOG 2197 Cohort Study is a prospectively designed
retrospective study (n=600) in an independent cohort of ESBC
patients treated with surgery, 4 cycles of adjuvant chemotherapy
(doxorubicin 60 mg/m2 and cyclophosphamide 600 mg/m2 (AC) or
docetaxel 60 mg/m2 (AT)) and endocrine therapy. Results from this
study revealed a significant positive association between
continuous MetaSite Score and distant recurrence-free interval
(DRFI) p=0.001 and recurrence-free interval (RFI) p=0.00006 in
HR-positive HER2-negative disease in years 0-5 and by MetaSite
Score tertiles for DRFI (p=0.04) and RFI (p=0.01). Proportional
hazards models including clinical covariates (N0 vs. N1; T1 vs. T2;
high vs. int. vs. low grade) also revealed significant positive
associations for continuous MetaSite Score with RFI (p=0.04), and
borderline association with DRFI (p=0.08). Importantly,
MetaSite
Breast
™ provided useful prognostic information
beyond the Genomic Health’s Oncotype DX Recurrence Score.
Patients with high MetaSite Score (MS>17) and low Recurrence
Score (RS<18) results had 9.7-fold greater risk (HR=9.7, 95%CI
1.8-54.1) of distant metastasis compared to patients with low
MetaSite Score (MS<6) results. Patients with intermediate
MetaSite Score (MS=6-17) and low Recurrence Score (RS<18)
results had approximately 4.7-fold greater risk (HR=4.7,
95%CI=0.9-24.2) of distant metastasis compared to patients with low
MetaSite Score (MS<6) results.
In December 2016, we presented results from the Kaiser Permanente
Cohort Study conducted by MetaStat, that demonstrated MetaSite
Score was a statically significant predictor of distant metastasis
and a binary cutpoint was able to discriminate high and low risk
patient groups when adjusted for clinical factors. Independent
verification and clinical validation of MetaStat’s fully
automated and analytically validated tissue-based MetaSite
Breast
™ test for risk of cancer metastasis in
HR-positive HER2-negative ESBC. The Kaiser Permanente Cohort
Prognostic Study is a case-control nested cohort of 3,760 patients
diagnosed with ESBC from the Kaiser Permanente Northwest Health
Care System in which 464 tumor samples were tested using the
MetaSite
Breast™
assay. MetaSite Score was a
statistically significant predictor of distant metastasis (p=0.039)
in patients with HR-positive HER2-negative disease. Using
predefined cutpoints based on tertiles for the control group in the
overall study population (n=282), MetaSite Score was significantly
associated with distant metastasis for the high (MS>41) versus
low (MS<13) score tertiles (OR=2.94; 95%CI=1.62-5.41, P=0.0005)
and the intermediate (MS=13-41) versus low score tertiles (OR=2.24;
95%CI=1.23-4.13, P=0.009). A binary cut-point for the high-risk
group (MS>14) was significant with a 2-fold higher risk (OR=2.1,
95%CI=1.06-3.96) of distant metastasis versus the low risk group
and adjusted for clinical covariates (P=0.036).
Competition
The life sciences, biotechnology and molecular diagnostic
industries are characterized by rapidly advancing technologies,
intense competition and a strong emphasis on proprietary
technologies and products. Any therapeutic, companion diagnostic
and prognostic diagnostic product candidates that we are able to
successfully develop and commercialize will compete with both
existing therapies and diagnostics and new therapies and
diagnostics that may become available in the future. While we
believe that our technology and scientific knowledge provide us
with competitive advantages, we face potential competition from
many different sources, including pharmaceutical, specialty
pharmaceutical and biotechnology companies, both large and small
molecular diagnostic companies, academic institutions and
governmental agencies and public and private research institutions,
among others.
We plan to compete in segments of the pharmaceutical, biotechnology
and other related markets that pursue personalized medicine
approaches to treating cancer. There are many companies presently
developing therapies for cancer in the field of precision
medicines, including divisions of large pharmaceutical companies,
specialty pharmaceutical and biotechnology companies of various
sizes, including Pfizer Inc., Merck & Co., Inc., Novartis
Pharmaceuticals Corp., F. Hoffmann-La Roche Ltd, Bristol-Myers
Squibb Company, Eli Lilly and Company, AstraZeneca, PLC, Amgen,
Inc., Biogen, Inc., Genentech, Inc., Celgene Corp., Bayer AG,
Takeda Pharmaceutical Company Limited, through its wholly owned
subsidiary ARIAD Pharmaceuticals, Inc., Clovis Oncology, Inc.,
Ignyta, Inc., and Deciphera Pharmaceuticals LLC, among many
others.
We believe our main diagnostic competition will be from a number of
private and public companies that offer molecular diagnostic tests,
including gene profiling and expression in multiple cancers
indications, including companies such as Genomic Health, Inc.,
Agendia Inc., BioTheranostics, Inc., Exact Sciences, Inc. GenomeDx
Biosciences Inc., Hologic Inc., Myriad Genetics, Inc., NanoString
Technologies Inc., NeoGenomics, Inc., Novartis AG, Qiagen N.V.,
Roche Diagnostics, a division of Roche Holding, Ltd, Siemens AG,
Veridex LLC, a Johnson & Johnson company, Celera Corporation,
and GE Healthcare, a business unit of General Electric Company, as
well as others. Commercial laboratories, such as Laboratory
Corporation of America Holdings and Quest Diagnostics Incorporated,
with strong distribution networks for diagnostic tests, may also
compete with us. We may also face competition from Illumina, Inc.
and Thermo Fisher Scientific Inc., both of which have announced
their intention to enter the clinical diagnostics market as well as
other companies and academic and research institutions. We may also
face completion from companies focused on liquid biopsies and
pan-cancer clinical diagnostics, such as Danaher Corporation and
its Cepheid, Inc. subsidiary, Foundation Medicine, Inc., Guardant
Health, MDxHealth, Inc., Metamark Inc., Natera Inc. and Response
Genetics, Inc., among many others.
Our competitors may develop and market therapeutic, companion
diagnostic and prognostic diagnostic products or other novel
technologies that are more effective, safer, more convenient or
less costly than any that may be commercialized by us, or may
obtain regulatory approval for their products more rapidly than we
may obtain approval for ours. Many of our present and potential
competitors have widespread brand recognition, distribution and
substantially greater financial and technical resources and
development, production and marketing capabilities than we do. If
we are unable to compete successfully, we may be unable to gain
market acceptance and therefore revenue from our therapeutics and
diagnostics may be limited.
Patents and Intellectual Property
We believe that clear and extensive patent coverage and protection
of the proprietary nature of our technology is central to our
success. Our intellectual property strategy is intended to develop
and maintain a competitive position and long-term value through a
combination of patents, patent applications, copyrights,
trademarks, and trade secrets. We have invested and will continue
to invest in our intellectual property portfolio, which has been
partially accomplished in conjunction with the resources of our
Licensors. This applies to both domestic and international patent
coverage.
Four (4) patents in the United States and three (3) international
patents have been issued covering key aspects of our core
driver-based biomarker technology for epithelial-based solid
tumors. The issued patents are listed below:
1.
U.S. Patent No. 8,642,277 B2, entitled “Tumor
Microenvironment of Metastasis (TMEM) and Uses Thereof in
Diagnosis, Prognosis, and Treatment of Tumors”;
2.
U.S. Patent No. 8,603,738 B2, entitled “Metastasis specific
splice variants of Mena and uses thereof in diagnosis, prognosis
and treatment of tumors”;
3.
U.S. Patent No. 8,298,756 B2 entitled “Isolation, Gene
Expression, And Chemotherapeutic Resistance of Motile Cancer
Cells”;
4
U.S.
Patent No. 9,719,942 B2, entitled “Metastasis specific splice
variants of Mena and uses thereof in diagnosis, prognosis and
treatment of tumors”;
5.
European Patent No. 1784646 entitled “Methods for Identifying
Metastasis in Motile Cells”;
6.
European Patent No. 2126566 B1 entitled “Metastasis specific
splice variants of Mena and uses thereof in diagnosis, prognosis
and treatment of tumors”; and
7.
Canadian
Patent No.
2,576,702
entitled “Isolation, Gene Expression,
And Chemotherapeutic Resistance of Motile Cancer
Cells”.
These patents expire between 2028 and 2031.
We have and intend to continue to file additional patent
applications to strengthen our therapeutic and diagnostic
intellectual property rights, as well as seek to add to our
intellectual property portfolio through licensing, partnerships,
joint development and joint venture agreements.
Our employees and key technical consultants working for us are
required to execute confidentiality and assignment agreements in
connection with their employment and consulting relationships.
Confidentiality agreements provide that all confidential
information developed or made known to others during the course of
the employment, consulting or business relationship shall be kept
confidential except in specified circumstances. Additionally, our
employment agreements provide that all inventions conceived by such
employee while employed by us are our exclusive property. We cannot
provide any assurance that employees and consultants will abide by
the confidentiality and assignment terms of these agreements.
Despite measures taken to protect our intellectual property,
unauthorized parties might copy aspects of our technology or obtain
and use information that we regard as proprietary.
License Agreements
In August 2010, we entered into a License Agreement (the
“License Agreement”) with AECOM, MIT, Cornell and
IFO-Regina. The License Agreement covers patents and patent
applications, patent disclosures, cell lines and technology
surrounding discoveries in the understanding of the underlying
mechanisms of systemic metastasis in solid epithelial cancers,
including our core diagnostic technologies, including the
MetaSite
Breast
™ and MenaCalc™ assays. The
License Agreement calls for certain customary payments such as a
license signing fee, reimbursement of patent expenses, annual
license maintenance fees, milestone payments, and the payment of
royalties on sales of products or services covered under the
agreement. See “Contractual Obligations” in the
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” section for more
information regarding our financial obligations related to the
License Agreement.
Effective March 2012, we entered into a second license agreement
(the “Second License Agreement”) with AECOM. The Second
License Agreement covers patent and patent applications, patent
disclosures, and other technology surrounding discoveries in the
understanding of the underlying mechanisms of systemic metastasis
in solid epithelial cancers, including the isolation (capture of),
gene expression profile (the “Human Invasion
Signature”) and chemotherapeutic resistance of metastatic
cells. The Second License Agreement requires certain customary
payments such as a license signing fee, reimbursement of patent
expenses, annual license maintenance fees, milestone payments, and
the payment of royalties on sales of products or services covered
under such agreements. See “Contractual Obligations” in
the “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” section for more
information regarding our financial obligations related to the
Second License Agreement.
Pursuant to both the License Agreement and the Second License
Agreement, we have the right to initiate legal proceedings on our
behalf or in the Licensors’ names, if necessary, against any
infringer, or potential infringer, of a licensed intellectual
property who imports, makes, uses, sells or offers to sell
products. Any settlement or recovery received from any such
proceeding shall be divided eighty percent (80%) to us and twenty
percent (20%) to the Licensors after we deduct from any such
settlement or recovery our actual counsel fees and out-of-pocket
expenses relative to any such legal proceeding. If we decide not to
initiate legal proceedings against any such infringer, then the
Licensors shall have the right to initiate such legal proceedings.
Any settlement or recovery received from any such proceeding
initiated by the Licensors shall be divided twenty percent (20%) to
us and eighty percent (80%) to the Licensors after the Licensors
deduct from any such settlement or recovery their actual counsel
fees and out-of-pocket expenses relative to any such legal
proceeding.
Effective December 2013, we entered into two separate worldwide
exclusive license agreements with MIT and its David H. Koch
Institute for Integrative Cancer Research at MIT and its Department
of Biology, AECOM, and Montefiore Medical Center
(“Montefiore” and, together with MIT and AECOM, the
“Alternative Splicing Licensors”). The diagnostic
license agreement (the “Alternative Splicing Diagnostic
License Agreement”) and the therapeutic license agreement
(the “Alternative Splicing Therapeutic License
Agreement” and, together with the Diagnostic License
Agreement, the “2014 Alternative Splicing License
Agreements”) covers pending patent applications, patent
disclosures, and technology surrounding discoveries of
alternatively spliced mRNA and protein isoform markers for the
treatment and/or prevention of cancer through the
epithelial-mesenchymal transition (EMT) in epithelial solid tumor
cancers. The 2014 Alternative Splicing License Agreements call for
certain customary payments such as a license signing fee,
reimbursement of patent expenses, annual license maintenance fees,
milestone payments, and the payment of royalties on sales of
products or services covered under the agreement. See
“Contractual Obligations” in the
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” section for more
information regarding our financial obligations related to the
Alternative Splicing License Agreements.
Further, pursuant to the 2014 Alternative Splicing License
Agreements, we have the right to initiate legal proceedings on our
behalf or in the Licensors’ names, if necessary, against any
infringer, or potential infringer, of any licensed intellectual
property who imports, makes, uses, sells or offers to sell
products. Any settlement or recovery received from any such
proceeding shall be divided 80% to us and 20% to the Licensors
after we deduct from any such settlement or recovery our actual
counsel fees and out-of-pocket expenses relative to any such legal
proceeding. If we decide not to initiate legal proceedings against
any such infringer, then the Licensors shall have the right to
initiate such legal proceedings. Any settlement or recovery
received from any such proceeding initiated by the Licensors shall
be divided 20% to us and 80% to the Licensors after the Licensors
deduct from any such settlement or recovery their actual counsel
fees and out-of-pocket expenses relative to any such legal
proceeding.
Effective June 2014, we entered into a License Agreement (the
“Antibody License Agreement”) with MIT. The Antibody
License Agreement covers proprietary technology and know-how
surrounding monoclonal and polyclonal antibodies specific to the
Mena protein and its isoforms. The Antibody License Agreement calls
for certain customary payments such as a license signing fee,
reimbursement of patent expenses, annual license maintenance fees,
milestone payments, and the payment of royalties on sales of
products or services covered under the agreement. See
“Contractual Obligations” in the
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” section for more
information regarding our financial obligations related to the
Antibody License Agreement.
As part of our intellectual property strategy, we have terminated
certain license agreements and patent applications related to
non-core technologies.
Partnerships and Collaborations
In connection with our business strategy, we may enter into
exclusive and/or non-exclusive research and development and other
collaboration or partnership agreements.
Celgene Corporation
On August 22, 2016, we executed a pilot materials transfer
agreement (the “MTA”) with Celgene Corporation
(“Celgene”) to conduct a mutually agreed upon pilot
research project (the “Pilot Project”). On September
29, 2016, we entered into an amendment (the
“Amendment”) to the MTA (the “Amendment,”
and together with the MTA, the “Research Agreement”),
which provided for milestone payments to MetaStat of up to
approximately $973,000. Under the terms of the Research Agreement,
Celgene will provide certain proprietary materials to MetaStat and
MetaStat will evaluate Celgene’s proprietary materials in its
metastatic cell line and animal nonclinical models. See Note 11 of
our consolidated financial statements for the year ended February
28, 2017 for accounting treatment related to the Research
Agreement.
Albert Einstein College of Medicine and Montefiore Medical
Center
Effective January 9, 2015, we executed a collaboration agreement
(the “Collaboration Agreement”) with AECOM and
Montefiore Medical Center (“Montefiore,” and together
with AECOM, the “Institutions”) to collaborate on
research projects (the “Research Projects”) including
conducting studies that establish the clinical validity and
clinical utility of MetaStat’s prognostic diagnostic tests,
including the MetaSite
Breast
™ test, the MenaCalc™ test, and a
combined MetaSite
Breast
™ and MenaCalc™ test. The term of the
Collaboration Agreement is five years, which may be terminated by
either party with thirty days written notice.
National Institutes of Health, National Cancer
Institute
Effective September 21, 2016, we executed an agreement with the
National Institutes of Health, National Cancer Institute (the
“NCI"), whereby the NCI will contract with MetaStat to
perform the MetaSite
Breast
™ and MenaCalc™ analysis of breast
cancer tumor tissue as part of a clinical study. In addition,
MetaStat will collaborate with the Department of Cancer
Epidemiology and Genetics (DCEG) at the NCI on interpretation of
the study analysis and dissemination of
results.
Government Regulations
Regulation by governmental authorities in the United States
,
at the federal, state and local level, and in
and other countries is a significant factor in the
research and development, manufacture, commercialization and
marketing of both diagnostic tests and
pharmaceuticals.
Diagnostic Regulation
The United States Food and Drug Administration, or the FDA,
regulates the sale or distribution, in interstate commerce, of
medical devices, including
in vitro
diagnostic test kits or IVDs, such as our
companion diagnostics. Devices subject to FDA regulation must
undergo pre-market review prior to commercialization unless the
device is of a type exempted from such review. Additionally,
medical device manufacturers must comply with various regulatory
requirements under the Federal Food, Drug and Cosmetic Act, or
FDCA, and regulations promulgated under that Act, including quality
system review regulations, unless exempted from those requirements
for particular types of devices. Entities that fail to comply with
FDA requirements can be liable for criminal or civil penalties,
such as recalls, detentions, orders to cease manufacturing and
restrictions on labeling and promotion.
Clinical laboratory services, such as our prognostic diagnostic
tests are currently not subject to FDA regulation, but IVDs and
analyte-specific reagents and equipment used by these laboratories
may be subject to FDA regulation. Clinical laboratory tests that
are developed and validated by a laboratory for use in examinations
the laboratory performs itself are called “home brew”
tests or more recently, Laboratory Developed Tests, or LDTs. LDTs
are subject to the Clinical Laboratory Improvement Amendments of
1988, or CLIA.
Beginning in January 2006, the FDA began indicating its belief that
LDTs were subject to FDA regulation as devices and issued a series
of guidance documents intending to establish a framework by which
to regulate certain laboratory tests. In September 2006, the FDA
issued draft guidance on a new class of tests called "In Vitro
Diagnostic Multivariate Index Assays", or IVDMIAs. Under this draft
guidance, specific tests could be classified as either a Class II
or a Class III medical device, which may require varying levels of
FDA pre-market review depending on intended use and the level of
control necessary to assure the safety and effectiveness of the
test. In July 2007, the FDA posted revised draft guidance that
addressed some of the comments submitted in response to the
September 2006 draft guidance. In May 2007, the FDA issued a
guidance document "Class II Special Controls Guidance Document:
Gene Expression Profiling Test System for Breast Cancer Prognosis."
This guidance document was developed to support the classification
of gene expression profiling test systems for breast cancer
prognosis into Class II. In addition, the Secretary of the
Department of Health and Human Services, or HHS, requested that its
Advisory Committee on Genetics, Health and Society make
recommendations about the oversight of genetics testing. A final
report was published in April 2008. In June 2010, the FDA announced
a public meeting to discuss the agency's oversight of LDTs prompted
by the increased complexity of LDTs and their increasingly
important role in clinical decision making and disease management.
The FDA indicated that it is considering a risk-based application
of oversight to LDTs. The public meeting was held in July 2010 and
further public comments were submitted to the FDA in September
2010. In June 2011, the FDA issued draft guidance regarding
"Commercially Distributed In Vitro Diagnostic Products Labeled for
Research Use Only or Investigational Use Only," which was finalized
in November 2013.
In October 2014, the FDA published two draft guidance documents
that, if finalized, would implement a regulatory approach for most
LDTs. In the draft guidance documents, the FDA stated that it had
serious concerns regarding the lack of independent review of the
evidence of clinical validity of LDTs and asserted that the
requirements under CLIA do not address the clinical validity of any
LDT. The draft guidance documents proposed to impose a risk-based,
phased-in approach for LDTs similar to the existing framework
for
in
vitro
diagnostic devices. On
November 18, 2016, the FDA announced that it would not finalize the
draft guidance documents for LDTs prior to the end of the Obama
administration. The decision of whether and how to proceed with the
draft guidance will be left to the Trump administration, which
began on January 20, 2017.
In January 2017, the FDA released a discussion paper synthesizing
public comments on the 2014 draft guidance documents and outlining
a possible approach to regulation of LDTs. The discussion paper has
no legal status and does not represent a final version of the LDT
draft guidance documents. In the discussion paper, the FDA states
that there is “a growing consensus that additional oversight
of LDTs is necessary.” Similar to the FDA’s 2014 draft
guidance, the FDA’s discussion paper proposes a risk-based
framework that would require most LDTs to comply with most of the
FDA’s regulatory requirements for medical devices. Unlike the
draft guidance, however, the discussion paper proposes to exempt
currently marketed LDTs from premarket review, requiring only new
or modified tests to be approved or cleared by the agency. In
addition, the FDA proposed requiring LDTs to comply with only a
subset of the medical device Quality System Regulation, or QSRs and
proposed other changes from the 2014 draft guidance. We cannot
predict whether the FDA will take action to regulate LDTs under the
new administration or what approach the FDA will seek to
take.
Legislative proposals have been introduced in Congress or publicly
circulated, each of which would implement differing approaches to
the regulation of LDTs. We cannot predict the ultimate form of any
such guidance or regulation and the potential impact on our
prognostic diagnostic tests or materials used to perform our
prognostic diagnostic tests. If pre-market review is required, our
business could be negatively impacted until such review is
completed and clearance to market or approval is
obtained. FDA could require we seek pre-market clearance
or approval for tests currently under development delaying product
commercialization or following product launch to require that we
stop selling our tests. If our tests are allowed to remain on the
market but there is uncertainty about our tests, if they are
labeled investigational by the FDA, or if labeling claims the FDA
allows us to make are limited, orders or reimbursement may decline.
The regulatory approval process may involve, among other things,
successfully completing additional clinical trials and submitting a
pre-market clearance notice or filing a pre-market application, or
PMA with the FDA. If pre-market review is required by the FDA,
there can be no assurance that our tests will be cleared or
approved on a timely basis, if at all, nor can there be assurance
that labeling claims will be consistent with our current claims or
adequate to support continued adoption of and reimbursement for our
tests. Ongoing compliance with FDA regulations would increase the
cost of conducting our business, and subject us to inspection by
the FDA and to the requirements of the FDA and penalties for
failure to comply with these requirements. We may also decide
voluntarily to pursue FDA pre-market review of our tests if we
determine that doing so would be appropriate.
While we expect all materials used in our tests to qualify
according to CLIA regulations, we cannot be certain that the FDA
might not enact rules or guidance documents which could impact our
ability to purchase materials necessary for the performance of our
tests. Should any of the reagents obtained by us from vendors and
used in conducting our tests be affected by future regulatory
actions, our business could be adversely affected by those actions,
including increasing the cost of testing or delaying, limiting or
prohibiting the purchase of reagents necessary to perform
testing.
Regulation of Medical Devices and In Vitro Diagnostic Devices
(IVDs) – Companion Diagnostics
We may seek to develop or seek to partner with third parties to
develop
in
vitro
companion diagnostics for
use in selecting the patients that we believe will respond to
certain drugs. We expect our Mena protein isoform companion
diagnostic tests will be regulated by the FDA as an IVD, companion
diagnostic. As defined by the FDA, an IVD companion diagnostic is a
medical device that provides information that is essential for the
safe and effective use of a corresponding drug or biological
product. An IVD companion diagnostic helps a health care
professional determine whether a therapeutic product’s
benefits to patients will outweigh any potential side effects or
risks.
In August 2014, the FDA issued guidance that addresses issues
critical to developing
in vitro
companion diagnostics. The guidance states that if
safe and effective use of a therapeutic product depends on
an
in
vitro
diagnostic, then the FDA
generally will require approval or clearance of the diagnostic at
the same time that the FDA approves the therapeutic product. In
July 2016, the FDA issued a draft guidance intended to assist
sponsors of the drug therapeutic and
in vitro
companion diagnostic device on issues related to
co-development of the products. The FDA generally requires
in vitro
companion diagnostics intended to
select the patients intended to receive a cancer treatment to
obtain approval of a PMA approval, for that diagnostic
simultaneously with approval of the drug.
To be commercially distributed in the United States, a medical
device, including IVDs, must receive either 510(k) clearance, de
novo authorization, or PMA approval from the FDA prior to
marketing. There are three classes of medical devices recognized by
the FDA, Class I (low risk), Class II (moderate risk), and Class
III (high risk).
Class I devices are those for which reasonable assurance of safety
and effectiveness can be provided by adherence to the FDA’s
general controls for medical devices, which include applicable
portions of the FDA’s Quality System Regulation, or QSR,
requirements, facility registration and product listing; reporting
of adverse medical events or AEs; and appropriate, truthful, and
non-misleading labeling, advertising and promotional materials.
Many Class I devices are exempt from premarket regulation; however,
some Class I devices require premarket clearance by the FDA through
the 510(k) premarket notification process discussed
below.
Class II devices are subject to the FDA’s general controls,
and any other special controls, such as performance standards,
post-market surveillance, and FDA guidelines, deemed necessary by
the FDA to provide reasonable assurance of the devices’
safety and effectiveness. Premarket review and clearance by the FDA
for Class II devices are accomplished through the 510(k) premarket
notification procedure, although some Class II devices are exempt
from the 510(k) requirements. Premarket notifications are subject
to user fees, unless a specific exemption applies. To obtain 510(k)
clearance, a manufacturer must submit a premarket notification
demonstrating that the proposed device is “substantially
equivalent” to a predicate device, which is a previously
cleared 510(k) device or a preamendment device that was in
commercial distribution before May 28, 1976, for which the FDA has
not yet called for the submission of a PMA. In determining
substantial equivalence, the FDA assesses whether the proposed
device has the same intended use and technical characteristic as
the predicate device, or whether the proposed device has different
technological characteristics, but the information submitted in the
premarket notification demonstrates the device is as safe and
effective as a legally marketed device and does not raise different
questions of safety and effectiveness than the predicate device.
The FDA may request additional information, including clinical
data. Under the FDCA, a manufacturer must submit a premarket
notification at least 90 days before introducing a device into
interstate commerce, but the FDA’s review of the premarket
notification can take significantly longer. If the FDA determines
that the device is substantially equivalent to the predicate
device(s), the subject device may be marketed. However, if the FDA
determines that a device is not substantially equivalent to the
predicate device(s), then the device would be regulated as a Class
III device, discussed below. If a manufacturer obtains a 510(k)
clearance for its device and then makes a modification that could
significantly affect the device’s safety or effectiveness, a
new premarket notification must be submitted to the
FDA.
Class III devices are those deemed by the FDA to pose the greatest
risk, such as those for which reasonable assurance of the
device’s safety and effectiveness cannot be assured solely by
the general controls and special controls described above and that
are life-sustaining or life-supporting. Some preamendment Class III
devices for which the FDA has not yet required a PMA require the
FDA’s clearance of a premarket notification in order to be
marketed. However, most Class III devices are required to undergo
the PMA process in which the manufacturer must demonstrate
reasonable assurance of the safety and effectiveness of the device
to the FDA’s satisfaction. A PMA application must provide
valid scientific evidence, typically extensive preclinical and
clinical trial data, and information about the device and its
components regarding, among other things, device design,
manufacturing, and labeling. PMA applications (and supplemental PMA
applications) are subject to significantly higher user fees than
510(k) premarket notifications. Some PMA applications are exempt
from a user fee, for example, a small business’s first
PMA.
A PMA for an IVD typically includes data from preclinical studies
and well-controlled clinical trials. Preclinical data for an IVD
includes many different tests, including how reproducible the
results are when the same sample is tested multiple times by
multiple users at multiple laboratories. The clinical data need to
establish that the test is safe and effective for the proposed
intended use in the indicated population. In addition, the PMA must
include information regarding the test’s clinical utility,
meaning that an IVD provides information that is clinically
meaningful. Such information must be provided even if the clinical
significance of the biomarker is obvious. The applicant may also
rely upon published literature or submit data to the FDA to show
clinical utility.
A PMA also must provide information about the device and its
components regarding, among other things, device design,
manufacturing and labeling. The sponsor must pay an application fee
to the FDA upon submission of a PMA, which is approximately
$250,000 for 2017.
As part of the PMA review, the FDA will typically inspect the
manufacturer’s facilities for compliance with QSR
requirements, which impose elaborate testing, control,
documentation and other quality assurance procedures.
Upon submission, the FDA determines if the PMA is sufficiently
complete to permit a substantive review, and, if so, the FDA
accepts the application for filing. The FDA then commences an
in-depth review of the PMA. The entire process can typically take
multiple years from submission of the PMA to approval, but may take
longer. The review time is often significantly extended as a result
of the FDA asking for more information or clarification of
information already provided. The FDA also may respond with a not
approvable determination based on deficiencies in the PMA
application and require additional clinical trial or other data
that are often expensive and time-consuming to generate and can
substantially delay approval.
During the review period, an FDA advisory committee, typically a
panel of clinicians, may be convened to review the PMA application
and recommend to the FDA whether, or upon what conditions, the
device should be approved. Although the FDA is not bound by the
advisory panel decision, the panel’s recommendation is
important to the FDA’s overall decision-making
process.
If the FDA’s evaluation of the PMA is favorable, the FDA
typically issues an approvable letter requiring the
applicant’s agreement to specific conditions, such as changes
in labeling, or specific additional information, such as submission
of final labeling, in order to secure final approval of the PMA. If
the FDA concludes that the applicable criteria have been met, the
FDA will issue a PMA approval for the approved indications, which
can be more limited than those originally sought by the applicant.
The PMA approval can include post-approval conditions that the FDA
believes necessary to ensure the safety and effectiveness of the
device, including, among other things, restrictions on labeling,
promotion, sale and distribution. Failure to comply with the
conditions of approval can result in an enforcement action,
including the loss or withdrawal of the approval.
Even after approval of a PMA, a new PMA or PMA supplement may be
required in the event of a modification to the device, its labeling
or its manufacturing process. Supplements to a PMA often require
the submission of the same type of information required for an
original PMA, except that the supplement is generally limited to
the information needed to support the proposed change from the
product covered by the original PMA.
After a PMA application is submitted and found to be sufficiently
complete, the FDA begins an in-depth review of the submitted
information. During this review period, the FDA may request
additional information or clarification of information already
provided. The FDA also may convene an advisory panel of outside
experts to review and evaluate the application and provide
recommendations to the FDA as to the approvability of the device.
In addition, the FDA generally will conduct a pre-approval
inspection of the manufacturing facility to ensure compliance with
the QSR. The FDA can delay, limit, or deny approval of a PMA
application for many reasons.
Failure to comply with applicable regulatory requirements can
result in enforcement action by the FDA, which may include any of
the following sanctions: public warning letters, fines,
injunctions, civil or criminal penalties, recall or seizure of
products, operating restrictions, partial suspension or total
shutdown of production, delays in or denial of 510(k) clearance or
PMA applications for new products, challenges to existing 510(k)
clearances or PMA applications, and a recommendation by the FDA to
disallow a device manufacturer from entering into government
contracts. The FDA also has the authority to request repair,
replacement, or refund of the cost of any device manufactured or
distributed. In the event that a supplier fails to maintain
compliance with a device manufacturer’s quality requirements,
the manufacturer may have to qualify a new supplier and could
experience manufacturing delays as a result.
We believe that products we may develop in the future for use as
companion diagnostic tests are likely to be regulated as Class III
devices requiring PMA approval.
Clinical Trials and IDEs
A clinical trial is almost always required to support a PMA. For
significant risk devices, the FDA regulations require that human
clinical investigations conducted in the U.S. be approved via an
Investigational Device Exemption, or IDE, which must be approved
before clinical testing may commence. In some cases, one or more
smaller IDE studies may precede a pivotal clinical trial intended
to demonstrate the safety and efficacy of the investigational
device. A 30-day waiting period after the submission of each IDE is
required prior to the commencement of clinical testing in humans.
The FDA may disapprove, or approve with conditions, the IDE within
the 30-day period. If disapproved, the clinical trial may not begin
until the deficiencies noted by the FDA are addressed, and another
IDE is submitted to the FDA for approval. If approved with
conditions, the sponsor must address the conditions prior to
commencement of the trial. If the FDA does not respond to the
sponsor within the 30-day period, the IDE is deemed approved and
the clinical study may commence.
IVD trials usually do not require an IDE approval, so long as,
among other things, the results of the IVD test are not used
diagnostically without confirmation of the test results by another,
medically established diagnostic product or procedure. For a trial
where the IVD result directs the therapeutic care of patients with
cancer, we believe that the FDA would likely consider the
investigation to require an IDE application.
An IDE application must be supported by appropriate data, such as
laboratory test results, showing that it is safe to test the device
in humans and that the testing protocol is scientifically sound.
The IDE application must also include a description of product
manufacturing and controls, and a proposed clinical trial protocol.
The FDA typically grants IDE approval for a specified number of
patients. All clinical studies of investigational devices,
regardless of whether IDE approval is required, require approval
from an institutional review board, or IRB.
During the clinical trial, the sponsor must comply with the
FDA’s IDE requirements for investigator selection, trial
monitoring, reporting and record keeping. The investigators must
obtain patient informed consent, rigorously follow the
investigational plan and study protocol, control the disposition of
investigational devices and comply with all reporting and record
keeping requirements. These IDE requirements apply to all
investigational devices, whether considered significant or
nonsignificant risk. Prior to granting PMA approval, the FDA
typically inspects the records relating to the conduct of the study
and the clinical data supporting the PMA for compliance with
applicable requirements.
Clinical trials must be conducted: (i) in compliance with federal
regulations; (ii) in compliance with good clinical practice, or
GCP, an international standard intended to protect the rights and
health of patients and to define the roles of clinical trial
sponsors, investigators, and monitors; and (iii) under protocols
detailing the objectives of the trial, the parameters to be used in
monitoring safety, and the effectiveness criteria to be
evaluated.
The FDA may order the temporary, or permanent, discontinuation of a
clinical trial at any time, or impose other sanctions, if it
believes that the clinical trial either is not being conducted in
accordance with FDA requirements or presents an unacceptable risk
to the clinical trial patients. An IRB may also require the
clinical trial at a study site to be halted, either temporarily or
permanently, for failure to comply with the IRB’s
requirements, or may impose other conditions.
Although the QSR does not fully apply to investigational devices,
the requirement for controls on design and development does apply.
The sponsor also must manufacture the investigational device in
conformity with the quality controls described in the IDE
application and any conditions of IDE approval that the FDA may
impose with respect to manufacturing.
Investigational IVDs may only be distributed for use in an
investigation, and the labeling must prominently contain the
statement “For Investigational Use Only. The performance
characteristics of this product have not been
established.”
Expedited Access Pathway Program
In April 2015, the FDA issued a final guidance document
establishing the Expedited Access Pathway, or EAP program. The EAP
program is intended to speed patient access to devices (including
companion diagnostics) that demonstrate the potential to address
unmet medical needs for life threatening or irreversibly
debilitating diseases or conditions and are subject to PMA approval
or de novo authorization. In order to be accepted into the EAP
program, a sponsor must demonstrate to the FDA’s satisfaction
that the device is intended to treat or diagnose a life-threatening
or irreversibly debilitating disease or condition and that it
addresses an unmet need. The sponsor must also submit an acceptable
draft Data Development Plan. Once accepted into the program, the
FDA intends to engage with sponsors of EAP devices earlier and more
interactively during the device’s development, assessment,
and review. The FDA will also work with the device sponsor to try
to reduce the time and cost from development to an approval
decision. Elements of the EAP program may include priority review,
interactive review, senior management involvement, and assignment
of a case manager.
Post-Market Device Regulation
After a device obtains FDA approval and is on the market, numerous
regulatory requirements apply. These requirements include the QSR,
labeling regulations, the FDA’s general prohibition against
promoting products for unapproved or “off-label” uses,
the Medical Device Reporting regulation, which requires that
manufacturers report to the FDA if their device may have caused or
contributed to a death or serious injury or malfunctioned in a way
that would likely cause or contribute to a death or serious injury
if it were to recur, and the Reports of Corrections and Removals
regulation, which requires manufacturers to report recalls and
field actions to the FDA if initiated to reduce a risk to health
posed by the device or to remedy a violation of the
FDCA.
The FDA enforces these requirements by inspection and market
surveillance. If the FDA finds a violation, it can institute a wide
variety of enforcement actions, ranging from a public warning
letter to more severe sanctions such as fines, injunctions and
civil penalties; recall or seizure of products; operating
restrictions, partial suspension or total shutdown of production;
refusing requests for PMA approval of new products; withdrawing PMA
approvals already granted; and criminal prosecution.
Clinical Laboratory Improvement Amendments of 1988, or CLIA –
Prognostic Diagnostics
LDTs, such as our prognostic diagnostic tests, are subject to the
Clinical Laboratory Improvement Amendments of 1988, or CLIA, and
are not currently regulated as medical devices under the FDCA.
Under CLIA, a laboratory is any facility which performs laboratory
testing on specimens derived from humans for the purpose of
providing information for the diagnosis, prevention or treatment of
disease, or the impairment of, or assessment of health. We have a
current certificate of accreditation under CLIA to perform high
complexity testing of our prognostic diagnostic tests for breast
cancer, including the MetaSite
Breast
™ and MenaCalc™
assays.
As a clinical reference laboratory as defined under CLIA, we are
required to hold a certificate applicable to the type of work we
perform and comply with certain standards. CLIA further regulates
virtually all clinical laboratories by requiring they be certified
by the federal government and comply with various operational,
personnel, facilities administration, quality, and proficiency
requirements intended to ensure that their clinical laboratory
testing services are accurate, reliable, and timely. Laboratories
must register and list their tests with The Centers for Medicare
& Medicaid Services, or CMS, the agency that oversees CLIA.
CLIA compliance and certification is also a prerequisite to be
eligible to bill for services provided to governmental payor
program beneficiaries and for many private payors. CLIA is user-fee
funded. Therefore, all costs of administering the program must be
covered by the regulated facilities, including certification and
survey cost.
To renew our CLIA certificate, we will be subject to survey and
inspection every two years to assess compliance with program
standards and may be subject to additional inspections without
prior notice. The standards applicable to the testing which we
perform may change over time. We cannot assure that we will be able
to operate profitably should regulatory compliance requirements
become substantially costlier in the future.
If our clinical reference laboratory falls out of compliance with
CLIA requirements, we may be subject to sanctions such as
suspension, limitation or revocation of our CLIA certificate, as
well as directed plan of correction, state on-site monitoring,
civil money penalties, civil injunctive suit or criminal penalties.
Additionally, we must maintain CLIA compliance and certification to
be eligible to bill for tests provided to Medicare beneficiaries.
If we were to be found out of compliance with CLIA program
requirements and subjected to sanction, our business would be
harmed.
CLIA provides that a state may adopt laboratory regulations that
are more stringent than those under federal law, and a number of
states have implemented their own more stringent laboratory
regulatory requirements. State laws may require that laboratories
meet certain personnel qualifications, specify certain quality
control procedures, meet facility requirements, or prescribe record
maintenance requirements.
If regulated by the FDA, we believe that our LDTs would likely be
regulated as either Class II or Class III devices. Accordingly,
premarket review—either a 510(k), de novo application, or a
PMA—would likely be required for our tests if the FDA no
longer applies its enforcement discretion to LDTs and our tests do
not qualify as grandfathered tests that are exempted from premarket
review. While the data requirements are typically greater for Class
III devices, the data required for Class II devices has increased,
and it is likely that some amount of clinical data (retrospective
or prospective or both) would be required for any type of
submission to the FDA. Ongoing compliance with FDA regulations
would increase the cost of conducting our business, subject us to
inspection by the FDA and to the requirements of the FDA and
penalties for failure to comply with the requirements of the FDA.
We cannot assure you that our current prognostic diagnostic
products and other future products will not require 510(k)
clearance or PMA approval in the future, or, in such an event, that
such approval or clearance would be forthcoming. Should any of the
clinical laboratory device reagents obtained by us from vendors and
used in conducting our home brew test be affected by future
regulatory actions, we could be adversely affected by those
actions, including increased cost of testing or delay, limitation
or prohibition on the purchase of reagents necessary to perform
testing.
Massachusetts and Other States’ Laboratory
Testing
Our clinical reference laboratory is located in Boston,
Massachusetts. Accordingly, we are required to be licensed by
Massachusetts, under Massachusetts laws and regulations, as well as
CLIA under CMS regulations, which both establish standards
for:
●
Day-to-day operation of a clinical laboratory, personnel standards
including training and competency of all laboratory
staff;
●
Physical
requirements of a facility, including,
policies and procedures; and safety;
●
Quality
control, including quality assurance; and
proficiency testing.
In 2015, we received the necessary certifications and licenses from
both CLIA and Massachusetts for our clinical reference laboratory
to perform testing services of our prognostic diagnostic breast
cancer tests.
If a laboratory is not in compliance with Massachusetts statutory
or regulatory standards, or CLIA regulations as mandated by CMS,
the Massachusetts State Department of Health and/or CMS may
suspend, limit, revoke or annul the laboratory’s
Massachusetts license, and CLIA certification, censure the holder
of the license or assess civil money penalties. Additionally,
statutory or regulatory noncompliance may result in a
laboratory’s operator being found guilty of a misdemeanor. In
the event that we should be found not to be in compliance with
Massachusetts or CLIA laboratory requirements, we could be subject
to such sanctions, which could harm our business.
California, New York, Florida, Maryland, Pennsylvania and Rhode
Island require out-of-state laboratories, which accept specimens
from those states to be licensed in each state. We have received
licensing from Massachusetts, California, Florida, Pennsylvania and
Rhode Island and are currently seeking licensing from New York and
Maryland.
From time to time, we may become aware of other states that require
out-of-state laboratories to obtain licensure in order to accept
specimens from the state, and it is possible that other states do
have such requirements or will have such requirements in the
future. If we identify any other state with such requirements or if
we are contacted by any other state advising us of such
requirements, we intend to follow instructions from the state
regulators as to how we should comply with such
requirements.
Therapeutic Regulation
United States Drug Approval Process
In the United States, the FDA regulates drugs under the FDCA, and
implementing regulations. The process of obtaining regulatory
approvals and the subsequent compliance with appropriate federal,
state, local and foreign statutes and regulations requires the
expenditure of substantial time and financial resources. Failure to
comply with the applicable U.S. requirements at any time during the
product development process, approval process or after approval,
may subject an applying company to a variety of administrative or
judicial sanctions.
Before
a drug may be marketed in the U.S., the FDA generally requires the
following:
●
completion of
preclinical laboratory tests, animal studies and formulation
studies in compliance with good laboratory practice, or GLP,
regulations;
●
submission of an
Investigational New Drug or IND application to the FDA, which must
become effective before human clinical trials may
begin;
●
approval of each
phase of the proposed clinical trials and related informed consents
by an IRB, at each clinical site where such trial will be
performed;
●
performance of
adequate and well-controlled human clinical trials in accordance
with good clinical practice, or GCP, standards and regulations to
establish the safety and efficacy of the proposed drug for each
indication;
●
submission of a
New Drug Application, or NDA to the FDA;
●
satisfactory
completion of an FDA inspection of the manufacturing facility or
facilities at which the product is produced to assess compliance
with current good manufacturing practice, or cGMP, requirements and
to assure that the facilities, methods and controls are adequate to
preserve the drug’s identity, strength, quality and purity;
and
●
FDA review and
approval of the NDA.
Preclinical Studies and IND
Preclinical studies include laboratory evaluation of product
chemistry and formulation, as well as
in vitro
and animal studies to assess the potential for AEs
and, in some cases, to establish a rationale for therapeutic use.
The conduct of preclinical studies is subject to federal
regulations and requirements, including GLP regulations for
safety/toxicology studies. An IND sponsor must submit the results
of the preclinical tests, together with manufacturing information,
analytical data, any available clinical data or literature and
plans for clinical trials, among other things, to the FDA as part
of an IND. Some long-term preclinical testing, such as animal tests
of reproductive AEs and carcinogenicity, may continue after the IND
is submitted. An IND automatically becomes effective 30 days after
receipt by the FDA, unless before that time the FDA raises concerns
or questions related to one or more proposed clinical trials and
places the trial on clinical hold. In such a case, the IND sponsor
and the FDA must resolve any outstanding concerns before the
clinical trial can begin. As a result, submission of an IND may not
result in the FDA allowing clinical trials to
commence.
Clinical Trials
Clinical trials involve the administration of the investigational
new drug to human subjects under the supervision of qualified
investigators in accordance with GCP requirements, which include,
among other things, the requirement that all research subjects
provide their informed consent in writing before their
participation in any clinical trial. Clinical trials are conducted
under written protocols detailing, among other things, the
objectives of the trial, the parameters to be used in monitoring
safety, and the safety and effectiveness criteria to be evaluated.
A protocol for each clinical trial and any subsequent protocol
amendments must be submitted to the FDA as part of the IND. In
addition, an IRB at each institution participating in the clinical
trial must review and approve the plan for any clinical trial
before it commences at that institution, and the IRB must conduct
continuing review. The IRB must review and approve, among other
things, the study protocol and informed consent information to be
provided to study subjects. An IRB must operate in compliance with
FDA regulations. In addition, a sponsor must provide information
regarding most clinical trials to be disclosed on
http://clinicaltrials.gov, a website maintained by the National
Institutes of Health.
Human clinical trials are typically conducted in three sequential
phases that may overlap or be combined:
●
Phase 1: The drug is initially introduced
into healthy human subjects or patients with the target disease or
condition and tested for safety, dosage tolerance, absorption,
metabolism, distribution, excretion and, if possible, to gain an
early indication of its effectiveness
;
●
Phase 2: The drug is administered to a
limited patient population to identify possible adverse effects and
safety risks, to preliminarily evaluate the efficacy of the product
for specific targeted diseases and to determine dosage tolerance
and optimal dosage
; and
●
Phase 3: The drug is administered to an expanded patient population
in adequate and well-controlled clinical trials to generate
sufficient data to statistically confirm the efficacy and safety of
the product for approval for specified indications, to establish
the overall risk-benefit profile of the product and to provide
adequate information for the labeling of the product.
Progress reports detailing the results of the clinical trials must
be submitted at least annually to the FDA, and more frequently if
serious adverse events, or AEs occur. The FDA or the sponsor may
suspend or terminate a clinical trial at any time on various
grounds, including a finding that the research subjects are being
exposed to an unacceptable health risk. Similarly, an IRB can
suspend or terminate approval of a clinical trial at its
institution if the clinical trial is not being conducted in
accordance with the IRB’s requirements or if the drug has
been associated with unexpected serious harm to
patients.
Pursuant to the 21st Century Cures Act, which was enacted on
December 13, 2016, the manufacturer of an investigational drug for
a serious or life-threatening disease is required to make
available, such as by posting on its website, its policy on
evaluating and responding to requests for expanded access. This
requirement applies on the later of 60 days after the date of
enactment or the first initiation of a Phase 2 or Phase 3 trial of
the investigational drug.
Marketing Approval
Assuming successful completion of the required clinical testing,
the results of the preclinical studies and clinical trials,
together with detailed information relating to the product’s
chemistry, manufacture, controls and proposed labeling, among other
things, are submitted to the FDA as part of an NDA requesting
approval to market the product for one or more indications. Under
federal law, the submission of most NDAs is subject to a
substantial application user fee.
The FDA generally conducts a preliminary review of all NDAs to
determine if they are sufficiently complete to permit substantive
review within the first 60 days after submission before accepting
them for filing. The FDA may request additional information in
connection with this preliminary review rather than accept an NDA
for filing. In this event, the application must be resubmitted with
the additional information. The resubmitted application is subject
to further review before the FDA accepts it for filing. Once the
submission is accepted for filing, the FDA begins an in-depth
substantive review. The FDA has agreed to specified performance
goals in the review of NDAs. Under these goals, the FDA has
committed to review most such applications for non-priority
products within 10 months, and most applications for priority
review products, that is, drugs that the FDA determines represent a
significant improvement over existing therapy, within six months.
The FDA may also refer applications for novel drugs or products
that present difficult questions of safety or efficacy to an
advisory committee, typically a panel that includes clinicians and
other experts, for review, evaluation and a recommendation as to
whether the application should be approved. The FDA is not bound by
the recommendations of an advisory committee, but it considers such
recommendations carefully when making decisions. The FDA is not
required to adhere its review time goals, and its review could
experience delays that cause those goals to not be
met.
Before approving an NDA, the FDA typically will inspect the
facility or facilities where the product is manufactured. The FDA
will not approve an application unless it determines that the
manufacturing processes and facilities are in compliance with cGMP
requirements and are adequate to assure consistent production of
the product within required specifications. In addition, before
approving an NDA, the FDA will typically inspect one or more
clinical sites to assure compliance with GCP and integrity of the
clinical data submitted.
The testing and approval process for each product candidate
requires substantial time, effort and financial resources, and each
may take many years to complete. Data obtained from preclinical and
clinical activities are not always conclusive and may be
susceptible to varying interpretations, which could delay, limit or
prevent regulatory approval. The FDA may not grant approval of an
application for a product candidate on a timely basis, or at all.
Further, applicants often encounter difficulties or unanticipated
costs in their efforts to develop product candidates and secure
necessary governmental approvals, which could delay or preclude the
marketing of those products.
After the FDA’s evaluation of the NDA and inspection of the
manufacturing facilities, the FDA may issue an approval letter or a
complete response letter. An approval letter authorizes commercial
marketing of the drug with specific prescribing information for
specific indications. A complete response letter generally outlines
the deficiencies in the submission and may require substantial
additional testing or information in order for the FDA to
reconsider the application. If and when those deficiencies have
been addressed to the FDA’s satisfaction in a resubmission of
the NDA, the FDA may then issue an approval letter. The FDA has
committed to reviewing such resubmissions in two or six months
depending on the type of information included. Even with submission
of this additional information, the FDA ultimately may decide that
the application does not satisfy the regulatory criteria for
approval and refuse to approve the NDA.
Programs for Expedited Review and Approval
The FDA has developed certain programs and designations that enable
NDAs for product candidates meeting specified criteria to be
eligible for certain expedited review and approval processes such
as fast track designation, priority review, accelerated approval,
and breakthrough therapy designation. Even if a product qualifies
for one or more of these programs, the FDA may later decide that
the product no longer meets the conditions for qualification or
decide that the time period for FDA review or approval will not be
shortened. These include Fast Track Designation, Priority Review,
Accelerated Approval, and Breakthrough Therapy
Designation.
In addition to the expedited review and approval programs and
designations, the FDA also recognizes certain other designations
and alternative approval pathways that afford certain benefits,
such as the orphan drug designation and alternative types of NDAs
under the Hatch-Waxman Act.
Under the Orphan Drug Act, the FDA may grant orphan drug
designation to drugs intended to treat a rare disease or condition,
which is generally defined as a disease or condition that affects
fewer than 200,000 individuals in the United States. Orphan drug
designation must be requested before submitting an NDA. After the
FDA grants orphan drug designation, the generic identity of the
drug and its potential orphan use are disclosed publicly by the
FDA. Orphan drug designation does not convey any advantage in, or
shorten the duration of, the regulatory review and approval
process. The first NDA applicant to receive FDA approval for a
particular active moiety to treat a particular disease with FDA
orphan drug designation is entitled to a seven-year exclusive
marketing period in the United States for that product and for that
indication. During the seven-year exclusivity period, the FDA may
not approve any other applications to market the same drug for the
same orphan indication, except in limited circumstances, such as a
showing of clinical superiority to the product with orphan drug
exclusivity, such that it is shown to be safer, more effective or
makes a major contribution to patient care. Orphan drug exclusivity
does not prevent the FDA from approving a different drug for the
same disease or condition, or the same drug for a different disease
or condition. Among the other benefits of orphan drug designation
are tax credits for certain research and a waiver of the NDA
application user fee.
Combination Products
The FDA regulates combinations of products that cross FDA centers,
such as drug, biologic or medical device components that are
physically, chemically or otherwise combined into a single entity,
as a combination product. The FDA center with primary jurisdiction
for the combination product will take the lead in the premarket
review of the product, with the other center consulting or
collaborating with the lead center. The 21st Century Cures Act, or
Cures Act, amended the provisions of the FDCA relating to the
regulation of combination products to, among other things, require
the FDA to conduct the premarket review of any combination product
under a single application whenever appropriate.
In practice, the FDA’s Office of Combination Products, or
OCP, determines which center will have primary jurisdiction for the
combination product based on the combination product’s
“primary mode of action.” A mode of action is the means
by which a product achieves an intended therapeutic effect or
action. The primary mode of action is the mode of action that
provides the most important therapeutic action of the combination
product, or the mode of action expected to make the greatest
contribution to the overall intended therapeutic effects of the
combination product.
It is often difficult for the OCP to determine with reasonable
certainty the most important therapeutic action of the combination
product. In those difficult cases, the OCP will consider
consistency with other combination products raising similar types
of safety and effectiveness questions, or which center has the most
expertise to evaluate the most significant safety and effectiveness
questions raised by the combination product.
If a combination product sponsor disagrees with OCP’s primary
mode of action determination, the Cures Act permits the sponsor to
request that the FDA provide a substantive rationale for its
determination. The sponsor can then propose one or more studies to
establish the relevance of the chemical action in achieving the
product’s primary mode of action and the FDA and the sponsor
will collaborate to reach agreement on the design of such studies
within 90 calendar days. If the sponsor conducts the agreed-upon
studies, the FDA must consider the resulting data when reevaluating
the product’s primary mode of action.
Post-Market Drug Regulation
If the FDA approves a drug product for commercial marketing, it may
limit the approved indications for use of the product, require that
contraindications, warnings or precautions be included in the
product labeling, require that post-approval studies, including
Phase 4 clinical trials, be conducted to further assess a
drug’s safety and/or other factors after approval, require
testing and surveillance programs to monitor the product after
commercialization and/or patients using the product for observation
of the product’s long-term effects, or impose other
conditions, including distribution restrictions or other risk
management mechanisms, including Risk Evaluation and Mitigation
Strategies, or REMS, which can materially affect the potential
market and profitability of the product. Any approved product is
also subject to requirements relating to recordkeeping, periodic
reporting, product sampling and distribution, advertising and
promotion, labeling, and reporting of adverse experiences with the
product. The FDA may prevent or limit further marketing of a
product based on the results of post-market studies or surveillance
programs. After approval, some types of changes to the approved
product, such as adding new indications, manufacturing changes and
additional labeling claims, are subject to further testing
requirements and FDA review and re-approval.
In addition, drug manufacturers and other entities involved in the
manufacture and distribution of approved drugs are required to
register their establishments with the FDA and state agencies, and
are subject to periodic unannounced inspections by the FDA and
these state agencies for compliance with cGMP requirements. Changes
to the manufacturing process are strictly regulated and often
require prior FDA approval before being implemented. FDA
regulations also require investigation and correction of any
deviations from cGMP and impose reporting and documentation
requirements upon drug developers and their manufacturers.
Accordingly, manufacturers must continue to expend time, money and
effort in the areas of production and quality control to maintain
cGMP compliance.
Once an approval is granted, the FDA may withdraw the approval if
compliance with regulatory requirements and standards is not
maintained or if problems occur after the product reaches the
market. Later discovery of previously unknown problems with a
product, including AEs of unanticipated severity or frequency, or
with manufacturing processes, or failure to comply with regulatory
requirements, may result in revisions to the approved labeling to
add new safety information, imposition of post-market studies or
clinical trials to assess new safety risks or imposition of
distribution or other restrictions under a REMS program. Other
potential consequences of a failure to comply with regulatory
requirements during or after the FDA approval process include,
among other things:
●
restrictions on the marketing or
manufacturing of the product, product recalls or complete
withdrawal of the product from the market
;
●
fines, warning or untitled letters or holds
on post-approval clinical trials
;
●
refusal of the FDA to approve pending
applications or supplements to approved applications, or suspension
or revocation of product license approvals
;
●
product seizure or detention, or refusal to permit the import or
export of products; or
●
consent decrees, injunctions or the imposition of civil or criminal
penalties.
The FDA strictly regulates marketing, labeling, advertising and
promotion of products that are placed on the market. Drugs may be
promoted only for the approved indications and in accordance with
the provisions of the approved label. The FDA and other agencies
actively enforce the laws and regulations prohibiting the promotion
of off label uses, and a company that is found to have improperly
promoted off label uses may be subject to significant
liability.
Additional Regulations and Environmental Matters
Health Insurance Portability and Accountability Act (HIPAA) and
HITECH
Under the administrative simplification provisions the federal
Health Insurance Portability and Accountability Act of 1996, or
HIPAA, as amended by the Health Information Technology for Economic
and Clinical Health Act, or the HITECH Act, the United States
Department of Health and Human Services (HHS) issued regulations
that establish uniform standards governing the conduct of certain
electronic health care transactions and protecting the privacy and
security of protected health information used or disclosed by
health care providers and other covered entities, such as MetaStat.
Three principal regulations with which we are required to comply
have been issued in final form under HIPAA: privacy regulations,
security regulations, and standards for electronic transactions,
which establish standards for common health care transactions. The
privacy and security regulations were extensively amended in 2013
to incorporate requirements from the HITECH Act.
The privacy regulations cover the use and disclosure of protected
health information by health care providers and other covered
entities. They also set forth certain rights that an individual has
with respect to his or her protected health information maintained
by a health care provider, including the right to access or amend
certain records containing protected health information, or to
request restrictions on the use or disclosure of protected health
information. The security regulations establish requirements for
safeguarding the confidentiality, integrity, and availability of
protected health information that is electronically transmitted or
electronically stored.
The HITECH Act, among other things, established certain protected
health information security breach notification requirements. A
covered entity must notify affected individual(s) and the HHS when
there is a breach of unsecured protected health information. The
HIPAA privacy and security regulations establish a uniform federal
“floor” that health care providers must meet and do not
supersede state laws that are more stringent or provide individuals
with greater rights with respect to the privacy or security of, and
access to, their records containing protected health information.
Massachusetts, for example, has a state law that protects the
privacy and security of personal information of Massachusetts
residents that is more prescriptive than HIPAA.
These laws contain significant fines and other include civil and
criminal penalties for wrongful use or disclosure of protected
health information. Additionally, to the extent that we submit
electronic health care claims and payment transactions that do not
comply with the electronic data transmission standards established
under HIPAA and the HITECH Act, payments to us may be delayed or
denied.
We have policies and procedures to comply with these regulations.
The requirements under these regulations may change periodically
and could have an adverse effect on our business operations if
compliance becomes substantially costlier than under current
requirements.
In addition to federal privacy regulations, there are a number of
state and international laws governing confidentiality of health
information that may be applicable to our operations. The United
States Department of Commerce, the European Commission and the
Swiss Federal Data Protection and Information Commissioner have
agreed on a set of data protection principles and frequently asked
questions (the "Safe Harbor Principles") to enable U.S. companies
to satisfy the requirement under European Union and Swiss law that
adequate protection is given to personal information transferred
from the European Union or Switzerland to the United States. The
European Commission and Switzerland have also recognized the Safe
Harbor Principles as providing adequate data
protection.
New laws governing privacy may be adopted in the future as well. We
have taken steps to comply with health information privacy
requirements to which we are aware that we will be subject.
However, we cannot provide assurance that we will be in compliance
with diverse privacy requirements in all of the jurisdictions in
which we do business. Failure to comply with privacy requirements
could result in civil or criminal penalties, which could have a
materially adverse impact on our business.
Federal and State Physician Self-referral Prohibitions
We will be subject to the federal physician self-referral
prohibitions, commonly known as the Stark Law, and to similar state
restrictions such as the California's Physician Ownership and
Referral Act, or PORA. Together these restrictions generally
prohibit us from billing a patient or any governmental or private
payer for any test when the physician ordering the test, or any
member of such physician's immediate family, has an investment
interest in or compensation arrangement with us, unless the
arrangement meets an exception to the prohibition. Both the Stark
Law and PORA contain an exception for compensation paid to a
physician for personal services rendered by the physician. We would
be required to refund any payments we receive pursuant to a
referral prohibited by these laws to the patient, the payer or the
Medicare program, as applicable.
Both the Stark Law and certain state restrictions such as PORA
contain an exception for referrals made by physicians who hold
investment interests in a publicly traded company that has
stockholders’ equity exceeding $75 million at the end of its
most recent fiscal year or on average during the previous three
fiscal years, and which satisfies certain other requirements. In
addition, both the Stark Law and certain state restrictions such as
PORA contain an exception for compensation paid to a physician for
personal services rendered by the physician.
However, in the event that we enter into any compensation
arrangements with physicians, we cannot be certain that regulators
would find these arrangements to be in compliance with Stark, PORA
or similar state laws. In such event, we would be required to
refund any payments we receive pursuant to a referral prohibited by
these laws to the patient, the payer or the Medicare program, as
applicable.
Sanctions for a violation of the Stark Law include the
following:
●
denial of payment for the services provided in violation of the
prohibition;
●
refunds of amounts collected by an entity in violation of the Stark
Law;
●
a civil penalty of up to $15,000 for each service arising out of
the prohibited referral;
●
possible exclusion from federal healthcare programs, including
Medicare and Medicaid; and
●
a civil penalty of up to $100,000 against parties that enter into a
scheme to circumvent the Stark Law’s
prohibition.
These prohibitions apply regardless of the reasons for the
financial relationship and the referral. No finding of intent to
violate the Stark Law is required for a violation. In addition,
under an emerging legal theory, knowing violations of the Stark Law
may also serve as the basis for liability under the Federal False
Claims Act.
Further, a violation of PORA is a misdemeanor and could result in
civil penalties and criminal fines. Finally, other states have
self-referral restrictions with which we have to comply that differ
from those imposed by federal and California law. It is possible
that any financial arrangements that we may enter into with
physicians could be subject to regulatory scrutiny at some point in
the future, and we cannot provide assurance that we will be found
to be in compliance with these laws following any such regulatory
review.
Federal, State and International Anti-kickback Laws
The Federal Anti-kickback Law makes it a felony for a provider or
supplier, including a laboratory, to knowingly and willfully offer,
pay, solicit or receive remuneration, directly or indirectly, in
order to induce business that is reimbursable under any federal
health care program. A violation of the Anti-kickback Law may
result in imprisonment for up to five years and fines of up to
$250,000 in the case of individuals and $500,000 in the case of
organizations. Convictions under the Anti-kickback Law result in
mandatory exclusion from federal health care programs for a minimum
of five years. In addition, HHS has the authority to impose civil
assessments and fines and to exclude health care providers and
others engaged in prohibited activities from Medicare, Medicaid and
other federal health care programs.
Actions which violate the Anti-kickback Law or similar laws may
also involve liability under the Federal False Claims Act, which
prohibits the knowing presentation of a false, fictitious or
fraudulent claim for payment to the United States Government.
Actions under the Federal False Claims Act may be brought by the
Department of Justice or by a private individual in the name of the
government.
Although the Anti-kickback Law applies only to federal health care
programs, a number of states have passed statutes substantially
similar to the Anti-kickback Law pursuant to which similar types of
prohibitions are made applicable to all other health plans and
third-party payers.
Federal and state law enforcement authorities scrutinize
arrangements between health care providers and potential referral
sources to ensure that the arrangements are not designed as a
mechanism to induce patient care referrals and opportunities. The
law enforcement authorities, the courts and the United States
Congress have also demonstrated a willingness to look behind the
formalities of a transaction to determine the underlying purpose of
payments between health care providers and actual or potential
referral sources. Generally, courts have taken a broad
interpretation of the scope of the Anti-kickback Law, holding that
the statute may be violated if merely one purpose of a payment
arrangement is to induce future referrals.
In addition to statutory exceptions to the Anti-kickback Law,
regulations provide for a number of safe harbors. If an arrangement
meets the provisions of a safe harbor, it is deemed not to violate
the Anti-kickback Law. An arrangement must fully comply with each
element of an applicable safe harbor in order to qualify for
protection.
Among the safe harbors that may be relevant to us is the discount
safe harbor. The discount safe harbor potentially applies to
discounts provided by providers and suppliers, including
laboratories, to physicians or institutions where the physician or
institution bills the payer for the test, not when the laboratory
bills the payer directly. If the terms of the discount safe harbor
are met, the discounts will not be considered prohibited
remuneration under the Anti-kickback Law. We anticipate that this
safe harbor may be potentially applicable to any agreements that we
enter into to sell tests to hospitals where the hospital submits a
claim to the payer.
The personal services safe harbor to the Anti-kickback Law provides
that remuneration paid to a referral source for personal services
will not violate the Anti-kickback Law provided all of the elements
of that safe harbor are met. One element is that, if the agreement
is intended to provide for the services of the physician on a
periodic, sporadic or part-time basis, rather than on a full-time
basis for the term of the agreement, the agreement specifies
exactly the schedule of such intervals, their precise length, and
the exact charge for such intervals. Failure to meet the terms of
the safe harbor does not render an arrangement illegal. Rather,
such arrangements must be evaluated under the language of the
statute, taking into account all facts and
circumstances.
In the event that we enter into relationships with physicians,
hospitals and other customers, there can be no assurance that our
relationships with those physicians, hospitals and other customers
will not be subject to investigation or a successful challenge
under such laws. If imposed for any reason, sanctions under the
Anti-kickback Law or similar laws could have a negative effect on
our business.
Other Federal and State Fraud and Abuse Laws
In addition to the requirements that are discussed above, there are
several other health care fraud and abuse laws that could have an
impact on our business. For example, provisions of the Social
Security Act permit Medicare and Medicaid to exclude an entity that
charges the federal health care programs substantially in excess of
its usual charges for its services. The terms “usual
charge” and “substantially in excess” are
ambiguous and subject to varying interpretations.
Further, the Federal False Claims Act prohibits a person from
knowingly submitting a claim, making a false record or statement in
order to secure payment or retaining an overpayment by the federal
government. In addition to actions initiated by the government
itself, the statute authorizes actions to be brought on behalf of
the federal government by a private party having knowledge of the
alleged fraud. Because the complaint is initially filed under seal,
the action may be pending for some time before the defendant is
even aware of the action. If the government is ultimately
successful in obtaining redress in the matter or if the plaintiff
succeeds in obtaining redress without the government’s
involvement, then the plaintiff will receive a percentage of the
recovery. Finally, the Social Security Act includes its own
provisions that prohibit the filing of false claims or submitting
false statements in order to obtain payment. Violation of these
provisions may result in fines, imprisonment or both, and possible
exclusion from Medicare or Medicaid programs.
Corporate Practice of Medicine
Numerous states have enacted laws prohibiting business
corporations, such as MetaStat, from practicing medicine and
employing or engaging physicians to practice medicine, generally
referred to as the prohibition against the corporate practice of
medicine. These laws are designed to prevent interference in the
medical decision-making process by anyone who is not a licensed
physician. For example, California’s Medical Board has
indicated that determining what diagnostic tests are appropriate
for a particular condition and taking responsibility for the
ultimate overall care of the patient, including providing treatment
options available to the patient, would constitute the unlicensed
practice of medicine if performed by an unlicensed person.
Violation of these corporate practice of medicine laws may result
in civil or criminal fines, as well as sanctions imposed against us
and/or the professional through licensure proceedings. Typically,
such laws are only applicable to entities that have a physical
presence in the state.
Compliance with Environmental Laws
We expect to be subject to regulation under federal, state and
local laws and regulations governing environmental protection and
the use, storage, handling and disposal of hazardous substances.
The cost of complying with these laws and regulations may be
significant. Our planned activities may require the controlled use
of potentially harmful biological materials, hazardous materials
and chemicals. We cannot eliminate the risk of accidental
contamination or injury to employees or third parties from the use,
storage, handling or disposal of these materials. In the event of
contamination or injury, we could be held liable for any resulting
damages, and any liability could exceed our resources or any
applicable insurance coverage we may have.
Other Regulations
The U.S. Occupational Safety and Health Administration has
established extensive requirements relating to workplace safety for
health care employers, including requirements to develop and
implement programs to protect workers from exposure to blood-borne
pathogens by preventing or minimizing any exposure through needle
stick or similar penetrating injuries.
Foreign Regulation
To obtain marketing approval of a drug under European Union
regulatory systems, we may submit marketing authorization
applications, or MAAs, either under a centralized or decentralized
procedure. The centralized procedure provides for the grant of a
single marketing authorization that is valid for all European Union
member states. The centralized procedure is compulsory for
medicines produced by specified biotechnological processes,
products designated as orphan medicinal products, and products with
a new active substance indicated for the treatment of specified
diseases, and optional for those products that are highly
innovative or for which a centralized process is in the interest of
patients. Under the centralized procedure in the European Union,
the maximum timeframe for the evaluation of an MAA is 210 days,
excluding clock stops, when additional written or oral information
is to be provided by the applicant in response to questions asked
by the Scientific Advice Working Party of the Committee of
Medicinal Products for Human Use, or the CHMP. Accelerated
evaluation might be granted by the CHMP in exceptional cases, when
a medicinal product is expected to be of a major public health
interest, defined by three cumulative criteria comprising the
seriousness of the disease, such as heavy disabling or
life-threatening diseases, to be treated; the absence or
insufficiency of an appropriate alternative therapeutic approach;
and anticipation of high therapeutic benefit. In this circumstance,
the European Medicines Agency, or EMA, ensures that the opinion of
the CHMP is given within 150 days.
The EMA grants orphan drug designation to promote the development
of products that may offer therapeutic benefits for
life-threatening or chronically debilitating conditions affecting
not more than five in 10,000 people in the European Union. In
addition, orphan drug designation can be granted if the drug is
intended for a life threatening, seriously debilitating or serious
and chronic condition in the European Union and without incentives
it is unlikely that sales of the drug in the European Union would
be sufficient to justify developing the drug. Orphan drug
designation is only available if there is no other satisfactory
method approved in the European Union of diagnosing, preventing or
treating the condition, or if such a method exists, the proposed
orphan drug will be of significant benefit to patients. Orphan drug
designation provides opportunities for free protocol assistance,
fee reductions for access to the centralized regulatory procedures
before and during the first year after marketing authorization and
between 6 and 10 years of market exclusivity following drug
approval.
The decentralized procedure for submitting an MAA provides an
assessment of an application performed by one member state, known
as the reference member state, and the approval of that assessment
by one or more other member states, known as concerned member
states. Under this procedure, an applicant submits an application,
or dossier, and related materials, including a draft summary of
product characteristics, and draft labeling and package leaflet, to
the reference member state and concerned member states. The
reference member state prepares a draft assessment and drafts of
the related materials within 120 days after receipt of a valid
application. Within 90 days of receiving the reference member
state’s assessment report, each concerned member state must
decide whether to approve the assessment report and related
materials. If a member state cannot approve the assessment report
and related materials on the grounds of potential serious risk to
public health, the disputed points may eventually be referred to
the European Commission, whose decision is binding on all member
states. Prior to submitting an MAA for use of drugs in pediatric
populations, the EMA requires submission of, or a request for
waiver or deferral of, a Pediatric Investigation Plan.
In the European Union, new chemical entities qualify for eight
years of data exclusivity upon marketing authorization and an
additional two years of market exclusivity. This data exclusivity,
if granted, prevents regulatory authorities in the European Union
from assessing a generic (abbreviated) application for eight years,
after which generic marketing authorization can be submitted but
not approved for two years. Even if a compound is considered to be
a new chemical entity and the sponsor is able to gain the
prescribed period of data exclusivity, another company nevertheless
could also market another version of the drug if such company can
complete a full MAA with a complete human clinical trial database
and obtain marketing approval of its product.
Healthcare Reform
Containing healthcare expenditures is a major trend in the U.S. and
the rest of the world. Both government authorities and third-party
payors have attempted to control costs by limiting coverage and the
amount of reimbursement for particular medical products, including
therapeutics and diagnostics, implementing reductions in Medicare
and other healthcare funding, and applying new payment
methodologies. For example, in March 2010, the Affordable Care Act
was enacted, which, among other things, subjected drug
manufacturers to new annual fees based on pharmaceutical
companies’ share of sales to federal healthcare programs;
created a new Patient Centered Outcomes Research Institute to
oversee, identify priorities in, and conduct comparative clinical
effectiveness research, along with funding for such research;
creation of the Independent Payment Advisory Board, which has
authority to recommend certain changes to the Medicare program that
could result in reduced payments for prescription drugs; and
establishment of a Center for Medicare Innovation at the CMS to
test innovative payment and service delivery models to lower
Medicare and Medicaid spending.
We expect that the new presidential administration and U.S.
Congress will seek to modify, repeal, or otherwise invalidate all,
or certain provisions of, the Affordable Care Act. There is
uncertainty with respect to the impact the new presidential
administration and the U.S. Congress may have, if any, and any
changes will likely take time to unfold, and could have an impact
on coverage and reimbursement for healthcare items and services
covered by plans that were authorized by the Affordable Care Act.
However, we cannot predict the ultimate content, timing or effect
of any healthcare reform legislation or the impact of potential
legislation on us.
In addition, other legislative changes have also been proposed and
adopted in the U.S. to reduce healthcare expenditures. These
changes include aggregate reductions of Medicare payments to
providers of 2% per fiscal year that, due to subsequent legislative
amendments, will remain in effect through 2025 unless additional
action is taken by Congress. The American Taxpayer Relief Act of
2012 was signed into law in January 2013, which, among other
things, further reduced Medicare payments to several types of
providers, including hospitals, imaging centers and cancer
treatment centers, and increased the statute of limitations period
for the government to recover overpayments to providers to five
years from three. Recently there has been heightened scrutiny over
the manner in which manufacturers set prices for their marketed
products.
Reimbursement
Sales
of any of our therapeutic and companion diagnostic product
candidates that may be approved will depend, in part, on the extent
to which the cost of the products will be covered by government and
third party payers. Third party payers may limit coverage to an
approved list of products, or formulary, which might not include
all drug products approved by the FDA for an indication. Any
product candidates for which we obtain marketing approval may not
be considered medically necessary or cost-effective by third party
payers, and we may need to conduct expensive pharmacogenomics
studies in the future to demonstrate the medical necessity and/or
cost effectiveness of any such product.
The
reimbursement environment is evolving as regulators and payors try
to establish new rules and frameworks for the reimbursement of
molecular diagnostic tests. There has been an increased interest in
implementing cost containment programs to limit government-paid
health care costs, including price controls and restrictions on
reimbursement. Continued interest in and adoption of such controls
and measures, and tightening of restrictive policies in
jurisdictions with existing controls and measures, could limit
payments for product candidates we are developing.
Our prognostic diagnostic tests are expected to be offered as a
clinical laboratory service. Revenue for clinical laboratory
diagnostics may come from several sources, including commercial
third-party payers, such as insurance companies and health
maintenance organizations (HMOs), government payers, such as
Medicare and Medicaid in the United States, patient self-pay and,
in some cases, from hospitals or referring laboratories who, in
turn, may bill third-party payers.
The proportion of private payers compared to government payers such
as Medicaid/Medicare will impact the average selling price
(discounting), length of payables, and losses due to uncollectible
accounts receivable. Working with relevant medical societies and
other appropriate constituents to obtain appropriate reimbursement
amounts by all payers will be key. The objective of this effort
will be to ensure the amount paid by Medicare and other payers for
our assays accurately reflects the technology costs, the benefit
that the analysis brings to patients, and its positive impact on
healthcare economics. In order to gain broad reimbursement
coverage, we expect substantial resources will need to be devoted
to educating payers such as Kaiser Permanente, Aetna, United
Healthcare, and others on the following attributes of our
prognostic diagnostic assays, including, but not limited
to:
●
test performance (specificity, selectivity, size of the risk
groups);
●
clinical utility and effectiveness;
●
peer-reviewed publication and consistent study
outcomes;
●
patient and physician demand; and
●
improved health economics.
Billing codes are the means by which Medicare and private insurers
identify certain medical services that are provided to patients in
the United States. CPT codes are established by the American
Medical Association (AMA). The amounts reimbursed by Medicare for
the CPT codes are established by the Centers for Medicare &
Medicaid Services (CMS) using a relative value system, with
recommendations from the AMA's Relative Value Update Committee and
professional societies representing the various medical
specialties.
Reimbursement for our prognostic diagnostic tests, including
MetaSite
Breast
TM
and MenaCalc
TM
will be based on:
●
eligibility for reimbursement under well-established medical
billing CPT code 88361;
●
reimbursement under the CPT miscellaneous procedure code;
or
●
qualification under any applicable new molecular diagnostic codes
currently under consideration.
As part of our longer-term reimbursement strategy, we or any
potential partners may choose to apply for a unique CPT code once
our prognostic diagnostic assays are commercially available and
health economic data have been established.
Well-established medical billing CPT code 88361
CPT code 88361 is specific to computer-assisted image analysis and
went into effect in 2004. Our prognostic diagnostic tests involve
both a technical and professional component. The technical
component involves preparation of the patient sample and scanning
the image, while the professional component involves the
physician's reading and evaluation of the test results. Since our
prognostic diagnostic tests will be billed as a service, we
anticipate payments for both the professional and technical
components. The actual payment varies based upon a geographic
factor index for each state and may be higher or lower than the
Medicare national amounts in particular cases based on geographic
location.
CMS coding policy defines the unit of service for each IHC stain
charge is one unit per different antigen tested and individually
reported, per specimen. Medicare contractors cannot bill for
multiple service units of CPT code 88361 (Immunohistochemistry,
each antibody) for “cocktail” stains containing
multiple antibodies in a single “vial” applied in a
single procedure, even if each antibody provides distinct
diagnostic information. We believe this CMS policy is not
applicable to our procedure because our multiple stain reaction
involves multiple separate steps of multiple primary antibodies
binding followed by counterstaining.
CPT Miscellaneous Procedure Code
Tests that are billed under a non-specific, unlisted procedure code
are subject to manual review of each claim. Claims are paid at a
rate established by the local Medicare carrier in Massachusetts and
based upon the development and validation costs of developing the
assays, the costs of conducting the tests, the reimbursement rates
paid by other payers and the cost savings impact of the tests.
Because there is no specific code or national fee schedule rate for
the test, payment rates established by the local Medicare
contractor may be subject to review and adjustment at any
time.
Sales and Marketing
We have
not yet established a sales and marketing infrastructure. For any
of our therapeutic or companion diagnostic product candidates for
which we may in the future receive marketing approvals, we may seek
to commercialize the product ourselves or through one or more
strategic commercialization collaborations.
Our prognostic diagnostic tests are expected to be offered as a
clinical laboratory service
through our CLIA-certified
laboratory located in Boston, Massachusetts. We plan to implement a
de-risked commercialization strategy based on non-exclusive
agreements with strategic distribution partners and/or CSOs in the
U.S. and distributors in Europe and throughout the
rest-of-world.
We aim
to enter into agreements with commercialization or strategic
partners that have existing commercialization infrastructure,
established distribution channels, and strong relationships with
our target audience in the medical community. We aim to avoid the
cost and risk associated with building a new sales and marketing
infrastructure.
Manufacturing
We do
not own or operate, and currently have no plans to establish, any
manufacturing facilities. We expect to rely on third parties for
the manufacture of any therapeutic product candidates for
preclinical and clinical testing, as well as for commercial
manufacture of any products that we may commercialize. We generally
expect to rely on third parties for the manufacture of our
companion diagnostics, including Mena protein isoform
Mabs.
Our
state-of-the-art CLIA-certified reference laboratory is located at
27 Drydock Avenue in Boston, MA. Our CLIA-certified laboratory is
our primary location for prognostic diagnostic testing and data
analysis of patient tumor samples. Although the science behind our
prognostic diagnostic technology is cutting edge and sophisticated,
a key competitive advantage of our approach is that we have
simplified our testing methods and procedures based on established
immunohistochemical, or IHC, and quantitative immunofluorescence,
or QIF techniques and utilize common inexpensive
materials.
The
MetaSite
Breast
™
assay uses widely available IHC dyeing techniques to identify
individual cell types. This staining technique uses antibodies that
recognize individual cell types. By attaching different dye colors
to different antibody types, the operator can view different cell
types on a single slide. We believe this approach to diagnosis and
prognosis of cancer is more cost effective than many genomic-based
approaches currently on the market. We believe the most economical
way to enter the market with the MetaSite
Breast
™ test will be through
contract manufacturing for these IHCs.
The
MenaCalc™ and Mena
INV
assays use widely
available QIF techniques to identify individual cell types,
allowing the test to interrogate tumor cells separately within
tumor microenvironment rather than measuring homogenous biopsies
containing tumor and non-tumor cell types. This staining technique
uses antibodies that recognize or detect the different protein
variants of Mena. The antibodies used are detected by labeling the
different antibody types different fluorescent dyes that allow the
operator to measure and quantify the levels selectively within the
tumor cells on the slide. We believe this approach to diagnosis and
prognosis of cancer is more cost effective than many genomic-based
approaches currently on the market that utilize heterogeneous
mixtures of tumor and stromal cells in patient
samples.
Employees
We currently have six full-time employees. In addition, we utilize
outside consultants to support certain elements of our research and
development, information technology, and commercial operations.
From time to time we have also engaged several consulting firms
involved with public relations, investor relations and other
functions.
Insurance
We have general and umbrella liability insurance, employment
practices liability insurance as well as directors and officers
(D&O) insurance in amounts that we believe comply with industry
standards.
Legal Proceedings
We are not engaged in any material litigation, arbitration or
claim, and no material litigation, arbitration or claim is known by
our management to be pending or threatened by or against us that
would have a material adverse effect on our results from operations
or financial condition.
Corporate Structure
We were incorporated on March 28, 2007 under the laws of the State
of Nevada. From inception until November of 2008, our business plan
was to produce and market inexpensive solar cells and in November
2008, our board of directors determined that the implementation of
our business plan was no longer financially feasible. At such time,
we discontinued the implementation of our prior business plan and
pursued an acquisition strategy, whereby we sought to acquire a
business. Based on these business activities, until February 27,
2012, we were considered a "blank check" company, with no or
nominal assets (other than cash) nor operations.
MetaStat BioMedical, Inc. (“MBM”) (formerly known as
MetaStat, Inc.), our wholly owned Delaware subsidiary, was
incorporated in the State of Texas on July 22, 2009 and
re-incorporated in the State of Delaware on August 26, 2010. MBM
was formed to allow cancer patients to benefit from the latest
discoveries in how cancer spreads to other organs in the body. The
Company’s mission is to become an industry leader in the
emerging field of personalized cancer therapy.
On February 27, 2012 (the “Closing Date”), we
consummated a share exchange as more fully described below, whereby
we acquired all the outstanding shares of MBM and, MBM became our
wholly owned subsidiary. From and after the share exchange, our
business is conducted through our wholly owned subsidiary, MBM, and
the discussion of our business is that of our current business
which is conducted through MBM.
Prior to April 9, 2012, our company name was Photovoltaic Solar
Cells, Inc. For the sole purpose of changing our name, on April 9,
2012, we merged with a newly-formed, wholly owned subsidiary
incorporated under the laws of Nevada called MetaStat, Inc. As a
result of the merger, our corporate name was changed to MetaStat,
Inc. In May 2012, we changed the name of our Delaware subsidiary to
MetaStat BioMedical, Inc. from MetaStat, Inc.
Share Exchange
On the Closing Date, we entered into a Share Exchange Agreement
(the “Exchange Agreement”) by and among us, MBM, the
holders of all outstanding shares of MBM (the “MBM
Shareholders”) and Waterford Capital Acquisition Co IX, LLC,
our principal shareholder (the “Company Principal
Shareholder”), whereby we acquired all of the outstanding
shares of MBM (the “MBM Shares”) from the MBM
Shareholders. In exchange, we issued to the MBM Shareholders an
aggregate of 1,224,629 shares of our common stock (the
“Exchange Shares”), equal to 95.6% of our outstanding
shares of common stock after such issuance. As a result of the
transactions contemplated by the Exchange Agreement (collectively,
the “Share Exchange”), MBM became our wholly owned
subsidiary. Pursuant to the Exchange Agreement, we assumed warrants
to purchase up to 52,035 shares of MBM’s common stock, with
exercise prices ranging between $22.50 and $30.00 per share on a
2.2-for-1 basis, equivalent to 114,475 shares of our common stock
with exercise prices ranging from $10.20 to $13.65 per share.
Immediately prior to the Share Exchange, we converted approximately
$336,075 of debt owed to the Company Principal Shareholder into
20,640 shares of our common stock (the “Debt
Conversion”) and issued an aggregate of 2,400 shares of our
common stock to certain of our officers, directors and consultants
in consideration for services rendered to us, leaving 56,000 shares
of our common stock outstanding immediately prior to the issuance
of the Exchange Shares. Additionally, immediately prior to the
Share Exchange, we issued five-year warrants to purchase up to an
aggregate of 23,334 shares of our common stock at an exercise price
of $21.00 per share, of which warrants to purchase 22,500 shares
were issued for a purchase price of $21,000 and warrants to
purchase 834 shares were issued for services rendered to us prior
to the Share Exchange (the “Warrant Financing”). We
used the proceeds of the Warrant Financing to pay off all of our
liabilities prior to the Share Exchange.
On the Closing Date, we assumed MBM’s 2012 Omnibus Securities
and Incentive Plan (the “2012 Incentive Plan”) and
reserved 74,453 shares of our common stock for the benefit of our
employees, nonemployee directors and consultants. All 33,834
options outstanding under the 2012 Incentive Plan were converted,
on a 2.2-for-1 basis, into the right to receive options to purchase
up to 74,434 shares of our common stock with an exercise price of
$10.20 per share.
Principal Executive Offices
Our principal executive office and clinical reference laboratory
are located at 27 Drydock Ave., 2nd Floor, Boston, Massachusetts
02210, We have additional executive offices at 401 Park Ave. South,
8th Floor, New York, New York 10016. Our corporate telephone number
is (617) 531-6500 and our website is
http://www.metastat.com
.
Information contained on our website does not constitute part of,
and is not deemed incorporated by reference into, this
prospectus.
Executive Officers and Directors
|
Name
|
Age
|
Position
|
|
Douglas A. Hamilton
|
51
|
President, Chief Executive Officer and Director(1)
|
|
Daniel H. Schneiderman
|
39
|
Vice President of Finance, Controller and Secretary
(2)
|
|
Jerome B. Zeldis, M.D., Ph.D.
|
67
|
Chairman of the Board of Directors (3)
|
|
Paul Bilings, M.D., Ph.D.
|
64
|
Director (4)
|
____________
|
(1)
|
Appointed as president and chief executive officer effective as of
June 17, 2015, and as a member of our board of directors effective
as of May 4, 2017.
|
|
(2)
|
Appointed as vice president of finance effective December 21,
2012.
|
|
(3)
|
Appointed as a member and vice chairman of our board of directors
effective as of April 25, 2016, and chairman of our board of
directors effective as of May 4, 2017.
|
|
(4)
|
Appointed as a member of our board of directors effective as of May
24, 2017.
|
Douglas A. Hamilton.
Mr.
Hamilton was appointed our president and chief executive officer
effective as of June 17, 2015, and appointed to our board of
directors effective as of May 4, 2017. Mr. Hamilton has
consulted for us as acting chief financial officer since August
2014. Prior to joining the Company, Mr. Hamilton served as partner
at New Biology Ventures, LLC, a life-sciences focused venture
capital incubator founded by Mr. Hamilton since
2007. From January 2012 through January 2014, Mr.
Hamilton was chief financial officer of S.E.A. Medical Systems,
Inc. From 1999 to 2006, Mr. Hamilton served as chief financial
officer and chief operating officer for Javelin Pharmaceuticals,
Inc. (acquired by Hospira, Inc.), in which he led the company to
commercialization and through the private to public transition,
including a successful national markets up-listing. Prior to
Javelin, Mr. Hamilton was the chief financial officer and director
of business development for PolaRx Biopharmaceuticals, Inc.
(acquired by Cell Therapeutics, Inc., now owned by Teva
Pharmaceuticals). Mr. Hamilton also served for several years in
portfolio and project management at Pfizer, Inc. and Amgen, Inc.,
sales and marketing at Pharmacia Biotech (now GE Healthcare Life
Sciences), and research at Connaught Laboratories (now
Sanofi-Pasteur). Mr. Hamilton earned his Bachelor of Science degree
from the Department of Medical Genetics at the University of
Toronto and his MBA from the Ivey Business School at Western
University.
Daniel H. Schneiderman
. Mr.
Schneiderman was appointed vice president of finance effective
December 21, 2012 and has served as the Company's vice president,
controller and corporate secretary since February 27, 2012. Mr.
Schneiderman has over fifteen years of investment banking and
corporate finance experience, focusing on private and public small
capitalization companies mainly in the healthcare, life sciences
and technology sectors. Prior to joining the Company, he was vice
president of investment banking for Burnham Hill Partners LLC,
where he worked since 2008. From 2004 through 2008, Mr.
Schneiderman was vice president of investment banking at Burnham
Hill Partners, a division of Pali Capital, Inc. While at Burnham
Hill Partners, Mr. Schneiderman
helped raise in excess of
$500 million in capital through private placements, PIPEs and
registered offerings as well as more complex transactions including
restructurings and recapitalizations.
Previously, Mr. Schneiderman worked at H.C.
Wainwright & Co., Inc. in 2004 as an investment banking
analyst. Mr. Schneiderman holds a Bachelor's Degree in Economics
from Tulane University. Mr. Schneiderman serves as a board member
for
Un
leashed, a not-for-profit organization in New
York
dedicated to dog rescue and animal rights.
Jerome B. Zeldis, M.D., Ph.D.
Dr. Zeldis was appointed to our board of directors
and vice chairman of the board effective as of April 25, 2016, and
as Chairman of the Board effective as of May 5, 2017. Dr.
Zeldis is currently the Chief Medical Officer and President of
Clinical Research at Sorrento Therapeutics, Inc., positions he has
held since August 2016. Previously, Dr. Zeldis was Chief Medical
Officer of Celgene Corporation and CEO of Celgene Global Health,
until June 2016. Prior to that he was Celgene’s Senior Vice
President of Clinical Research and Medical Affairs and had been at
Celgene since February 1997. He attended Brown University for an
A.B., M.S., followed by Yale University for an M.Phil., M.D., Ph.D.
in Molecular Biophysics and Biochemistry (immunochemistry). Dr.
Zeldis trained in Internal Medicine at the UCLA Center for the
Health Sciences and Gastroenterology at the Massachusetts General
Hospital and Harvard Medical School. He was Assistant Professor of
Medicine at the Harvard Medical School, Associate Professor
of
Medicine at University of
California, Davis, Clinical Associate Professor of Medicine at
Cornell Medical School and Professor of Clinical Medicine at the
Robert Wood Johnson Medical School in New Brunswick, New Jersey.
Prior to working at Celgene, Dr. Zeldis worked at Sandoz Research
Institute and Janssen Research Institute in both clinical research
and medical development. He has been a board member of a few
start-up biotechnology companies and is currently Chairman of the
board of Alliqua Biomedical and Trek Therapeutics in addition to
board positions at PTC Therapeutics and Soligenix. He has published
122 peer reviewed articles and is the named inventor on 43 U.S.
patents. Dr. Zeldis’ extensive knowledge of the biotechnology
industry, his extensive role in drug development and clinical
studies as well as his directorships in other life science
companies qualify him to serve as our director and Chairman of the
Board.
Paul Billings, M.D., Ph.D.
Dr.
Billings was appointed to our board of directors effective as of
May 24, 2017.
Dr. Billings is a
board certified internist and clinical
geneticist
. Dr. Billings is
currently a partner at the Bethesda Group Fund L.P., a position he
has held since January 2016. From January 2015 to January 2016, Dr.
Billings
served as
Executive-in-Residence at the California Innovation Center of
Johnson and Johnson, Inc. He has also served as the Medical
Director of the IMPACT program at Thermo Fisher
Scientific, Inc. (TFS) from 2013 to 2015. From 2010 to 2014,
he served as the first and only Chief Medical Officer at Life
Technologies Corporation (which was acquired by TFS), and the
Genetic Sciences Division of TFS.
Dr. Billings currently
serves on the board of directors of Trovagene, Inc. since October
2013, and Rennova Health, Inc. (formerly CollabRx, Inc.) since
November 2015. Dr. Billings has previously served as a director of
Ancestry.com Inc. from February 2012 to May 2013. He serves as an
advisor or director for many companies, including
Fabric Genomics, Inc. (formerly
Omicia, Inc.),
BioScale Inc., Applied
Immunology, Inc., Aueon, Inc. and PAX Neuroscience Inc. He
held senior management positions at Cord Blood Registry, Inc.,
GeneSage, Inc., Laboratory Corporation of America Holdings
(LabCorp), and CELLective DX Corporation. Dr. Billings’
clinical experience includes senior administrative positions at El
Camino Hospital and the Veteran’s Administration and he
served as a physician at many medical centers. He has held numerous
academic appointments at prestigious universities including Harvard
University, Stanford University, U.C. Berkeley, and U.C. San
Francisco. He is a prolific author with nearly 200 publications and
books on genomic medicine. Dr. Billings holds an M.D. from
Harvard Medical School and a Ph.D. in immunology, also from
Harvard University. Dr. Billings is a nationally
recognized expert on genomic and precision medicine, and his
extensive medical and managerial experience in the field of
personalized medicine qualifies him to serve as our
director.
Other Key Consultants and Employees
Michael J. Donovan, Ph.D., M.D.
Dr. Donovan joined the company as a
consultant (acting chief medical officer) as of August 1,
2015. Dr. Donovan is board-certified in anatomic and clinical
pathology and pediatric pathology with extensive experience in
designing and implementing clinical studies. He has spearheaded the
utilization of multiplex tissue and fluid-based assays and coupled
mathematic applications to produce clinically relevant
diagnostic/predictive/prognostic outcome models for a variety of
tumor types and disease states. Dr. Donovan also serves as a
Professor of Experimental Pathology and Director of the
Biorepository and Pathology core at the Icahn School of Medicine at
Mt. Sinai, New York City, New York. In addition to an academic
career at Harvard Medical School and Boston Children’s
Hospital, Dr. Donovan has over 20 years’ experience in the
biotechnology industry, serving in various senior management roles
at Millennium Pharmaceuticals and Incyte Pharmaceuticals. He most
recently served as chief medical officer of Exosome Diagnostics,
Inc. and chief scientific officer for Aureon Biosciences
Corporation. Dr. Donovan graduated from Rutgers University with a
BS in zoology, a MS in endocrinology and a PhD in cell and
developmental biology. He received his MD from the University of
Medicine and Dentistry of New Jersey.
Rick Pierce.
Mr. Pierce
commenced working with the company as a consultant, as vice
president of investor relations as of March 1, 2015. Mr. Pierce is
the founder of FEP Capital Advisors, LLC, which provides investor
relations and corporate development services to biotech, specialty
pharmaceuticals and medical device companies. He has been involved
in the up-listing of two OTCBB listed companies to the NASDAQ and
NYSE stock exchanges. Mr. Pierce has 31 years of experience in
specialty pharma, biotech, medical device and diagnostics
operations and finance. He has a comprehensive understanding and
broad exposure to most aspects of medical device and drug
development from preclinical development, chemistry and
manufacturing controls, through commercial product launch. Prior to
entering industry in 1998, Mr. Pierce spent several years on Wall
Street at firms including Merrill Lynch and Lehman Brothers, where
he placed over a billion dollars in equity and debt securities. He
has extensive capital markets and investment banking experience
including, IPOs, secondary offerings, PIPEs, M&A, sales and
trading. He has been involved in U.S./cross border pharmaceutical
and biotech business development since 1994 and involved in closing
a number of strategic transactions. At his last three companies
Javelin Pharmaceuticals, Inc., SemBioSys Genetics and GlycoGenesys,
Inc., Mr. Pierce helped raise more than $335 million and
successfully close a number of transformative business development
deals, including the buyout of Javelin Pharmaceuticals by Hospira
(now Pfizer).
Scientific and Clinical Advisory Board
Effective as of October 24, 2012, the board of directors formally
established a Scientific Advisory Board whose primary
responsibilities include advising our management and the board on
the long-term direction of our scientific and research goals and a
Clinical Advisory Board whose primary responsibilities include
advising our management and the Board on the most efficient
translation of our scientific and research discoveries to clinical
practice. We are in the process of reconstituting our Scientific
and Clinical Advisory Board based on our Rx/Dx strategy and expect
to enter into new Scientific and Clinical Advisory Board consulting
contracts for the year ending February 28, 2018. We currently have
consulting contracts with Bruce Zetter, Ph.D. and Frank Gertler,
Ph.D. for scientific advisory services.
Bruce R. Zetter, Ph.D.
Dr.
Bruce Zetter serves as chief scientific officer and vice president
of research at Boston Children's Hospital and the Charles
Nowiszewski Professor of Cancer Biology at Harvard Medical School.
Dr. Zetter serves as a consultant and scientific advisor to major
biotechnology and pharmaceutical companies. He is highly regarded
nationally and internationally as a leader in the research of tumor
angiogenesis, progression, cancer diagnosis, and cancer metastasis.
He served as head of scientific advisors at ProNAi Therapeutics,
Inc. since November 2012. He served as a medical & scientific
advisor of Mersana Therapeutics Inc. He co-founded Predictive
Biosciences Inc. in 2006. Dr. Zetter served as an expert witness
for the United States Senate Cancer Coalition hearings in
Washington, DC. He serves as chairman of Scientific Advisory Board
of the Scientific Advisory Board of SynDevRx, Inc., and Cerulean
Pharma Inc. He served as chairman of Scientific Advisory Board of
Tempo Pharmaceuticals Inc. and Predictive Biosciences, Inc. He
serves as member of Scientific Advisory Board at Blend
Therapeutics, Inc. He serves as member of Scientific & Medical
Advisory Board at ProNAi Therapeutics, Inc. Dr. Zetter serves as a
member of the board of directors and member of Advisory Board of
Attenuon, LLC. Dr. Zetter serves on the Advisory Boards of Angstrom
Pharmaceuticals and GMP Companies. He also serves on several grant
review boards for public agencies such as the American Heart
Association and American Cancer Society, and serves on the
editorial board of 11 peer-reviewed journals. Dr. Zetter served as
member of Scientific Advisory Board of Tempo Pharmaceuticals Inc.,
Synta Pharmaceuticals Corp., and BioTrove, Inc. His research
interests focus on tumor metastasis and on identifying diagnostic
and prognostic markers that can guide treatment decisions. He has
chaired the grant review board on breast and prostate cancer for
the National Institutes of Health. Dr. Zetter is a pioneer in
understanding how cell movement affects tumor metastasis and is
recognized for his key discovery of the inhibitory effects of alpha
interferon to endothelial cell locomotion. His work led to the use
of interferon alpha to treat hemangiomas. Dr. Zetter serves as a
professor in the Department of Surgery at Harvard Medical School
since 1978. Dr. Zetter has won numerous national and international
awards for his work in the field of cancer research including a
Faculty Research Award from the American Cancer Society and the
prestigious MERIT award from the US National Cancer Institute. He
has also received three teaching awards from the students at
Harvard Medical School for excellence as a teacher and as a course
director. He has authored more than 100 articles and has more than
20 patents to his credit. Dr. Zetter received a B.A. degree in
Anthropology from Brandeis University. Dr. Zetter earned his Ph.D.
from University of Rhode Island and he completed postdoctoral
fellowships at Massachusetts Institute of Technology (MIT) and the
Salk Institute in San Diego.
Frank B. Gertler, Ph.D.
Dr.
Frank Gertler received his B.S. degree from the University of
Wisconsin-Madison in 1985. During his post-graduate thesis work at
the University of Wisconsin-Madison, Dr. Gertler discovered the
Enabled (Ena) gene in a search for functional downstream targets of
signaling by the Drosophila homolog of the c-Abl proto-oncogene. He
proceeded to demonstrate that Abl and Ena function were key
components of the machinery required to establish normal
connections during development of the nervous system. After
receiving his Ph.D. in Oncology and Genetics in 1992, Dr. Gertler
trained as a Postdoctoral Fellow in the laboratory of Philippe
Soriano at the Fred Hutchinson Center for Cancer Research from 1993
through 1997. During this time, he cloned Mena, the mammalian
homolog of Drosophila Ena, and discovered a family of related
molecules, the “Ena/VASP” proteins. In 1997, Dr.
Gertler joined the Biology Department at the Massachusetts
Institute of Technology (MIT). His laboratory continued to work on
Mena and the related Ena/VASP proteins and described pivotal roles
for these proteins in controlling cell movement, shape and adhesion
during fetal development. In 2005, Dr. Gertler moved to the MIT
Center for Cancer Research and began to work on the role of Mena in
metastatic progression and launched other efforts geared at
understanding how the control of cell motility is dysregulated
during metastatic diseases. Currently, Dr. Gertler is a Full
Professor in the Koch Institute for Integrative Cancer Research at
MIT and a member of the MIT Biology Department.
Renato T. Skelj, Ph.D
. Dr. Skerlj serves as
Vice President of Drug Discovery and Preclinical Development at
Lysosomal Therapeutics Inc. Dr. Skerlj is a co-founder and a Member
of Scientific Advisory Board of X4 Pharmaceuticals Inc. and
co-founder of Noliva Therapeutics. He has over 25 years of
pharmaceutical experience in the discovery and development of small
molecule drugs to treat cancer, infection and immune mediated
disease, resulting in two marketed drugs: Invanz® and
Mozobil® and multiple drugs in clinical development.
Previously, Dr. Skerlj served as the Head of Small Molecule
Discovery at Genzyme, prior to its acquisition by Sanofi, where he
was responsible for medicinal chemistry, in vitro biology,
pharmacology and DMPK. He served as Vice President of Chemistry for
AnorMED Inc., a publicly-traded company acquired by Genzyme for
$580 million in 2006. Prior to AnorMED Inc., Dr. Skerlj served as a
Senior Research Chemist at Merck & Co., Inc. and Senior
Scientist at Johnson Matthey's biomedical research group. Dr.
Skerlj earned his doctorate from the University of British Columbia
and completed a fellowship at the University of Oxford in Dr.
Stephen Davies’ laboratory.
Family Relationships
There are no family relationships between any of our directors or
executive officers.
Code of Ethics
We adopted a Code of Ethics that applies to all directors, officers
and employees. Our Code of Ethics is available on our website
at
www.metastat.com
.
A copy of our code of ethics will also be provided to any person
without charge, upon written request sent to us at our offices
located at 27 Drydock Ave., 2nd Floor, Boston, Massachusetts
02210.
Corporate Governance
Board Leadership Structure
Our board of directors (the “Board”) has a chairman,
currently Dr. Zeldis, who has authority, among other things, to
call and preside over board meetings, to set meeting agendas and to
determine materials to be distributed to the board of directors.
Accordingly, the chairman has substantial ability to shape the work
of the board of directors.
The positions of chief executive officer and chairman of our Board
are held by different persons. The chairman of our Board, Dr.
Zeldis, chairs director and any stockholder meetings and
participates in preparing their agendas. Mr. Hamilton serves as a
focal point for communication between management and the Board
between board meetings, although there is no restriction on
communication between directors and management. Mr. Hamilton serves
as our chief executive officer as well as a member of our Board. We
believe that these arrangements afford the other members of our
Board sufficient resources to supervise management effectively,
without being overly engaged in day-to-day operations.
Dr. Zeldis also serves as lead independent director for our Board
and Dr. Billings serves as an independent director.
We believe that there is a weakness in our current leadership
structure as a result of the current and ongoing restructuring of
our Board. The Company intends to appoint independent directors to
the Board and to chair each committee of our Board as soon as
reasonably possible. The Board considers all of its members equally
responsible and accountable for oversight and guidance of its
activities.
Board Committees
Effective as of October 24, 2012, the Board established an Audit
Committee, a Nominating and Corporate Governance Committee and a
Compensation Committee.
Currently, Dr. Zeldis, Dr. Billings, and Mr. Hamilton will serve on
each of the Audit Committee, Nominating and Corporate Governance
Committee and Compensation Committee, until such time that the
Company shall appoint independent directors to fulfil the
requirements of such committees.
Board Practices
Our business and affairs are managed under the direction of our
Board. The primary responsibilities of our Board are to provide
oversight, strategic guidance, counseling and direction to our
management.
Policy Regarding Board Attendance
Our directors are expected to attend meetings of the Board as
frequently as necessary to properly discharge their
responsibilities and to spend the time needed to prepare for each
such meeting. Our directors are expected to attend annual meetings
of stockholders, but we do not have a formal policy requiring them
to do so.
Shareholder Communications
We have a process for shareholders who wish to communicate with our
board of directors. Shareholders who wish to communicate with the
board may write to it at our address given above. These
communications will be reviewed by one or more of our employees
designated by the board, who will determine whether they should be
presented to the board. The purpose of this screening is to allow
the board to avoid having to consider irrelevant or inappropriate
communications.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
or the Exchange Act, requires our executive officers, directors and
persons who beneficially own more than 10% of a registered class of
our equity securities to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in
ownership of our common stock and other equity securities. These
executive officers, directors, and greater than 10% beneficial
owners are required by SEC regulation to furnish us with copies of
all Section 16(a) forms filed by such reporting
persons.
Based solely on our review of such forms furnished to us and
written representations from certain reporting persons, we believe
that during the fiscal year ended February 28, 2017, all filing
requirements applicable to our executive officers, directors and
greater than 10% beneficial owners were filed in a timely manner,
except that Dr. Bronsther, Mr. Berman, Mr. Driscoll and Mr.
Hamilton failed to timely file Form 4s with respect to their
participation in the private placement of our common stock on
October 30, 2016, in connection with their exchange of Series B
Preferred. Additionally, Mr. Schneiderman failed to timely file a
Form 4 in February 2016 in connection with an option issuance, and
Mr. Hamilton failed to timely file a Form 4 in November 2016 in
connection with purchases of our common stock.
Nominees to the Board of Directors
The Board will consider director candidates recommended by security
holders. Potential nominees to the Board are required to have such
experience in business or financial matters as would make such
nominee an asset to the Board and may, under certain circumstances,
be required to be “independent”, as such term is
defined under Rule 5605 of the listing standards of NASDAQ and
applicable SEC regulations. Security holders wishing to submit the
name of a person as a potential nominee to the Board must send the
name, address, and a brief (no more than 500 words) biographical
description of such potential nominee to the Board at the following
address: Richard Berman, Chairman of the Board of Directors,
MetaStat, Inc., 27 Drydock Ave., 2nd Floor, Boston, MA 02210.
Potential director nominees will be evaluated by personal
interview, such interview to be conducted by one or more members of
the Board, and/or any other method the Board deems appropriate,
which may, but need not, include a questionnaire. The Board may
solicit or receive information concerning potential nominees from
any source it deems appropriate. The Board need not engage in an
evaluation process unless (i) there is a vacancy on the Board, (ii)
a director is not standing for re-election, or (iii) the Board does
not intend to recommend the nomination of a sitting director for
re-election. A potential director nominee recommended by a security
holder will not be evaluated differently from any other potential
nominee. Although it has not done so in the past, the Board may
retain search firms to assist in identifying suitable director
candidates.
The Board does not have a formal policy on Board candidate
qualifications. The Board may consider those factors it deems
appropriate in evaluating director nominees made either by the
Board or stockholders, including judgment, skill, strength of
character, experience with businesses and organizations comparable
in size or scope to the Company, experience and skill relative to
other Board members, and specialized knowledge or experience.
Depending upon the current needs of the Board, certain factors may
be weighed more or less heavily. In considering candidates for the
Board, the directors evaluate the entirety of each
candidate’s credentials and do not have any specific minimum
qualifications that must be met. “Diversity,” as such,
is not a criterion that the Board considers. The directors will
consider candidates from any reasonable source, including current
Board members, stockholders, professional search firms or other
persons. The directors will not evaluate candidates differently
based on who has made the recommendation.
Limitation of Liability and Indemnification of Officers and
Directors
We are a Nevada corporation and generally governed by the Nevada
Private Corporations Code, Title 78 of the Nevada Revised Statutes,
or NRS. Our officers and directors are indemnified as provided
by NRS and our bylaws.
Section 78.138 of the NRS provides that, unless the
corporation’s articles of incorporation provide otherwise, a
director or officer will not be individually liable unless it is
proven that (i) the director’s or officer’s acts or
omissions constituted a breach of his or her fiduciary duties, and
(ii) such breach involved intentional misconduct, fraud, or a
knowing violation of the law. Our articles of incorporation provide
the personal liability of our directors is eliminated to the
fullest extent permitted under the NRS.
Section 78.7502 of the NRS permits a company to indemnify its
directors and officers against expenses, judgments, fines, and
amounts paid in settlement actually and reasonably incurred in
connection with a threatened, pending, or completed action, suit,
or proceeding, if the officer or director (i) is not liable
pursuant to NRS 78.138, or (ii) acted in good faith and in a manner
the officer or director reasonably believed to be in or not opposed
to the best interests of the corporation and, if a criminal action
or proceeding, had no reasonable cause to believe the conduct of
the officer or director was unlawful. Section 78.7502 of the NRS
requires a corporation to indemnify a director or officer that has
been successful on the merits or otherwise in defense of any action
or suit. Section 78.7502 of the NRS precludes
indemnification by the corporation if the officer or director has
been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals, to be liable to the corporation or for
amounts paid in settlement to the corporation, unless and only to
the extent that the court determines that in view of all the
circumstances, the person is fairly and reasonably entitled to
indemnity for such expenses and requires a corporation to indemnify
its officers and directors if they have been successful on the
merits or otherwise in defense of any claim, issue, or matter
resulting from their service as a director or officer.
Section 78.751 of the NRS permits a Nevada company to indemnify its
officers and directors against expenses incurred by them in
defending a civil or criminal action, suit, or proceeding as they
are incurred and in advance of final disposition thereof, upon
determination by the stockholders, the disinterested board members,
or by independent legal counsel. If so provided in the
corporation’s articles of incorporation, bylaws, or other
agreement, Section 78.751 of the NRS requires a corporation to
advance expenses as incurred upon receipt of an undertaking by or
on behalf of the officer or director to repay the amount if it is
ultimately determined by a court of competent jurisdiction that
such officer or director is not entitled to be indemnified by the
company. Section 78.751 of the NRS further permits the company to
grant its directors and officers additional rights of
indemnification under its articles of incorporation, bylaws, or
other agreement.
Section 78.752 of the NRS provides that a Nevada company may
purchase and maintain insurance or make other financial
arrangements on behalf of any person who is or was a director,
officer, employee, or agent of the company, or is or was serving at
the request of the company as a director, officer, employee, or
agent of another company, partnership, joint venture, trust, or
other enterprise, for any liability asserted against him and
liability and expenses incurred by him in his capacity as a
director, officer, employee, or agent, or arising out of his status
as such, whether or not the company has the authority to indemnify
him against such liability and expenses.
Our bylaws implement the indemnification provisions permitted by
Chapter 78 of the NRS by providing that we shall indemnify our
directors and officers to the fullest extent permitted by the NRS
against expense, liability, and loss reasonably incurred or
suffered by them in connection with their service as an officer or
director. Our bylaws provide shall advance costs and
expenses incurred with respect to any proceeding to which a person
is made a party as a result of being a director or officer in
advance of final disposition of such proceeding upon receipt of an
undertaking by or on behalf of the director or officer to repay
such amount if it is ultimately determined that such person is not
entitled to indemnification. We may purchase and maintain liability
insurance, or make other arrangements for such obligations or
otherwise, to the extent permitted by the NRS.
At the present time, there is no pending litigation or proceeding
involving a director, officer, employee, or other agent of ours in
which indemnification would be required or permitted. We are not
aware of any threatened litigation or proceeding that may result in
a claim for such indemnification.
Summary Compensation Table
The following table sets forth the compensation paid or accrued by
us to our chief executive officer and chief financial officer. For
each of our last two completed fiscal years, no other
officer’s compensation exceeded $100,000 in each
year.
Name and Principal Position
|
Fiscal Year
Ended
February 28/29
|
|
|
|
|
All
Other
Compensation
($)
|
|
|
|
|
|
|
|
|
|
|
|
Douglas A. Hamilton, President, CEO
and
Director
(2)
|
2017
|
260,000
|
-
|
-
|
452,534
|
-
|
712,534
|
|
Douglas A. Hamilton, President, CEO and
Director
(2)
|
2016
|
287,213
|
-
|
-
|
221,100
|
-
|
508,313
|
|
|
|
|
|
|
|
|
|
Daniel
H. Schneiderman, VP, Finance
|
2017
|
165,000
|
-
|
-
|
169,701
|
-
|
334,701
|
|
Daniel
H. Schneiderman, VP, Finance
|
2016
|
165,000
|
5,000
|
-
|
53,650
|
-
|
223,650
|
|
|
|
|
|
|
|
|
|
Oscar L. Bronsther, Former CEO and CMO
(3)
|
2017
|
-
|
-
|
-
|
-
|
138,185
|
138,185
|
|
Oscar L. Bronsther, Former CEO and CMO
(3)
|
2016
|
174,207
|
-
|
-
|
85,867
|
2,000
|
262,074
|
|
|
|
|
|
|
|
|
|
Mark Gustavson, Former VP, Diagnostics
(4)
|
2017
|
5,192
|
207
|
-
|
-
|
-
|
5,399
|
|
Mark Gustavson, Former VP, Diagnostics
(4)
|
2016
|
150,000
|
6,000
|
-
|
53,650
|
-
|
209,650
|
(1)
Reflects
the aggregate grant date fair value computed in accordance with
FASB ASC Topic 718.
(2)
Mr.
Hamilton was appointed President and Chief Executive Officer
effective June 17, 2015 and Director effective as of May 4, 2017.
From August 1, 2014 through June 16, 2015, Mr. Hamilton served as a
consultant to the Company through New Biology Ventures, LLC. Salary
for the year ended February 29, 2016 includes $103,046 of
consulting fees paid to New Biology Ventures, LLC, $119,167 of
salary, $65,000 of accrued and unpaid salary, and excludes $15,200
of accrued stock-based compensation to New Biology Ventures, of
which, Mr. Hamilton agreed to cancel without replacement and will
not be issued any shares in connection with such stock-based
compensation. Salary for the year ended February 28, 2017 includes
$97,500 of paid salary and $162,500 of accrued and unpaid
salary.
(3)
Dr.
Bronsther resigned as Chief Executive Officer and Chief Medical
Officer effective June 17, 2015 and entered into a consulting
agreement with the Company effective as of June 17, 2015. Salary
for the year ended February 29, 2016 includes $64,039 of paid
consulting fees and $57,780 of accrued and unpaid consulting
fees.
(4)
Mr.
Gustavson resigned as Vice President, Diagnostics effective March
11, 2016.
Employment Agreements with Executive Officers
Employment Agreement with Douglas A. Hamilton
Effective as of June 17, 2015, we entered into an employment
agreement with Douglas A. Hamilton to serve as our president and
chief executive officer for a term of two year, which expired on
June 16, 2017. The employment agreement with Mr. Hamilton provided
for a base salary of $260,000 and an annual milestone bonus, at the
sole discretion of the board of directors and the compensation
committee, equal to 150% of Mr. Hamilton’s compensation
thereunder, based on his attainment of certain financial, clinical
development, and/or business milestones to be established annually
by the Company’s board of directors or compensation
committee. The employment agreement was terminable by
either party at any time. In the event of termination by the
Company without cause or by Mr. Hamilton for good reason not in
connection with a change of control, as those terms are defined in
the agreement, he was entitled to six months’ severance. In
the event of termination by the Company without cause or by Mr.
Hamilton for good reason in connection with a change of control, as
those terms are defined in the agreement, he was entitled to twelve
months’ severance.
The
employment agreement contained standard confidential and
proprietary information, and one-year non-competition and
non-solicitation provisions.
We
expect to enter into a new employment agreement with Mr. Hamilton
on substantially similar terms to his prior employment
agreement.
Employment Agreement with Daniel H. Schneiderman
Effective as of May 27, 2013, we entered into an employment
agreement with Daniel H. Schneiderman, to serve as our vice
president of finance and secretary. The employment agreement with
Mr. Schneiderman provides for a base salary of $125,000, and an
annual milestone bonus upon the attainment of certain financial,
clinical development and/or business milestones to be established
annually by our board of directors or compensation
committee. Effective October 1, 2014, the compensation
committee and board of directors authorized an increase to Mr.
Schneiderman’s annual base salary to $165,000. The employment
agreement is terminable by either party at any time. In the event
of termination by us without cause or by Mr. Schneiderman for good
reason not in connection with a change of control, as those terms
are defined in the agreement, he is entitled to six months’
severance. In the event of termination by us without cause or by
Mr. Schneiderman for good reason in connection with a change of
control, as those terms are defined in the agreement, he is
entitled to twelve months’ severance.
Consulting Agreements with Key Consultants
Consulting Agreement with Michael J. Donovan, Ph.D.,
M.D.
Effective as of August 1, 2015, the Company and Dr. Donovan entered
into a consulting agreement, as amended, whereby Dr. Donovan will
serve as the Company’s acting Chief Medical Officer. Dr.
Donovan was paid a $12,500 retainer upon signing and will be paid
at a rate of $400 per hour up to a maximum of $2,500 per day. The
term of the agreement extends through December 31, 2017 and may be
terminated by either party with thirty days’
notice.
Consulting Agreement with Rick Pierce
Effective March 1, 2015, the Company and Mr. Pierce, through an
affiliated limited liability company, entered into a consulting
agreement whereby Mr. Pierce will perform internal investor
relations activities for a minimum of ten days per month. Mr.
Pierce will be paid a fee of $6,500 per month of service. The term
of the agreement was twelve months and is automatically extended
for 12 month periods unless terminated by either party in writing.
Additionally, either party may terminate the consulting agreement
with 30 days’ written notice. In connection with the
consulting agreement, Mr. Pierce was issued an aggregate of 6,667
stock options, which vest based on achieving certain market based
and milestone based conditions.
Director Compensation
The following table sets forth certain information concerning
compensation paid or accrued to our non-executive directors during
the year ended February 28, 2017.
|
|
Fees Earned or Paid in Cash ($)
|
|
|
Non-Equity Incentive Plan Compensation ($)
|
Change in Pension Value and Nonqualified Deferred Compensation
Earnings
|
All Other Compensation ($)
|
|
|
Jerome B. Zeldis
(2)
|
$
-
|
-
|
185,500
|
-
|
-
|
-
|
$
185,500
|
|
Richard C. Berman
(3)
|
$
-
|
-
|
144,525
|
-
|
-
|
-
|
$
144,525
|
(1)
Reflects
the aggregate grant date fair value computed in accordance with
FASB ASC Topic 718. Each non-executive director was issued an
aggregate of 20,000 stock options.
(2)
Dr.
Zeldis was issued options to purchase 100,000 shares of common
stock at $2.19 per share on May 26, 2016. 50,000 options vest in
three equal installments on each of May 26, 2017, May 26, 2018, and
May 26, 2019, and 50,000 options vest upon achieving a certain
milestone.
(3)
Mr. Berman
was
issued options to purchase 100,000 shares of common stock at $2.00
per share on July 7, 2016. 33,334 options vested immediately and
the remaining 66,666 options are subject to time-based vesting. At
issuance the grant date fair value of these options was $144,525.
Effective November 30, 2016, Mr. Berman voluntarily cancelled the
100,000 options. Mr. Berman resigned as a director in May
2017.
Employee Benefits Plans
Pension Benefits
We do not sponsor any qualified or non-qualified pension benefit
plans.
Nonqualified Deferred Compensation
We do not maintain any non-qualified defined contribution or
deferred compensation plans.
Severance Arrangements
The employment agreement with Daniel H. Schneiderman provides that
in the event of termination by us without cause or by the
executives for good reason not in connection with a change of
control, as those terms are defined in the agreement, such
executive is entitled to six months’ severance. In the event
of termination by us without cause or by the executive for good
reason in connection with a change of control, as those terms are
defined in the agreement, such executive is entitled to twelve
months’ severance.
Outstanding Equity Awards at February 28, 2017
The following table summarizes the number of securities underlying
outstanding 2012 Incentive Plan awards for each named executive
officer as of February 28, 2017.
|
|
|
|
|
|
Equity Incentive Plan
Awards:
|
Equity Incentive Plan
Awards:
|
|
Name
|
Number of
securities
underlying
unexercised
options (#)
exercisable
|
Number of
securities
underlying
unexercised
options (#)
unexercisable
|
Number of
securities
underlying
unexercised
unearned
options (#)
|
Option
exercise
price ($)
|
|
Number of
shares of
stock that
have not vested
(#)
|
Market
value of
shares of
stock that
have not vested
($) (1)
|
Number
of
unearned shares
that
have not
vested
(#)
|
Market or
payout value
of unearned
shares that
have not
vested
($) (1)
|
|
Douglas
A. Hamilton
|
20,000
|
-
|
40,000
|
$
8.25
|
6/17/2025
|
-
|
$
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel
H. Schneiderman
|
20,000
|
-
|
-
|
$
3.55
|
2/3/2026
|
-
|
$
-
|
-
|
-
|
|
|
3,334
|
-
|
-
|
$
48.75
|
4/5/2023
|
-
|
$
-
|
-
|
-
|
|
|
3,667
|
-
|
-
|
$
10.20
|
1/6/2022
|
|
$
|
-
|
-
|
|
|
-
|
-
|
-
|
$
|
|
1,334
|
$
2,401
|
|
|
(1)
Market
value based on closing price of common stock at February 28,
2017.
The following table summarizes the number of securities underlying
awards that fall outside of the 2012 Incentive Plan for each named
executive officer as of February 28, 2017.
|
|
|
|
|
|
Equity Incentive Plan Awards:
|
Equity Incentive Plan Awards:
|
|
Name
|
Number of
securities
underlying
unexercised
options (#)
exercisable
|
Number of
securities
underlying
unexercised
options (#)
unexercisable
|
Number of
securities
underlying
unexercised
unearned
options (#)
|
Option
expiration
price
($)
|
|
Number of
shares of
stock that
have not vested
(#)
|
Market
value of
shares of
stock that
have not vested
($) (1)
|
Number
of
unearned shares
that
have not
vested
(#)
|
Market or
payout value
of unearned
shares that
have not
vested
($) (1)
|
|
Douglas
A. Hamilton
|
88,886
|
231,114
|
-
|
$
2.00
|
7/7/2026
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
Daniel
H. Schneiderman
|
33,336
|
86,664
|
-
|
$
2.00
|
7/7/2026
|
-
|
-
|
-
|
-
|
|
|
11,112
|
8,888
|
-
|
$
16.50
|
10/14/2024
|
-
|
-
|
-
|
-
|
(1)
Market
value based on closing price of common stock at February 28,
2017.
SECURITY OWNERSHI
P
OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding
beneficial ownership of our Common Stock as of September
29
, 2017 by (i) each person (or group of affiliated
persons) who is known by us to own more than five percent of the
outstanding shares of our Common Stock, (ii) each director and
executive officer, and (iii) all of our directors and executive
officers as a group.
Beneficial ownership is determined in accordance with SEC rules and
generally includes voting or investment power with respect to
securities. Unless otherwise noted, the address of each stockholder
listed below is 27 Drydock Ave. 2nd Floor, Boston, MA
02210.
We had 5,677,383 shares of Common Stock outstanding as of September
29
, 2017.
|
Names and Addresses of Beneficial Owners
|
Amount and Nature of Beneficial Ownership (1)
|
|
|
Douglas
A. Hamilton, President and Chief Executive Officer (3)
|
427,013
|
7.0
%
|
|
Daniel H. Schneiderman, Vice President of Finance
and Secretary
(4)
|
217,169
|
3.7
%
|
|
Jerome
B. Zeldis, M.D., Ph.D., Chairman of the Board of Directors
(5)
|
120,000
|
2.1
%
|
|
Paul
Billings, M.D., Ph.D., Director (6)
|
-
|
*
|
|
All
Directors and Officers as a Group (4 Persons)
|
764,182
|
12.0
%
|
|
|
|
|
* Less
than 1%
|
|
(1)
|
Beneficial ownership is determined in accordance
with the rules of the SEC and generally includes voting or
investment power with respect to securities. Shares of our Common
Stock subject to securities anticipated to be exercisable or
convertible at or within 60 days of the date hereof, are deemed
outstanding for computing the percentage of the person holding such
option or warrant but are not deemed outstanding for computing the
percentage of any other person. The indication herein that shares
are anticipated to be beneficially owned is not an admission on the
part of the listed stockholder that he, she or it is or will be a
direct or indirect beneficial owner of those
shares
.
|
|
|
(2)
|
Based on 5,677,383 shares of Common Stock
outstanding as of September 29
, 2017.
|
|
|
(3)
|
Consists
of (i) 47,013 shares of Common Stock, (ii) 135,550 shares of Common
Stock underlying vested options. Also, includes 244,450 shares of
Common Stock underlying unvested options subject to certain
time-based and milestone vesting. Excludes 6,241 shares of Common
Stock underlying warrants with 4.9% and 9.9% ownership
blockers.
|
|
|
(4)
|
Consists
of (i) 23,834 shares of Common Stock, (ii) 1,334 restricted shares
of Common Stock issued pursuant to the 2012 Incentive Plan that
vest and become transferable upon the listing of the Common Stock
on a national securities exchange, (iii) 81,451 shares of Common
Stock underlying vested options. Also, includes 110,550
shares of Common Stock underlying unvested options subject to
certain time-based and performance milestone vesting.
|
|
|
(5)
|
Consists
of (i) 20,000 shares of Common Stock, (ii) 16,666 shares of Common
Stock underlying vested options. Also, includes 83,332 shares of
Common Stock underlying unvested options subject to certain
time-based and performance milestone vesting.
|
CERTAIN RELATIONSHIPS A
N
D RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Related Party Transactions
None
We are registering for resale shares of our Common Stock, including
shares of Common Stock issuable upon conversion of the Series A-2
Preferred, conversion of the Series B Preferred, and exercise of
the Warrants, held by the selling stockholders identified
below. We are registering the shares to permit the
selling stockholders and their pledgees, donees, transferees and
other successors-in-interest that receive their shares from a
selling stockholder as a gift, partnership distribution or other
non-sale related transfer after the date of this prospectus to
resell the shares when and as they deem appropriate in the manner
described in the “Plan of Distribution.” The
following selling stockholder tables set forth:
●
the name of the selling stockholders;
●
the number of shares of Common Stock beneficially owned by the
selling stockholders prior to the offering for resale of the shares
under this prospectus;
●
the maximum number of shares of Common Stock that may be offered
for resale for the account of the selling stockholders under this
prospectus; and
●
the number and percentage of shares of Common Stock to be
beneficially owned by the selling stockholders after the offering
of the shares (assuming all of the offered shares are sold by the
selling stockholders).
Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission, or SEC. In
computing the number of shares beneficially owned by a person and
the percentage ownership of that person, securities that are
currently convertible or exercisable into shares of our Common
Stock, including the Series A-2 Preferred Stock, the Series B
Preferred Stock and the Warrants, or other securities convertible
or exercisable into shares of our Common Stock within 60 days of
the date hereof are deemed outstanding. Such shares, however, are
not deemed outstanding for the purposes of computing the percentage
ownership of any other person. Except as indicated in the footnotes
to the following tables, each selling stockholder has sole voting
and investment power with respect to the shares set forth opposite
such stockholder’s name.
As of the date of this prospectus, there were 5,677,383 shares of
our Common Stock issued and outstanding.
Other than Douglas A. Hamilton, Oscar Bronsther, David N. Siegel
Revocable Trust, a trust controlled by David N. Siegel, T-S Capital
Partners, LLC, a corporation controlled by David N. Siegel, Johan
M. (Thijs) Spoor, Richard Berman, David M. Epstein, Northstar
Beacon, LLC an entity controlled by David M. Epstein, Martin J.
Driscoll, and MKM Opportunity Master Fund, Ltd., none of the
selling stockholders listed in any of the below tables has been an
officer or director of us or any of our predecessors or affiliates
within the last three years, nor has any selling stockholder had a
material relationship with the Company except as described in the
footnotes below.
Each of Alere Financial Partners, a division of Cova Capital
Partners, LLC (“Cova Capital”) and Sutter Securities
Incorporated (“Sutter Securities”) acted as a placement
agent in connection with the Private Placements and received the
securities registered herein as placement agent
compensation. Each of these entities was registered under the
Securities Exchange Act of 1934 as a broker-dealer at the time.
Other than Cova Capital and Sutter Securities, none of the selling
stockholders listed below are broker-dealers. Such
entities received their securities as compensation in connection
with the Private Placements described in this
prospectus. Other than Michael Vasinkevich, James Cappuccio,
Noam Rubinstein, Mark Viklund, Charles Worthman, and Michael
Richard Jacks, none of the selling stockholders are affiliates of
broker-dealers. Each of Michael Vasinkevich, James Cappuccio, Noam
Rubinstein, Mark Viklund, Charles Worthman and Michael Richard
Jacks represented to us that they purchased the securities in the
ordinary course of business and at the time of purchase, had no
agreements or understandings, directly or indirectly, with any
person to distribute the securities.
The following table sets forth information regarding selling
stockholders that participated in the Private
Placements:
|
|
Shareholder
|
Beneficial
Ownership
Prior
to
the
Offering
|
Shares
of Common
Stock Included in
Prospectus
|
Beneficial Ownership
After the Offering
(1)
|
Percentage Owned After the Offering
|
|
2
|
ACT
Capital Partners, LP
|
732,718
|
195,000
|
-
|
-
|
|
3
|
Alere
Financial Partners, a division of Cova Capital Partners,
LLC
|
443,312
|
116,613
|
326,699
|
5.8
%
|
|
4
|
Alfred
Sollami & Anna Sollami JTWROS
|
37,500
|
37,500
|
-
|
-
|
|
5
|
Alon
Oren
|
14,043
|
14,043
|
-
|
-
|
|
6
|
American
European Insurance Company
|
916,072
|
234,830
|
408,912
|
7.2
%
|
|
7
|
Amir
L. Ecker
|
732,718
|
150,000
|
-
|
-
|
|
8
|
Anson
Investments Master Fund, L.P.
|
27,326
|
27,326
|
-
|
-
|
|
9
|
Aristotelis
Papageorge
|
7,500
|
7,500
|
-
|
-
|
|
10
|
Barry
Dennis
|
21,843
|
21,843
|
-
|
-
|
|
11
|
Brian
J. Lynch
|
56,774
|
56,774
|
-
|
-
|
|
12
|
Charles
Wilk
|
37,500
|
37,500
|
-
|
-
|
|
13
|
Charles
Worthman
|
252
|
92
|
160
|
0.0
%
|
|
14
|
Crossover
Healthcare Fund, LLC
|
215,305
|
73,470
|
141,835
|
2.5
%
|
|
15
|
David
M. Epstein
|
42,661
|
4,677
|
37,984
|
0.7
%
|
|
16
|
David
N. Siegel Revocable Trust
|
224,089
|
64,640
|
93,824
|
1.7
%
|
|
17
|
Dean
Delis Revocable Trust dated January 16, 2004
|
170,320
|
170,320
|
-
|
-
|
|
18
|
Dolphin
Offshore Partners, L.P.
|
2,827,123
|
1,055,949
|
1,771,174
|
31.2
%
|
|
19
|
Douglas
A. Hamilton
|
433,254
|
18,723
|
414,531
|
7.3
%
|
|
20
|
EFAY
Limited Partnership
|
30,000
|
30,000
|
-
|
-
|
|
21
|
Eisenberg
Family Foundation
|
85,103
|
85,103
|
-
|
-
|
|
22
|
Empery
Asset Master, Ltd
|
245,000
|
102,487
|
-
|
-
|
|
23
|
Empery
Tax Efficient, LP
|
245,000
|
36,305
|
-
|
-
|
|
24
|
Empery
Tax Efficient II, LP
|
245,000
|
106,208
|
-
|
-
|
|
25
|
Estate
of Leon Frenkel
|
44,030
|
44,030
|
-
|
-
|
|
26
|
Frank
J. Vozos
|
5,000
|
5,000
|
-
|
-
|
|
27
|
Frederick
E Pierce, II Living Trust dtd 1/28/2011
|
27,917
|
11,250
|
16,667
|
0.3
%
|
|
28
|
Howard
Szklut
|
7,500
|
7,500
|
-
|
-
|
|
29
|
IntraCoastal
Capital, LLC
|
21,257
|
21,257
|
-
|
-
|
|
30
|
James
Cappuccio
|
4,764
|
1,743
|
3,021
|
0.1
%
|
|
31
|
Jeremy
Garment
|
52,500
|
52,500
|
-
|
-
|
|
32
|
Johan
M. Spoor
|
39,441
|
14,310
|
25,131
|
0.4
%
|
|
33
|
John
Huber
|
7,500
|
7,500
|
-
|
-
|
|
34
|
Joseph
DiBenedetto, Jr.
|
33,636
|
33,636
|
-
|
-
|
|
35
|
Joseph
T. Odenthal Rollover IRA
|
49,728
|
18,750
|
30,978
|
0.5
%
|
|
36
|
Klaus
Kretschmer
|
136,340
|
86,774
|
49,566
|
0.9
%
|
|
37
|
LAN
Service Group, Inc.
|
37,500
|
37,500
|
-
|
-
|
|
38
|
Lawrence
Burstein
|
21,063
|
21,063
|
-
|
-
|
|
39
|
LCI
Capital LLC
|
131,057
|
131,057
|
-
|
-
|
|
40
|
Lincoln
Park Capital Fund, LLC
|
394,903
|
70,227
|
324,676
|
5.7
%
|
|
41
|
Marala
Funding LLC
|
87,752
|
56,774
|
30,978
|
0.5
%
|
|
42
|
Margaret
Amisano
|
9,354
|
9,354
|
-
|
-
|
|
43
|
Mark
Viklund
|
708
|
229
|
479
|
0.0
%
|
|
44
|
Martin
J. Driscoll
|
82,513
|
42,513
|
40,000
|
0.7
%
|
|
45
|
MAZ
Partners LP
|
150,758
|
84,251
|
66,507
|
1.2
%
|
|
46
|
Michael
N. Emmerman
|
325,289
|
201,375
|
123,914
|
2.2
%
|
|
47
|
Michael
R. Jacks
|
8,690
|
4,356
|
4,334
|
0.1
%
|
|
48
|
Michael
Vasinkevich
|
14,758
|
5,964
|
8,794
|
0.2
%
|
|
49
|
Nachum
and Feige Stein Foundation
|
916,072
|
56,250
|
408,912
|
7.2
%
|
|
50
|
Nachum
Stein
|
916,072
|
216,080
|
408,912
|
7.2
%
|
|
51
|
Noam
Rubinstein
|
3,134
|
1,147
|
1,987
|
0.0
%
|
|
52
|
Oscar
Bronsther
|
96,017
|
21,683
|
74,334
|
1.3
%
|
|
53
|
Pamela
R. and John J. Kaweske
|
22,500
|
22,500
|
-
|
-
|
|
54
|
Pankaj
Mohan
|
3,750
|
3,750
|
-
|
-
|
|
55
|
Perceptive
Life Sciences Master Fund, Ltd
|
1,989,132
|
750,000
|
1,239,132
|
21.8
%
|
|
56
|
Red
Dragon Corporation
|
149,392
|
60,794
|
88,598
|
1.6
%
|
|
57
|
Richard
Berman
|
86,880
|
42,551
|
44,329
|
0.8
%
|
|
58
|
Richard
Howard Morrison, IRA
|
84,251
|
84,251
|
-
|
-
|
|
59
|
Richard
Myers
|
106,480
|
69,306
|
37,174
|
0.7
%
|
|
60
|
Robert
J. and Sandra S. Neborsky Living Trust
|
39,537
|
23,403
|
16,134
|
0.3
%
|
|
61
|
Steven
E. Nelson, as trustee of the Steven E. Nelson Trust dated June 14,
1993, as amended
|
161,902
|
143,099
|
18,803
|
0.3
%
|
|
62
|
Steven
Geffon
|
7,500
|
7,500
|
-
|
-
|
|
63
|
Steven
W. Lefkowitz
|
45,088
|
37,500
|
7,588
|
0.1
%
|
|
64
|
Sutter
Securities Incorporated
|
5,898
|
3,564
|
2,334
|
0.0
%
|
|
65
|
T-S
Capital Partners, LLC
|
224,089
|
65,625
|
93,824
|
1.7
%
|
|
66
|
The
Ecker Family Partnership
|
732,718
|
56,250
|
-
|
-
|
|
67
|
Thomas
R. Martin Rollover IRA
|
15,000
|
15,000
|
-
|
-
|
|
68
|
|
46,806
|
46,806
|
-
|
-
|
|
TOTAL REGISTERABLE SECURITIES
|
15,136,589
|
5,342,875
|
6,362,225
|
112.1
%
|
|
1
|
Assumes all shares of Common Stock included in this prospectus are
sold.
|
|
2
|
Includes (i) 130,000 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 65,000 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements. Amir L. Ecker and
Carol G. Frankenfield, general partners, share the voting and
dispositive power over the securities held for the account of this
selling stockholder.
Beneficial ownership includes securities held by Amir L. Ecker (see
Footnote 7) and The Ecker Family Partnership (see Footnote 66). The
address for this selling stockholder is c/o ACT Capital, 100 W.
Lancaster Ave., Suite 110, Wayne, PA 19087. Beneficial ownership
after the Offering assumes all shares are sold, including by
affiliated entities.
|
|
3
|
Includes (i) 101,038 shares of Common Stock issuable upon exercise
of Warrants issued for investment banking services in connction
with the Additional 2016 Unit Private Placements, and (ii) 15,575
shares of Common Stock issuable upon exercise of Warrants issued
for investment banking services in connction with the 2016 Unit
Private Placements. Edward T. Gibstein, Chief Executive Officer,
has the voting and dispositive power over the securities held for
the account of this selling stockholder. At the time of the
acquisition of the Warrants, the selling stockholder did not have
any arrangements or understandings with any person to distribute
such securities.
|
|
4
|
Includes (i) 25,000 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 12,500 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements.
|
|
5
|
Includes (i) 9,362 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 4,681 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements.
|
|
6
|
Includes (i) 37,500 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, (ii) 64,204 shares of
Common Stock isuable upon conversion of the Series A-2 Preferred
Stock issued pursuant to the Additional 2016 Unit Private
Placements, (iii) 50,852 shares of Common Stock issuable upon
exercise of Warrants issued pursuant to the Additional 2016 Unit
Private Placements, (iv) 50,000 shares of Common Stock issued
pursuant to the 2016 Unit Private Placements, (v) 25,000 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the 2016 Unit Private Placements, and (vi) 7,274 shares of Common
Stock issuable upon exercise of Warrants issued pursuant to the OID
Note Private Placements. Nachum Stein, chairman, has the voting and
dispositive power over the securities held for the account of this
selling stockholder. Beneficial ownership includes securities held
by Nachum and Feige Stein Foundation (see Footnote 49) and Nachum
Stein (see Footnote 50). The address for this selling stockholder
is 605 3rd Ave., 9th Floor, New York, NY 10158. Beneficial
ownership after the Offering assumes all shares are sold, including
by affiliated entities.
|
|
7
|
Includes (i) 100,000 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 50,000 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements. Beneficial ownership
includes securities held by ACT Capital Partners, LP (see Footnote
2) and The Ecker Family Partnership (see Footnote 66). Beneficial
ownership after the Offering assumes all shares are sold, including
by affiliated entities.
|
|
8
|
Includes 27,326 shares of Common Stock issuable upon exercise of
Warrants issued pursuant to the 2016 Unit Private Placements.
AAnson Advisors Inc and Anson Funds Management LP, the
Co-Investment Advisers of Anson Investments Master Fund LP
(“Anson”), hold voting and dispositive power over the
shares of Common Stock ("Common Shares") held by Anson. Bruce
Winson is the managing member of Anson Management GP LLC, which is
the general partner of Anson Funds Management LP. Moez Kassam and
Adam Spears are directors of Anson Advisors Inc.. Mr. Winson, Mr.
Kassam and Mr. Spears each disclaim beneficial ownership of these
Common Shares except to the extent of their pecuniary interest
therein. The principal business address of Anson is 190 Elgin Ave;
George Town, Grand Cayman.
|
|
9
|
Includes (i) 5,000 shares of Common Stock issued pursuant to the
2016 Unit Private Placements, and (ii) 2,500 shares of Common Stock
issuable upon exercise of Warrants issued pursuant to the issued
pursuant to the 2016 Unit Private Placements.
|
|
10
|
Includes 21,843 shares of Common Stock issuable upon exercise of
Warrants issued pursuant to the Additional 2016 Unit Private
Placements.
|
|
11
|
Includes (i) 33,000 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, (ii) 16,500 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements, and (iii) 7,274 shares
of Common Stock issuable upon exercise of Warrants issued pursuant
to the OID Note Private Placements.
|
|
12
|
Includes (i) 25,000 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 12,500 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements.
|
|
13
|
Includes 92 shares of Common Stock issuable upon exercise of
Warrants issued for investment banking services in connection with
the 2016 Unit Private Placements. Charles Worthman is affiliated
with H.C. Wainwright & Co., LLC, whom acted as placement agent
in connection with the 2016 Unit Private Placement.
|
|
14
|
Includes (i) 1,701 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 71,769 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements. Navroze M. Alphonse,
managing member, has the voting and dispositive power over the
securities held for the account of this selling
stockholder.
|
|
15
|
Includes (i) 3,118 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 1,559 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements. Beneficial ownership
includes securities held by Northstar Beacon, LLC. David M. Epstein
is the principal of Northstar Beacon, LLC and has voting and
investment control over securities held by Northstar Beacon,
LLC.
|
|
16
|
Includes (i) 43,093 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 21,547 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements. Beneficial ownership
includes securities held by David N. Siegel and T-S Capital
Partners, LLC (see Footnote 65). Beneficial ownership after the
Offering assumes all shares are sold, including by affiliated
entities.
|
|
17
|
Includes (i) 99,000 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, (ii) 49,500 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements, and (iii) 21,820
shares of Common Stock issuable upon exercise of Warrants issued
pursuant to the OID Note Private Placements.
|
|
18
|
Includes (i) 230,000 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, (ii) 94,000 shares of
Common Stock isuable upon conversion of the Series A-2 Preferred
Stock issued pursuant to the Additional 2016 Unit Private
Placements, (iii) 162,000 shares of Common Stock issuable upon
exercise of Warrants issued pursuant to the Additional 2016 Unit
Private Placements, (iv) 29,092 shares of Common Stock ssuable upon
exercise of Warrants issued pursuant to the OID Note Private
Placements, (v) 87,272 shares of Common Stock issuable upon
exercise of Warrants issued pursuant to the Promissory Note Private
Placements, and (vi) 453,585 shares of Common Stock issuable upon
exercise of Series B Preferred Stock issued pursuant to the Series
B Private Placements. Peter E. Salas, general partner, has the
voting and dispositive power over the securities held for the
account of this selling stockholder.
|
|
19
|
Includes (i) 12,482 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 6,241 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements. Beneficial ownership
excludes 6,241 shares of Common Stock issuable upon exercise of
Warrants issued pursuant to the Additional 2016 Unit Private
Placements with 4.9% and 9.9% ownership blockers.
|
|
20
|
Includes (i) 20,000 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 10,000 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements. Lee Yaffe, general
partner, has the voting and dispositive power over the securities
held for the account of this selling stockholder.
|
|
21
|
Includes (i) 56,735 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 28,368 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements. Soloman Eisenberg,
member has the voting and dispositive power over the securities
held for the account of this selling stockholder.
|
|
22
|
Includes (i) 60,659 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 41,828 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements. Empery Asset
Management LP, the authorized agent of Empery Asset Master ltd
("EAM"), has discretionary authority to vote and dispose of the
shares held by EAM and may be deemed to be the beneficial owner of
these shares. Martin Hoe and Ryan Lane, in their capacity as
investment managers of Empery Asset Management LP, may also be
deemed to have discretion and voting power over these shares held
by EAM. EAM, Mr. Hoe and Mr. Lane each disclaim benefical ownership
of these shares. The address for this selling stockholder is c/o
Empery Asset Management, LP, 1 Rockefeller Plaza, Suite 1205, New
York, NY 10020. Beneficial ownership includes securities held by
Empery Tax Efficient, LP (see Footnote 23) and Empery Tax Efficient
II, LP (see Footnote 24). Beneficial ownership after the Offering
assumes all shares are sold, including by affiliated
funds.
|
|
23
|
Includes (i) 29,656 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 14,828 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements. Empery Asset
Management LP, the authorized agent of Empery Tax Efficient, LP
("ETE"), has discretionary authority to vote and dispose of the
shares held by ETE and may be deemed to be the beneficial owner of
these shares. Martin Hoe and Ryan Lane, in their capacity as
investment managers of Empery Asset Management LP, may also be
deemed to have discretion and voting power over these shares held
by ETE. ETE, Mr. Hoe and Mr. Lane each disclaim beneficial
ownership of these shares. The address for this selling stockholder
is c/o Empery Asset Management, LP, 1 Rockefeller Plaza, Suite
1205, New York, NY 10020. Beneficial ownership includes securities
held by Empery Asset Master, Ltd (see Footnote 22) and Empery Tax
Efficient II, LP (see Footnote 24). Beneficial ownership after the
Offering assumes all shares are sold, including by affiliated
funds.
|
|
24
|
Includes (i) 86,688 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 43,344 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements. Empery Asset
Management LP, the authorized agent of Empery Tax Efficient II, LP
("ETE II"), has discretionary authority to vote and dispose of the
shares held by ETE II and may be deemed to be the beneficial owner
of these shares. Martin Hoe and Ryan Lane, in their capacity as
investment managers of Empery Asset Management LP, may also be
deemed to have discretion and voting power over these shares held
by ETE II. ETE II, Mr. Hoe and Mr. Lane each disclaim beneficial
ownership of these shares. The address for this selling stockholder
is c/o Empery Asset Management, LP, 1 Rockefeller Plaza, Suite
1205, New York, NY 10020. Beneficial ownership includes securities
held by Empery Asset Master, Ltd (see Footnote 22) and Empery Tax
Efficient, LP (see Footnote 23). Beneficial ownership after the
Offering assumes all shares are sold, including by affiliated
funds.
|
|
25
|
Includes (i) 20,000 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 24,030 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements.
|
|
26
|
Includes 5,000 shares of Common Stock issuable upon exercise of
Warrants issued pursuant to the 2016 Unit Private
Placements.
|
|
27
|
Includes (i) 7,500 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 3,750 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements.
|
|
28
|
Includes (i) 5,000 shares of Common Stock issued pursuant to the
2016 Unit Private Placements, and (ii) 2,500 shares of Common Stock
issuable upon exercise of Warrants issued pursuant to the 2016 Unit
Private Placements.
|
|
29
|
Includes 21,257 shares of Common Stock issuable upon exercise of
Warrants issued pursuant to the Additional 2016 Unit Private
Placements. Mitchell P. Kopin ("Mr. Kopin") and Daniel B. Asher
("Mr. Asher"), each of whom are managers of Intracoastal Capital
LLC ("Intracoastal"), have shared voting control and investment
discretion over the securities reported herein that are held by
Intracoastal. As a result, each of Mr. Kopin and Mr. Asher may be
deemed to have beneficial ownership (as determined under Section
13(d) of the Securities Exchange Act of 1934, as amended) of the
securities reported herein that are held by Intracoastal. Mr.
Asher, who is a manager of Intracoastal, is also a control person
of a broker dealer. As a result of such common control,
Intracoastal may be deemed to be an affiliate of a broker-dealer.
Intracoastal acquired the ordinary shares being registered
hereunder in the ordinary course of business, and at the time of
the acquisition of the ordinary shares and warrants described
herein, Intracoastal did not have any arrangements or
understandings with any person to distribute such
securities.
|
|
30
|
Includes 1,743 shares of Common Stock issuable upon exercise of
Warrants issued for investment banking services in connection with
the 2016 Unit Private Placements. James Cappuccio is affiliated
with H.C. Wainwright & Co., LLC, whom acted as placement agent
in connection with the 2016 Unit Private Placement.
|
|
31
|
Includes (i) 15,000 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, (ii) 7,500 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements, (iii) 20,000 shares of
Common Stock issued pursuant to the 2016 Unit Private Placements,
and (iv) 10,000 shares of Common Stock issuable upon exercise of
Warrants issued pursuant to the 2016 Unit Private
Placements.
|
|
32
|
Includes (i) 9,540 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 4,770 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements.
|
|
33
|
Includes (i) 5,000 shares of Common Stock issued pursuant to the
2016 Unit Private Placements, and (ii) 2,500 shares of Common Stock
issuable upon exercise of Warrants issued pursuant to the 2016 Unit
Private Placements.
|
|
34
|
Includes (i) 20,000 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, (ii) 10,000 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements, and (iii) 3,636 shares
of Common Stock issuable upon exercise of Warrants issued pursuant
to the OID Note Private Placements.
|
|
35
|
Includes (i) 12,500 shares of Common Stock issued pursuant to the
2016 Unit Private Placements, and (ii) 6,250 shares of Common Stock
issuable upon exercise of Warrants issued pursuant to the 2016 Unit
Private Placements.
|
|
36
|
Includes (i) 53,000 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, (ii) 26,500 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements, and (iii) 7,274 shares
of Common Stock issuable upon exercise of Warrants issued pursuant
to the OID Note Private Placements.
|
|
37
|
Includes (i) 25,000 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 12,500 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements.
|
|
38
|
Includes (i) 14,042 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 7,021 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements.
|
|
39
|
Includes (i) 87,371 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 43,686 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements. Mark P. Clein,
managing member, has the voting nd dispositive power over the
securities held for the account of this selling
stockholder.
|
|
40
|
Includes 70,227 shares of Common Stock issuable upon exercise of
Warrants issued pursuant to the Additional 2016 Unit Private
Placements. Joshua Scheinfeld and Jonathon Cope, the principals of
Lincoln Park Capital Fund, LLC are deemed to be beneficial owners
of all the shares of Common Stock owned by Lincoln Park Capital
Fund, LLC. Messrs. Scheinfeld and Cope have share voting and
disposition power over the securities being offered. The address
for this selling stockholder is 440 North Wells Street, Suite 410,
Chicago, IL 60654.
|
|
41
|
Includes (i) 33,000 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, (ii) 16,500 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements, and (iii) 7,274 shares
of Common Stock issuable upon exercise of Warrants issued pursuant
to the OID Note Private Placements. Louis Jonathon Barack, managing
member, has the voting and dispositive power over the securities
held for the account of this selling stockholder.
|
|
42
|
Includes (i) 6,236 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 3,118 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements.
|
|
43
|
Includes 229 shares of Common Stock issuable upon exercise of
Warrants issued for investment banking services in connection with
the 2016 Unit Private Placements. Mark Vikland is affiliated with
H.C. Wainwright & Co., LLC, whom acted as placement agent in
connection with the 2016 Unit Private Placement.
|
|
44
|
Includes (i) 28,342 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 14,171 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements.
|
|
45
|
Includes (i) 56,167 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 28,084 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements. Walter Schenker,
principal, has the voting and dispositive power over the securities
held for the account of this selling stockholder.
|
|
46
|
Includes (i) 84,250 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, (ii) 42,125 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements, (iii) 50,000 shares of
Common Stock issued pursuant to the 2016 Unit Private Placements,
and (iv) 25,000 shares of Common Stock issuable upon exercise of
Warrants issued pursuant to the 2016 Unit Private
Placements.
|
|
47
|
Includes 4,356 shares of Common Stock issuable upon exercise of
Warrants issued for investment banking services in connction with
the Additional 2016 Unit Private Placements. Michael R. Jacks is
affiliated with Sutter Securities Incorporated, whom acted as
placement agent in connection with the Additional 2016 Unit Private
Placements. At the time of the acquisition of the Warrants, the
selling stockholder did not have any arrangements or understandings
with any person to distribute such securities. Beneficial ownership
includes 4,334 shares of Common Stock and 3,356 shares of Common
Stock underlying Warrants.
|
|
48
|
Includes 5,964 shares of Common Stock issuable upon exercise of
Warrants issued for investment banking services in connection with
the 2016 Unit Private Placements. Michael Vasinkevich is affiliated
with H.C. Wainwright & Co., LLC, whom acted as placement agent
in connection with the 2016 Unit Private Placement.
|
|
49
|
Includes (i) 37,500 shares of Common Stock issued pursuant to the
2016 Unit Private Placements, and (ii) 18,750 shares of Common
Stock issuable upon exercise of Warrants issued pursuant to the
2016 Unit Private Placements. Nachum Stein, trustee, has the voting
and dispositive power over the securities held for the account of
this selling stockholder. Beneficial ownership includes securities
held by American European Insurance Company (see Footnote 6) and
Nachum Stein (see Footnote 50). The address for this selling
stockholder is 605 3rd Ave., 9th Floor, New York, NY 10158.
Beneficial ownership after the Offering assumes all shares are
sold, including by affiliated entities.
|
|
50
|
Includes (i) 37,500 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, (ii) 64,204 shares of
Common Stock isuable upon conversion of the Series A-2 Preferred
Stock issued pursuant to the Additional 2016 Unit Private
Placements, (iii) 50,852 shares of Common Stock issuable upon
exercise of Warrants issued pursuant to the Additional 2016 Unit
Private Placements, (iv) 37,500 shares of Common Stock issued
pursuant to the 2016 Unit Private Placements, (v) 18,750 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the 2016 Unit Private Placements, and (vi) 7,274 shares of Common
Stock issuable upon exercise of Warrants issued pursuant to the OID
Note Private Placements. Beneficial ownership includes securities
held by merican European Insurance Company (see Footnote 6) and
Nachum and Feige Stein Foundation (see Footnote 49). Beneficial
ownership after the Offering assumes all shares are sold, including
by affiliated entities.
|
|
51
|
Includes 1,147 shares of Common Stock issuable upon exercise of
Warrants issued for investment banking services in connection with
the 2016 Unit Private Placements. Noam Rubenstein is affiliated
with H.C. Wainwright & Co., LLC, whom acted as placement agent
in connection with the 2016 Unit Private Placement.
|
|
52
|
Includes (i) 14,455 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 7,228 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements. Beneficial ownership
includes (i) 14,455 shares of Common Stock, (ii) 7,228 shares of
Common Stock underlying warrants, (iii) 44,334 shares of Common
Stock underlying vested options, (iv) 10,000 shares of Common Stock
underlying unvested options subject to performance milestone
vesting, (v) 26,445 shares of Common Stock held by Marsha G.
Bronsther Trustee of the Marsha G. Bronsther Rev. Trust UAD 2/21/14
(vi) 2,667 shares of Common Stock held by The Marsha G. Bronsther
Family GRAT NO. 1, (vii) 2,667 shares of Common Stock held by The
Marsha G. Bronsther GRAT NO. 1, and (viii) 489 shares of Common
Stock underlying warrants held by Marsha Bronsther. Marsha G
Bronsther is the wife of Dr. Oscar L. Bronsther, a Director. Marsha
has voting and investment control over securities held by (i)
Marsha G. Bronsther Trustee of the Marsha G. Bronsther Rev. Trust
UAD 2/21/14, (ii) The Marsha G. Bronsther Family GRAT NO. 1, and
(iii) The Marsha G. Bronsther GRAT NO. 1.
|
|
53
|
Includes (i) 15,000 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 7,500 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements.
|
|
54
|
Includes (i) 2,500 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 1,250 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements.
|
|
55
|
Includes (i) 17,000 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, (ii) 483,000 shares of
Common Stock issuable upon conversion of the Series A-2 Preferred
Stock issued pursuant to the Additional 2016 Unit Private
Placements, and (ii) 250,000 shares of Common Stock issuable upon
exercise of Warrants issued pursuant to the Additional 2016 Unit
Private Placements. Joseph Edelman, portfolio manager and chief
executive officer, has the voting and dispositive power over the
securities held for the account of this selling
stockholder.
|
|
56
|
Includes (i) 40,529 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 20,265 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements. John Christopher
Donald, president, has the voting nd dispositive power over the
securities held for the account of this selling
stockholder.
|
|
57
|
Includes (i) 28,367 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 14,184 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements.
|
|
58
|
Includes (i) 56,167 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 28,084 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements.
|
|
59
|
Includes (i) 31,204 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, (ii) 15,602 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements, (iii) 15,000 shares of
Common Stock issued pursuant to the 2016 Unit Private Placements,
and (iv) 7,500 shares of Common Stock issuable upon exercise of
Warrants issued pursuant to the 2016 Unit Private
Placements.
|
|
60
|
Includes (i) 15,602 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 7,801 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements.
|
|
61
|
Includes (i) 95,399 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 47,700 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements.
|
|
62
|
Includes (i) 5,000 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 2,500 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements.
|
|
63
|
Includes (i) 25,000 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 12,500 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements.
|
|
64
|
Includes 3,564 shares of Common Stock issuable upon exercise of
Warrants issued for investment banking services in connection with
the Additional 2016 Unit Private Placements. Sutter Securities
Incorporated is a registered broker-dealer. Beneficial ownership
includes 2,334 shares of Common Stock. Robert Muh, chief executive
officer, has the voting and dispositive power over the securities
held for the account of this selling stockholder. The address for
this selling stockholder is 220 Montgomery Street, Suite 1700, San
Francisco, CA 94104.
|
|
65
|
Includes (i) 43,750 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 21,875 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements. David N. Siegel,
managing member, has the voting and dispositive power over the
securities held for the account of this selling stockholder.
Beneficial ownership includes securities held by David N. Siegel
and David N. Siegel Revocable Trust (see Footnote 16). The address
for this selling stockholder is 1350 Treat Blvd., Suite 400, Walnut
Creek, CA 94597. Beneficial ownership after the Offering assumes
all shares are sold, including by affiliated entities.
|
|
66
|
Includes (i) 37,500 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 18,750 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements. Amir L. Ecker, general
partner, has voting and dispositive power over the securities held
for the selling stockholder. Beneficial ownership includes
securities held by ACT Capital Partners, LP (see Footnote 2) and
Amir L. Ecker (see Footnote 7). The address for this selling
stockholder is c/o ACT Capital, 100 W. Lancaster Ave., Suite 110,
Wayne, PA 19087. Beneficial ownership after the Offering assumes
all shares are sold, including by affiliated entities.
|
|
67
|
Includes (i) 10,000 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 5,000 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements.
|
|
68
|
Includes (i) 31,204 shares of Common Stock issued pursuant to the
Additional 2016 Unit Private Placements, and (ii) 15,602 shares of
Common Stock issuable upon exercise of Warrants issued pursuant to
the Additional 2016 Unit Private Placements.
|
The selling stockholders, which also includes donees, pledgees,
transferees or other successors-in-interest selling shares of
Common Stock received after the date of this prospectus from a
selling stockholder as a gift, pledge, partnership distribution or
other transfer, may, from time to time, sell, transfer or otherwise
dispose of any or all of their shares of Common Stock on any stock
exchange, market or trading facility on which the shares are traded
or in private transactions. These dispositions may be at fixed
prices, at prevailing market prices at the time of sale, at prices
related to the prevailing market price, at varying prices
determined at the time of sale, or at negotiated prices. We have
not been advised of any arrangements by the selling stockholders
for the sale of any of the Common Stock owned by them.
The selling stockholders may use any one or more of the following
methods when disposing of shares or interests therein:
●
ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
●
block trades in which the broker-dealer will attempt to sell the
shares as agent, but may position and resell a portion of the block
as principal to facilitate the transaction;
●
crosses, where the same broker acts as an agent on both sides of
the trade;
●
purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
●
an exchange distribution in accordance with the rules of the
applicable exchange;
●
privately negotiated transactions;
●
through the writing or settlement of options or other hedging
transactions, whether through an options exchange or
otherwise;
●
broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per
share;
●
a combination of any such methods of sale; and
●
any other method permitted pursuant to applicable law.
The selling stockholders may, from time to time, pledge or grant a
security interest in some or all of the shares of Common Stock
owned by them and, if they default in the performance of their
secured obligations, the pledgees or secured parties may offer and
sell the shares of Common Stock, from time to time, under this
prospectus, or under an amendment to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act
amending the list of selling stockholders to include the pledgee,
transferee or other successors in interest as selling stockholders
under this prospectus. The selling stockholders also may transfer
the shares of Common Stock in other circumstances, in which case
the transferees, pledgees or other successors in interest will be
the selling beneficial owners for purposes of this prospectus;
provided, however, that prior to any such transfer the following
information (or such other information as may be required by the
federal securities laws from time to time) with respect to each
such selling beneficial owner must be added to the prospectus by
way of a prospectus supplement or post-effective amendment, as
appropriate: (1) the name of the selling beneficial owner;
(2) any material relationship the selling beneficial owner has
had within the past three years with us or any of our predecessors
or affiliates; (3) the amount of securities of the class owned
by such security beneficial owner before the transfer; (4) the
amount to be offered for the security beneficial owner’s
account; and (5) the amount and (if one percent or more) the
percentage of the class to be owned by such security beneficial
owner after the transfer is complete.
Any selling stockholder and any other person participating in a
distribution will be subject to applicable provisions of the
Exchange Act and the rules and regulations under that statute,
including, without limitation, possibly Regulation M. This may
limit the timing of purchases and sales of any of the securities by
a selling stockholder and any other participating person.
Regulation M may also restrict the ability of any person engaged in
the distribution of the securities to engage in market-making
activities with respect to the securities. All of the foregoing may
affect the marketability of the securities and the ability of any
person or entity to engage in market-making activities with respect
to the securities.
D
ESCRIPTION OF CAPITAL
STOCK
This prospectus relates to the public offering of up to 5,342,875
shares of Common Stock by the selling stockholders. Such
shares include:
●
2,174,116
shares of Common Stock;
●
705,408
shares of Common Stock issuable upon conversion of outstanding
Series A-2 Preferred Stock;
●
453,585
shares of Common Stock issuable upon conversion of outstanding
Series B Preferred Stock; and
●
2,009,766
shares of Common Stock issuable upon exercise of
Warrants.
Authorized Capital Stock
We have authorized 160,000,000 shares of capital stock, par value
$0.0001 per share, of which 150,000,000 are shares of Common Stock
and 10,000,000 are shares of “blank-check” preferred
stock.
Common Stock
The holders of our Common Stock are entitled to one vote per share.
In addition, the holders of our Common Stock will be entitled to
receive ratably such dividends, if any, as may be declared by our
Board out of legally available funds; however, the current policy
of our Board is to retain earnings, if any, for operations and
growth. Upon liquidation, dissolution or winding-up, the holders of
our Common Stock will be entitled to share ratably in all assets
that are legally available for distribution. The holders of our
Common Stock will have no preemptive, subscription, redemption or
conversion rights. The holders of our Common Stock do
not have cumulative rights in the election of directors. The
rights, preferences and privileges of holders of our Common Stock
will be subject to, and may be adversely affected by, the rights of
the holders of the Series A Preferred Stock, the Series A2-
Preferred Stock, and the Series B Preferred Stock and any other
series of preferred stock that may be issued in the
future.
Preferred Stock
Our Board is empowered, without stockholder approval, to issue
preferred stock with dividend, liquidation, conversion, voting or
other rights, which could adversely affect the voting power or
other rights of the holders of Common Stock. The preferred stock
could be utilized as a method of discouraging, delaying or
preventing a change in control of us.
There are currently no shares of Series A Preferred Stock issued
and outstanding, 299,904.0 shares of Series A-2 Preferred Stock
convertible into 2,999,040 shares of Common Stock issued and
outstanding, and 221.8570 shares of Series B Preferred Stock
convertible into 1,470,137 shares of Common Stock issued and
outstanding, which includes PIK Dividend Shares issued through June
30, 2017.
Series A Convertible Preferred Stock
Pursuant to the Certificate of Designation of Rights and
Preferences of the Series A Preferred Stock (the “Series A
Preferred Stock” or “Series A Preferred”), the
terms of the Series A Preferred Stock are as follows:
Ranking
The Series A Preferred Stock will rank (i) senior to our common
stock, ii)
pari passu
with our Series A-2 Preferred Stock (as defined
below) and (iii) junior to our Series B Preferred Stock (as defined
below) with respect to distributions of assets upon the
liquidation, dissolution or winding up of the
Company.
Dividends
The Series A Preferred Stock is not entitled to any
dividends.
Liquidation Rights
In the event of any liquidation, dissolution or winding-up of the
Company, whether voluntary or involuntary, the holders of the
Series A Preferred Stock shall be entitled to receive out of the
assets of the Company, whether such assets are capital or surplus,
for each share of Series A Preferred Stock an amount equal to the
fair market value as determined in good faith by the
Board.
Voluntary Conversion; Anti-Dilution Adjustments
Each fifteen (15) shares of Series A Preferred Stock shall be
convertible into one share of common stock (the “Series A
Conversion Ratio”). The Series A Conversion Ratio is subject
to customary adjustments for issuances of shares of common stock as
a dividend or distribution on shares of the common stock, or
mergers or reorganizations.
Voting Rights
The Series A Preferred Stock has no voting rights. The common stock
into which the Series A Preferred Stock is convertible shall, upon
issuance, have all of the same voting rights as other issued and
outstanding common stock, and none of the rights of the Series A
Preferred Stock.
Series A-2 Convertible Preferred Stock
Pursuant to the Certificate of Designation of Rights and
Preferences of the Series A-2 Convertible Preferred Stock (the
“Series A-2 Preferred Stock” or “Series A-2
Preferred”), the terms of the Series A-2 Preferred Stock are
as follows:
Ranking
The Series A-2 Preferred will rank (i) senior to our common stock,
(ii)
pari
passu
with our Series A
Preferred Stock, and (iii) junior to our Series B Preferred Stock
(as defined below) with respect to distributions of assets upon the
liquidation, dissolution or winding up of the
Company.
Dividends
The Series A-2 Preferred is not entitled to any
dividends.
Liquidation Rights
In the event of any liquidation, dissolution or winding-up of the
Company, whether voluntary or involuntary, the holders of the
Series A-2 Preferred shall be entitled to receive out of the assets
of the Company, whether such assets are capital or surplus, for
each share of Series A-2 Preferred an amount of cash, securities or
other property to which such holder would be entitled to receive
with respect to each such share of Preferred Stock if such shares
had been converted to common stock immediately prior to such
liquidation, dissolution or winding-up of the Company.
Voluntary Conversion; Anti-Dilution Adjustments
Each share of Series A-2 Preferred shall, at any time, and from
time to time, at the option of the holder, be convertible into ten
(10) shares of common stock (the “Series A-2 Conversion
Ratio”). The Series A-2 Conversion Ratio is subject to
customary adjustments for issuances of shares of common stock as a
dividend or distribution on shares of common stock, or mergers or
reorganizations.
Conversion Restrictions
The holders of the Series A-2 Preferred may not convert their
shares of Series A-2 Preferred into shares of Common Stock if the
resulting conversion would cause such holder and its affiliates to
beneficially own (as determined in accordance with Section 13(d) of
the Exchange Act, and the rules thereunder) in excess of 4.99% or
9.99% of the Common Stock outstanding, when aggregated with all
other shares of Common Stock owned by such holder and its
affiliates at such time; provided, however, that such holder may
elect to waive these conversion restrictions.
Voting Rights
The Series A-2 Preferred has no voting rights. The common stock
into which the Series A-2 Preferred is convertible shall, upon
issuance, have all of the same voting rights as other issued and
outstanding common stock, and none of the rights of the Series A-2
Preferred.
Series B Convertible Preferred Stock
Pursuant to the Certificate of Designation of Rights and
Preferences of the Series B Preferred Stock (the “Series B
Preferred Stock” or “Series B Preferred”), the
terms of the Series B Preferred Stock are as follows:
Ranking
The Series B Preferred Stock will rank senior to our Series A
Preferred Stock, Series A-2 Preferred Stock and common stock with
respect to distributions of assets upon the liquidation,
dissolution or winding up of the Company.
Stated Value
Each shares of Series B Preferred Stock will have a stated value of
$5,500, subject to adjustment for stock splits, combinations and
similar events (the “Series B Stated
Value”).
Dividends
Cumulative dividends on the Series B Preferred Stock accrue at the
rate of 8% of the Series B Stated Value per annum, payable
quarterly on March 31, June 30, September 30, and December 31 of
each year, from and after the date of the initial
issuance. Dividends are payable in kind in additional
shares of Series B Preferred Stock valued at the Series B Stated
Value or in cash at the sole option of the Company. At May 31, 2017
and February 28, 2017, the dividends payable to the holders of the
Series B Preferred Stock amounted to approximately $16,000 and
$16,000, respectively. During the three months ended May 31, 2017
and May 31, 2016, the Company issued 4.2648 and 13.1771 shares of
Series B Preferred Stock, respectively, for payment of dividends
amounting to approximately $23,000 and $72,000,
respectively.
Liquidation Rights
If the Company voluntarily or involuntarily liquidates, dissolves
or winds up its affairs, each holder of the Series B Preferred
Stock will be entitled to receive out of the Company’s assets
available for distribution to stockholders, after satisfaction of
liabilities to creditors, if any, but before any distribution of
assets is made on the Series A Preferred Stock or common stock or
any of the Company’s shares of stock ranking junior as to
such a distribution to the Series B Preferred Stock, a liquidating
distribution in the amount of the Stated Value of all such
holder’s Series B Preferred Stock plus all accrued and unpaid
dividends thereon. At May 31, 2017 and February 28, 2017, the value
of the liquidation preference of the Series B Preferred stocks
aggregated to approximately $1.20 million and approximately $1.19
million, respectively.
Conversion; Anti-Dilution Adjustments
Each share of Series B Preferred Stock will be convertible at the
holder’s option into common stock in an amount equal to the
Series B Stated Value plus accrued and unpaid dividends thereon
through the conversion date divided by the then applicable
conversion price. The initial conversion price is $8.25 per share
(the “Series B Conversion Price”) and is subject to
customary adjustments for issuances of shares of common stock as a
dividend or distribution on shares of common stock, or mergers or
reorganizations, as well as “full ratchet”
anti-dilution adjustments for future issuances of other Company
securities (subject to certain standard carve-outs) at prices less
than the applicable Series B Conversion Price.
Effective May 26, 2016, the Series B Conversion Price was adjusted
from $8.25 per share to $2.00 per share. Effective August 3, 2017,
the Series B Conversion Price was adjusted from $2.00 per share to
$0.83 per share.
The Series B Preferred Stock is subject to automatic conversion
(the “Mandatory Conversion”) at such time when the
Company’s common stock has been listed on a national stock
exchange such as the NASDAQ, New York Stock Exchange or NYSE MKT;
provided, that, on the Mandatory Conversion date, a registration
statement providing for the resale of the shares of common stock
underlying the Series B Preferred Stock is effective. In the event
of a Mandatory Conversion, each share of Series B Preferred Stock
will convert into the number of shares of common stock equal to the
Series B Stated Value plus accrued and unpaid dividends divided by
the applicable Series B Conversion Price.
Voting Rights
On March 27, 2015, the holders of the Series B Preferred Stock
entered into an Amended and Restated Series B Preferred Purchase
Agreement, whereby the Company filed an Amended and Restated Series
B Preferred Certificate of Designation. The Amended and Restated
Series B Preferred Certificate of Designation provides that the
holders of the Series B Preferred Stock shall be entitled to the
number of votes equal to the number of shares of common stock into
which such Series B Preferred Stock could be converted for purposes
of determining the shares entitled to vote at any regular, annual
or special meeting of stockholders of the Company, and shall have
voting rights and powers equal to the voting rights and powers of
the common stock (voting together with the common stock as a single
class).
Most Favored Nation
For a period of up to 30 months after March 31, 2015, if the
Company issues any New Securities (as defined below) in a private
placement or public offering (a “Subsequent
Financing”), the holders of Series B Preferred Stock may
exchange all of the Series B Preferred Stock at their Stated Value
plus all Series A Warrants (as defined below) issued to the
Series B Preferred Stock investors in the Series B Private
Placement for the securities issued in the Subsequent Financing on
the same terms of such Subsequent Financing. This right
expires upon the earlier of (i) September 30, 2017 and (ii) the
consummation of a bona fide underwritten public offering in which
the Company receives aggregate gross proceeds of at least $5.0
million. "New Securities” means shares of the common
stock, any other securities, options, warrants or other rights
where upon exercise or conversion the purchaser or recipient
receives shares of the common stock, or other securities with
similar rights to the common stock, subject to certain standard
carve-outs. The Most Favored Nation exchange right expired on
September 30, 2017.
Warrants
This prospectus relates to (i) 87,272 shares of Common Stock
underlying Warrants issued in connection with the Promissory Note
Private Placements, (ii) 90,918 shares of Common Stock underlying
Warrants issued in connection with the OID Note Private Placements,
(iii) 175,826 shares of Common Stock underlying Warrants issued in
connection with the 2016 Unit Private Placements, and (iv)
1,655,750 shares of Common Stock underlying Warrants issued in
connection with the Additional 2016 Unit Private
Placements.
The 43,636 Note Warrants issued in connection with the
Promissory Note Private Placements expire on July 30, 2020 and are
exercisable at a price of $0.83 per share. The exercise price of
the Note Warrants is subject to customary adjustments for
issuances of shares of Common Stock as a dividend or distribution
on shares of the Common Stock, or mergers or reorganizations are
subject to
“full-ratchet” anti-dilution price
protection based on certain issuances by us of Common Stock or
securities convertible into shares of Common Stock at an effective
price per share less than the effective exercise price
. The Note Warrants may be exercised on a cashless
basis at any time after six months from the original issue date of
the Note Warrants, provided that a registration statement providing
for the resale of the shares of Common Stock underlying the Note
Warrants is not effective.
The
43,636 Amendment Warrants
issued in
connection with the Promissory Note Private Placements
expire on February 11, 2021 and are
exercisable at a price of $0.91 per share. The exercise price of
the
Amendment
Warrants is
subject to customary adjustments for issuances of shares of Common
Stock as a dividend or distribution on shares of the Common Stock,
or mergers or reorganizations, and are subject to
“full-ratchet” anti-dilution price protection based on
certain issuances by us of Common Stock or securities convertible
into shares of Common Stock at an effective price per share less
than the effective exercise price, provided that the price
adjustment shall be equal to 110% of the consideration price per
share of the issued equity or equity-linked securities
. The Note Warrants may be exercised on a cashless
basis at any time after six months from the original issue date of
the Note Warrants, provided that a registration statement providing
for the resale of the shares of Common Stock underlying the Note
Warrants is not effective.
The 45,459 OID Note Warrants issued in connection with the OID
Note Private Placements expire between February 11, 2021 and March
14, 2021 and are exercisable at a price of $0.83 per share. The
exercise price of the OID Note Warrants is subject to
customary adjustments for issuances of shares of Common Stock as a
dividend or distribution on shares of the Common Stock, or mergers
or reorganizations are subject to
“full-ratchet”
anti-dilution price protection based on certain issuances by us of
Common Stock or securities convertible into shares of Common Stock
at an effective price per share less than the effective exercise
price
. The Note OID Warrants may be
exercised on a cashless basis at any time after six months from the
original issue date of the OID Note Warrants, provided that a
registration statement providing for the resale of the shares of
Common Stock underlying the OID Note Warrants is not
effective.
The
45,459 OID Note Amendment Warrants
issued in connection with the OID Note Private
Placements
expire between
August 11, 2021 and August 19, 2021 and are exercisable at a price
of $2.00 per share. The exercise price of the
Amendment
Warrants is subject to customary
adjustments for issuances of shares of Common Stock as a dividend
or distribution on shares of the Common Stock, or mergers or
reorganizations. The Note Warrants may be exercised on a cashless
basis at any time after six months from the original issue date of
the Note Warrants, provided that a registration statement providing
for the resale of the shares of Common Stock underlying the Note
Warrants is not effective.
The 151,076 investor 2016 Unit Warrants and 24,750 placement
agent 2016 Unit Warrants issued in connection with the 2016 Unit
Private Placement expire between on May 25, 2021 and June 7, 2021.
81,250 of these 2016 Unit Warrants are exercisable at a price
of $2.00 per share and 94,576 of these 2016 Unit Warrants are
exercisable at a price of $3.00 per share. The exercise price of
the 2016 Unit Warrants is subject to customary adjustments for
issuances of shares of Common Stock as a dividend or distribution
on shares of the Common Stock, or mergers or reorganizations. The
2016 Unit Warrants may be exercised on a cashless basis at any time
after six months from the original issue date of the 2016 Unit
Warrants, provided that a registration statement providing for the
resale of the shares of Common Stock underlying the 2016 Unit
Warrants is not effective.
The 1,546,792 investor Additional 2016 Unit Warrants and
108,958 placement agent Additional 2016 Unit Warrants issued
in connection with the Additional 2016 Unit Private Placement
expire between on August 31, 2021 and October 30, 2021. 448,169 of
these Additional 2016 Unit Warrants are exercisable at a price
of $2.00 per share and 1,207,581 of these Additional 2016 Unit
Warrants are exercisable at a price of $3.00 per share The
exercise price of the Additional 2016 Unit Warrants issued to
the investors is subject to customary adjustments for issuances of
shares of Common Stock as a dividend or distribution on shares of
the Common Stock, or mergers or reorganizations.
For a
period of one hundred eighty (180) days following the final closing
of the
Additional 2016 Unit Private
Placement
, the
investor
Additional 2016 Unit Warrants were subject to
“full-ratchet” anti-dilution price protection based on
certain issuances by us of Common Stock or securities convertible
into shares of Common Stock at an effective price per share less
than the Effective Price of $2.00 per share
. The price protection provided expired on April
30, 2017. All Additional 2016 Unit Warrants may be exercised on a
cashless basis at any time after six months from the original issue
date of the Additional 2016 Unit Warrants, provided that a
registration statement providing for the resale of the shares of
Common Stock underlying the Additional 2016 Unit Warrants is not
effective.
Anti-takeover Effects of Our Articles of Incorporation and
By-laws
Our articles of incorporation and bylaws contain certain provisions
that may have anti-takeover effects, making it more difficult for
or preventing a third party from acquiring control of our company
or changing our Board and management. The holders of our
Common Stock do not have cumulative voting rights in the election
of our directors, which makes it more difficult for minority
stockholders to be represented on the Board. Our
articles of incorporation allow our Board to issue additional
shares of our Common Stock and new series of preferred stock
without further approval of our stockholders. The
existence of authorized but unissued shares of Common Stock and
preferred could render more difficult or discourage an attempt to
obtain control of our company by means of a proxy contest, tender
offer, merger, or otherwise.
Anti-takeover Effects of Nevada Law
Business Combinations
The “business combination” provisions of Sections
78.411 to 78.444, inclusive, of the Nevada Revised Statutes, or
NRS, generally prohibit a Nevada corporation with at least 200
stockholders of record, a “resident domestic
corporation,” from engaging in various
“combination” transactions with any “interested
stockholder” unless certain conditions are met or the
corporation has elected in its articles of incorporation to not be
subject to these provisions. We have not elected to opt
out of these provisions and if we meet the definition of resident
domestic corporation, now or in the future, our company will be
subject to these provisions.
A “combination” is generally defined to include (a) a
merger or consolidation of the resident domestic corporation or any
subsidiary of the resident domestic corporation with the interested
stockholder or affiliate or associate of the interested
stockholder; (b) any sale, lease, exchange, mortgage, pledge,
transfer, or other disposition, in one transaction or a series of
transactions, by the resident domestic corporation or any
subsidiary of the resident domestic corporation to or with the
interested stockholder or affiliate or associate of the interested
stockholder having: (i) an aggregate market value equal to 5% or
more of the aggregate market value of the assets of the resident
domestic corporation, (ii) an aggregate market value equal to 5% or
more of the aggregate market value of all outstanding shares of the
resident domestic corporation, or (iii) 10% or more of the earning
power or net income of the resident domestic corporation; (c) the
issuance or transfer in one transaction or series of transactions
of shares of the resident domestic corporation or any subsidiary of
the resident domestic corporation having an aggregate market value
equal to 5% or more of the resident domestic corporation to the
interested stockholder or affiliate or associate of the interested
stockholder; and (d) certain other transactions with an interested
stockholder or affiliate or associate of the interested
stockholder.
An “interested stockholder” is generally defined as a
person who, together with affiliates and associates, owns (or
within three years, did own) 10% or more of a corporation’s
voting stock. An “affiliate” of the interested
stockholder is any person that directly or indirectly through one
or more intermediaries is controlled by or is under common control
with the interested stockholder. An “associate” of an
interested stockholder is any (a) corporation or organization of
which the interested stockholder is an officer or partner or is
directly or indirectly the beneficial owner of 10% or more of any
class of voting shares of such corporation or organization; (b)
trust or other estate in which the interested stockholder has a
substantial beneficial interest or as to which the interested
stockholder serves as trustee or in a similar fiduciary capacity;
or (c) relative or spouse of the interested stockholder, or any
relative of the spouse of the interested stockholder, who has the
same home as the interested stockholder.
If applicable, the prohibition is for a period of two years after
the date of the transaction in which the person became an
interested stockholder, unless such transaction is approved by the
board of directors prior to the date the interested stockholder
obtained such status; or the combination is approved by the board
of directors and thereafter is approved at a meeting of the
stockholders by the affirmative vote of stockholders representing
at least 60% of the outstanding voting power held by disinterested
stockholders; and extends beyond the expiration of the two-year
period, unless (a) the combination was approved by the board of
directors prior to the person becoming an interested stockholder;
(b) the transaction by which the person first became an interested
stockholder was approved by the board of directors before the
person became an interested stockholder; (c) the transaction is
approved by the affirmative vote of a majority of the voting power
held by disinterested stockholders at a meeting called for that
purpose no earlier than two years after the date the person first
became an interested stockholder; or (d) if the consideration to be
paid to all stockholders other than the interested stockholder is,
generally, at least equal to the highest of: (i) the highest price
per share paid by the interested stockholder within the three years
immediately preceding the date of the announcement of the
combination or in the transaction in which it became an interested
stockholder, whichever is higher, plus compounded interest and less
dividends paid, (ii) the market value per share of common shares on
the date of announcement of the combination and the date the
interested stockholder acquired the shares, whichever is higher,
plus compounded interest and less dividends paid, or (iii) for
holders of preferred stock, the highest liquidation value of the
preferred stock, plus accrued dividends, if not included in the
liquidation value. With respect to (i) and (ii) above, the interest
is compounded at the rate for one-year United States Treasury
obligations from time to time in effect.
Applicability of the Nevada business combination statute would
discourage parties interested in taking control of our company if
they cannot obtain the approval of our Board. These provisions
could prohibit or delay a merger or other takeover or change in
control attempt and, accordingly, may discourage attempts to
acquire our company even though such a transaction may offer our
stockholders the opportunity to sell their stock at a price above
the prevailing market price.
Control Share Acquisitions
The “control share” provisions of Sections 78.378 to
78.3793, inclusive, of the NRS, apply to “issuing
corporations” that are Nevada corporations with at least 200
stockholders of record, including at least 100 stockholders of
record who are Nevada residents, and that conduct business directly
or indirectly in Nevada, unless the corporation has elected to not
be subject to these provisions.
The control share statute prohibits an acquirer of shares of an
issuing corporation, under certain circumstances, from voting its
shares of a corporation’s stock after crossing certain
ownership threshold percentages, unless the acquirer obtains
approval of the target corporation’s disinterested
stockholders. The statute specifies three thresholds: (a) one-fifth
or more but less than one-third, (b) one-third but less than a
majority, and (c) a majority or more, of the outstanding voting
power. Generally, once a person acquires shares in excess of any of
the thresholds, those shares and any additional shares acquired
within 90 days thereof become “control shares” and such
control shares are deprived of the right to vote until
disinterested stockholders restore the right. These provisions also
provide that if control shares are accorded full voting rights and
the acquiring person has acquired a majority or more of all voting
power, all other stockholders who do not vote in favor of
authorizing voting rights to the control shares are entitled to
demand payment for the fair value of their shares in accordance
with statutory procedures established for dissenters’
rights.
A corporation may elect to not be governed by, or “opt
out” of, the control share provisions by making an election
in its articles of incorporation or bylaws, provided that the
opt-out election must be in place on the 10th day following the
date an acquiring person has acquired a controlling interest, that
is, crossing any of the three thresholds described
above. We have not opted out of these provisions and
will be subject to the control share provisions of the NRS if we
meet the definition of an issuing corporation upon an acquiring
person acquiring a controlling interest unless we later opt out of
these provisions and the opt out is in effect on the 10th day
following such occurrence.
The effect of the Nevada control share statute is that the
acquiring person, and those acting in association with the
acquiring person, will obtain only such voting rights in the
control shares as are conferred by a resolution of the stockholders
at an annual or special meeting. The Nevada control share law, if
applicable, could have the effect of discouraging takeovers of our
company.
MARKET FOR COMMON EQUIT
Y
AND
RELATED STOCKHOLDER MATTERS
Our Common Stock is quoted on the OTCQB under the symbol
“MTST.” The following table sets forth the high and low
bid information for our Common Stock for the two most recent fiscal
years and additional periods indicated below. The OTCQB quotations
reflect inter-dealer prices, are without retail markup, markdowns
or commissions, and may not represent actual
transactions.
|
|
|
|
|
|
|
|
March
1, 2015 through May 31, 2015
|
$
12.00
|
$
3.90
|
|
June
1, 2015 through August 31, 2015
|
$
6.00
|
$
3.00
|
|
September
1, 2015 through November 30, 2015
|
$
10.00
|
$
3.30
|
|
December
1, 2015 through February 29, 2016
|
$
6.35
|
$
1.80
|
|
March
1, 2016 through May 31, 2016
|
$
3.50
|
$
1.55
|
|
June
1, 2016 through August 31, 2016
|
$
2.19
|
$
1.00
|
|
September
1, 2016 through November 30, 2016
|
$
3.45
|
$
1.40
|
|
December
1, 2016 through February 28, 2017
|
$
1.97
|
$
1.26
|
|
March
1, 2017 through May 31, 2017
|
$
1.60
|
$
1.15
|
|
June
1, 2017 through August 31, 2017
|
$
1.41
|
$
0.60
|
On September 29
, 2017, the last reported price for our Common
Stock on the OTC Bulletin Board was
$0.82.
Number of Record Holders of Our Common Stock
As of September 29, 2017, we had
5,677,383 shares of our Common Stock outstanding and
173
holders of
record of our Common Stock. The number of record holders was
determined from our records and the records of our transfer
agent.
Securities Authorized for Issuance Under the Equity Compensation
Plans
On February 27, 2012, in connection with the Share Exchange, we
assumed the 2012 Omnibus Securities and Incentive Plan, as
subsequently amended and restated, (the “2012 Incentive
Plan”) from MetaStat BioMedical, Inc.’s
(“MBM”) (formerly known as MetaStat, Inc.), our wholly
owned Delaware subsidiary, and reserved 74,453 shares of our common
stock for the benefit of our employees, nonemployee directors and
consultants. On May 21, 2012, we increased the number of authorized
and unissued shares of common stock reserved for issuance pursuant
to the 2012 Incentive Plan to 207,786.
On June 22, 2015, our shareholders approved amending our 2012
Incentive Plan to increase the number of authorized shares of
common stock reserved for issuance under the 2012 Incentive Plan to
a number not to exceed fifteen percent (15%) of the issued and
outstanding shares of common stock on an as converted primary basis
(the “As Converted Primary Shares”) on a rolling basis.
For calculation purposes, the As Converted Primary Shares shall
include all shares of common stock and all shares of common stock
issuable upon the conversion of outstanding preferred stock and
other convertible securities, but shall not include any shares of
common stock issuable upon the exercise of options, warrants and
other convertible securities issued pursuant to the 2012 Incentive
Plan. The number of authorized shares of common stock reserved for
issuance under the 2012 Incentive Plan shall automatically be
increased concurrently with the Company’s issuance of fully
paid and non- assessable shares of As Converted Primary Shares.
Shares shall be deemed to have been issued under the 2012 Incentive
Plan solely to the extent actually issued and delivered pursuant to
an award. As such, the number of shares authorized for issuance
under the 2012 Incentive Plan increased from 207,786 to
347,129.
As of the date of this prospectus, there are an aggregate of
1,606,983 shares authorized for issuance under the
2012 Incentive Plan and 1,121,469 shares available for
issuance under the 2012 Incentive Plan.
The objective of the 2012 Incentive Plan is to maximize the
effectiveness and efficiency of the Company’s operations by
attracting key talent, aligning and incentivizing employees to
corporate goals and reducing the risk of voluntary employee
turn-over. We may issue securities pursuant to the 2012 Incentive
Plan or outside the 2012 Incentive Plan.
Equity Compensation Plan Information as of February 28,
2107
|
|
Plan
category
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and
rights
(a)
|
Weighted-average
exercise
price
of outstanding options,
warrants
and rights
|
Number
of securities
remaining
available for
future
issuance under equity
compensation
plans
(excluding
securities
reflected
in column (a))
(b)
|
|
Equity
compensation plans approved by security holders *
|
299,807
|
$
11.48
|
578,194
|
|
Total
|
299,807
|
$
11.48
|
578,194
|
(a) Does not include 30,707 restricted shares of common stock
issued under the 2012 Incentive Plan, of which 20,505 have vested
and 10,202 are subject to milestone vesting.
* Additionally, as of February 28, 2017, outside of the 2012
Incentive Plan, we have issued an aggregate of 666,667 stock
options with a weighted-average strike price of $3.12 per share and
an aggregate of 59,989 restricted shares of common stock, of which
58,655 shares have vested and 1,334 are subject to milestone
vesting.
WHERE YOU CAN FIN
D
MORE
INFORMATION
We have filed with the SEC a registration statement on Form S-1
under the Securities Act, with respect to the Common Stock offered
hereby. This prospectus does not contain all of the information set
forth in the registration statement and the exhibits and schedules
thereto. Some items are omitted in accordance with the rules and
regulations of the SEC. For further information with respect to us
and the Common Stock offered hereby, we refer you to the
registration statement and the exhibits and schedules filed
therewith. Statements contained in this prospectus as to the
contents of any contract, agreement or any other document referred
to are summaries of the material terms of the respective contract,
agreement or other document. With respect to each of these
contracts, agreements or other documents filed as an exhibit to the
registration statement, reference is made to the exhibits for a
more complete description of the matter involved. A copy of the
registration statement, and the exhibits and schedules thereto, may
be inspected without charge at the public reference facilities
maintained by the SEC at 100 F Street, N.E., Washington, D.C.
20549. Copies of these materials may be obtained by writing to the
Public Reference Section of the SEC at 100 F Street, N.E.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the operation of the public reference
facilities. The SEC maintains a website that contains reports,
proxy and information statements and other information regarding
registrants that file electronically with the SEC. The address of
the SEC’s website is
http://www.sec.gov
.
We file periodic reports and other information with the SEC. Such
periodic reports and other information are available for inspection
and copying at the public reference room and website of the SEC
referred to above. We maintain a website at
http://www.metastat.com
.
You may access our annual reports on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d)
of the Exchange Act with the SEC free of charge at our website as
soon as reasonably practicable after such material is
electronically filed with, or furnished to, the SEC. The
information and other content contained on our website are not part
of the prospectus.
The validity of the shares of our Common Stock offered hereby have
been passed upon for us by Sherman & Howard, L.L.C., Las Vegas,
Nevada.
The consolidated balance sheets of MetaStat, Inc. as of
February 28, 2017 and February 29, 2016, and the related
consolidated statements of operations, changes in
stockholders’ deficit, and cash flows for each of the years
in the two-year period ended February 28, 2017, have been audited
by EisnerAmper LLP, independent registered public accounting firm,
as stated in their report which is incorporated herein and includes
an explanatory paragraph about the existence of substantial doubt
concerning the Company's ability to continue as a going concern.
Such financial statements have been incorporated herein in reliance
on the report of such firm given upon their authority as experts in
accounting and auditing.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 28, 2017 AND FEBRUARY 29,
2016
|
|
Page
|
|
|
|
|
|
|
Consolidated Financial Statements
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
|
|
|
F-3
|
|
|
|
|
|
|
|
F-4
|
|
|
|
|
|
|
|
F-5
|
|
|
|
|
|
|
|
F-6
|
|
|
|
|
|
|
|
F-7
|
|
REPORT OF
INDEPEND
E
NT REGISTERED PUBLIC
ACCOUNTING FIRM
To the
Board of Directors and Stockholders of MetaStat, Inc.
We have
audited the accompanying consolidated balance sheets of MetaStat,
Inc. and its subsidiary (the "Company") as of February 28,
2017 and February 29, 2016, and the related consolidated statements
of operations, changes in stockholders' deficit, and cash flows for
each of the years in the two-year period ended February 28, 2017.
The financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly,
we express no such opinion. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of
MetaStat, Inc. and its subsidiary as of February 28, 2017 and
February 29, 2016, and the consolidated results of their operations
and their cash flows for each of the years in the two-year period
ended February 28, 2017, in accordance with accounting principles
generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 1 to the consolidated financial statements,
as of February 28, 2017, the Company has a total stockholders'
deficit and an accumulated deficit. The Company has not generated
revenues or positive cash flows from operations and has a negative
working capital. The aforementioned conditions raise substantial
doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in
Note 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this
uncertainty. Our opinion is not modified with respect to this
matter.
/s/
EisnerAmper LLP
New
York, New York
May 30,
2017
METASTAT INC.
Consolida
t
ed Balance
Sheets
as of February 28, 2017 and February 29, 2016
|
|
|
|
|
ASSETS
|
|
|
|
Current
Assets:
|
|
|
|
Cash
and cash equivalents
|
$
782,707
|
$
363,783
|
|
Note
receivable
|
-
|
125,000
|
|
Prepaid
expenses
|
20,856
|
33,121
|
|
Total Current Assets
|
803,563
|
521,904
|
|
|
|
|
|
Equipment
(net
of accumulated depreciation of $265,234
and
$169,396, respectively)
|
414,635
|
497,052
|
|
Refundable
deposits
|
43,600
|
43,600
|
|
|
|
|
|
TOTAL ASSETS
|
$
1,261,798
|
$
1,062,556
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
Current
Liabilities:
|
|
|
|
Accounts
payable
|
$
572,195
|
$
746,144
|
|
Accrued
expense
|
179,680
|
214,311
|
|
Deferred
research & development reimbursement
|
177,517
|
-
|
|
Notes
payable (net of debt discount of $743,282)
|
-
|
1,533,120
|
|
Convertible
note payable (net of debt discount of $10,914)
|
989,086
|
-
|
|
Accrued
interest payable
|
15,890
|
56,000
|
|
Accrued
dividends on Series B Preferred Stock
|
15,638
|
48,317
|
|
Total Current Liabilities
|
1,950,006
|
2,597,892
|
|
|
|
|
|
Warrant
liability
|
2,106,972
|
234,461
|
|
Total Liabilities
|
4,056,978
|
2,832,353
|
|
|
|
|
|
STOCKHOLDERS'
DEFICIT
|
|
|
|
|
|
|
|
Series
A convertible preferred stock ($0.0001 par value; 1,000,000 shares
authorized; 874,257 and 874,257 issued and outstanding,
respectively)
|
87
|
87
|
|
Series
A-2 convertible preferred stock ($0.0001 par value; 1,000,000
shares authorized; 70,541 and 0 issued and outstanding,
respectively)
|
7
|
|
|
Series
B convertible preferred stock ($0.0001 par value; 1,000 shares
authorized; 213 and 659 shares issued and outstanding,
respectively)
|
-
|
-
|
|
Common
Stock, ($0.0001 par value; 150,000,000 shares authorized; 4,707,942
and 1,851,201 shares issued and outstanding,
respectively)
|
471
|
185
|
|
Additional
paid-in-capital
|
23,523,140
|
21,607,259
|
|
Accumulated
deficit
|
(26,318,885
)
|
(23,377,328
)
|
|
Total stockholders' deficit
|
(2,795,180
)
|
(1,769,797
)
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
|
$
1,261,798
|
$
1,062,556
|
The accompanying notes are an integral part of the consolidated
financial statements
METASTAT INC.
Consolidated St
a
tements of
Operations
For the Years ended February 28, 2017 and February 29,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
-
|
$
-
|
|
Total
Revenue
|
-
|
-
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
General
& administrative
|
2,338,818
|
3,418,235
|
|
Research
& development
|
1,009,134
|
1,360,739
|
|
Total
Operating Expenses
|
3,347,952
|
4,778,974
|
|
|
|
|
|
Other
Expenses (income)
|
|
|
|
Interest
expense
|
1,062,389
|
317,238
|
|
Other
income, net
|
(965
)
|
(141,549
)
|
|
Change
in fair value of warrant liability
|
(2,405,985
)
|
(349,596
)
|
|
Change
in fair value of put option embedded in notes payable
|
(614,484
)
|
10,015
|
|
Loss
on sale of notes receivable
|
112,500
|
-
|
|
Loss
on extinguishment of debt
|
1,375,829
|
-
|
|
Loss
on settlement of accounts payable
|
64,323
|
-
|
|
Settlement
expense
|
-
|
39,097
|
|
Total
Other Expenses (Income)
|
(406,395
)
|
(124,795
)
|
|
|
|
|
|
Net Loss
|
$
(2,941,557
)
|
$
(4,654,179
)
|
|
|
|
|
Loss
attributable to common shareholders and loss per common
share:
|
|
|
|
|
|
|
Net
loss
|
(2,941,557
)
|
(4,654,179
)
|
|
|
|
|
|
Deemed
dividend on Series B Preferred Stock issuance
|
(708,303
)
|
(1,067,491
)
|
|
Accrued
dividend on Series B Preferred Stock
|
(227,163
)
|
(267,058
)
|
|
Deemed
dividend on Series B Preferred Stock holders exchange of
warrants
|
(2,340,552
)
|
-
|
|
Loss attributable to common shareholders
|
$
(6,217,575
)
|
$
(5,988,728
)
|
|
|
|
|
|
Net
loss per share, basic and diluted
|
$
(2.10
)
|
$
(3.30
)
|
|
|
|
|
|
Weighted
average of shares outstanding, basic and diluted
|
2,965,910
|
1,816,060
|
The accompanying notes are an integral part of the consolidated
financial statements
METASTAT INC.
Consolidated Statements of
C
hanges
in Stockholders' Equity (Deficit)
For the years ended February 28, 2017 and February 29,
2016
|
|
|
Series A -2 Preferred Stock
|
|
|
Paid-in
|
Accumulated
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 28, 2015
|
874,257
|
$
87
|
-
|
$
-#
|
229
|
$
-
|
1,831,483
|
$
183
|
$
18,965,529
|
$
(18,723,149
)
|
$
242,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for services
|
-
|
-
|
-
|
-
|
-
|
-
|
30,446
|
3
|
237,059
|
-
|
237,062
|
|
Share-based
compensation
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
585,739
|
-
|
585,739
|
|
Series
B preferred units issued for cash, conversion of accounts payable
and conversion of short-term notes
|
-
|
-
|
-
|
-
|
387
|
-
|
-
|
-
|
1,945,244
|
-
|
1,945,244
|
|
Beneficial
conversion feature of Series A Preferred Stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,067,491
|
-
|
1,067,491
|
|
Deemed
dividend to Series B Preferred Stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,067,491
)
|
-
|
(1,067,491
)
|
|
Accrued
dividends on Series B Preferred Stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(267,058
)
|
-
|
(267,058
)
|
|
Series
B PIK Dividend
|
-
|
-
|
-
|
-
|
43
|
-
|
-
|
-
|
235,508
|
-
|
235,508
|
|
Placement
agent warrants issued with note payable
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
16,800
|
-
|
16,800
|
|
Common
stock and warrants cancellation settlement
|
-
|
-
|
-
|
-
|
-
|
-
|
(10,728
)
|
(1
)
|
(111,562
)
|
-
|
(111,563
)
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(4,654,179
)
|
(4,654,179
)
|
|
Balance at February 29, 2016
|
874,257
|
$
87
|
-
|
$
-
|
659
|
$
-
|
1,851,201
|
$
185
|
$
21,607,259
|
$
(23,377,328
)
|
$
(1,769,797
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock, preferred stock and warrants for cash, net of
offering costs
|
-
|
-
|
48,300
|
5
|
-
|
-
|
1,065,750
|
107
|
962,550
|
-
|
962,662
|
|
Issuance
of common stock and warrants to convert accounts
payable
|
-
|
-
|
-
|
-
|
-
|
-
|
32,500
|
3
|
212,275
|
-
|
212,278
|
|
Issuance
of common stock and warrants to convert notes payable
|
-
|
-
|
16,000
|
2
|
-
|
-
|
440,500
|
44
|
1,566,755
|
-
|
1,566,801
|
|
Beneficial
conversion feature of Series B Preferred Stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
708,303
|
-
|
708,303
|
|
Deemed
dividend to Series B Preferred Stock holders
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(708,303
)
|
-
|
(708,303
)
|
|
Accrued
dividends on Series B Preferred Stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(227,163
)
|
-
|
(227,163
)
|
|
Series
B PIK Dividend
|
-
|
-
|
-
|
-
|
35
|
-
|
-
|
-
|
191,941
|
-
|
191,941
|
|
Issuance
of common stock, preferred stock and warrants in exchange for
cancellation of Series B preferred stock and Series A
Warrants
|
-
|
-
|
6,241
|
-
|
(481
)
|
-
|
1,292,991
|
129
|
747,486
|
-
|
747,615
|
|
Deemed
dividend to Series B Preferred Stock holders for exchange of
warrants
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(2,340,552
)
|
-
|
(2,340,552
)
|
|
Issuance
of warrants in connection with OID Notes amendment
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
44,095
|
-
|
44,095
|
|
Issuance
of warrants in connection with convertible note
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
117,632
|
-
|
117,632
|
|
Share-based
compensation
|
-
|
-
|
-
|
-
|
-
|
-
|
25,000
|
3
|
640,862
|
-
|
640,865
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(2,941,557
)
|
(2,941,557
)
|
|
Balance at February 28, 2017
|
874,257
|
$
87
|
70,541
|
$
7
|
213
|
$
-
|
4,707,942
|
$
471
|
$
23,523,140
|
$
(26,318,885
)
|
$
(2,795,180
)
|
The
accompanying notes are an integral part of the consolidated
financial statements
METASTAT INC.
Consolidated
S
tatements of Cash
Flows
For the Years ended February 28, 2017 and February 29,
2016
|
|
|
|
|
|
|
|
Cash
Flows from Operating Activities:
|
|
|
|
Net
loss
|
$
(2,941,557
)
|
$
(4,654,179
)
|
|
Adjustments
to reconcile net loss to net
cash
used in operating activities:
|
|
|
|
Depreciation
|
95,838
|
96,188
|
|
Share-based
compensation
|
640,865
|
822,801
|
|
Accretion
of debt discount included in interest expense
|
958,053
|
253,313
|
|
Loss
on sale of note receivable and sale of assets
|
112,500
|
10,196
|
|
Loss
on settlement of accounts payable
|
64,323
|
-
|
|
Loss
on settlement of capital lease
|
-
|
8,820
|
|
Gain
related to reimbursement of prior period research and development
expense (Note 4)
|
-
|
(150,000
)
|
|
Loss
on extinguishment of debt
|
1,375,829
|
-
|
|
Change
in fair value of warrant liability
|
(2,405,985
)
|
(349,596
)
|
|
Change
in fair value of put option embedded in notes payable
|
(614,484
)
|
10,015
|
|
Net
changes in assets and liabilities:
|
|
|
|
Prepaid
expenses
|
170,664
|
112,877
|
|
Refundable
deposit
|
-
|
(3,600
)
|
|
Accounts
payable and accrued expenses
|
(50,095
)
|
648,980
|
|
Deferred
research and development reimbursement
|
177,517
|
-
|
|
Interest
payable
|
101,889
|
53,649
|
|
Net Cash used in Operating Activities
|
(2,314,643
)
|
(3,140,536
)
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
Proceeds
from note receivable
|
|
100,000
|
|
Proceeds
received from settlement of capital lease
|
|
2,897
|
|
Proceeds
from sale of note receivable
|
12,500
|
-
|
|
Purchase
of equipment
|
(13,421
)
|
(151,830
)
|
|
Net Cash used in Investing Activities
|
(921
)
|
(48,933
)
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
Proceeds
from issuance of debt, net
|
122,790
|
1,611,408
|
|
Proceeds
from issuance of common stock and warrants, net
|
2,746,688
|
-
|
|
Proceeds
from issuance of Series B preferred stock and warrant,
net
|
-
|
1,945,244
|
|
Re-purchase
of common stock and warrants
|
-
|
(111,563
)
|
|
Payment
of notes
|
(8,000
)
|
-
|
|
Payment
of capital lease obligation
|
-
|
(42,407
)
|
|
Payment
of short-term debt
|
(126,990
)
|
(107,250
)
|
|
Net Cash provided by Financing Activities
|
2,734,488
|
3,295,432
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
418,924
|
105,963
|
|
|
|
|
|
Cash
and cash equivalents:
|
|
|
|
Cash
at the beginning of the year
|
363,783
|
257,820
|
|
Cash at the end of the year
|
$
782,707
|
$
363,783
|
|
|
|
|
|
Supplemental
Disclosure of Non-cash Financing Activities:
|
|
|
|
Warrant
liability associated with note payable
|
$
15,225
|
$
311,057
|
|
Placement
agent warrants issued with note payable
|
$
-
|
$
16,800
|
|
Issuance
of common stock and warrants as payment of accounts
payable
|
$
212,278
|
$
-
|
|
Issuance
of common stock and warrants to convert debt and accrued
interest
|
$
2,326,321
|
$
-
|
|
Financing
of insurance premium through notes payable
|
$
158,400
|
$
107,250
|
|
Note
receivable received from the sale of assets
|
$
-
|
$
75,000
|
|
Warrants
issued to placement agents
|
$
278,223
|
$
175,241
|
|
Series
B Preferred PIK dividend
|
$
191,941
|
$
235,508
|
|
Series
B Preferred Stock accrued dividends
|
$
227,163
|
$
267,058
|
|
Capital
lease settled against deposit
|
$
-
|
$
227,235
|
|
Deemed
dividend related to Series B Preferred Stock BCF adjustment for
conversion price adjustment
|
$
708,303
|
$
-
|
|
Issuance
of common stock , preferred stock and warrants in exchange for
cancellation of Series B
preferred
stock and Series A Warrants
|
$
67,900
|
$
-
|
|
Deemed
dividend to Series B preferred stock holders upon exercising Most
Favorable Nation option
|
$
2,340,552
|
$
-
|
|
Exchange
OID notes and note payable to convertible debt
|
$
986,269
|
$
-
|
|
Issuance
of warrants in connection with OID Notes amendment
|
$
44,095
|
$
-
|
The accompanying notes are an integral part of the consolidated
financial statements
Notes to Consolidated Financial Statements
February 28, 2017 and February 29, 2016
NOTE 1 – ORGANIZATION, BASIS OF PRESENTATION AND GOING
CONCERN
MetaStat,
Inc. (“we,” “us,” “our,” the
“Company,” or “MetaStat”) is a
pre-commercial molecular diagnostic company focused on the
development and commercialization of novel diagnostics to provide
physicians and patients actionable information regarding the risk
of systemic metastasis and adjuvant chemotherapy treatment
decisions. We believe cancer treatment strategies can be
personalized and outcomes improved through new diagnostic tools
that identify the aggressiveness and metastatic potential of
primary tumors. The Company was incorporated on March 28, 2007
under the laws of the State of Nevada.
Basis of Presentation
The
accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiary, MetaStat
Biomedical, Inc., a Delaware corporation and all significant
intercompany balances have been eliminated by
consolidation.
Going Concern
The
accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of
business. The Company has experienced net losses and negative
cash flows from operations since its inception and currently has a
stockholders’ deficit of approximately $2.8
million. The Company has sustained cumulative losses of
approximately $26.3 million as of February 28, 2017 and has not
generated revenues or positive cash flows from operations. The
continuation of the Company as a going concern is dependent upon
continued financial support from its shareholders, the ability of
the Company to obtain necessary equity and/or debt financing to
continue operations, and the attainment of profitable operations.
These factors raise substantial doubt regarding the Company’s
ability to continue as a going concern. Although it is actively
working on obtaining additional funding, the Company cannot make
any assurances that additional financings will be available to it
and, if available, completed on a timely basis, on acceptable terms
or at all. If the Company is unable to complete a debt or
equity offering, or otherwise obtain sufficient financing when and
if needed, it would negatively impact its business and operations
and could also lead to the reduction or suspension of the
Company’s operations and ultimately force the Company to
cease operations. These financial statements do not include any
adjustments to the recoverability and classification of recorded
asset amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going
concern.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The
accompanying consolidated financial statements have been prepared
in accordance with the FASB “FASB Accounting Standard
Codification™” or “ASC,” which is the
source of authoritative accounting principles recognized by the
FASB to be applied by nongovernmental entities in the preparation
of financial statements in conformity with generally accepted
accounting principles (“GAAP”) in the United
States.
Use of Estimates
The
preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the amounts of assets and liabilities reported and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period, including contingencies. Accordingly, actual
results could differ from those estimates.
Cash and Cash Equivalents
The
Company considers all highly liquid investments with maturities of
three months or less from date of purchase to be cash equivalents.
All cash balances were highly liquid at February 28, 2017 and
February 29, 2016.
Concentration of Credit Risk
Financial
instruments that potentially expose the Company to concentrations
of credit risk consist primarily of cash and cash equivalents. The
Company primarily maintains its cash balances with financial
institutions in federally insured accounts. The Company may from
time to time have cash in banks in excess of FDIC insurance limits.
The Company has not experienced any losses to date resulting from
this practice. The Company mitigates its risk by maintaining the
majority of its cash and equivalents with high quality financial
institutions.
Equipment
Equipment
is stated at cost. The cost of equipment is depreciated over the
estimated useful lives of the related assets. Depreciation is
computed using the straight-line method for financial reporting
purposes and accelerated methods for income tax purposes.
Expenditures for major renewals or betterments that extend the
useful lives of equipment are capitalized. Expenditures for
maintenance and repairs are charged to expense as
incurred.
Long-lived Assets
Long-lived
assets are evaluated for impairment whenever events or conditions
indicate that the carrying value of an asset may not be
recoverable. If the sum of the expected undiscounted cash flows is
less than the carrying value of the related asset or group of
assets, a loss is recognized for the difference between the fair
value and carrying value of the asset or group of assets. There was
no impairment of long-lived assets as of February 28, 2017 and
February 29, 2016.
Debt Issuance Costs
Effective
March 1, 2016 debt issuance costs are recorded as a direct
reduction of the carrying amount of the related debt. Debt issuance
costs are amortized over the maturity period of the related debt
instrument using the effective interest method.
Debt Instruments
We
analyze debt instruments for various features that would generally
require either bifurcation and derivative accounting, or
recognition of a debt discount or premium under authoritative
guidance.
Detachable
warrants issued in conjunction with debt are measured at their
relative fair value, if they are determined to be equity
instrument, or their fair value, if they are determined to be
liability instruments, and recorded as a debt
discount. Conversion features that are in the money at
the commitment date constitute a beneficial conversion feature that
is measured at its intrinsic value and recognized as debt discount.
Debt discount is amortized as interest expense over the maturity
period of the debt using the effective interest method. Contingent
beneficial conversion features are recognized when the contingency
has been resolved.
Fair Value Measurements
The
Company groups its assets and liabilities measured at fair value in
three levels based on the markets in which the assets and
liabilities are traded and the reliability of the assumptions used
to determine fair value. Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the
measurement date (an exit price).
Financial
instruments with readily available active quoted prices or for
which fair value can be measured from actively quoted prices
generally will have a higher degree of market price observability
and a lesser degree of judgment used in measuring fair
value.
The
three levels of the fair value hierarchy are as
follows:
Level
1 – Valuation is based on quoted prices in active markets for
identical assets or liabilities. Valuations are obtained from
readily available pricing sources for market transactions involving
identical assets or liabilities.
Level
2 – Valuation is based on observable inputs other than Level
1 prices, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that
are observable or can be corroborated by observable market data for
substantially the full term of the assets or
liabilities.
Level
3 – Valuation is based on unobservable inputs that are
supported by little or no market activity and that are significant
to the fair value of the assets or liabilities. Level 3 assets and
liabilities include financial instruments whose value is determined
using pricing models, some discounted cash flow methodologies, or
similar techniques, as well as instruments for which the
determination of fair value requires significant management
judgment or estimation.
In
certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, an
instrument’s level within the fair value hierarchy is based
on the lowest level of input that is significant to the overall
fair value measurement. The Company’s assessment of the
significance of a particular input to the fair value measurement in
its entirety requires judgment, and considers factors specific to
the financial instrument.
The
Company recognizes transfers between levels as if the transfers
occurred on the last day of the reporting period.
Revenues
We
currently do not have any revenues. We expect to
primarily derive our revenues from sale of our products, which are
currently under development.
Net Loss Per Share
Basic
net loss per common share is computed based on the weighted average
number of common shares outstanding during the
period. Restricted shares issued with vesting conditions
that have not been met at the end of the period are excluded from
the computation of the weighted average shares. As of February 28,
2017 and February 29, 2016, 11,536 and 11,536, respectively,
restricted shares of common stock were excluded from the
computation of the weighted average shares.
Diluted
net loss per common share is calculated giving effect to all
dilutive potential common shares that were outstanding during the
period. Diluted potential common shares generally consist of
incremental shares issuable upon exercise of stock options and
warrants and conversion of outstanding options and warrants and
shares issuable from convertible securities, as well as nonvested
restricted shares.
In
computing diluted loss per share for the years ended February 28,
2017 and February 29, 2016, no effect has been given to the common
shares issuable at the end of the period upon the conversion or
exercise of the following securities as their inclusion would have
been anti-dilutive:
|
|
|
|
|
Stock
options
|
966,474
|
426,976
|
|
Warrants
|
2,698,694
|
913,514
|
|
Preferred
stock
|
1,350,109
|
497,527
|
|
Convertible
debt
|
507,946
|
-
|
|
Total
|
5,523,223
|
1,838,017
|
Income Taxes
Deferred
tax assets and liabilities are recognized for the estimated future
tax consequences attributable to net operating loss carry forwards
and temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. These assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which the
temporary differences are expected to reverse. A valuation
allowance is recorded if it is not more likely than not that some
portion or all of the deferred tax assets will be realized in
future periods.
Research and Development Costs
Research
and development costs are charged to operations when incurred and
are included in operating expenses. Research and development costs
consist principally of (i) compensation and related expenses for
our employees and consultants that perform our research activities,
(ii) the fees paid to maintain our licenses, (iii) the payments to
third parties for clinical testing and additional product
development including contract research organizations, (iv)
facilities and other expenses, which include direct and allocated
expenses for rent and maintenance of facilities, and (v) laboratory
and other supplies, consumables and other materials used in
research and development. Research and development costs
were approximately $1.0 million and approximately $1.36 million for
the years ended February 28, 2017 and February 29, 2016,
respectively. During the year ended February 28, 2017, the Company
recorded approximately $309,000 of research and development expense
reimbursement related to a research agreement (See Note
11).
In
the future, the Company may be required to make advance payments to
vendors for goods or services that will be received in the future
for use in research and development activities. In such
circumstances, the advance payments will be deferred and expensed
when the activity has been performed or when the goods have been
received.
Patent Costs
The
Company expenses all costs as incurred in connection with patent
applications (including direct application fees, and the legal and
consulting expenses related to making such applications) and such
costs are included in general and administrative
expenses.
Stock-Based Compensation
We
account for share-based payments award issued to employees and
members of our Board of Directors (the “Board”) by
measuring the fair value of the award on the date of grant and
recognizing this fair value as stock-based compensation using a
straight-line basis over the requisite service period, generally
the vesting period. For award issued to non-employees, the
measurement date is the date when the performance is complete or
when the award vests, whichever is the earliest. Accordingly,
non-employee award is remeasured at each reporting period until the
final measurement date. The fair value of the award is recognized
as stock-based compensation over the requisite service period,
generally the vesting period.
For
award with performance conditions that affect their vesting, such
as the occurrence of certain transactions or the achievement of
certain operating or financial milestones, recognition of fair
value of the award occurs when vesting becomes probable. For awards
with market conditions that affect their vesting, the fair value of
the award is recognized as stock-based compensation over the
requisite service period, generally the vesting
period.
Recently Issued Accounting Pronouncements
In
August 2014, the FASB issued ASU No. 2014-15, “Presentation
of Financial Statements-Going Concern” (“ASU
2014-15”), which establishes management’s
responsibility to evaluate whether there is substantial doubt about
an entity’s ability to continue as a going concern in
connection with preparing financial statements for each annual and
interim reporting period. ASU 2014-15 also provides
guidance to determine whether to disclose information about
relevant conditions and events when there is substantial doubt
about an entity’s ability to continue as a going
concern. This update is effective for annual reporting
periods ending after December 15, 2016. The adoption of this
guidance in 2016 had no effect on the consolidated financial
statements.
In February 2016,
FASB issued ASU No. 2016-02,
Leases (Topic 842)
which supersedes
FASB ASC Topic 840,
Leases (Topic
840)
and provides principles for the recognition,
measurement, presentation and disclosure of leases for both lessees
and lessors. The new standard requires lessees to apply a dual
approach, classifying leases as either finance or operating leases
based on the principle of whether or not the lease is effectively a
financed purchase by the lessee. This classification will determine
whether lease expense is recognized based on an effective interest
method or on a straight-line basis over the term of the lease,
respectively. A lessee is also required to record a right-of-use
asset and a lease liability for all leases with a term of greater
than twelve months regardless of classification. Leases with a term
of twelve months or less will be accounted for similar to existing
guidance for operating leases. The standard is effective for annual
and interim periods beginning after December 15, 2018, with early
adoption permitted upon issuance. We are currently evaluating the
impact of this guidance on our consolidated financial
statements.
In March 2016, the
FASB issued Accounting Standards Update No. 2016-09, Improvements
to Employee Share-Based Payment Accounting ("ASU 2016-09"). ASU
2016-09 simplifies certain aspects of accounting for share-based
payment transactions, including the income tax consequences,
classification of awards as either equity or liabilities, an option
to recognize gross stock compensation expense with actual
forfeitures recognized as they occur, as well as certain
classifications on the statement of cash flows. ASU 2016-09 is
effective for reporting periods beginning after December 15, 2016.
Early adoption is permitted. We are currently evaluating the impact
ASU 2016-09 will have on our consolidated financial
statements.
NOTE 3 – CAPITAL STOCK
The
Company has authorized 160,000,000 shares of capital stock, par
value $0.0001 per share, of which 150,000,000 are shares of common
stock and 10,000,000 are shares of “blank-check”
preferred stock.
Our
Board is empowered, without stockholder approval, to issue
preferred stock with dividend, liquidation, conversion, voting or
other rights, which could adversely affect the voting power or
other rights of the holders of common stock. The preferred stock
could be utilized as a method of discouraging, delaying or
preventing a change in control of us.
Common Stock
The
holders of our common stock are entitled to one vote per share. In
addition, the holders of our common stock will be entitled to
receive ratably such dividends, if any, as may be declared by our
Board out of legally available funds; however, the current policy
of our Board is to retain earnings, if any, for operations and
growth. Upon liquidation, dissolution or winding-up, the holders of
our common stock will be entitled to share ratably in all assets
that are legally available for distribution.
Series A Convertible Preferred Stock
Pursuant
to the Certificate of Designation of Rights and Preferences of the
Series A Preferred Stock (the “Series A Certificate of
Designation”), the terms of the Series A Preferred Stock are
as follows:
Ranking
The Series A Preferred Stock will rank (i) senior
to our common stock, ii)
pari passu
with our Series A-2 Preferred Stock (as defined
below) and (iii) junior to our Series B Preferred Stock (as defined
below) with respect to distributions of assets upon the
liquidation, dissolution or winding up of the
Company.
Dividends
The
Series A Preferred Stock is not entitled to any
dividends.
Liquidation Rights
In
the event of any liquidation, dissolution or winding-up of the
Company, whether voluntary or involuntary, the holders of the
Series A Preferred Stock shall be entitled to receive out of the
assets of the Company, whether such assets are capital or surplus,
for each share of Series A Preferred Stock an amount equal to the
fair market value as determined in good faith by the
Board.
Voluntary Conversion; Anti-Dilution Adjustments
Each
fifteen (15) shares of Series A Preferred Stock shall be
convertible into one share of common stock (the “Series A
Conversion Ratio”). The Series A Conversion Ratio is subject
to customary adjustments for issuances of shares of common stock as
a dividend or distribution on shares of the common stock, or
mergers or reorganizations.
Voting Rights
The
Series A Preferred Stock has no voting rights. The common stock
into which the Series A Preferred Stock is convertible shall, upon
issuance, have all of the same voting rights as other issued and
outstanding common stock, and none of the rights of the Series A
Preferred Stock.
Series A-2 Convertible Preferred Stock
Pursuant
to the Certificate of Designation of Rights and Preferences of the
Series A-2 Convertible Preferred Stock (the “Series A-2
Preferred Stock” or “Series A-2 Preferred”), the
terms of the Series A-2 Preferred Stock are as
follows:
Ranking
The Series A-2 Preferred will rank (i) senior to
our common stock, (ii)
pari passu
with our Series A Preferred Stock, and (iii)
junior to our Series B Preferred Stock (as defined below) with
respect to distributions of assets upon the liquidation,
dissolution or winding up of the Company.
Dividends
The
Series A-2 Preferred is not entitled to any dividends.
Liquidation Rights
In
the event of any liquidation, dissolution or winding-up of the
Company, whether voluntary or involuntary, the holders of the
Series A-2 Preferred shall be entitled to receive out of the assets
of the Company, whether such assets are capital or surplus, for
each share of Series A-2 Preferred an amount of cash, securities or
other property to which such holder would be entitled to receive
with respect to each such share of Preferred Stock if such shares
had been converted to common stock immediately prior to such
liquidation, dissolution or winding-up of the Company.
Voluntary Conversion; Anti-Dilution Adjustments
Each
share of Series A-2 Preferred shall, at any time, and from time to
time, at the option of the holder, be convertible into ten (10)
shares of common stock (the “Series A-2 Conversion
Ratio”). The Series A-2 Conversion Ratio is subject to
customary adjustments for issuances of shares of common stock as a
dividend or distribution on shares of common stock, or mergers or
reorganizations.
Conversion Restrictions
The
holders of the Series A-2 Preferred may not convert their shares of
Series A-2 Preferred into shares of common stock if the resulting
conversion would cause such holder and its affiliates to
beneficially own (as determined in accordance with Section 13(d) of
the Exchange Act, and the rules thereunder) in excess of 4.99% or
9.99% of the common stock outstanding, when aggregated with all
other shares of common stock owned by such holder and its
affiliates at such time; provided, however, that such holder may
elect to waive these conversion restrictions.
Voting Rights
The
Series A-2 Preferred has no voting rights. The common stock into
which the Series A-2 Preferred is convertible shall, upon issuance,
have all of the same voting rights as other issued and outstanding
common stock, and none of the rights of the Series A-2
Preferred.
Series B Convertible Preferred Stock
Pursuant
to the Certificate of Designation of Rights and Preferences of the
Series B Preferred Stock (the “Series B Certificate of
Designation”), the terms of the Series B Preferred Stock are
as follows:
Ranking
The
Series B Preferred Stock will rank senior to our Series A Preferred
Stock, Series A-2 Preferred Stock and common stock with respect to
distributions of assets upon the liquidation, dissolution or
winding up of the Company.
Stated Value
Each
shares of Series B Preferred Stock will have a stated value of
$5,500, subject to adjustment for stock splits, combinations and
similar events (the “Stated Value”).
Dividends
Cumulative
dividends on the Series B Preferred Stock accrue at the rate of 8%
of the Stated Value per annum, payable quarterly on March 31, June
30, September 30, and December 31 of each year, from and after the
date of the initial issuance. Dividends are payable in
kind in additional shares of Series B Preferred Stock valued at the
Stated Value or in cash at the sole option of the Company. At
February 28, 2017 and February 29, 2016, the dividend payable to
the holders of the Series B Preferred Stock amounted to
approximately $16,000 and approximately $48,000, respectively.
During the year ended February 28, 2017 and February 29, 2016, the
Company issued 34.5085 and 42.8202 shares of Series B Preferred
Stock, respectively, for payment of dividends amounting to
approximately $190,000 and approximately $236,000,
respectively.
Liquidation Rights
If
the Company voluntarily or involuntarily liquidates, dissolves or
winds up its affairs, each holder of the Series B Preferred Stock
will be entitled to receive out of the Company’s assets
available for distribution to stockholders, after satisfaction of
liabilities to creditors, if any, but before any distribution of
assets is made on the Series A Preferred Stock or common stock or
any of the Company’s shares of stock ranking junior as to
such a distribution to the Series B Preferred Stock, a liquidating
distribution in the amount of the Stated Value of all such
holder’s Series B Preferred Stock plus all accrued and unpaid
dividends thereon. At February 28, 2017 and February 29, 2016, the
value of the liquidation preference of the Series B Preferred
stocks aggregated to approximately $1.19 million and approximately
$3.67 million, respectively.
Conversion; Anti-Dilution Adjustments
Each
share of Series B Preferred Stock will be convertible at the
holder’s option into common stock in an amount equal to the
Stated Value plus accrued and unpaid dividends thereon through the
conversion date divided by the then applicable conversion price.
The initial conversion price was $8.25 per share (the “Series
B Conversion Price”) and is subject to customary adjustments
for issuances of shares of common stock as a dividend or
distribution on shares of common stock, or mergers or
reorganizations, as well as “full ratchet”
anti-dilution adjustments for future issuances of other Company
securities (subject to certain standard carve-outs) at prices less
than the applicable Series B Conversion Price.
The
issuance of shares of common stock pursuant to the 2016 Unit
Private Placement (as defined in Note 4) triggered the full ratchet
anti-dilution price protection provision of the Series B Preferred
Stock. Accordingly, the Series B Conversion Price was adjusted from
$8.25 to $2.00 per share. See Note 4 for the accounting treatment
of the conversion price adjustment.
The
Series B Preferred Stock is subject to automatic conversion (the
“Mandatory Conversion”) at such time when the
Company’s common stock has been listed on a national stock
exchange such as the NASDAQ, New York Stock Exchange or NYSE MKT;
provided, that, on the Mandatory Conversion date, a registration
statement providing for the resale of the shares of common stock
underlying the Series B Preferred Stock is effective. In the event
of a Mandatory Conversion, each share of Series B Preferred Stock
will convert into the number of shares of common stock equal to the
Stated Value plus accrued and unpaid dividends divided by the
applicable Series B Conversion Price.
Voting Rights
On
March 27, 2015, the holders of the Series B Preferred Stock entered
into an Amended and Restated Series B Preferred Purchase Agreement,
whereby the Company filed an Amended and Restated Series B
Preferred Certificate of Designation. The Amended and Restated
Series B Preferred Certificate of Designation provides that the
holders of the Series B Preferred Stock shall be entitled to the
number of votes equal to the number of shares of common stock into
which such Series B Preferred Stock could be converted for purposes
of determining the shares entitled to vote at any regular, annual
or special meeting of stockholders of the Company, and shall have
voting rights and powers equal to the voting rights and powers of
the common stock (voting together with the common stock as a single
class).
Most Favored Nation
For
a period of up to 30 months after March 31, 2015, if the Company
issues any New Securities (as defined below) in a private placement
or public offering (a “Subsequent Financing”), the
holders of Series B Preferred Stock may exchange all of the Series
B Preferred Stock at their Stated Value plus all Series A Warrants
(as defined below) issued to the Series B Preferred Stock
investors in the Series B Private Placement for the securities
issued in the Subsequent Financing on the same terms of such
Subsequent Financing. This right expires upon the
earlier of (i) September 30, 2017 and (ii) the consummation of a
bona fide underwritten public offering in which the Company
receives aggregate gross proceeds of at least $5.0
million. ”New Securities” means shares of the
common stock, any other securities, options, warrants or other
rights where upon exercise or conversion the purchaser or recipient
receives shares of the common stock, or other securities with
similar rights to the common stock, subject to certain standard
carve-outs.
See
Note 4 for the accounting treatment of the Series B Preferred
Stock.
NOTE 4 – EQUITY ISSUANCES
Common stock financing – the 2016 Unit Private
Placement
During
the year ended February 28, 2017, the Company entered into a
subscription agreement pursuant to a private placement (the
“2016 Unit Private Placement”) with a number of
accredited investors pursuant to which the Company issued units for
an offering price of $10,000 per unit, with each unit consisting of
(i) 5,000 shares of its common stock, and (ii) five-year warrants
(the “Unit Warrants”) to purchase 2,500 shares of
common stock at an exercise price of $3.00 per share.
During the year ended February 28, 2017
,
the Company issued an aggregate of 49.5 units
consisting of an aggregate of 247,500 shares of
common stock and 123,750 Unit Warrants for an aggregate purchase
price of $495,000. After deducting placement agent fees and other
offering expenses, including legal expenses, net proceeds amounted
to approximately $390,000. Additionally, the Company issued an
aggregate of 24,750 placement agent warrants in substantially the
same form as the Unit Warrants.
Registration Rights Agreement
Pursuant to a registration rights agreement
entered into by the parties, the Company agreed to file a
registration statement with the SEC providing for the resale of the
shares of common stock and the shares of common stock underlying
the Unit Warrants issued pursuant to the 2016 Unit Private
Placement on or before the date which is forty-five (45) days after
the date of the final closing of the 2016 Unit Private
Placement. The Company will use its commercially reasonable
efforts to cause the registration statement to become effective
within one hundred fifty (150) days from the filing date. The
Company has received a waiver from a majority of the 2016 Unit
Private Placement investors extending the filing date of the
registration statement to no later than December 15, 2016.
The Company filed the Registration
Statement on Form S-1 with the SEC on December 14,
2016.
Most Favored Nation Exchange – the MFN Exchange
On
July 12, 2016, the Company and one Series B Preferred Stock
shareholder (the “Exchange Purchaser”) entered into an
exchange agreement effective July 1, 2016 (the “Exchange
Agreement”) whereby the Exchange Purchaser elected to
exercise their Most Favored Nation exchange right into the
securities offered pursuant to the 2016 Unit Private Placement (the
“MFN Exchange”). Accordingly, the Exchange
Purchaser tendered all of their 19.4837 shares of Series B
Preferred Stock and approximately $2,000 of accrued and unpaid
dividends for an aggregate exchange amount of approximately
$109,000, plus 9,000 Series A Warrants with an exercise price of
$10.50 per share originally issued in connection with the Series B
Private Placement for an aggregate of 54,652 shares of common stock
and Unit Warrants to purchase 27,326 shares of common stock at an
exercise price of $3.00 per share. Additionally, the parties
entered into a joinder agreement, and the Exchange Purchaser was
granted all rights and benefits under the 2016 Unit Private
Placement financing agreements.
The
Company analyzed and determined that the MFN Exchange is a
contingent beneficial conversion feature that should be recognized
upon the occurrence of the contingent event based on its intrinsic
value at the commitment date. Since the Company had fully
recognized all allocated proceeds of the Series B Preferred Stock
in previously recognized beneficial conversion features, no
beneficial conversion was recognized upon the exchange of the
Series B Preferred Stock in the MFN Exchange.
For
the year ended February 28, 2017, the Company has recorded a
non-cash deemed dividend to Additional Paid-in Capital of
approximately $29,000, in connection with the MFN Exchange equal to
the excess fair value of the shares of common stock and Unit
Warrants received over the carrying value of the exchanged shares
of Series B Preferred and Series A Warrants
Common stock financing – Additional 2016 Unit Private
Placement
During the year ended February 28, 2017, the
Company entered into a subscription agreement (the
“Additional 2016 Unit Subscription Agreement”) pursuant
to a private placement (the “Additional 2016 Unit Private
Placement”) whereby the Company may issue units for an
offering price of $10,000 per unit, with each unit consisting of
(i) 5,000 shares of its common stock at an effective price of $2.00
per share (the “Effective Price”), and (ii) five-year
warrants (the “Additional Unit Warrants”) to purchase
2,500 shares of common stock at an exercise price of $3.00 per
share. Pursuant to the Additional 2016
Unit Subscription
Agreement, for the benefit of certain investors that would be
deemed to have beneficial ownership in excess of 4.99% or 9.99%,
the Company may issue shares of Series A-2 Preferred Stock in lieu
of issuing shares of common stock to such investors.
Pursuant
to the Additional 2016 Unit Subscription Agreement, for a period of
one hundred eighty (180) days following the final closing of the
Additional 2016 Unit Private Placement, the investors shall have
“full-ratchet” anti-dilution price protection (the
“Price Protection”) based on certain issuances by the
Company of common stock or securities convertible into shares of
common stock at an effective price per share less than the
Effective Price (a "Down-round Issuance"), whereby the Company
would be required to issue the investors additional shares of
common stock and Additional Unit Warrants. On April 30, 2017, the
Price Protection provision lapsed without the Company issuing any
additional shares of common stock and additional Unit
Warrants.
During
the year ended February 28, 2017, the Company issued an aggregate
of 260.25 units consisting of an aggregate of 818,250 shares of
common stock, 48,300 shares of Series A-2 Preferred Stock
convertible into 483,000 shares of common stock, and Additional
Unit Warrants to purchase 650,625 shares of common stock, for an
aggregate purchase price of approximately $2.6 million. After
deducting placement agent fees and other offering expenses,
including legal expenses, net proceeds amounted to approximately
$2.4 million.
Additionally,
in connection with the Additional 2016 Unit Private Placement, the
Company issued placement agent warrants to purchase an aggregate of
108,958 shares of common stock in substantially the same form as
the Additional Unit Warrants but without the Price Protection
provision.
Exchange of Payables – the Company Payable
Exchange
During the year ended February 28, 2017, the
Company
entered into the
Additional 2016
Unit Subscription Agreement
with certain accredited vendors of the Company
in connection with the exchange
(the
“Company Payable Exchange”) of an aggregate of $65,000
of accounts payable into the
Additional 2016 Unit Private Placement
.
Pursuant to the Company Payable Exchange, the
Company issued an aggregate of 6.5 units
consisting of an aggregate of 32,500 shares of common stock, and
Additional Unit Warrants to purchase 16,250 shares of common stock
in consideration for
the cancellation of $65,000 of accounts
payable in the aggregate. As a result of the Company Payable
Exchange, the Company recognized a loss of approximately
$62,000.
Exchange of Promissory Note – the Promissory Note
Exchange
During
the year ended February 28, 2017, the Company entered into the
Additional 2016 Unit Subscription Agreement with the holder (the
“Noteholder”) of the Promissory Note (as defined in
Note 7) in connection with the exchange (the “Promissory Note
Exchange”) of $600,000 principal amount of Promissory Notes
plus $48,000 of accrued and unpaid interest into the Additional
2016 Unit Private Placement. In connection with the Promissory Note
Exchange, the Company issued 64.8 units consisting of 230,000
shares of common stock, 9,400 shares of Series A-2 Preferred,
convertible into 94,000 shares of common stock, and Additional Unit
Warrants to purchase 162,000 shares of common stock in exchange for
the cancellation of $600,000 principal amount plus $48,000 of
accrued and unpaid interest of the Promissory Note (See Note
7).
Exchange of OID Notes – the OID Note Exchange
During the year ended February 28, 2017, the
Company
entered into the
Additional 2016
Unit Subscription Agreement
with certain holders of OID Notes (the “OID
Noteholders”) in connection with the exchange (the “OID
Note Exchange”) of an aggregate of $553,000 principal amount
of OID Notes (the “OID Exchange Amount”) into the
Additional 2016 Unit Private
Placement
. In connection with the OID Note Exchange,
the Company
issued an aggregate
of 55.3 units consisting of 210,500 shares of common stock, 6,600
shares of Series A-2 Preferred,
convertible into 66,000
shares of common stock
and
Additional Unit Warrants
to purchase
138,250 shares of common stock in exchange for the cancellation of
$553,000 of OID Notes
(See Note
7).
Most Favored Nation Exchange – the Additional MFN
Exchange
During
the year ended February 28, 2017, the Company and certain Series B
Preferred Stockholders (the “Additional Exchange
Purchasers”) entered into exchange agreements (the
“Exchange Agreements”) whereby the Additional Exchange
Purchasers elected to exercise their Most Favored Nation exchange
rights into the securities offered pursuant to the Additional 2016
Unit Private Placement (the “Additional MFN
Exchange”). Accordingly, the Additional Exchange
Purchasers tendered all of their 460.6480 shares of Series B
Preferred Stock and approximately $68,000 of accrued and unpaid
dividends for an aggregate exchange amount of approximately $2.6
million, plus 208,027 Series A Warrants with an exercise price of
$10.50 per share originally issued in connection with the Series B
Private Placement (as defined below) for an aggregate of 1,238,339
shares of common stock, 6,240.8 shares of Series A-2 Preferred
Stock convertible into 62,408 shares of common stock, and
Additional Unit Warrants to purchase 650,381 shares of common
stock. Additionally, the parties entered into a joinder agreement,
and the Exchange Purchasers were granted all rights and benefits
under the Additional 2016 Unit Private Placement financing
agreements.
The
Company analyzed and determined that the Additional MFN Exchange is
a contingent beneficial conversion feature that should be
recognized upon the occurrence of the contingent event based on its
intrinsic value at the commitment date. Since the Company had fully
recognized all allocated proceeds of the Series B Preferred Stock
in previously recognized beneficial conversion features, no
beneficial conversion was recognized upon the exchange of the
Series B Preferred Stock in the Additional MFN
Exchange.
For
the year ended February 28, 2017, the Company recorded a non-cash
deemed dividend to Additional Paid-in Capital of approximately $2.3
million in connection with the Additional MFN Exchange equal to the
excess fair value of the shares of common stock, shares of Series
A-2 Preferred Stock and Additional Unit Warrants issued over the
carrying value of the cancelled shares of Series B Preferred Stock
and exchanged Series A Warrants.
Accounting for the Price Protection Provision
The
Company analyzed the Price Protection provision for embedded
derivatives that require bifurcation. The Company evaluated the
Price Protection provision for both the issuance of additional
shares of common stock and additional warrants in connection with a
down-round issuance in accordance with ASC 480 and ASC 815. In
connection with the potential issuance of additional shares of
common stock, the Company concluded that since the embedded
down-round feature is within the equity host contract, the embedded
Price Protection provision would be considered clearly and closely
related to the equity host under ASC 815-15-25-1(a) and that the
Price Protection provision should not be bifurcated. In connection
with the potential issuance of additional warrants, the Company
concluded that the freestanding Additional Unit Warrants are not
indexed to the Company’s common stock within the scope of ASC
815-40 and therefore was initially bifurcated and measured at fair
value and recorded as a derivative liability in the Consolidated
Balance Sheet. The derivative liability will be measured at
fair value on an ongoing basis, with changes in fair value
recognized in the statement of operations until the Price
Protection provision lapses.
Registration Rights Agreement
Pursuant
to a registration rights agreement entered into by the parties, the
Company agreed to file a registration statement with the SEC
providing for the resale of the shares of common stock and the
shares of common stock underlying the Additional Unit Warrants
issued pursuant to the Additional 2016 Unit Private Placement on or
before the date which is forty-five (45) days after the date of the
final closing of the Additional 2016 Unit Private Placement, which
occurred on October 30, 2016. The Company will use its
commercially reasonable efforts to cause the registration statement
to become effective within one hundred fifty (150) days from the
filing date. The Company filed the Registration Statement on Form
S-1 with the SEC on December 14, 2016.
Issuances of common stock for services
During
the year ended February 29, 2016, the Company issued an aggregate
of 28,001 shares of common stock to consultants for services that
vested immediately and 6,667 shares of common stock to a consultant
for services that vested over 6 months. The weighted average
fair value of these shares of common stock amounted to
$4.96.
During
the year ended February 29, 2016, the Company terminated a contract
with a consultant whereby the consultant returned an aggregate of
4,222 shares of common stock previously issued to the consultant
and the Company reduced stock-based expense in the amount of
approximately $22,000.
During
the year ended February 28, 2017, the Company issued an aggregate
of 25,000 shares of common stock to a consultant for services that
vested over a two-month term and to settle $32,000 of accounts
payable. The fair value of the shares amounted to approximately
$46,000 on the grant date.
During
the year ended February 28, 2017 and February 29, 2016, the Company
recognized approximately $14,000 and approximately $221,000,
respectively, of share-based compensation related to common stock
issued for services, all of which was recognized into general and
administrative expense.
Settlement
During
the year ended February 29, 2016, the Company entered into a
settlement agreement to settle a dispute with two affiliated
security holders in which the Company paid $150,000, in exchange
for the cancellation of all Company securities held by such
parties, which included an aggregate of 10,728 shares of common
stock, 1,667 common stock purchase warrants with an exercise
price of $31.50 and 5,001 common stock purchase warrants with an
exercise price of $22.50. Additionally, the Company reimbursed
$3,000 of legal expenses to the two affiliated security holders.
The Company recorded the fair value of the instruments as a
reduction of equity as equity instruments were cancelled and
recognized a settlement expense of approximately $39,000 for the
excess of the amount paid over the fair value of the cancelled
equity instruments.
Series B preferred stock financing – the Series B Private
Placement
The
Company entered into an amended and restated securities purchase
agreement (the “A&R Series B Purchase Agreement”)
on March 27, 2015 and March 31, 2015 with a number of new and
existing accredited investors (collectively, the “Series B
Investors”) pursuant to which it sold approximately
$2,131,000 of Series B Preferred Stock convertible into common
stock at $8.25 per share in a private placement (the “Series
B Private Placement”). In addition, pursuant to the A&R
Series B Purchase Agreement, the Company issued series A warrants
(the “Series A Warrants”) to purchase up to 193,708
shares of common stock at an initial exercise price per share of
$10.50 to the Series B Investors. The Series A Warrants expire on
March 31, 2020.
Pursuant
to the closings of the Series B Private Placement on March 2015,
the Company issued an aggregate of 387.4088 shares of Series B
Preferred Stock convertible into 258,281 shares of common stock and
Series A Warrants to purchase 193,708 shares of common stock for an
aggregate purchase price of $2,130,750, of which $18,000 represents
the exchange of stock-based compensation to a consultant that was
to be settled in the form of shares of common stock but was
actually settled with Series B Preferred Stock and Series A
Warrants. As a result of the exchange, the Company recorded
approximately $13,000 of stock-based compensation.
In
connection with the March 2015 closings of the Series B Private
Placement, the placement agents were paid a total cash fee of
approximately $147,000 including expense allowances and
reimbursements, and were issued an aggregate of 20,668 Series A
Warrants. On the grant dates, the fair value of the placement agent
warrants amounted to approximately $158,000 and was recorded as a
stock issuance cost. Net proceeds amounted to approximately
$1,945,000 after deducting offering expenses to be paid in cash,
including the placement agent fees and legal fees and other
expense.
Accounting for the Series B Preferred Stock
The
Company determined the Series B Preferred Stock should be
classified as equity as it is not mandatorily redeemable, and there
are no unconditional obligations in that (1) the Company must or
may settle in a variable number of its equity shares and (2) the
monetary value is predominantly (a) fixed, (b) varying with
something other than the fair value of the Company’s equity
shares or (c) varying inversely in relation to the Company’s
equity shares.
Because
the Series B Preferred Stock contain certain embedded features that
could affect the ultimate settlement of the Series B Preferred
Stock, the Company analyzed the instrument for embedded derivatives
that require bifurcation. The Company’s analysis began with
determining whether the Series B Preferred Stock is more akin to
equity or debt. The Company evaluated the following
criteria/features in this determination: redemption, voting rights,
collateral requirements, covenant provisions, creditor and
liquidation rights, dividends, conversion rights and exchange
rights. The Company determined that the preponderance of evidence
suggests the Series B Preferred Stock was more akin to equity than
to debt when evaluating the economic characteristics and risks of
the entire Series B Preferred Stock, including the embedded
features. The Company then evaluated the embedded features to
determine whether their economic characteristics and risks were
clearly and closely related to the economic characteristics and
risks of the Series B Preferred Stock. Since the Series B Preferred
Stock was determined to be more akin to equity than debt, and the
underlying that causes the value of the embedded features to
fluctuate would be the value of the Company’s common stock,
the embedded features were considered clearly and closely related
to the Series B Preferred Stock. As a result, the embedded features
would not need to be bifurcated from the Series B Preferred
Stock.
Any
beneficial conversion features related to the exercise of the Most
Favored Nation exchange right or the application of the Mandatory
Conversion provision will be recognized upon the occurrence of
the contingent events based on its intrinsic value at the
commitment date.
Accounting for the Series B Warrants
The
Series B Warrants issued in the Series B Private Placement contain
an adjustment clause affecting the exercise price of the Series B
Warrants, which may be reduced if the Company issues shares of
common stock or convertible securities at a price below the
then-current exercise price of the Series B Warrants. As a result,
we determined that the Series B Warrants were not indexed to the
Company’s common stock and therefore should be recorded as a
derivative liability, based on their fair value at the time of
issuance. The fair value of Series B Warrants will be re-measured
at each reporting period, and any resultant changes in fair value
will be recorded in the Company’s Consolidated Statement of
Operations.
Accounting for the Series A Warrants
The
Company concluded the freestanding Series A Warrants did not
contain any provision that would require liability classification
and therefore should be classified in stockholder’s equity,
based on their relative fair value.
Allocation of Proceeds of the 2015 Series B Private
Placement
For
the year ended February 29, 2016, the proceeds of approximately
$2,131,000 from the closings of the Series B Private Placement on
March 27, 2015 and March 31, 2015 were allocated to the Series B
Preferred Stock and Series A Warrant instruments based on their
relative fair values.
The
Series B Preferred Stock was valued on an as-if-converted basis
based on the underlying common stock. The Series A
Warrants were valued using the Black-Scholes model with the
following weighted-average input at the time of issuance: expected
term of 5.0 years based on their contractual life, volatility of
125% based on the Company’s historical volatility and risk
free rate of 1.4% based on the rate of the 5-years U.S. treasury
bill.
After
allocation of the proceeds, the effective conversion price of the
Series B Preferred Stock was determined to be beneficial and, as a
result, the Company recorded a non-cash deemed dividend of
approximately $1,067,000 equal to the intrinsic value of the
beneficial conversion feature.
Deemed Dividend due to Conversion Price Adjustment.
During
the year ended February 28, 2017, as a result of the adjustment of
the Series B Conversion Price from $8.25 to $2.00 per share due to
the 2016 Unit Private Placement, the Company recorded a non-cash
deemed dividend, amounting to approximately $708,000. The
expense was measured at the intrinsic value of the beneficial
conversion feature for each issuance of Series B Preferred Stock in
the Series B Private Placement and was limited to the amount of
Series B Preferred Stock allocated proceeds less previously
recognized beneficial conversion features.
The Series B Registration Rights Agreement
In
connection with the closing of the Series B Private Placement, the
Company entered into a registration rights agreement (the
“Series B Registration Rights Agreement”) with all the
Series B Investors, in which the Company agreed to file a
registration statement (the “Registration Statement”)
with the Securities and Exchange Commission ("SEC") to register for
resale the shares of common stock underlying the Series B Preferred
Stock, the Series A Warrants and the Series B Warrants within 30
calendar days of the final closing date of March 31, 2015 (the
“Filing Date”), and to have the registration statement
declared effective within 120 calendar days of the Filing
Date.
If
the Registration Statement has not been filed with the SEC on or
before the Filing Date, the Company shall, on the business day
immediately following the Filing Date, and each 15th day
thereafter, make a payment to the Series B Investors as partial
liquidated damages for such delay (together, the “Late
Registration Payments”) equal to 2.0% of the purchase price
paid for the Series B Preferred Stock then owned by the Series B
Investors for the initial 15 day period and 1.0% of the purchase
price for each subsequent 15 day period until the Registration
Statement is filed with the SEC. Late Registration Payments will be
prorated on a daily basis during each 15 day period and will be
paid to the Series B Investors by wire transfer or check within
five business days after the end of each 15 day period following
the Filing Date.
The
Company filed the Registration Statement on Form S-1 with the SEC
on April 10, 2015 and the Registration Statement was declared
effective on July 29, 2015. As a result, no penalty was
incurred.
Deferred Offering Costs
During
the year ended February 29, 2016, the Company incurred
approximately $171,000 of incremental costs in connection with a
proposed public offering of the Company’s common stock that
was aborted due to market conditions. These costs were charged
to expense.
NOTE 5 – STOCK OPTIONS
Our
2012 Incentive Plan, which is administrated by the compensation
committee of the Board, reserves shares of common stock available
for issuance that we may grant to employees, non-employee directors
and consultants, equity incentives in the form of, among other,
stock options, restricted stock, and stock appreciation rights. On
June 22, 2015, our stockholders approved amending our 2012
Incentive Plan to increase the number of authorized shares of
common stock reserved for issuance under the 2012 Incentive Plan to
a number not to exceed fifteen percent (15%) of the issued and
outstanding shares of common stock on an as converted primary basis
(the “As Converted Primary Shares”) on a rolling basis.
For calculation purposes, the As Converted Primary Shares shall
include all shares of common stock and all shares of common stock
issuable upon the conversion of outstanding preferred stock and
other convertible securities, but shall not include any shares of
common stock issuable upon the exercise of options, warrants and
other convertible securities issued pursuant to the 2012 Incentive
Plan. The number of authorized shares of common stock reserved for
issuance under the 2012 Incentive Plan shall automatically be
increased concurrently with the Company’s issuance of fully
paid and non- assessable shares of As Converted Primary Shares.
Shares shall be deemed to have been issued under the 2012 Incentive
Plan solely to the extent actually issued and delivered pursuant to
an award under the 2012 Incentive Plan. As of February 28,
2017, there are an aggregate of 908,708 total shares available
under the 2012 Incentive Plan, of which 330,514 are issued and
outstanding and 578,194 shares are available for potential
issuances. The Company may issue shares outside of the 2012
Incentive Plan.
During
the year ended February 29, 2016, the Company issued options to
purchase 6,667 shares of common stock at $11.25 per share to a
consultant. The options vest upon achieving certain
performance-based milestones and expire on March 1, 2025. The
Company will measure the fair value of these options with vesting
contingent on achieving certain performance-based milestones and
recognize the compensation expense when vesting becomes
probable. The fair value will be measured using a
Black-Scholes model. During the year ended February 29, 2016, 3,334
of these options, with an aggregate fair value of approximately
$15,000, vested based on achieving certain milestones.
During
the year ended February 29, 2016, the Company issued options to
purchase 80,000 shares of common stock at $8.25 per share to
non-executive members of its Board of Directors. The options vest
in three equal installments on each of May 18, 2016, May 18, 2017,
and May 18, 2018 and expire on May 18, 2025. These options had a
total fair value of approximately $388,000 as calculated using the
Black-Scholes model.
During
the year ended February 29, 2016, the Company issued options to
purchase an aggregate of 5,001 shares of common stock at $8.25 per
share to employees. The options vest over time through September
2017.
During
the year ended February 29, 2016, the Company issued options to
purchase 60,000 shares of common stock at $8.25 per share to our
Chief Executive Officer. Certain of these options vest upon
achieving certain performance-based or market-based milestones and
expire on June 17, 2025. The fair value of these options on the
grant date was $221,100 as calculated using the Black-Scholes
model. The Company will recognize the compensation expense when
vesting becomes probable. During the year ended February
29, 2016, 10,000 of these options vested immediately and 10,000 of
these options vested upon achieving a performance based
milestone.
During
the year ended February 29, 2016, the Company issued options to
purchase 26,667 shares of common stock at $8.25 per share to our
former Chief Executive Officer and Chief Medical Officer. These
options vested immediately. These options had a total fair value of
approximately $44,000 as calculated using the Black-Scholes model.
The Company also modified the expiration date of certain vested
options previously granted to our former Chief Executive Officer
and Chief Medical Officer, which resulted in an additional
compensation expense of approximately $22,000 being recorded during
the year ended February 29, 2016.
During
the year ended February 29, 2016, the Company issued options to
purchase 10,000 shares of common stock at $8.25 per share to a
consultant. The options vest upon achieving certain
performance-based milestones and expire on June 17, 2025. The
Company will measure the fair value of these options with vesting
contingent on achieving certain performance-based milestones and
recognize the compensation expense when vesting becomes
probable. The fair value will be measured using a
Black-Scholes model.
During
the year ended February 29, 2016, the Company issued options to
purchase an aggregate of 45,500 shares of common stock at $3.55 per
share to members of its management team and employees. These
options expire on February 2, 2026. The fair value of these options
on the grant date was approximately $122,000 as calculated using
the Black-Scholes model. During the year ended February 29, 2016,
11,375 of these options vested immediately and 34,125 of these
options will vest based on achieving certain milestones, which the
Company deems probable to occur in December
2016.
During
the year ended February 29, 2016, the Company issued options to
purchase 10,000 shares of common stock at $3.55 per share to a
consultant. These options expire on February 2, 2026. The fair
value of these options on the measurement dates was approximately
$20,000 as calculated using the Black-Scholes model. During the
year ended February 29, 2016, 2,500 of these options vested
immediately and 7,500 of these options will vest based on achieving
certain milestones, which the Company deems probable to occur in
December 2016.
During
the year ended February 29, 2016, 534 options previously issued to
a member of the Company’s Scientific and Clinical Advisory
Board were mutually cancelled by the parties. The member will
continue to serve on the Company’s Scientific and Clinical
Advisory Board without any equity compensation.
For
the year ended February 29, 2016, the Company recognized
approximately $555,000 of compensation expense related to stock
options, of which approximately $442,000 was recognized in general
and administrative expenses and approximately $113,000 was
recognized in research and development expenses.
During
the year ended February 28, 2017, the Company issued options to
purchase 50,000 shares of common stock at $2.19 per share to a
non-executive member of its Board. These 50,000 options vest in
three equal installments on each of May 26, 2017, May 26, 2018, and
May 26, 2019 and expire on May 26, 2026. These options had a total
fair value of approximately $87,000 as calculated using the
Black-Scholes model.
During
the year ended February 28, 2017, the Company issued options to
purchase 50,000 shares of common stock at $2.19 per share to a
non-executive member of its Board for performing other services.
These 50,000 options vest upon achieving a certain milestone and
expire on May 26, 2026. These options will be measured and
recognized when vesting becomes probable.
During
the year ended February 28, 2017, the Company issued options to
purchase an aggregate of 440,000 shares of common stock at an
exercise price of $2.00 per share to members of its management
team. These options expire on July 7, 2026. These options had a
grant date fair value of approximately $622,000 as calculated using
the Black-Scholes model. 73,333 of these options vested immediately
and 146,667 of these options vest in equal monthly installments
over a twenty-four-month period. 220,000 options are subject to
certain milestone-based vesting. The Company has not recognized any
stock based compensation for the options with performance-vesting
conditions, and expects to recognize the compensation expense when
vesting become probable, which has not yet occurred.
During
the year ended February 28, 2017, the Company issued options to
purchase an aggregate of 100,000 shares of common stock at an
exercise price of $2.00 per share to a non-executive member of its
Board. These options expire on July 7, 2026. These options had a
total fair value of approximately $143,000 as calculated using the
Black-Scholes model. 33,333 of these options vested immediately and
66,667 of these options vest in equal monthly installments over a
twenty-four-month period.
During
the year ended February 28, 2017, the Company issued options to
purchase an aggregate of 240,000 shares of common stock at an
exercise price of $2.00 per share to consultants. These options
expire on July 7, 2026. 33,333 of these options, with an aggregate
fair value of approximately $57,000, vest on the first anniversary
date and then 66,667 of these options vest in equal monthly
installments over a twenty-four-month period. 140,000 of these
options are subject to certain milestone-based vesting and the
Company will measure the fair value of these options with vesting
contingent on achieving certain performance-based milestones and
recognize the compensation expense when vesting becomes
probable.
During
the year ended February 28, 2017, the Company and a member of its
Board voluntarily cancelled options to purchase an aggregate of
100,000 shares of common stock at an exercise price of $2.00 per
share without replacement. The Company recognized approximately
$69,000 of compensation expense related to the cancellation of
these options.
During
the year ended February 28, 2017, the Company issued options to
purchase an aggregate of 21,000 shares of common stock at an
exercise price of $3.00 per share to employees. These options
expire between on November 21, 2026 and December 1, 2026. These
options had a grant date fair value of approximately $29,000 as
calculated using the Black-Scholes model. 7,000 of these options
vest one year following issuance and then 14,000 of these options
vest in equal monthly installments over the following
twenty-four-month period.
During
the year ended February 28, 2017, the Company issued options to
purchase 100,000 shares of common stock at $3.00 per share to a
consultant. These options expire on January 13, 2027 and vest upon
achieving certain performance-based milestones. The Company will
measure the fair value of these options with vesting contingent on
achieving certain performance-based milestones and recognize the
compensation expense when vesting becomes probable. The fair
value will be measured using a Black-Scholes model.
For
the year ended February 28, 2017, the Company recognized
approximately $580,000 of compensation expense related to stock
options, of which approximately $495,000 was recognized in general
and administrative expenses and approximately $85,000 in research
and development expenses.
The
inputs to the Black-Scholes model used to value the stock options
granted during the year ended February 28, 2017 and February 29,
2016 are as follows:
|
|
February 28, 2017
|
|
February 29, 2016
|
|
Expected volatility
|
98.9% - 133.4%
|
|
114.8%
|
|
Expected dividend yield
|
0.00%
|
|
0.00%
|
|
Risk-free interest rate
|
0.97% - 1.90%
|
|
1.64%
|
|
Weighted-average expected Term
|
6.31 years
|
|
5.60 years
|
The
following table summarizes common stock options issued and
outstanding:
|
|
|
Weighted
average exercise
price
|
Aggregate
intrinsic value
|
Weighted
average remaining
contractual life (years)
|
|
|
|
|
|
|
|
Outstanding at February 28, 2015
|
187,575
|
$
23.70
|
$
20,670
|
8.29
|
|
Granted
|
243,835
|
$
7.26
|
$
-
|
-
|
|
Expired/
Exercised/ Forfeited
|
(4,201
)
|
$
(9.93
)
|
$
-
|
-
|
|
Outstanding at February 29, 2016
|
426,976
|
$
14.45
|
$
-
|
7.98
|
|
Granted
|
1,001,000
|
$
2.14
|
$
-
|
-
|
|
Expired/
Exercised/ Forfeited
|
(461,502
)
|
$
6.05
|
$
-
|
-
|
|
Outstanding and expected to vest at February 28, 2017
|
966,474
|
$
5.71
|
$
|
8.87
|
|
Exercisable at February 28, 2017
|
315,476
|
$
10.84
|
$
-
|
8.08
|
The
following table breaks down exercisable and unexercisable common
stock options by exercise price as of February 28,
2017:
|
|
|
|
|
|
Weighted Average
Remaining Life (years)
|
|
|
Weighted Average
Remaining Life (years)
|
|
142,222
|
$
2.00
|
9.36
|
337,778
|
$
2.00
|
9.36
|
|
-
|
$
2.19
|
-
|
100,000
|
$
2.19
|
9.24
|
|
-
|
$
3.00
|
-
|
121,000
|
$
3.55
|
9.86
|
|
30,000
|
$
3.55
|
8.94
|
-
|
$
8.10
|
-
|
|
1,068
|
$
8.10
|
7.92
|
-
|
$
8.25
|
-
|
|
40,001
|
$
8.25
|
8.26
|
79,999
|
$
10.20
|
8.26
|
|
41,434
|
$
10.20
|
4.86
|
-
|
$
10.50
|
-
|
|
3,334
|
$
11.25
|
8.22
|
3,333
|
$
11.25
|
8.22
|
|
11,112
|
$
16.50
|
7.63
|
8,888
|
$
16.50
|
7.63
|
|
8,068
|
$
22.50
|
7.92
|
-
|
$
22.50
|
-
|
|
38,237
|
$
48.75
|
6.10
|
-
|
$
48.75
|
-
|
|
315,476
|
$
10.84
|
8.08
|
650,998
|
$
3.23
|
9.27
|
As
of February 28, 2017, we had approximately $212,000 of unrecognized
compensation related to employee and consultant stock options that
are expected to vest over a weighted average period of 0.90 years
and, approximately $500,000 of unrecognized compensation related to
employee stock options whose recognition is dependent on certain
milestones to be achieved. Additionally, there were
approximately $213,000 stock options with a performance
vesting condition that were granted to consultants which will be
measured and recognized when vesting becomes
probable.
NOTE 6 – WARRANTS
For
the year ended February 29, 2016, the Company issued to a
consultant for services a five-year warrant to purchase 9,134
shares of common stock at an exercise price of $8.25 per share.
This warrant vested immediately. The fair value of this warrant was
determined to be approximately $27,000, as calculated using the
Black-Scholes model. Average assumptions used in the Black-Scholes
model included: (1) a discount rate of 1.54%; (2) an expected term
of 5.0 years; (3) an expected volatility of 128%; and (4) zero
expected dividends. For the year ended February 29, 2016, the
Company recognized approximately $27,000 of stock-based
compensation for this warrant.
For
the year ended February 29, 2016, the Company issued an aggregate
of 1,251 warrants to a consultant for services. These warrants were
issued on May 31, 2015 and expire on May 31, 2020. A total of 556
of such warrants are exercisable at $15.00 per share and 695 of
such warrants are exercisable at $18.75 per share. These warrants
vested immediately. The fair value of these warrants was determined
to be approximately $5,000, as calculated using the Black-Scholes
model. Average assumptions used in the Black-Scholes model
included: (1) a discount rate of 1.49%; (2) an expected term of 5.0
years; (3) an expected volatility of 124%; and (4) zero expected
dividends. For the year ended February 29, 2016, the Company
recognized approximately $5,000 of stock-based compensation for
these warrants.
For
the year ended February 29, 2016, the Company issued an aggregate
of 214,376 Series A Warrants in connection with the issuances of
Series B Preferred Stock in March 2015, referenced in Note 6,
including 20,668 warrants issued to the placement agent. These
Series A Warrants were issued on March 27, 2015 and March 31, 2015,
are exercisable at $10.50 per share and expire on March 31, 2020.
The Series A Warrants vested immediately. The Series A Warrants do
not contain any provision that would require liability treatment,
therefore they were classified as equity in the Consolidated
Balance Sheet. The fair value of the placement agent warrants was
determined to be approximately $158,000, as calculated using the
Black-Scholes model, and recorded as stock issuance cost.
Weighted-average assumptions used in the Black-Scholes model
included: (1) a discount rate of 1.41%; (2) an expected term of 5.0
years; (3) an expected volatility of 125%; and (4) zero expected
dividends.
For
the year ended February 29, 2016, the Company issued a warrant to
purchase an aggregate of 43,636 shares of common stock in
connection with the issuance of the Promissory Note pursuant to the
Note Purchase Agreement on July 31, 2015, referenced in Note 7.
This warrant is exercisable at $8.25 per share and expires on July
30, 2020. The warrant vested immediately. The warrant contains a
clause affecting its exercise price that caused it to be classified
as a derivative warrant liability (see Note 7 and Note 8). Such
clause will lapse upon listing of the Company’s common stock
on a National Trading Market. The warrant was recorded as a debt
discount based on its fair value.
For
the year ended February 29, 2016, in connection with the issuance
of the Promissory Note pursuant to the Note Purchase Agreement on
July 31, 2015, the Company issued placement agent warrants to
purchase an aggregate of 5,600 shares of common
stock. These placement agent warrants were issued on
July 31, 2015, are exercisable at $10.50 per share and expire on
July 31, 2020. These placement agent warrants vested immediately.
The fair value of these warrants was determined to be approximately
$17,000, as calculated using the Black-Scholes model.
Weighted-average assumptions used in the Black-Scholes model
included: (1) a discount rate of 1.54%; (2) an expected term of 5.0
years; (3) an expected volatility of 128%; and (4) zero expected
dividends. Approximately $17,000 was recorded as part of the debt
discount against the stated value of the Promissory Note (see Note
7).
For
the year ended February 29, 2016, the Company issued a warrant to
purchase an aggregate of 43,636 shares of common stock in
connection with the Note Amendment on February 12, 2016, referenced
in Note 9. This warrant is exercisable at $8.25 per share and
expire on July 30, 2020. The warrant vested immediately. This
warrant contained an anti-dilution price protection provision,
which required the warrant to be recorded as derivative warrant
liability (see Note 7 and Note 8). Such clause will lapse upon
completion of a Qualified Offering, as defined in the warrant
agreement. The warrant was recorded as a debt discount based on its
fair value.
For
the year ended February 29, 2016, the Company issued warrants to
purchase an aggregate of 36,367 shares of common stock in
connection with the issuance of the OID Notes pursuant to the OID
Note Purchase Agreement dated February 12, 2016, referenced in Note
9. These warrants are exercisable at $8.25 per share and expire on
between February 12 and 22, 2021. These warrants vested
immediately. Such clause will lapse upon completion of a Qualified
Offering, as defined in the warrant agreement. These warrants were
recorded as a debt discount based on their fair value.
During
the year ended February 29, 2016, a total of 1,668 common
stock purchase warrants with an exercise price of $31.50 per share
and 5,001 common stock purchase warrants with an exercise
price of $22.50 per share were repurchased and cancelled as part of
a settlement of a dispute with two affiliated security holders (see
Note 4).
For
the year ended February 28, 2017, the Company issued warrants to
purchase an aggregate of 9,092 shares of common stock in
connection with the issuance of the OID Notes pursuant to the March
2016 OID Note Purchase Agreements dated between March 3 and 15,
2016, referenced in Note 7. These warrants vested immediately, were
initially exercisable at $8.25 per share and expire between March 3
and 15, 2021. These warrants contained an anti-dilution price
protection provision, which required the warrants to be recorded as
derivative warrant liability. In connection with the issuances of
common stock pursuant to the 2016 Unit Private Placement, the
exercise price of these warrants was adjusted to $2.00 per share.
Such clause will lapse upon completion of a Qualified Offering, as
defined in the warrant agreement. These warrants were recorded as a
debt discount based on their fair value.
For
the year ended February 28, 2017, the Company issued Unit Warrants
to purchase an aggregate of 175,826 shares of common stock to
investors in connection with the 2016 Unit Private Placement and
MFN Exchange referenced in Note 4. These Unit Warrants vested
immediately, are exercisable at $3.00 per share and expire between
May 26, 2021 and June 7, 2021. These Unit Warrants do not contain
any provision that would require liability treatment, therefore
they were classified as equity in the Consolidated Balance Sheet.
Additionally, in connection with the MFN Exchange, the Company
cancelled Series A Warrants to purchase an aggregate of 9,000
shares of common stock that were exercisable at $10.50 per share
and originally issued in connection with the Series B Private
Placement.
For
the year ended February 28, 2017, the Company issued warrants to
purchase an aggregate of 45,459 shares of common stock in
connection with the OID Note Amendments referenced in Note 7. These
warrants vested immediately, are exercisable at $2.00 per share and
expire between August 11, 2021 and August 18, 2021. The fair value
of these warrants was determined to be approximately $44,000, as
calculated using the Black-Scholes model and were recorded as a
debt discount based on their fair value.
For
the year ended February 28, 2017, the Company issued Additional
Unit Warrants to purchase an aggregate of 650,625 shares of
common stock in connection with the Additional 2016 Unit Private
Placement referenced in Note 4. These Additional Unit Warrants
vested immediately, are exercisable at $3.00 per share and expire
between August 30, 2021 and October 20, 2021. As discussed in Note
4, due to the Price Protection Provision, these Additional Unit
Warrants are being classified as a derivative liability and
measured at fair value.
For
the year ended February 28, 2017, the Company issued Additional
Unit Warrants to purchase an aggregate of 966,881 shares of
common stock in connection with the Company Payable Exchange,
Promissory Note Exchange, OID Note Exchange, and Additional MFN
Exchange referenced in Note 4. These Additional Unit Warrants
vested immediately, are exercisable at $3.00 per share and expire
between October 20, 2021 and October 29, 2021. As discussed in Note
4, due to the Price Protection Provision, these Additional Unit
Warrants are being classified as a derivative liability and
measured at fair value. Additionally, in connection with the
Additional MFN Exchange, the Company cancelled Series A Warrants to
purchase an aggregate of 208,027 shares of common stock that
were exercisable at $10.50 per share and originally issued in
connection with the Series B Private Placement.
For
the year ended February 28, 2017, in connection with the Additional
2016 Unit Private Placement, the Company issued placement agent
warrants to purchase an aggregate of 108,958 shares of common
stock. These placement agent warrants were issued between
August 30, 2016 and October 28, 2016, vested immediately, are
exercisable at $3.00 per share and expire between August 29, 2021
and October 27, 2021. The fair value of these warrants was
determined to be approximately $259,000, as calculated using the
Black-Scholes model. Weighted-average assumptions used in the
Black-Scholes model included: (1) a discount rate of 1.25%; (2) an
expected term of 5.0 years; (3) an expected volatility of 133% and
(4) zero expected dividends.
For
the year ended February 28, 2017, in connection with the Debt
Exchange referenced in Note 7, the Company issued warrants to
purchase an aggregate of 100,000 shares of common stock. These
warrants were issued on January 17, 2017, vested immediately, are
exercisable at $3.00 per share and expire January 16, 2022. The
fair value of these warrants was determined to be approximately
$118,000, as calculated using the Black-Scholes model. Average
assumptions used in the Black-Scholes model included: (1) a
discount rate of 1.84%; (2) an expected term of 5.0 years; (3) an
expected volatility of 132%; and (4) zero expected dividends. For
the year ended February 28, 2017, the Company recorded
approximately $118,000 to Additional Paid-in Capital in connection
with the debt extinguishment accounting related to the Debt
Exchange (See Note 7).
For
the year ended February 28, 2017, the Company issued warrants to
purchase an aggregate of 37,500 shares of common stock to a
consultant for financial advisory services. These warrants were
issued between on December 31, 2016 February 28, 2017, vested
immediately, are exercisable at $3.00 per share, and expire between
December 30, 2021 and February 27, 2022. The fair value of these
warrants was determined to be approximately $47,000, as calculated
using the Black-Scholes model. Average assumptions used in the
Black-Scholes model included: (1) a discount rate of 1.91%; (2) an
expected term of 5.0 years; (3) an expected volatility of 131%; and
(4) zero expected dividends. For the year ended February 28, 2017,
the Company recognized approximately $47,000 of stock-based
compensation for these warrants.
For
the year ended February 28, 2017, the Company issued warrants to
purchase an aggregate of 75,618 shares of common stock in
connection with a settlement of an outstanding cash obligation
payable to Dr. Oscar Bronsther, the Company’s former chief
executive officer and board member, per a consulting agreement,
dated June 17, 2015, between the parties. These warrants were
issued on February 15, 2017, vested immediately, are exercisable at
$3.00 per share, and expire on February 14, 2022. The fair value of
these warrants was determined to be approximately $95,000, as
calculated using the Black-Scholes model. Average assumptions used
in the Black-Scholes model included: (1) a discount rate of 2.01%;
(2) an expected term of 5.0 years; (3) an expected volatility of
131%; and (4) zero expected dividends. For the year ended February
28, 2017, the Company recorded approximately $95,000 to Additional
Paid-in Capital in connection with this settlement.
The
following table summarizes common stock purchase warrants issued
and outstanding:
|
|
|
Weighted
average exercise
price
|
Aggregate
intrinsic value
|
Weighted
average remaining
contractual life (years)
|
|
|
|
|
|
|
|
Outstanding at February 29, 2015
|
580,604
|
$
17.81
|
$
72,250
|
3.33
|
|
Granted
|
354,000
|
$
9.68
|
$
-
|
-
|
|
Expired/
Exercised/ Cancelled
|
(21,090
)
|
$
22.19
|
$
-
|
-
|
|
Outstanding at February 29, 2016
|
913,514
|
$
14.56
|
$
-
|
3.14
|
|
Granted
|
2,169,959
|
$
2.97
|
$
-
|
-
|
|
Expired/
Exercised/ Cancelled
|
(384,779
)
|
$
12.94
|
$
-
|
-
|
|
Outstanding and expected to vest at February 28, 2017
|
2,698,694
|
$
5.11
|
$
|
4.21
|
Warrants
exercisable at February 28, 2017 are:
|
|
|
Weighted average
remaining life (years)
|
Exercisable
number of shares
|
|
$
2.00
|
164,888
|
2.57
|
164,888
|
|
$
2.20
|
43,636
|
3.96
|
43,636
|
|
$
3.00
|
2,115,408
|
0.12
|
2,115,408
|
|
$
8.25
|
9,134
|
3.49
|
9,134
|
|
$
10.50
|
126,978
|
3.10
|
126,978
|
|
$
15.00
|
556
|
3.25
|
556
|
|
$
18.75
|
695
|
3.25
|
695
|
|
$
22.50
|
209,754
|
1.38
|
209,754
|
|
$
31.50
|
25,912
|
1.30
|
25,912
|
|
$
37.50
|
1,733
|
0.87
|
1,733
|
|
|
2,698,694
|
4.21
|
2,698,694
|
NOTE 7 – NOTES PAYABLE
Promissory Note and
Promissory Note
Amendments
During
the year ended February 29, 2016, the Company entered into a note
purchase agreement effective July 31, 2015 (the “Note
Purchase Agreement”) with one its existing institutional
investors (the “Note Holder”). Pursuant to
the Note Purchase Agreement, the Company issued and sold a
non-convertible promissory note in the principal amount of $1.2
million (the “Promissory Note”) and a warrant (the
“Note Warrant”) to purchase 43,636 shares of the
Company’s common stock in a private placement (the
“Note Private Placement”).
The
Promissory Note matured on July 30, 2016, accrued interest at a
rate of eight percent (8%) per annum and may be prepaid by the
Company at any time prior to the maturity date without penalty or
premium. The Note Holder has the right at its option to
exchange (the “Note Voluntary Exchange”) the
outstanding principal balance of the Promissory Note plus the
Conversion Interest Amount (as defined below) into such number of
securities to be issued in the Public Offering (as defined
below). Upon effectuating such Note Voluntary Exchange, the
Note Holder shall be deemed to be a purchaser in the Public
Offering. “Public Offering” means a registered
offering of equity or equity-linked securities resulting in gross
proceeds of at least $5.0 million to the Company; and
“Conversion Interest Amount” means interest payable in
an amount equal to all accrued but unpaid interest assuming the
Promissory Note had been held from the issuance date to the
maturity date. In the event the Company completes a
Public Offering and the Note Holder elected not to effectuate the
Note Voluntary Exchange, then the Company shall promptly repay the
outstanding principal amount of the Promissory Note plus all
accrued and unpaid interest following completion of the Public
Offering.
The
Note Warrant contains an adjustment clause affecting its exercise
price, which may be reduced if the Company issues shares of common
stock or convertible securities at a price below the then-current
exercise price of the Note Warrant. As a result, we determined that
the Note Warrant was not indexed to the Company’s common
stock and therefore should be recorded as a derivative liability.
The detachable Note Warrant issued in connection with the
Promissory Note was recorded as a debt discount based on its fair
value (see Note 8 for fair value measurement). The adjustment
clause lapses upon listing of the Company’s common stock on a
national stock exchange such as the NASDAQ, New York Stock Exchange
or NYSE MKT.
The
Company evaluated the Note Voluntary Exchange provision, which
provides for settlement of the Promissory Note at an 8% premium to
the Promissory Note’s stated principal amount, in accordance
with ASC 815-15-25. The Voluntary Exchange provision is a
contingent put that is not clearly and closely related to the debt
host instrument and therefore was initially bifurcated and measured
at fair value and recorded as a derivative liability in the
Consolidated Balance Sheet. The derivative liability was
measured at fair value on an ongoing basis, with changes in fair
value recognized in the statement of operations. The proceeds of
the Note Private Placement were first allocated to the fair value
of the Note Warrant in the amount of approximately $151,000 and to
the fair value of the Note Voluntary Exchange provision in the
amount of approximately $228,000, with the difference of
approximately $822,000 representing the initial carrying value of
the Promissory Note. Further, approximately $105,000 of debt
issuance cost was recorded as additional debt discount at
issuance.
On
February 12, 2016, the Company entered into an amendment (the
“Note Amendment”) with the Note Holder, whereby the
Company and the Note Holder agreed to extend the maturity date of
the Promissory Note from July 31, 2016 to December 31, 2016 and
increase the interest rate commencing August 1, 2016 to 12% per
annum. The Company also obtained the Note Holder’s consent to
the consummation of the OID Note Private Placement (as defined
below), as required under the Promissory Note.
Additionally,
pursuant to the Note Amendment, the Note Voluntary Exchange was
modified to effect a voluntary exchange of $600,000 principal
amount (“Initial Exchange Principal Amount”) of the
Promissory Note plus the Initial Conversion Interest Amount into a
Qualified Offering (as defined below) or Public Offering.
“Initial Conversion Interest Amount” shall mean
interest payable in an amount equal to all accrued but unpaid
interest assuming the Initial Exchange Principal Amount has been
held from the issuance date to the original maturity date of July
31, 2016 (for the avoidance of doubt, such amount that is
calculated using the following formula: (a) 8% multiplied by the
Initial Exchange Principal Amount ($600,000), multiplied by (b) the
actual number of days elapsed in a year of three hundred and
sixty-five (365) days, which amount shall equal $48,000 in the
aggregate). “Qualified Offering” means one or a series
of offerings of equity or equity-linked securities resulting in
aggregate gross proceeds of at least $2,000,000 to the
Company.
Further,
under the modified Note Voluntary Exchange, the Note Holder shall
have the right to effect a voluntary exchange with respect to the
remaining $600,000 principal amount (the “Remaining Principal
Amount”) plus the Remaining Conversion Interest Amount into a
Qualified Offering or Public Offering. “Remaining Conversion
Interest Amount” shall mean interest payable in an amount
equal to the sum of (A) all accrued but unpaid interest on such
portion of the Remaining Principal Amount subject to such Voluntary
Exchange assuming such portion of the Remaining Principal Amount
had been held from the original maturity date of July 31, 2016 to
the amended maturity date of December 31, 2016 (for the avoidance
of doubt, such amount that is calculated using the following
formula: (a) 12% multiplied by such portion of the Remaining
Principal Amount subject to such Voluntary Exchange, multiplied by
(b) the actual number of days elapsed in a year of three hundred
and sixty-five (365) days, which amount shall equal $30,000 in the
aggregate assuming the aggregate Remaining Principal Amount of
$600,000 is used in such calculation), plus (B) all accrued but
unpaid interest assuming such portion of the Remaining Principal
Amount had been held from the issuance date to the original
maturity date of July 31, 2016 (for the avoidance of doubt, such
amount that is calculated using the following formula: (a) 8%
multiplied by such portion of the Remaining Principal Amount,
multiplied by (b) the actual number of days elapsed in a year of
three hundred and sixty-five (365) days, which amount shall equal
$48,000 in the aggregate assuming the aggregate Remaining Principal
Amount of $600,000 is used in such calculation).In consideration
for entering into the Note Amendment, the Company issued the Note
Holder a warrant to purchase 43,636 shares of the Company’s
common stock (the “Amendment Warrant”) in substantially
the same form as the Note Warrant issued in the Note Private
Placement, provided, however, that with respect to the
“full-ratchet” anti-dilution price protection
adjustments for future issuances of other Company equity or
equity-linked securities (subject to certain standard carve-outs),
such price protection adjustment shall be equal to 110% of the
consideration price per share of the issued equity or equity-linked
securities.
The
Company evaluated the Note Amendment transaction in accordance with
ASC 470-50-40-12 and determined the Note Amendment did not
constitute a substantive modification of the Promissory Note and
that the transaction should be accounted for as a debt
modification.
The
Amendment Warrant contains an adjustment clause affecting its
exercise price, which may be reduced if the Company issues shares
of common stock or convertible securities at a price below the
then-current exercise price of the Amendment Warrant. As a result,
the Company determined that the Amendment Warrant was not indexed
to the Company’s common stock and therefore should be
recorded as a derivative liability. The fair value of the
detachable Amendment Warrant issued in connection with the Note
Amendment was recorded as a debt discount. The adjustment clause
lapses upon the Company completing a Qualified
Offering.
Accordingly,
the Company recorded a debt discount related to the warrant
liability of approximately $85,000 and a debt discount related to
the Voluntary Exchange of approximately $104,000 during the year
ended February 29, 2016.
Effective
October 21, 2016, in connection with the Promissory Note Exchange
as referenced in Note 4, $600,000 principal amount of the
Promissory Note plus $48,000 of accrued and unpaid interest was
exchanged into the Additional 2016 Unit Private Placement.
Accordingly, the Company recorded a loss on extinguishment of
approximately $694,000 during the year ended February 28,
2017.
On
January 17, 2017, in connection with the Debt Exchange (as
described in the Convertible Note subsection below), $600,000
principal amount of the Promissory Note plus $96,000 of accrued and
unpaid interest was exchanged into the Convertible
Note.
During
the year ended February 29, 2016, the Company recognized
approximately $301,000 of interest expense related to the
Promissory Note, as amended, including amortization of debt
discount of approximately $245,000 and accrued interest expense of
$56,000. Additionally, the Company recognized a loss of
approximately $8,500 in the year ended February 29, 2016 due to the
change in estimated fair value of the Voluntary Exchange
provision.
During
the year ended February 28, 2017, the Company recognized
approximately $461,000 of interest expense related to the
Promissory Note, as amended, including amortization of debt
discount of approximately $367,000 and accrued interest expense of
approximately $94,000. Additionally, the Company recognized a gain
of approximately $340,000 in the year ended February 28, 2017 due
to the change in estimated fair value of the Voluntary Exchange
provision.
OID Notes and OID Note Amendments
During
the year ended February 29, 2016, the Company entered into an OID
note purchase agreement dated February 12, 2016 (the “OID
Note Purchase Agreement”) in a private placement (the
“OID Note Private Placement”) with various
accredited investors (the “OID Note Holders”). Pursuant
to the OID Note Purchase Agreement, the Company may issue and sell
non-convertible OID promissory notes (the “OID Notes”)
up to an aggregate purchase price of $1,000,000 (the
“Purchase Price”) and warrants (the “OID
Warrants”) to purchase 7,273 shares of the Company’s
common stock for every $100,000 of Purchase Price. The OID Notes
shall have an initial principal balance equal to 120% of the
Purchase Price (the “OID Principal
Amount”).
During
the year ended February 29, 2016, the Company entered into OID Note
Purchase Agreements between February 12 and 22, 2016 (the
“February 2016 OID Note Purchase Agreements”) with
various accredited investors. Pursuant to the February 2016 OID
Note Purchase Agreements, the Company received an aggregate
Purchase Price of $500,000 and issued OID Notes in the aggregate
OID Principal Amount of $600,000 and OID Warrants to purchase an
aggregate of 36,367 shares of the Company’s common
stock.
During
the year ended February 28, 2017, the Company entered into OID Note
Purchase Agreements between March 4 and 15, 2016 (the “March
2016 OID Note Purchase Agreements”) with various accredited
investors. Pursuant to the March 2016 OID Note Purchase Agreements,
the Company received an aggregate Purchase Price of $125,000 and
issued OID Notes with an aggregate OID Principal Amount of $150,000
and OID Warrants to purchase 9,902 shares of the Company’s
common stock.
The
OID Notes mature six (6) months following the issuance date of each
OID Note and may be prepaid by the Company at any time prior to the
maturity date without penalty or premium. In the event the OID
Notes are prepaid in full on or before the date that is ninety (90)
days following the issuance date of each OID Note, the prepayment
amount shall be equal to 110% of the Purchase Price and in the
event the OID Notes are prepaid following such initial ninety (90)
day period, the prepayment amount shall be equal to the OID
Principal Balance (the “Optional Redemption”). The
Company determined the Optional Redemption feature represents a
contingent call option. The Company evaluated the Optional
Redemption provision in accordance with ASC 815-15-25. The Company
determined that the Optional Redemption feature is clearly and
closely related to the debt host instrument and is not an embedded
derivative requiring bifurcation.
Each
OID Note Holder has the right at its option to act as a purchaser
in a Qualified Offering and, in lieu of investing new cash
subscriptions, mechanically effect a voluntary exchange (the
“OID Note Voluntary Exchange”) of the OID Principal
Amount of the OID Notes into such number of securities to be issued
in a Qualified Offering. Upon effectuating such OID Voluntary
Exchange, the OID Note Holders shall be deemed to be purchasers in
the Qualified Offering. The Company evaluated the OID Note
Voluntary Exchange provision, which provides for settlement of the
OID Notes at the OID Principal Amount in accordance with ASC
815-15-25. The Company determined the OID Note Voluntary Exchange
provision is a contingent put that is not clearly and closely
related to the debt host instrument and therefore was initially
separately measured at fair value and will be measured at fair
value on an ongoing basis, with changes in fair value recognized in
the statement of operations.
The
OID Warrants contain an adjustment clause affecting their
exercise price, which may be reduced if the Company issues shares
of common stock or convertible securities at a price below the
then-current exercise price of the OID Warrants. As a result, we
determined that the OID Warrants were not indexed to the
Company’s common stock and therefore should be recorded as a
derivative liability. The detachable OID Warrants issued in
connection with the OID Notes were recorded as a debt discount
based on their fair value (see Note 8 for fair value measurement).
The adjustment clause lapses upon the Company completing the
Qualified Offering.
Pursuant
to the February 2016 closings of the OID Note Private Placement,
the OID Principal Amount was first allocated to the fair value of
the OID Warrants in the amount of approximately $76,000, next to
the value of the original issuance discount in the amount of
$100,000, then to the fair value of the OID Note Voluntary Exchange
provision in the amount of approximately $135,000, and lastly to
the debt discount related to offering costs of approximately
$14,000 with the difference of approximately $275,000 representing
the initial carrying value of the OID Notes.
During
the year ended February 29, 2016, the Company recognized
approximately $9,000 of interest expense related to the OID Notes,
including amortization of debt discount. Additionally, the Company
recognized a loss of approximately $2,000 in the year ended
February 29, 2016 due to the change in estimated fair value of the
OID Note Voluntary Exchange provision
Pursuant
to the March 2016 closings of the OID Note Private Placement, the
OID Principal Amount was first allocated to the fair value of the
OID Warrants in the amount of approximately $15,000, next to the
value of the original issuance discount in the amount of $25,000,
then to the fair value of the OID Note Voluntary Exchange provision
in the amount of approximately $33,000, and lastly to the debt
discount related to offering costs of approximately $2,000 with the
difference of approximately $75,000 representing the initial
carrying value of the OID Notes issued in March 2016.
Between
August 12, 2016 and August 19, 2016, the Company entered into
certain amendments (the “OID Note Amendments”), to
its outstanding non-convertible OID Notes originally issued between
February 12, 2016 and March 15, 2016 (the “OID Notes”),
with the holders of an aggregate of $750,000 principal amount of
OID Notes, whereby the holders of the OID Notes extended the
maturity date of the OID Notes an additional three (3) months to
between November 12, 2016 and December 15, 2016. In consideration
for entering into the Note Amendments, the Company (i) increased
the principal amount of the OID Notes by 10% to $825,000 in the
aggregate from $750,000 in the aggregate, (ii) issued an aggregate
of 45,459 common stock purchase warrants with an exercise price of
$2.00 per share and a term of five years, and (iii) modified the
voluntary exchange provision of the OID Notes by reducing the
“Qualified Offering” threshold amount to $500,000 from
$2,000,000. Additionally, the Company will have the sole option to
extend the maturity date of the OID Notes an additional three (3)
months in consideration for a further 10% increase in the principal
amount from $825,000 to $907,500.
The
Company evaluated the OID Note Amendments transactions in
accordance with ASC 470-50-40-12 and determined the OID Note
Amendments did not constitute a substantive modification of the OID
Notes and that the transaction should be accounted for as a debt
modification.
Effective October 28, 2016,
in connection
with the OID Note Exchange as referenced in Note 4, $553,000
principal amount of OID Notes
was
exchanged
into the
Additional
2016 Unit Private Placement
.
Accordingly, the Company recorded a loss on
extinguishment of approximately $555,000. Additionally, the Company
repaid $8,000 of OID Notes.
Effective
November 12, 2016, the Company provided notice that it effected its
sole option to extend the maturity date (the “Second OID Note
Amendment”) of its outstanding OID Note in the aggregate of
$264,000 principal amount of OID Note, whereby the holder of the
OID Note extended the maturity date of the OID Note an additional
three (3) months to February 12, 2017. In consideration for
entering into the Note Amendment, the Company increased the
principal amount of the OID Note by 10% or $26,400 to $290,400 in
the aggregate.
The
Company evaluated the Second OID Note Amendment in accordance with
ASC 470-50-40-12 and determined the OID Note Amendments did not
constitute a substantive modification of the OID Notes and that the
transaction should be accounted for as a debt
modification.
On
January 17, 2017, in connection with the Debt Exchange, the OID
Note with an OID Principal Amount of $290,400 was exchanged into
the Convertible Note. See Convertible Note.
During the year ended February 28, 2017, the
Company recognized approximately $583,000
of interest expense related to the OID Notes, as
amended, including amortization of debt discount. Additionally, the
Company recognized a gain of approximately $275,000 in the year
ended February 28, 2017 due to the change in estimated fair value
of the Voluntary Exchange provision.
Convertible Note
On
January 17, 2017, the Company entered into an exchange agreement,
pursuant to which the Company issued to a new convertible
promissory note in the principal amount of $1,000,000 (the
“Convertible Note”) in exchange (the “Debt
Exchange”) for the cancellation of (i) $600,000 principal
amount of the Promissory Note plus $96,000 of accrued and unpaid
interest, and (ii) $290,400 principal amount of the OID Note. In
consideration for the Debt Exchange, the Company issued a warrant
to purchase 100,000 shares of common stock at an exercise price of
$3.00 per share and a term of five years.
The
Convertible Note matures on September 30, 2017, accrues interest at
a rate of ten percent (10%) per annum commencing as of January 1,
2017, and may be prepaid upon 10 days’ advanced written
notice by the Company at any time prior to the maturity date
without penalty or premium (the “Prepayment
Option”). The holder has the right to convert the
outstanding principal balance of the Convertible Note plus all
accrued and unpaid interest thereon into shares of the
Company’s common stock at a conversion price per share of
$2.00 (the “Conversion Option”).
The
Company evaluated the Debt Exchange transaction in accordance with
ASC 470-50-40-12 and determined the Debt Exchange constituted a
substantive modification and that the transaction should be
accounted for as an extinguishment.
The
Company determined the Prepayment Option feature represents a
contingent call option. The Company evaluated the Prepayment Option
in accordance with ASC 815-15-25. The Company determined that the
Prepayment Option feature is clearly and closely related to the
debt host instrument and is not an embedded derivative requiring
bifurcation. Additionally, the Company determined the Conversion
Option represents an embedded call option. The Company evaluated
the Conversion Option in accordance with ASC 815-15-25. The Company
determined that the Conversion Option feature meets the scope
exception from ASC 815 and is not an embedded derivative requiring
bifurcation.
The
Company evaluated the Convertible Note for a beneficial conversion
feature in accordance with ASC 470-20. The Company determined that
the effective conversion price was above the closing stock price on
the commitment date, and the Convertible Note did not contain a
beneficial conversion feature.
The
Company recorded the Convertible Note at fair value of
approximately $986,000 with an initial debt discount of $14,000.
Accordingly, in accordance with ASC 470-50-40-2, the Company
recognized a loss on extinguishment of approximately $127,000,
which equals the difference between the reacquisition price of debt
and the net carrying amount of the extinguished debt.
During
the year ended February 28, 2017, the Company recognized
approximately $19,000 of interest expense related to the
Convertible Note, including amortization of debt discount of
approximately $3,000 and accrued interest expense of approximately
$16,000
The
following table summarizes the notes payable:
|
|
|
|
|
|
|
|
February 28, 2015 balance
|
$
-
|
$
-
|
$
-
|
$
-
|
$
-
|
|
Proceeds
from issuance of notes
|
1,800,000
|
-
|
(996,595
)
|
466,387
|
1,269,792
|
|
Amortization
of debt discount
|
-
|
-
|
253,313
|
-
|
253,313
|
|
Change
in fair value of voluntary exchange feature
|
-
|
-
|
-
|
10,015
|
10,015
|
|
February 29, 2016 balance
|
1,800,000
|
-
|
(743,282
)
|
476,402
|
1,533,120
|
|
Issuance
of notes
|
150,000
|
-
|
(74,931
)
|
32,496
|
107,565
|
|
Repayment
of notes
|
(8,000
)
|
-
|
|
-
|
(8,000
)
|
|
Additional
debt discount upon Notes amendments
|
101,400
|
-
|
(251,081
)
|
105,586
|
(44,095
)
|
|
Note
conversions
|
(2,043,400
)
|
1,000,000
|
100,327
|
-
|
(943,073
)
|
|
Amortization
of debt discount
|
-
|
-
|
958,053
|
-
|
958,053
|
|
Change
in fair value of voluntary exchange feature
|
-
|
-
|
-
|
(614,484
)
|
(614,484
)
|
|
February 28, 2017 balance
|
$
-
|
$
1,000,000
|
$
(10,914
)
|
$
-
|
$
989,086
|
NOTE 8 – FAIR VALUE MEASUREMENTS
In
accordance with ASC 820, Fair Value Measurements, financial
instruments were measured at fair value using a three-level
hierarchy which maximizes use of observable inputs and minimizes
use of unobservable inputs:
|
●
|
Level
1: Observable inputs such as quoted prices in active markets for
identical instruments
|
|
●
|
Level
2: Quoted prices for similar instruments that are directly or
indirectly observable in the market
|
|
●
|
Level
3: Significant unobservable inputs supported by little or no market
activity. Financial instruments whose values are
determined using pricing models, discounted cash flow
methodologies, or similar techniques, for which determination of
fair value requires significant judgment or
estimation.
|
Financial
instruments measured at fair value are classified in their entirety
based on the lowest level of input that is significant to the fair
value measurement.
Derivative Warrant Liability
At
February 28, 2017 and February 29, 2016, the warrant liability
balances of approximately $2.1 million and approximately $234,000,
respectively, were classified as Level 3 instruments.
The
following table sets forth the changes in the estimated fair value
for our Level 3 classified derivative warrant
liability:
|
|
|
|
|
|
|
Fair value at February 28, 2015
|
$
-
|
$
273,000
|
$
-
|
$
273,000
|
|
Additions:
|
311,057
|
-
|
-
|
311,057
|
|
Change
in fair value:
|
(122,706
)
|
(226,890
)
|
-
|
(349,596
)
|
|
Fair value at February 29, 2016
|
188,351
|
46,110
|
-
|
234,461
|
|
Additions:
|
15,225
|
|
4,263,271
|
4,278,496
|
|
Change
in fair value:
|
(46,372
)
|
(10,420
)
|
(2,349,193
)
|
(2,405,985
)
|
|
Fair value at February 28, 2017
|
$
157,204
|
$
35,690
|
$
1,914,078
|
$
2,106,972
|
In
connection with the initial closing of the Series B Private
Placement on December 31, 2014, the Company issued a warrant to
purchase an aggregate of 30,334 shares of common stock (the
“Series B Warrant”), originally exercisable at $8.25
per share and expiring on March 31, 2020. The Series B Warrant
contains a full-ratchet anti-dilution price protection provision
that requires liability treatment and the exercise price of the
Series B Warrant was adjusted to $2.00 during the year ended
February 28, 2017. The fair value of the Series B Warrant at
February 28, 2017 and February 29, 2016 was determined to be
approximately $36,000 and $46,000, respectively, as calculated
using the Monte Carlo simulation. The Monte Carlo simulation as of
February 28, 2017 and February 29, 2016 used the following
assumptions: (1) a stock price of $1.50 and $1.80, respectively;
(2) a risk-free rate of 1.50% and 1.08%, respectively; (3) an
expected volatility of 131% and 134%, respectively; and (4) a
fundraising event to occur on May 31, 2017 and May 15, 2016,
respectively, that would result in the issuance of additional
common stock.
In
connection with the issuance of the Promissory Note on July 31,
2015, the Company issued a warrant to purchase an aggregate of
43,636 shares of common stock, originally exercisable at $8.25 per
share and expiring on July 31, 2020. This warrant contains a
full-ratchet anti-dilution price protection provision that requires
liability treatment and the exercise price of this warrant was
adjusted to $2.00 during the year ended February 28, 2017. The fair
value of the warrant at February 28, 2017 and February 29, 2016 was
determined to be approximately $51,000 and $64,000, respectively,
as calculated using the Monte Carlo simulation. The Monte Carlo
simulation as of February 28, 2017 and February 29, 2016 used the
following assumptions: (1) stock price of $1.50 and $1.80,
respectively; (2) a risk-free rate of 1.57% and 1.13%,
respectively; (3) an expected volatility of 131% and 134%,
respectively; and (4) a fundraising event to occur on May 31, 2017
and May 15, 2016, respectively, that would result in the issuance
of additional common stock.
In
connection with the execution of the Note Amendment on
February 12, 2016, the Company issued a warrant to purchase an
aggregate of 43,636 shares of common stock, initially exercisable
at $8.25 per share and expiring on February 11, 2021. This warrant
contains a ratchet anti-dilution price protection provision that
requires liability treatment and the exercise price of this warrant
was adjusted to $2.20 during the year ended February 28, 2017. The
fair value of the warrant at February 28, 2017 and February 29,
2016 was determined to be approximately $51,000 and $68,000,
respectively, as calculated using the Monte Carlo simulation. The
Monte Carlo simulation as of February 28, 2017 and February 29,
2016 used the following assumptions: (1) stock price of $1.50 and
$1.80, respectively; (2) a risk-free rate of 1.68% and 1.20%,
respectively; (3) an expected volatility of 131% and 134%,
respectively; and (4) a fundraising event to occur on May 31, 2017
and May 15, 2016, respectively, that would result in the issuance
of additional common stock.
In
connection with the issuance of OID Notes in February 2016, the
Company issued warrants to purchase an aggregate of 36,367 shares
of common stock. These warrants were issued between
February 12 and 22, 2016, were initially exercisable at $8.25 per
share and expire between February 11 and 21, 2021. These warrants
contain a full-ratchet anti-dilution price protection provision
that requires liability treatment and the exercise price of these
warrants were adjusted to $2.00 during the year ended February 28,
2017. The fair value of these warrants at February 28, 2017 and
February 29, 2016 was determined to be approximately $44,000 and
$56,000, respectively, as calculated using the Monte Carlo
simulation. The Monte Carlo simulation as of February 28, 2017 and
February 29, 2016 used the following weighted-average assumptions:
(1) stock price of $1.50 and $1.80, respectively; (2) a risk-free
rate of 1.68% and 1.21%, respectively; (3) an expected volatility
of 131% and 134%, respectively; and (4) a fundraising event to
occur on May 31, 2017 and May 15, 2016, respectively, that would
result in the issuance of additional common stock.
In
connection with the issuance of OID Notes in March 2016, the
Company issued warrants to purchase an aggregate of 9,092 shares of
common stock. These warrants were issued between March 4 and
15, 2016, were initially exercisable at $8.25 per share and expire
between March 4 and 15, 2021. These warrants contain a full-ratchet
anti-dilution price protection provision that requires liability
treatment and the exercise price of these warrants were adjusted to
$2.00 during the year ended February 28, 2017. The fair value of
these warrants at February 28, 2017 and at issuance between March 4
and 15, 2016 was determined to be approximately $11,000 and
approximately $15,000, respectively, as calculated using the Monte
Carlo simulation. The Monte Carlo simulation as of November 30,
2016, and between March 4 and 15, 2016, used the following
weighted-average assumptions: (1) stock price of $1.50 and $1.97,
respectively; (2) a risk-free rate of 1.69% and 1.41%,
respectively; (3) an expected volatility of 131% and 136%,
respectively; and (4) a fundraising event to occur on May 31, 2017
and July 31, 2016, respectively, that would result in the issuance
of additional common stock.
In
connection with the Additional 2016 Unit Private Placement
including the Company Payable Exchange, the OID Note Exchange, the
Promissory Note Exchange and the Additional 2016 MFN Exchange, the
Company issued warrants to purchase an aggregate of 1,617,506
shares of common stock. These warrants were issued
between August 31, 2016 and October 30, 2016, are exercisable at
$3.00 per share and expire between August 30, 2021 and October 29,
2021. As referenced in Note 6, the Price Protection provision
associated with these warrants requires liability treatment. The
fair value of these warrants at February 28, 2017 and issuance
between August 31, 2016 and October 30, 2016 was determined to be
approximately $1.9 million and $4.3 million, respectively, as
calculated using the Monte Carlo simulation. The Monte Carlo
simulation as of February 28, 2017 and issuance between August 31,
2016 and October 30, 2016, used the following weighted-average
assumptions: (1) stock price of $1.50 and $2.61, respectively; (2)
a risk-free rate of 1.66% and 1.81%, respectively; (3) an expected
volatility of 131% and 134%, respectively; and (4) a fundraising
event to occur on May 31, 2017 and March 31, 2017, respectively,
that would result in the issuance of additional common
stock.
Put Exchange Feature Liability
At
February 29, 2016 and February 28, 2017, the put exchange feature
liability balances of approximately $476,000 and $0, respectively,
were classified as Level 3 instruments.
The
following table sets forth the changes in the estimated fair value
for our Level 3 classified put exchange feature
liabilities:
|
|
Promissory Note,
as amended
|
|
|
|
Fair value, February 29, 2016:
|
$
339,979
|
$
136,423
|
$
476,402
|
|
Additions
|
-
|
138,082
|
138,082
|
|
Change
in fair value:
|
(339,979
)
|
(274,505
)
|
(614,484
)
|
|
Fair value, February 28, 2017:
|
$
-
|
$
-
|
$
-
|
The
Promissory Note originally issued on July 31, 2015, as amended,
contains a Note Voluntary Exchange provision that is a contingent
put that requires liability treatment (see Note 7). The fair value
of this put exchange feature at February 29, 2016 was determined to
be approximately $340,000. At February 29, 2016, the fair value was
calculated using a probability weighted present value methodology.
The significant inputs to the fair value model were 1) the timing
of a Qualified Offering expected to occur in May 2016 at February
29, 2016; 2) the combined probability of both a Qualified Offering
and a voluntary exchange to occur, which was determined to be 71%
at February 29, 2016 and 3) a discount rate of 18%, approximating
high yield distressed debt rates. The Promissory Note was
extinguished as of February 28, 2017.
The
OID Notes originally issued between February 12, 2016 and March 15,
2016, as amended, contain an OID Note Voluntary Exchange provision
that is a contingent put that requires liability treatment (see
Note 7). The fair value of this put exchange feature at February
29, 2016 was determined to be approximately $136,000. At February
29, 2016, the fair value was calculated using a probability
weighted present value methodology. The significant inputs to the
fair value model were 1) the timing of a Qualified Offering
expected to occur in May 2016; 2) the combined probability of both
a Qualified Offering and a voluntary exchange to occur, which was
determined to be 81%; and 3) a discount rate of 18%, approximating
high yield distressed debt rates. The OID Notes were extinguished
as of February 28, 2017.
NOTE 9 – EQUIPMENT
Equipment
consists of the following:
|
|
Estimated Useful lives
|
|
|
|
Research
equipment
|
7 years
|
$
601,720
|
$
590,373
|
|
Computer
and software equipment
|
5 years
|
78,149
|
76,075
|
|
|
679,869
|
666,448
|
|
Accumulated
depreciation and amortization
|
|
(265,234
)
|
(169,396
)
|
|
Equipment, net
|
|
$
414,635
|
$
497,052
|
Total
depreciation and amortization expense was approximately $96,000 for
each of the years ended February 28, 2017 and February 29,
2016.
Depreciation
of equipment utilized in research and development activities is
included in research and development expenses and amounted to
approximately $81,000 for each of the years ended February 28, 2017
and February 29, 2016. All other depreciation is included in
general and administrative expense and amounted to approximately
$15,000 for each of the years ended February 28, 2017 and February
29, 2016.
NOTE 10 – LICENSE AGREEMENTS AND COMMITMENTS
License Agreements
Pursuant
to the License Agreement, we are required to make annual license
maintenance fee payments beginning August 26, 2011. We
have satisfied all license maintenance payments due through
February 28, 2017. We are required to make payments of $100,000 in
2017 and every year the license is in effect thereafter. These
annual license maintenance fee payments will be credited to running
royalties due on net sales earned in the same calendar year, if
any. We are in compliance with the License Agreement.
Pursuant
to the Second License Agreement, we are required to make annual
license maintenance fee payments beginning on January 3,
2013. Effective February 1, 2017, we amended the Second
License Agreement to reduce the maintenance payment for 2016 from
$30,000 to $5,000, 2017 from $50,000 to $5,000, 2018 from $75,000
to $5,000, 2019 from $100,000 to $60,000, and 2020 from $100,000 to
$60,000. We are required to make payments of $100,000 in 2021 and
every year the license is in effect thereafter. These annual
license maintenance fee payments will be credited to running
royalties due on net sales earned in the same calendar year, if
any. The license maintenance payment of $5,000 for 2017 is
currently outstanding, pending invoice. As such, we are in
compliance with the Second License Agreement.
Pursuant
to the Alternative Splicing Diagnostic License Agreement and the
Alternative Splicing Therapeutic License Agreement, we are required
to make annual license maintenance fee payments for each license
beginning on January 1, 2015. We have satisfied all license
maintenance payments due through February 28, 2017. We are required
to make additional payments of $37,500 in 2018, and $50,000 in 2019
and every year each license is in effect
thereafter.
Pursuant
to the Antibody License Agreement, we are required to make license
maintenance fee payments beginning on January 1, 2015. We have
satisfied all license maintenance payments due through February 28,
2017. We are required to make additional payments of $15,000 in
2018 and $20,000 in 2019 and every year the license is in effect
thereafter. These annual license maintenance fee payments will be
credited to running royalties due on net sales earned in the same
calendar year, if any. We are in compliance with the Antibody
License Agreement.
Lease Agreements
On August 28, 2014, we entered into a lease
agreement (the “Boston Lease”) for our diagnostic
laboratory and office space located at 27, Drydock Ave,
2
nd
Floor, Boston, MA 02210 (the
“Boston Property”). We paid a $40,000 security
deposit in connection with entering into the Boston Lease.
Effective April 6, 2016, we entered into an amendment to the Boston
Lease (the “Boston Lease Amendment”), whereby we
extended the term by one year from September 1, 2016 to August 31,
2017. The basic rent payable under the Boston Lease Amendment is
$17,164 per month plus additional monthly payments including tax
payments and operational and service costs. We anticipate entering
into an additional amendment or new long-term lease agreement on
reasonable commercial terms for the Boston
Property.
Effective
March 1, 2015 we entered into a lease agreement for short-term
office space in New York, NY. We paid a $2,100 security
deposit in connection with entering into the lease. Effective
December 1, 2015 we amended our lease agreement for the short-term
office space in New York, NY. The term of the lease is
month-to-month and may be terminated with twenty-one (21)
days’ notice. The basic rent payment is $2,400 per month and
we paid an additional $1,500 security deposit in connection with
the amended lease.
NOTE 11 – COLLABORATIVE AND OTHER RELATIONSHIPS
In
connection with our business strategy, we may enter into research
and development and other collaboration agreements. Depending on
the arrangement, we may record payments as advances, funding
receivables, payable balances or non-product income with our
partners, based on the nature of the cost-sharing mechanism and
activity within the collaboration.
On
September 29, 2016, the Company entered into an amendment (the
“Amendment”) to a previously executed pilot materials
transfer agreement (the “MTA” and together with the
Amendment, the “Research Agreement”) with Celgene
Corporation (“Celgene”), to conduct a mutually agreed
upon pilot research project (the “Pilot Project”). The
Amendment provides for milestone payments to the Company of up to
approximately $973,000. Under the terms of the Research Agreement,
Celgene will provide certain proprietary materials to the Company
and the Company will evaluate Celgene’s proprietary materials
in the Company’s metastatic cell line and animal nonclinical
models. The milestone schedule calls for Celgene to pay the Company
approximately $487,000 upon execution of the Amendment, which the
Company has received, and the balance in accordance with the
completion of three (3) milestones to Celgene’s reasonable
satisfaction. The term of the Research Agreement is one (1) year,
unless extended by the parties. Either party may terminate the
Research Agreement with thirty (30) days prior written
notice.
The Company recognizes the upfront payment as a
deferred research and development reimbursement in the Consolidated
Balance Sheet and will amortize the deferred research and
development reimbursement as incurred over the term of the Research
Agreement. For the year ended February 28, 2017, the Company
recorded
approximately
$309,000 in deferred research and
development reimbursement, and, at February 28, 2017, the Company
had a deferred research and development reimbursement amount of
approximately $178,000.
The
Company will recognize deferred research and development
reimbursement for each subsequent milestone in the period in which
the milestone is achieved. As of February 28, 2017, none of the
milestone has been achieved.
NOTE 12 – INCOME TAXES
During
the fiscal years ended February 28, 2017, and February 29,
2016, MetaStat incurred net losses and, therefore, has no tax
liability.
The
difference between income taxes at the statutory federal income tax
rate and income taxes reported in the statements of operations are
attributable to the following:
|
|
|
|
|
Income
tax benefit at the federal statutory rate
|
34
%
|
34
%
|
|
Permanent
differences
|
(19
)%
|
(2
)%
|
|
Increase
in valuation allowance
|
(15
)%
|
(32
%
|
|
|
|
|
|
Provision
for income tax
|
0
%
|
0
%
|
Included
in the permanent differences for the year ended February 28, 2017,
are the change in fair value of warrant liability and put option
embedded in notes payable (33%), offset by the loss on
extinguishment of debt (16%).
At
February 28, 2017, and February 29, 2016, deferred tax assets
(liabilities) consisted of the following:
|
|
|
|
|
Accrued
compensation
|
$
70,354
|
$
87,969
|
|
Accrued
interest
|
6,674
|
23,520
|
|
Net
operating loss carryovers
|
7,257,930
|
5,555,259
|
|
Research
and development credits
|
253,125
|
130,422
|
|
Capital
loss carryover
|
16,663
|
25,421
|
|
Stock
compensation
|
1,537,117
|
1,491,106
|
|
|
9,141,863
|
7,313,697
|
|
Depreciation
|
(90,655
)
|
(76,987
)
|
|
|
|
7,236,710
|
|
Less:
Valuation allowance
|
(9,051,208
)
|
(7,236,710
)
|
|
Net
deferred tax asset
|
$
-
|
$
-
|
In assessing the realization of deferred tax
assets, management determines whether it is more likely than not
some, or all, of the deferred tax assets will be realized. The
ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the carryforward period
as well as the period in which those temporary differences become
deductible. Management considers the reversal of taxable temporary
differences, projected taxable income and tax planning strategies
in making this assessment. Based upon historical losses and the
possibility of continued taxable losses over the periods that the
deferred tax assets are deductible, management believes it is not
more likely than not that the Company will realize the benefits of
these deferred tax assets and thus recorded a valuation allowance
against the entire net deferred tax asset balance. The valuation
allowance increased by approximately $1.8
million and $2.0 million in the years ended
February 28, 2017 and February 29, 2016,
respectively.
At February 28, 2017, the cumulative federal and
state net operating loss carry-forwards are approximately
$18.7
million and $17.3
million, respectively and, and will
expire between 2029 and 2036. At February 28, 2017, the Company has
research and development credits amounting to approximately $0.3
million that will start expiring in 2033.
The
Internal Revenue Code (“IRC”) limits the amount of net
operating loss carryforwards that a company may use in a given year
in the event of certain cumulative changes in ownership over a
three-year period as described in Section 382 of the IRC. We have
not performed a detailed analysis to determine whether an ownership
change has occurred. Such a change of ownership could limit our
utilization of the net operating losses, and could be triggered by
subsequent sales of securities by the Company or its
stockholders.
The
Company records interest and penalties related to unrecognized tax
benefits within income tax expense. The Company had not
accrued any interest or penalties related to unrecognized
benefits. No amounts were provided for unrecognized tax
benefits attributable to uncertain tax positions as of February 28,
2017 and February 29, 2016. The Company is no longer subject to
Federal income tax assessment for years before
2013. However, since the Company has incurred net
operating losses every year since inception, all of its income tax
returns are subject to examination and adjustments by the Internal
Revenue Service for at least three years following the year in
which the tax attributes are utilized.
NOTE 13 – LICENSE AGREEMENT WITH ASET THERAPEUTICS,
LLC
On
August 31, 2016, the Company and ASET Therapeutics, LLC
(“ASET”) entered into a mutual release of claims with
respect to the termination of the Memorandum of Understanding dated
July 14, 2014, as amended, the License and Development and
Commercialization Agreement dated November 25, 2014 and all other
related documents and agreements.
The
Company assessed the collectability of its notes receivable in
connection with two past due promissory notes of ASET in the
aggregate principal amount of $125,000 held by the Company (the
“ASET Notes”). The Company determined that the
probability of repayment of the ASET Notes had decreased
significantly and were to be written off. On August 30, 2016, the
Company entered into a sale and assignment agreement with a
non-affiliated shareholder, whereby the Company sold the ASET Notes
for gross proceeds of $12,500. The Company recorded a loss on sale
of notes receivable of $112,500 during the year ended February 28,
2017
NOTE 14 – SUBSEQUENT EVENTS
Effective
May 24, 2017, Paul Billings, M.D., Ph.D. was appointed as a member
of our board of directors.
METASTAT, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MAY 31, 2017 AND MAY 31, 2016
(UNAUDITED)
|
|
Page
|
|
|
|
|
|
|
Consolidated Financial Statements
|
|
|
|
|
|
|
|
F-41
|
|
|
|
|
|
|
|
F-42
|
|
|
|
|
|
|
|
F-43
|
|
|
|
|
|
|
|
F-44
|
|
Condensed Consolidated
Balance Sheets
|
|
|
|
|
ASSETS
|
|
|
|
Current
Assets:
|
|
|
|
Cash
and cash equivalents
|
$
152,211
|
$
782,707
|
|
Account
receivable
|
23,300
|
-
|
|
Prepaid
expenses
|
40,535
|
20,856
|
|
Total Current Assets
|
216,046
|
803,563
|
|
|
|
|
|
Equipment
|
|
|
|
(net
of accumulated depreciation of $287,900
|
|
|
|
and
$265,234, respectively)
|
391,969
|
414,635
|
|
Refundable
deposits
|
43,600
|
43,600
|
|
|
|
|
|
TOTAL ASSETS
|
$
651,615
|
$
1,261,798
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
Current
Liabilities:
|
|
|
|
Accounts
payable
|
$
668,866
|
$
572,195
|
|
Accrued
expense
|
251,567
|
179,680
|
|
Deferred
research & development reimbursement
|
64,989
|
177,517
|
|
Convertible
note payable (net of debt discount of $6,315 and $10,914,
respectively)
|
993,685
|
989,086
|
|
Accrued
interest payable
|
41,095
|
15,890
|
|
Accrued
dividends on Series B Preferred Stock
|
15,638
|
15,638
|
|
Total Current Liabilities
|
2,035,840
|
1,950,006
|
|
|
|
|
|
Warrant
liability
|
145,330
|
2,106,972
|
|
Total Liabilities
|
2,181,170
|
4,056,978
|
|
|
|
|
|
STOCKHOLDERS'
DEFICIT
|
|
|
|
|
|
|
|
Series
A convertible preferred stock ($0.0001 par value; 1,000,000 shares
authorized; 874,257 shares issued and outstanding as of May 31,
2017 and February 28, 2017)
|
87
|
87
|
|
Series
A-2 convertible preferred stock ($0.0001 par value; 1,000,000
shares authorized; 70,541 shares issued and outstanding as of May
31, 2017 and February 28, 2017)
|
7
|
7
|
|
Series
B convertible preferred stock ($0.0001 par value; 1,000 shares
authorized; 217 and 213 shares issued and outstanding as of May 31,
2017 and February 28, 2017, respectively)
|
-
|
-
|
|
Common
stock ($0.0001 par value; 150,000,000 shares authorized; 4,807,942
and 4,707,942 shares issued and outstanding as of May 31, 2017 and
February 28, 2017, respectively)
|
481
|
471
|
|
Additional
paid-in-capital
|
25,064,862
|
23,523,140
|
|
Accumulated
deficit
|
(26,594,992
)
|
(26,318,885
)
|
|
Total stockholders' deficit
|
(1,529,555
)
|
(2,795,180
)
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
|
$
651,615
|
$
1,261,798
|
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
MetaStat, Inc.
Unaudited Condensed C
o
nsolidated
Statements of Operations
|
|
For the three months ended
|
|
|
|
|
|
|
|
|
|
Research
collaboration revenue
|
$
23,300
|
$
-
|
|
Total
Revenue
|
23,300
|
-
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
General
& administrative
|
570,605
|
555,681
|
|
Research
& development
|
189,444
|
271,123
|
|
Total
Operating Expenses
|
760,049
|
826,804
|
|
|
|
|
|
Other
Expenses (income)
|
|
|
|
Interest
expense
|
29,804
|
304,646
|
|
Other
income, net
|
(66
)
|
(267
)
|
|
Change
in fair value of warrant liability
|
(490,380
)
|
34,492
|
|
Change
in fair value of put option embedded in notes payable
|
-
|
53,999
|
|
Settlement
expense
|
-
|
115
|
|
Total
Other Expenses (Income)
|
(460,642
)
|
392,985
|
|
|
|
|
|
Net Loss
|
$
(276,107
)
|
$
(1,219,789
)
|
|
|
|
|
Loss attributable to common shareholders and loss per common
share:
|
|
|
|
|
|
|
Net
loss
|
(276,107
)
|
(1,219,789
)
|
|
|
|
|
|
Deemed
dividend on Series B Preferred Stock issuance
|
-
|
(708,303
)
|
|
Accrued
dividend on Series B Preferred Stock
|
(23,457
)
|
(73,442
)
|
|
Loss attributable to common shareholders
|
$
(299,564
)
|
$
(2,001,534
)
|
|
|
|
|
|
Net
loss per share, basic and diluted
|
$
(0.06
)
|
$
(1.08
)
|
|
|
|
|
|
Weighted
average of shares outstanding, basic and diluted
|
4,774,669
|
1,847,140
|
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
MetaStat, Inc.
Unaudited C
o
ndensed Consolidated Statements of
Cash Flows
|
|
For the three months ended
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Operating Activities:
|
|
|
|
Net
loss
|
$
(276,107
)
|
$
(1,219,789
)
|
|
Adjustments
to reconcile net loss to net
|
|
|
|
cash
used in operating activities:
|
|
|
|
Depreciation
|
22,666
|
23,766
|
|
Share-based
compensation
|
70,470
|
119,086
|
|
Accretion
of debt discount included in interest expense
|
4,599
|
279,593
|
|
Change
in fair value of warrant liability
|
(490,380
)
|
34,492
|
|
Change
in fair value of put option embedded in notes payable
|
-
|
53,999
|
|
Net
changes in assets and liabilities:
|
|
|
|
Prepaid
expenses
|
(19,679
)
|
(971
)
|
|
Accounts
receivable
|
(23,300
)
|
-
|
|
Accounts
payable and accrued expenses
|
168,558
|
266,299
|
|
Deferred
research and development reimbursement
|
(112,528
)
|
-
|
|
Interest
payable
|
25,205
|
24,000
|
|
Net Cash used in Operating Activities
|
(630,496
)
|
(419,525
)
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
Proceeds
from issuance of debt, net of debt issuance costs
|
-
|
122,790
|
|
Proceeds
from issuance of common stock and warrants, net of offering
costs
|
-
|
126,487
|
|
Payment
of short-term debt
|
-
|
(39,241
)
|
|
Net Cash provided by Financing Activities
|
-
|
210,036
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
(630,496
)
|
(209,489
)
|
|
|
|
|
|
Cash
and cash equivalents:
|
|
|
|
Cash
at the beginning of the period
|
782,707
|
363,783
|
|
Cash at the end of the period
|
$
152,211
|
$
154,294
|
|
|
|
|
|
Supplemental
Disclosure of Non-cash Financing Activities:
|
|
|
|
Warrant
liability associated with note payable
|
$
-
|
$
15,225
|
|
Deemed
dividend related to Series B Preferred Stock BCF adjustment for
conversion price adjustment
|
$
-
|
$
708,303
|
|
Series
B Preferred PIK dividend
|
$
23,457
|
$
72,476
|
|
Series
B Preferred Stock accrued dividends
|
$
23,457
|
$
73,442
|
|
Reclassification
between warrant liability and additional
paid-in-capital
|
$
1,471,262
|
$
-
|
|
Issuance
of common stock and warrants as payment of accounts
payable
|
$
-
|
$
32,000
|
|
Financing
of insurance premium through notes payable
|
$
-
|
$
158,400
|
|
Warrants
issued to placement agents
|
$
-
|
$
15,400
|
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
MetaStat, Inc.
Notes to Unaudited Condensed Consolidated Financial
Statements
NOTE 1 – DESCRIPTION OF
B
U
SINESS AND
GOING CONCERN
MetaStat,
Inc. (“we,” “us,” “our,” the
“Company,” or “MetaStat”) is a
pre-commercial biotechnology company focused on discovering and
developing personalized therapeutic (Rx) and diagnostic (Dx)
treatment solutions for cancer patients. Our Mena isoform
“driver-based” diagnostic biomarkers also serve as
novel therapeutic targets for anti-metastatic drugs. MetaStat is
developing therapeutic product candidates and paired companion
diagnostics based on a novel approach that makes the Mena isoform
protein a drugable target. Our core expertise includes an
understanding of the mechanisms and pathways that drive tumor cell
invasion and metastasis, as well as drug resistance to certain
targeted therapies and cytotoxic chemotherapies. MetaStat’s
head office, research laboratories, and state-of-the-art
CLIA-certified diagnostic laboratory are located in Boston,
MA. The Company was incorporated on March 28, 2007 under the laws
of the State of Nevada.
Basis of Presentation
The
accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiary, MetaStat
Biomedical, Inc., a Delaware corporation and all significant
intercompany balances have been eliminated by
consolidation.
These interim
unaudited financial statements have been prepared in conformity
with generally accepted accounting principles (“GAAP”)
in the United States and should be read in conjunction with the
Company’s audited consolidated financial statements and
related footnotes for the year ended February 28, 2017, included in
the Company’s Annual Report on Form 10-K as filed with the
United States Securities and Exchange Commission
(“SEC”) on May 30, 2017. These unaudited financial
statements reflect all adjustments, consisting only of normal
recurring adjustments, which are, in the opinion of management,
necessary for a fair presentation of the Company’s financial
position as of May 31, 2017 and its results of operations and cash
flows for the interim periods presented and are not necessarily
indicative of results for subsequent interim periods or for the
full year. These interim financial statements do not include all of
the information and footnotes required by GAAP for complete
financial statements and allowed by the relevant SEC rules and
regulations; however, the Company believes that its disclosures are
adequate to ensure that the information presented is not
misleading.
Going Concern
The
accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of
business. The Company has experienced net losses and negative
cash flows from operations since its inception. The
Company has sustained cumulative losses of approximately $26.6
million as of May 31, 2017, has negative working capital and has
not generated positive cash flows from operations. The
continuation of the Company as a going concern is dependent upon
continued financial support from its shareholders, the ability of
the Company to obtain necessary equity and/or debt financing to
continue operations, and the attainment of profitable operations.
These factors raise substantial doubt regarding the Company’s
ability to continue as a going concern. The Company cannot make any
assurances that additional financings will be available to it and,
if available, completed on a timely basis, on acceptable terms or
at all. If the Company is unable to complete a debt or equity
offering, or otherwise obtain sufficient financing when and if
needed, it would negatively impact its business and operations and
could also lead to the reduction or suspension of the
Company’s operations and ultimately force the Company to
cease operations. These financial statements do not include any
adjustments to the recoverability and classification of recorded
asset amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going
concern.
Subsequent
to May 31, 2017, the Company completed a private placement for
gross proceeds of approximately $2.14 million (See Note
12).
NOTE 2 – CAPITAL STOCK
The
Company has authorized 160,000,000 shares of capital stock, par
value $0.0001 per share, of which 150,000,000 are shares of common
stock and 10,000,000 are shares of “blank-check”
preferred stock.
Our
board of directors (the “Board”) is empowered, without
stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights, which could
adversely affect the voting power or other rights of the holders of
common stock. The preferred stock could be utilized as a method of
discouraging, delaying or preventing a change in control of the
Company.
Common Stock
The
holders of our common stock are entitled to one vote per share. In
addition, the holders of our common stock will be entitled to
receive ratably such dividends, if any, as may be declared by our
Board out of legally available funds; however, the current policy
of our Board is to retain earnings, if any, for operations and
growth. Upon liquidation, dissolution or winding-up, the holders of
our common stock will be entitled to share ratably in all assets
that are legally available for distribution.
Series A Convertible Preferred Stock
Pursuant
to the Certificate of Designation of Rights and Preferences of the
Series A Preferred Stock (the “Series A Preferred
Stock” or “Series A Preferred”), the terms of the
Series A Preferred Stock are as follows:
Ranking
The Series A Preferred Stock will rank (i) senior
to our common stock, (ii)
pari passu
with our Series A-2 Preferred Stock (as defined
below) and (iii) junior to our Series B Preferred Stock (as defined
below) with respect to distributions of assets upon the
liquidation, dissolution or winding up of the
Company.
Dividends
The
Series A Preferred Stock is not entitled to any
dividends.
Liquidation Rights
In
the event of any liquidation, dissolution or winding-up of the
Company, whether voluntary or involuntary, the holders of the
Series A Preferred Stock shall be entitled to receive out of the
assets of the Company, whether such assets are capital or surplus,
for each share of Series A Preferred Stock an amount equal to the
fair market value as determined in good faith by the
Board.
Voluntary Conversion; Anti-Dilution Adjustments
Each
fifteen (15) shares of Series A Preferred Stock shall be
convertible into one share of common stock (the “Series A
Conversion Ratio”). The Series A Conversion Ratio is subject
to customary adjustments for issuances of shares of common stock as
a dividend or distribution on shares of the common stock, or
mergers or reorganizations.
Voting Rights
The
Series A Preferred Stock has no voting rights. The common stock
into which the Series A Preferred Stock is convertible shall, upon
issuance, have all of the same voting rights as other issued and
outstanding common stock, and none of the rights of the Series A
Preferred Stock.
Series A-2 Convertible Preferred Stock
Pursuant
to the Certificate of Designation of Rights and Preferences of the
Series A-2 Convertible Preferred Stock (the “Series A-2
Preferred Stock” or “Series A-2 Preferred”), the
terms of the Series A-2 Preferred Stock are as
follows:
Ranking
The Series A-2 Preferred will rank (i) senior to
our common stock, (ii)
pari passu
with our Series A Preferred Stock, and (iii)
junior to our Series B Preferred Stock (as defined below) with
respect to distributions of assets upon the liquidation,
dissolution or winding up of the Company.
Dividends
The
Series A-2 Preferred is not entitled to any dividends.
Liquidation Rights
In
the event of any liquidation, dissolution or winding-up of the
Company, whether voluntary or involuntary, the holders of the
Series A-2 Preferred shall be entitled to receive out of the assets
of the Company, whether such assets are capital or surplus, for
each share of Series A-2 Preferred an amount of cash, securities or
other property to which such holder would be entitled to receive
with respect to each such share of Preferred Stock if such shares
had been converted to common stock immediately prior to such
liquidation, dissolution or winding-up of the Company.
Voluntary Conversion; Anti-Dilution Adjustments
Each
share of Series A-2 Preferred shall, at any time, and from time to
time, at the option of the holder, be convertible into ten (10)
shares of common stock (the “Series A-2 Conversion
Ratio”). The Series A-2 Conversion Ratio is subject to
customary adjustments for issuances of shares of common stock as a
dividend or distribution on shares of common stock, or mergers or
reorganizations.
Conversion Restrictions
The
holders of the Series A-2 Preferred may not convert their shares of
Series A-2 Preferred into shares of common stock if the resulting
conversion would cause such holder and its affiliates to
beneficially own (as determined in accordance with Section 13(d) of
the Exchange Act, and the rules thereunder) in excess of 4.99% or
9.99% of the common stock outstanding, when aggregated with all
other shares of common stock owned by such holder and its
affiliates at such time; provided, however, that such holder may
elect to waive these conversion restrictions.
Voting Rights
The
Series A-2 Preferred has no voting rights. The common stock into
which the Series A-2 Preferred is convertible shall, upon issuance,
have all of the same voting rights as other issued and outstanding
common stock, and none of the rights of the Series A-2
Preferred.
Series B Convertible Preferred Stock
Pursuant
to the Certificate of Designation of Rights and Preferences of the
Series B Preferred Stock (the “Series B Preferred
Stock” or “Series B Preferred”), the terms of the
Series B Preferred Stock are as follows:
Ranking
The
Series B Preferred Stock will rank senior to our Series A Preferred
Stock, Series A-2 Preferred Stock and common stock with respect to
distributions of assets upon the liquidation, dissolution or
winding up of the Company.
Stated Value
Each
shares of Series B Preferred Stock will have a stated value of
$5,500, subject to adjustment for stock splits, combinations and
similar events (the “Stated Value”).
Dividends
Cumulative
dividends on the Series B Preferred Stock accrue at the rate of 8%
of the Stated Value per annum, payable quarterly on March 31, June
30, September 30, and December 31 of each year, from and after the
date of the initial issuance. Dividends are payable in
kind in additional shares of Series B Preferred Stock valued at the
Stated Value or in cash at the sole option of the Company. At May
31, 2017 and February 28, 2017, the dividends payable to the
holders of the Series B Preferred Stock amounted to approximately
$16,000 and $16,000, respectively. During the three months ended
May 31, 2017 and May 31, 2016, the Company issued 4.2648 and
13.1771 shares of Series B Preferred Stock, respectively, for
payment of dividends amounting to approximately $23,000 and
$72,000, respectively.
Liquidation Rights
If
the Company voluntarily or involuntarily liquidates, dissolves or
winds up its affairs, each holder of the Series B Preferred Stock
will be entitled to receive out of the Company’s assets
available for distribution to stockholders, after satisfaction of
liabilities to creditors, if any, but before any distribution of
assets is made on the Series A Preferred Stock or common stock or
any of the Company’s shares of stock ranking junior as to
such a distribution to the Series B Preferred Stock, a liquidating
distribution in the amount of the Stated Value of all such
holder’s Series B Preferred Stock plus all accrued and unpaid
dividends thereon. At May 31, 2017 and February 28, 2017, the value
of the liquidation preference of the Series B Preferred Stock
aggregated to approximately $1.2 million and $1.19 million,
respectively.
Conversion; Anti-Dilution Adjustments
Each
share of Series B Preferred Stock will be convertible at the
holder’s option into common stock in an amount equal to the
Stated Value plus accrued and unpaid dividends thereon through the
conversion date divided by the then applicable conversion price.
The initial conversion price was $8.25 per share (the “Series
B Conversion Price”) and is subject to customary adjustments
for issuances of shares of common stock as a dividend or
distribution on shares of common stock, or mergers or
reorganizations, as well as “full ratchet”
anti-dilution adjustments for future issuances of other Company
securities (subject to certain standard carve-outs) at prices less
than the applicable Series B Conversion Price.
The
issuance of shares of common stock pursuant to the 2016 Unit
Private Placement (as defined in Note 3) triggered the full ratchet
anti-dilution price protection provision of the Series B Preferred
Stock. Accordingly, the Series B Conversion Price was adjusted from
$8.25 to $2.00 per share.
The
Series B Preferred Stock is subject to automatic conversion (the
“Mandatory Conversion”) at such time when the
Company’s common stock has been listed on a national stock
exchange such as the NASDAQ, New York Stock Exchange or NYSE MKT;
provided, that, on the Mandatory Conversion date, a registration
statement providing for the resale of the shares of common stock
underlying the Series B Preferred Stock is effective. In the event
of a Mandatory Conversion, each share of Series B Preferred Stock
will convert into the number of shares of common stock equal to the
Stated Value plus accrued and unpaid dividends divided by the
applicable Series B Conversion Price.
Voting Rights
The
holders of the Series B Preferred Stock shall be entitled to the
number of votes equal to the number of shares of common stock into
which such Series B Preferred Stock could be converted for purposes
of determining the shares entitled to vote at any regular, annual
or special meeting of stockholders of the Company, and shall have
voting rights and powers equal to the voting rights and powers of
the common stock (voting together with the common stock as a single
class).
Most Favored Nation
For
a period of up to 30 months after March 31, 2015, if the Company
issues any New Securities (as defined below) in a private placement
or public offering (a “Subsequent Financing”), the
holders of Series B Preferred Stock may exchange all of the Series
B Preferred Stock at their Stated Value plus all Series A Warrants
(as defined below) issued to the Series B Preferred Stock
holders for the securities issued in the Subsequent Financing on
the same terms of such Subsequent Financing. This right
expires upon the earlier of (i) September 30, 2017 and (ii) the
consummation of a bona fide underwritten public offering in which
the Company receives aggregate gross proceeds of at least
$5,000,000. “New Securities” means shares of the
common stock, any other securities, options, warrants or other
rights where upon exercise or conversion the purchaser or recipient
receives shares of the common stock, or other securities with
similar rights to the common stock, subject to certain standard
carve-outs.
NOTE 3 – EQUITY ISSUANCES
Common stock financing – the 2016 Unit Private
Placement
During
the three months ended May 31, 2016, the Company entered into a
subscription agreement pursuant to a private placement (the
“2016 Unit Private Placement”) with a number of
accredited investors pursuant to which the Company issued an
aggregate of 20 units consisting of an aggregate of 100,000 shares
of common stock and five-year warrants to purchase 50,000 shares of
common stock at a purchase price of $3.00 per share (the
“Warrants”) for an aggregate purchase price of
$200,000. After deducting placement agent fees and other offering
expenses, including legal expenses, net proceeds amounted to
approximately $126,000. Additionally, the Company issued an
aggregate of 10,000 placement agent warrants in substantially the
same form as the Warrants.
Registration Rights Agreement
Pursuant
to a registration rights agreement entered into by the parties, the
Company agreed to file a registration statement with the SEC
providing for the resale of the shares of common stock and the
shares of common stock underlying the Warrants issued pursuant to
the 2016 Unit Private Placement on or before the date which is
forty-five (45) days after the date of the final closing of the
2016 Unit Private Placement. The Company will use its
commercially reasonable efforts to cause the registration statement
to become effective within one hundred fifty (150) days from the
filing date. The Company has received a waiver from a majority of
the 2016 Unit Private Placement investors extending the filing date
of the registration statement to no later than December 15, 2016.
The Company filed the Registration Statement on Form S-1 with the
SEC on December 14, 2016, which was declared effective by the SEC
on January 5, 2017.
Deemed Dividend due to Conversion Price Adjustment
During
the three months ended May 31, 2016, as a result of the adjustment
of the Series B Conversion Price from $8.25 to $2.00 per share due
to the 2016 Unit Private Placement, the Company recorded a non-cash
deemed dividend, amounting to approximately $708,000. The
expense was measured at the intrinsic value of the beneficial
conversion feature for each issuance of Series B Preferred Stock in
the Series B Preferred private placement and was limited to the
amount of Series B Preferred Stock allocated proceeds less
previously recognized beneficial conversion features.
Issuances of common stock for services
During
the three months ended May 31, 2016, the Company issued an
aggregate of 25,000 shares of common stock to a consultant for
services that vested over a two-month term and to settle $32,000 of
accounts payable. The fair value of the shares amounted to
approximately $46,000 on the grant date, of which approximately
$14,000 was recognized into general and administrative expense
during the three months ended May 31, 2016.
During
the three months ended May 31, 2017, the Company issued an
aggregate of 100,000 shares of common stock to members of its Board
that vested immediately. The fair value of the shares amounted to
approximately $130,000 on the grant date, which was recognized into
general and administrative expense during the three months ended
May 31, 2017.
NOTE 4 – STOCK OPTIONS
During
the three months ended May 31, 2016, the Company issued options to
purchase 50,000 shares of common stock at $2.19 per share to a
non-executive member of its Board. These 50,000 options vest in
three equal installments on each of May 26, 2017, May 26, 2018, and
May 26, 2019 and expire on May 26, 2026. These options had a total
fair value of approximately $87,000 as calculated using the
Black-Scholes model.
During
the three months ended May 31, 2016, the Company issued options to
purchase 50,000 shares of common stock at $2.19 per share to a
non-executive member of its Board for performing other services.
These 50,000 options vest upon achieving a certain milestone and
expire on May 26, 2026. These options will be measured and
recognized when vesting becomes probable.
During
the three months ended May 31, 2017, the Company issued options to
purchase an aggregate 55,000 shares of common stock at 3.00 per
share to its President and Chief Executive Officer and a member of
its management team. These options expire on April 4, 2027. 18,334
of these options vest on the first anniversary date of April 4,
2018, and then 36,666 of these options vest in equal monthly
installments over a twenty-four-month period. These options had a
total fair value of approximately $60,000 as calculated using the
Black-Scholes model.
During
the three months ended May 31, 2017, an aggregate of 39,999
unvested options to purchase shares of common stock at 8.25 per
share to certain members of the Company’s Board were
terminated upon resignation from the board. The Company recognized
a credit of approximately $146,000 for the true-up of forfeitures
related to these unvested options during the three months ended May
31, 2017.
The
weighted average inputs to the Black-Scholes model used to value
the stock options granted during the three months ended May 31,
2017 and 2016 are as follows:
|
|
|
|
|
Expected
volatility
|
129.0
%
|
100.0
%
|
|
Expected
dividend yield
|
0.00
%
|
0.00
%
|
|
Risk-free
interest rate
|
1.95
%
|
1.65
%
|
|
Expected
term
|
|
|
For
the three months ended May 31, 2016, the Company recognized
approximately $105,000 of compensation expense related to stock
options, of which approximately $88,000 was recognized in general
and administrative expenses and approximately $17,000 in research
and development expenses.
For
the three months ended May 31, 2017, the Company recognized a
credit of approximately $96,000 of compensation expense related to
stock options, of which a credit of approximately $113,000 was
recognized in general and administrative expenses and expense of
approximately $16,000 in research and development
expenses.
The
following table summarizes common stock options issued and
outstanding as of May 31, 2017:
|
|
|
Weighted
average exercise
price
|
Aggregate
intrinsic value
|
Weighted
average remaining
contractual life (years)
|
|
Outstanding
at February 28, 2017
|
966,474
|
$
5.71
|
$
-
|
8.87
|
|
Granted:
|
55,000
|
$
3.00
|
-
|
-
|
|
Expired
and forfeited:
|
(39,999
)
|
$
8.25
|
-
|
-
|
|
|
|
|
|
|
|
Outstanding
and expected to vest at May 31, 2017
|
981,475
|
$
5.46
|
$
-
|
8.72
|
|
Exercisable
at May 31, 2017
|
350,477
|
$
9.96
|
$
-
|
7.95
|
The
following table breaks down exercisable and unexercisable common
stock options by exercise price as of May 31, 2017:
|
|
|
|
|
|
Weighted Average Remaining Life (years)
|
|
|
Weighted Average Remaining Life (years)
|
|
160,555
|
$
2.00
|
9.11
|
319,445
|
$
2.00
|
9.11
|
|
16,668
|
$
2.19
|
8.99
|
83,332
|
$
2.19
|
8.99
|
|
-
|
$
3.00
|
-
|
176,000
|
$
3.00
|
9.68
|
|
30,000
|
$
3.55
|
8.68
|
-
|
$
8.10
|
-
|
|
1,068
|
$
8.10
|
7.67
|
-
|
$
8.25
|
-
|
|
40,001
|
$
8.25
|
8.01
|
40,000
|
$
10.20
|
8.05
|
|
41,434
|
$
10.20
|
4.61
|
-
|
$
10.50
|
-
|
|
3,334
|
$
11.25
|
7.97
|
3,333
|
$
11.25
|
7.97
|
|
11,112
|
$
16.50
|
7.38
|
8,888
|
$
16.50
|
7.38
|
|
8,068
|
$
22.50
|
7.67
|
-
|
$
22.50
|
-
|
|
38,237
|
$
48.75
|
5.85
|
-
|
$
48.75
|
-
|
|
350,477
|
$
9.96
|
7.95
|
630,998
|
$
2.95
|
9.15
|
As
of May 31, 2017, we had approximately $172,000 of unrecognized
compensation related to employee and consultant stock options that
are expected to vest over a weighted average period of 1.15
years and, approximately $500,000 of unrecognized compensation
related to employee stock options whose recognition is dependent on
certain milestones to be achieved. Additionally, there
were 173,333 stock options with a performance vesting
condition that were granted to consultants which will be measured
and recognized when vesting becomes probable.
NOTE 5 – WARRANTS
For
the three months ended May 31, 2016, the Company issued warrants to
purchase an aggregate of 9,092 shares of common stock in
connection with the issuance of the OID Notes pursuant to the March
2016 OID Note Purchase Agreements dated between March 3 and 15,
2016, referenced in Note 6. These warrants were initially
exercisable at $8.25 per share and expire between March 3 and 15,
2021. These warrants vested immediately. These warrants contained
an anti-dilution price protection provision, which required the
warrants to be recorded as derivative warrant liability. Such
clause will lapse upon completion of a Qualified Offering, as
defined in the warrant agreement. These warrants were recorded as a
debt discount based on their fair value.
For
the three months ended May 31, 2016, the Company issued warrants to
purchase an aggregate of 50,000 shares of common stock in
connection with the issuance of common stock pursuant to the 2016
Unit Private Placement referenced in Note 3. These warrants are
exercisable at $3.00 per share and expire on May 26, 2021. These
warrants vested immediately. These warrants do not contain any
provision that would require liability treatment, therefore they
were classified as equity in the Condensed Consolidated Balance
Sheet.
For
the three months ended May 31, 2017, the Company issued warrants to
purchase an aggregate of 37,500 shares of common stock to a
consultant for advisory services. These warrants are exercisable at
$3.00 per share and expire between March 31, 2021 and May 31, 2021.
These warrants vested immediately. The fair value of these warrants
was determined to be approximately $37,000, as calculated using the
Black-Scholes model. Average assumptions used in the Black-Scholes
model included: (1) a discount rate of 1.83%; (2) an expected term
of 5.0 years; (3) an expected volatility of 131%; and (4) zero
expected dividends. For the three months ended May 31, 2017, the
Company recognized approximately $37,000 of stock-based
compensation for these warrants.
For
the three months ended May 31, 2017, the Company reclassified
approximately $1.5 million of derivative warrant liability to
equity in connection with the lapse of a price protection
provision, that had resulted in these instruments being classified
as a derivative warrant liability at issuance. The fair value of
these warrants was determined to be approximately $1.5 million, as
calculated using the Black-Scholes model. Average assumptions used
in the Black-Scholes model included: (1) a discount rate of 1.81%;
(2) an expected term of 4.46 years; (3) an expected volatility of
124%; and (4) zero expected dividends
The
following table summarizes common stock purchase warrants issued
and outstanding:
|
|
|
Weighted
average exercise
price
|
Aggregate
intrinsic
value
|
Weighted
average remaining contractual life (years)
|
|
|
|
|
|
|
|
Outstanding
at February 28, 2017
|
2,698,694
|
$
5.11
|
$
-
|
4.21
|
|
Granted:
|
37,500
|
3.00
|
-
|
|
|
Cancelled/Expired/Exercised
|
(4,671
)
|
31.50
|
-
|
|
|
Outstanding
at May 31, 2017
|
2,731,523
|
$
5.04
|
$
-
|
3.98
|
Warrants
exercisable at May 31, 2017 are:
|
|
|
Weighted average
remaining life (years)
|
Exercisable
number of shares
|
|
$
2.00
|
164,888
|
2.39
|
164,888
|
|
$
2.20
|
43,636
|
3.70
|
43,636
|
|
$
3.00
|
2,152,908
|
0.11
|
2,152,908
|
|
$
8.25
|
9,134
|
3.24
|
9,134
|
|
$
10.50
|
126,978
|
2.85
|
126,978
|
|
$
15.00
|
556
|
3.00
|
556
|
|
$
18.75
|
695
|
3.00
|
695
|
|
$
22.50
|
209,754
|
1.13
|
209,754
|
|
$
31.50
|
21,241
|
1.32
|
21,241
|
|
$
37.50
|
1,733
|
0.62
|
1,733
|
|
|
2,731,523
|
3.98
|
2,731,523
|
NOTE 6 – NOTES PAYABLE
Promissory Note
On
July 31, 2015, the Company entered into a note purchase agreement,
which was subsequently amended, whereby it issued and sold a
non-convertible promissory note in the principal amount of $1.2
million (the “Promissory Note”) and a warrant to
purchase 43,636 shares of the Company’s common stock.
Effective October 21, 2016, $600,000 principal amount of the
Promissory Note plus $48,000 of accrued and unpaid interest was
exchanged into the securities issued in a private placement. In
January 2017, the remaining unpaid principal balance and accrued
interest were exchanged into a convertible note (see Convertible
Note below).
During
the three months ended May 31, 2016, the Company recognized
approximately $138,000 of interest expense related to the
Promissory Note, as amended, including amortization of debt
discount of approximately $114,000 and accrued interest expense of
$24,000. Additionally, the Company recognized a loss of
approximately $29,000 in the three months ended May 31, 2016 due to
the change in estimated fair value of a bifurcated derivative
liability related to an exchange provision in the Promissory
Note.
OID Notes
In
February 2016, the Company entered into an OID note purchase
agreement dated February 12, 2016 (the “February 2016 OID
Note Purchase Agreement”). Pursuant to the February 2016 OID
Note Purchase Agreement, the Company received an aggregate purchase
price of $500,000 and issued OID promissory Notes (the “OID
Notes”) in the aggregate principal amount of $600,000 and
warrants (the “OID Warrants”) to purchase an aggregate
of 36,367 shares of the Company’s common stock.
The
Company entered into OID note purchase agreements between March 4
and 15, 2016 (the “March 2016 OID Note Purchase
Agreements”) with various accredited investors. Pursuant to
the March 2016 OID Note Purchase Agreements, the Company issued OID
Notes with an aggregate purchase price of $125,000 and OID Warrants
to purchase 9,902 shares of the Company’s common stock. The
OID Notes issued in March 2016 have a principal amount equal to
$150,000 or 120% of the purchase price.
Pursuant
to the March 2016 closings of the OID Note private placement, the
principal amount was first allocated to the fair value of the OID
Warrants in the amount of approximately $15,000, next to the value
of the original issuance discount in the amount of $25,000, then to
the fair value of a bifurcated derivative liability related to an
exchange provision in the OID Notes in the amount of approximately
$33,000, and lastly to the debt discount related to offering costs
of approximately $2,000 with the difference of approximately
$75,000 representing the initial carrying value of the OID Notes
issued in March 2016.
The
OID Notes were subsequently amended in August 2016, extending the
maturity date of the OID Notes in exchange for among other, (i) an
increased principal amount of the OID Notes by 10% to $825,000 in
the aggregate from $750,000 in the aggregate, and (ii) the issuance
of an aggregate of 45,459 common stock purchase warrants with an
exercise price of $2.00 per share and a term of five
years.
In October 2016,
$553,000 principal amount
of OID Notes
were exchanged
into
the securities issued in a
private placement
.
Accordingly,
the Company recorded a loss on extinguishment of approximately
$555,000. Additionally, the Company repaid $8,000 of OID
Notes.
In
November 2016, the Company exercised its sole option to further
extend the maturity date to its outstanding OID Note in the
aggregate of $264,000 principal amount of OID Note. In
consideration for the extension, the Company increased the
principal amount of the OID Note by 10% or to $26,400 to $290,400
in the aggregate. In January 2017, the remaining outstanding OID
Note was exchanged into a convertible note (see Convertible Note
below).
During
the three months ended May 31, 2016, the Company recognized
approximately $166,000 of interest expense related to the OID
Notes, including amortization of debt discount. Additionally, the
Company recognized a loss of approximately $25,000 in the three
months ended May 31, 2016 due to the change in estimated fair value
of a bifurcated derivative liability related to an exchange
provision in the OID Notes.
Convertible Note
On
January 17, 2017, the Company entered into an exchange agreement,
pursuant to which the Company issued a new convertible promissory
note in the principal amount of $1,000,000 (the “Convertible
Note”) in exchange (the “Debt Exchange”) for the
cancellation of (i) $600,000 principal amount of the Promissory
Note plus $96,000 of accrued and unpaid interest thereon, and (ii)
$290,400 principal amount of the OID Note.
During
the three months ended May 31, 2017, the Company recognized
approximately $30,000 of interest expense related to the
Convertible Note, including amortization of debt discount of
approximately $5,000 and accrued interest expense of approximately
$25,000.
The
following table summarizes the notes payable:
|
|
|
|
Voluntary Exchange Feature
|
|
|
February
28, 2017 balance
|
$
1,000,000
|
$
(10,914
)
|
$
-
|
$
989,086
|
|
Amortization
of debt discount
|
-
|
4,599
|
-
|
4,599
|
|
May
31, 2017 balance
|
$
1,000,000
|
$
(6,315
)
|
$
-
|
$
993,685
|
NOTE 7 – FAIR VALUE MEASUREMENTS
In accordance with ASC 820,
Fair Value
Measurements
, financial
instruments were measured at fair value using a three-level
hierarchy which maximizes use of observable inputs and minimizes
use of unobservable inputs:
|
●
|
Level
1: Observable inputs such as quoted prices in active markets for
identical instruments
|
|
●
|
Level
2: Quoted prices for similar instruments that are directly or
indirectly observable in the market
|
|
●
|
Level
3: Significant unobservable inputs supported by little or no market
activity. Financial instruments whose values are
determined using pricing models, discounted cash flow
methodologies, or similar techniques, for which determination of
fair value requires significant judgment or
estimation.
|
Financial
instruments measured at fair value are classified in their entirety
based on the lowest level of input that is significant to the fair
value measurement. At May 31, 2017 and February 28, 2017, the
warrant liability balances were classified as Level 3
instruments.
Derivative Warrant Liability
At
May 31, 2017 and February 28, 2017, the warrant liability balances
of approximately $0.15 million and $2.1 million, respectively, were
classified as Level 3 instruments.
The
following table sets forth the changes in the estimated fair value
for our Level 3 classified derivative warrant
liability:
|
|
|
|
|
|
|
Fair
value at February 28, 2017
|
$
157,204
|
$
35,690
|
$
1,914,078
|
$
2,106,972
|
|
Change
in fair value
|
(37,366
)
|
(10,198
)
|
(442,816
)
|
(490,380
)
|
|
Reclassification
of warrant liability to equity
|
-
|
-
|
(1,471,262
)
|
(1,471,262
)
|
|
Fair
value at May 31, 2017
|
$
119,838
|
$
25,492
|
$
-
|
$
145,330
|
In
connection with the initial closing of the Series B Preferred
private placement on December 31, 2014, the Company issued a
warrant to purchase an aggregate of 30,334 shares of common stock
(the “Series B Warrant”), originally exercisable at
$8.25 per share and expiring on March 31, 2020. The Series B
Warrant contains a full-ratchet anti-dilution price protection
provision that requires liability treatment and the exercise price
of the Series B Warrant was adjusted to $2.00 during the year ended
February 28, 2017. The fair value of the Series B Warrant at May
31, 2017 and February 28, 2017 was determined to be approximately
$25,000 and $36,000, respectively, as calculated using the Monte
Carlo simulation. The Monte Carlo simulation as of May 31, 2017 and
February 28, 2017 used the following assumptions: (1) a stock price
of $1.15 and $1.50, respectively; (2) a risk-free rate of 1.41% and
1.50%, respectively; (3) an expected volatility of 129% and 131%,
respectively; and (4) a fundraising event to occur on June 30,
2017 and May 31, 2017, respectively, that would result in the
issuance of additional common stock.
In
connection with the issuance of the Promissory Note on July 31,
2015, the Company issued a warrant to purchase an aggregate of
43,636 shares of common stock, originally exercisable at $8.25 per
share and expiring on July 31, 2020. This warrant contains a
full-ratchet anti-dilution price protection provision that requires
liability treatment and the exercise price of this warrant was
adjusted to $2.00 during the year ended February 28, 2017. The fair
value of the warrant at May 31, 2017 and February 28, 2017 was
determined to be approximately $38,000 and $51,000, respectively,
as calculated using the Monte Carlo simulation. The Monte Carlo
simulation as of May 31, 2017 and February 28, 2017 used the
following assumptions: (1) stock price of $1.15 and $1.50,
respectively; (2) a risk-free rate of 1.47% and 1.57%,
respectively; (3) an expected volatility of 129% and 131%,
respectively; and (4) a fundraising event to occur on June 30, 2017
and May 31, 2017, respectively, that would result in the issuance
of additional common stock.
In
connection with the amendment of the Promissory Note on February
12, 2016, the Company issued a warrant to purchase an aggregate of
43,636 shares of common stock, initially exercisable at $8.25 per
share and expiring on February 11, 2021. This warrant contains a
ratchet anti-dilution price protection provision that requires
liability treatment and the exercise price of this warrant was
adjusted to $2.20 during the year ended February 28, 2017. The fair
value of the warrant at May 31, 2017 and February 28, 2017 was
determined to be approximately $40,000 and $51,000, respectively,
as calculated using the Monte Carlo simulation. The Monte Carlo
simulation as of May 31, 2017 and February 28, 2017 used the
following assumptions: (1) stock price of $1.15 and $1.50,
respectively; (2) a risk-free rate of 1.55% and 1.68%,
respectively; (3) an expected volatility of 129% and 131%,
respectively; and (4) a fundraising event to occur on June 30, 2017
and May 31, 2017, respectively, that would result in the issuance
of additional common stock.
In
connection with the issuance of OID Notes in February 2016, the
Company issued warrants to purchase an aggregate of 36,367 shares
of common stock. These warrants were issued between
February 12 and 22, 2016, were initially exercisable at $8.25 per
share and expire between February 11 and 21, 2021. These warrants
contain a full-ratchet anti-dilution price protection provision
that requires liability treatment and the exercise price of these
warrants were adjusted to $2.00 during the year ended February 28,
2017. The fair value of these warrants at May 31, 2017 and February
28, 2017 was determined to be approximately $34,000 and $44,000,
respectively, as calculated using the Monte Carlo simulation. The
Monte Carlo simulation as of May 31, 2017 and February 28, 2017
used the following weighted-average assumptions: (1) stock price of
$1.15 and $1.50, respectively; (2) a risk-free rate of 1.55% and
1.68%, respectively; (3) an expected volatility of 129% and 131%,
respectively; and (4) a fundraising event to occur on June 30, 2017
and May 31, 2017, respectively, that would result in the issuance
of additional common stock.
In
connection with the issuance of OID Notes in March 2016, the
Company issued warrants to purchase an aggregate of 9,092 shares of
common stock. These warrants were issued between March 4 and
15, 2016, were initially exercisable at $8.25 per share and expire
between March 4 and 15, 2021. These warrants contain a full-ratchet
anti-dilution price protection provision that requires liability
treatment and the exercise price of these warrants were adjusted to
$2.00 during the year ended February 28, 2017. The fair value of
these warrants at May 31, 2017 and February 28, 2017 was determined
to be approximately $8,000 and approximately $11,000, respectively,
as calculated using the Monte Carlo simulation. The Monte Carlo
simulation as of May 31, 2017, and February 28, 2017 used the
following weighted-average assumptions: (1) stock price of $1.15
and $1.50, respectively; (2) a risk-free rate of 1.56% and 1.69%,
respectively; (3) an expected volatility of 129% and 131%,
respectively; and (4) a fundraising event to occur on June 30, 2017
and May 31, 2017, respectively, that would result in the issuance
of additional common stock.
In
connection with the private placement of common stock and warrants
that closed in October 2016, the Company issued warrants to
purchase an aggregate of 1,617,506 shares of common stock (the
“PPM Warrants”). These PPM Warrants were issued
between August 31, 2016 and October 30, 2016, are exercisable at
$3.00 per share and expire between August 30, 2021 and October 29,
2021. These warrants contain a full-ratchet anti-dilution price
protection provision that requires liability treatment. The fair
value of these warrants at February 28, 2017 was determined to be
approximately $1.9 million, as calculated using the Monte Carlo
simulation. The Monte Carlo simulation as of February 28, 2017 used
the following weighted-average assumptions: (1) stock price of
$1.50; (2) a risk-free rate of 1.66%; (3) an expected volatility of
131%; and (4) a fundraising event to occur on May 31, 2017, that
would result in the issuance of additional common stock. The price
protection provision expired on April 30, 2017, and the Company
reclassified approximately $1.5 million of derivative warrant
liability to equity, as referenced in Note 5.
NOTE 8 – EQUIPMENT
Equipment
consists of the following:
|
|
|
|
|
|
Research
equipment
|
7 years
|
$
601,720
|
$
601,720
|
|
Computer
equipment
|
5 years
|
78,149
|
78,149
|
|
|
679,869
|
679,869
|
|
Accumulated
depreciation and amortization
|
|
(287,900
)
|
(265,234
)
|
|
Equipment, net
|
|
$
391,969
|
$
414,635
|
Depreciation
and amortization expense was approximately $23,000 and
approximately $24,000 for the three months ended May 31, 2017 and
May 31, 2016, respectively. Depreciation of equipment utilized in
research and development activities is included in research and
development expenses and amounted to approximately $19,000 and
$20,000 for the three months ended May 31, 2017 and May 31, 2016,
respectively. All other depreciation is included in general and
administrative expense and amounted to approximately $4,000 and
approximately $4,000 for the three months ended May 31, 2017 and
May 31, 2016, respectively.
NOTE 9 - – LICENSE AGREEMENTS AND COMMITMENTS
License Agreements
Pursuant
to the License Agreement, we are required to make annual license
maintenance fee payments beginning August 26, 2011. We
have satisfied all license maintenance payments due through May 31,
2017. We are required to make payments of $100,000 in 2017 and
every year the license is in effect thereafter. These annual
license maintenance fee payments will be credited to running
royalties due on net sales earned in the same calendar year, if
any. We are in compliance with the License Agreement.
Pursuant
to the Second License Agreement, as amended, we are required to
make annual license maintenance fee payments beginning on January
3, 2013. We are required to make maintenance payments of
$5,000 in 2018, $60,000, in 2019 and 2020, and $100,000 in 2021 and
every year the license is in effect thereafter. These annual
license maintenance fee payments will be credited to running
royalties due on net sales earned in the same calendar year, if
any. The license maintenance payment of $5,000 for 2017 is
currently outstanding, pending invoice. As such, we are in
compliance with the Second License Agreement.
Pursuant
to the Alternative Splicing Diagnostic License Agreement and the
Alternative Splicing Therapeutic License Agreement, we are required
to make annual license maintenance fee payments for each license
beginning on January 1, 2015. We have satisfied all license
maintenance payments due through May 31, 2017. We are required to
make additional payments of $37,500 in 2018, and $50,000 in 2019
and every year each license is in effect
thereafter. We are in compliance with the Alternative
Splicing License Agreements.
Pursuant
to the Antibody License Agreement, we are required to make license
maintenance fee payments beginning on January 1, 2015. We have
satisfied all license maintenance payments due through May 31,
2017. We are required to make additional payments of $15,000 in
2018 and $20,000 in 2019 and every year the license is in effect
thereafter. These annual license maintenance fee payments will be
credited to running royalties due on net sales earned in the same
calendar year, if any. We are in compliance with the Antibody
License Agreement.
Lease Agreements
On August 28, 2014, we entered into a lease
agreement, subsequently amended (the “Boston Lease”)
for our diagnostic laboratory and office space located at 27,
Drydock Ave, 2
nd
Floor, Boston, MA 02210 (the “Boston
Property”). We paid a $40,000 security deposit in
connection with entering into the Boston Lease. Effective April 6,
2016, we entered into an amendment to the Boston Lease (the
“Boston Lease Amendment”), whereby we extended the term
by one year from September 1, 2016 to August 31, 2017. The basic
rent payable under the Boston Lease Amendment is $17,164 per month
plus additional monthly payments including tax payments and
operational and service costs.
We
have entered into a letter of intent to amend the lease agreement
for the Boston Property and anticipate entering into definitive
documentation for the second lease amendment (the “Second
Boston Lease Amendment”) shortly. The Second Boston Lease
Amendment is anticipated to extend the term (the “Second
Extension Period”) for five years from September 1, 2017
through August 31, 2022. Monthly basic rent payments are
anticipated to be $23,355 for the first year of the Second
Extension Period, $24,056 for the second year of the Second
Extension Period, $24,777 for the third year of the Second
Extension Period, $25,521 for the fourth year of the Second
Extension Period, and $26,286 for the fifth year of the Second
Extension Period.
Effective
March 1, 2015, we entered into a lease agreement for short-term
office space in New York, NY. We paid a $2,100 security
deposit in connection with entering into the lease. Effective
December 1, 2015, we amended our lease agreement for the short-term
office space in New York, NY. The term of the lease is
month-to-month and may be terminated with twenty-one (21)
days’ notice. The basic rent payment is $2,400 per month and
we paid an additional $1,500 security deposit in connection with
the amended lease.
NOTE 10 – NET LOSS PER SHARE
Basic
net loss per common share is computed based on the weighted average
number of common shares outstanding during the
period. Restricted shares issued with vesting conditions
that have not been met at the end of the period are excluded from
the computation of the weighted average shares. As of May 31, 2017,
and May 31, 2016, 11,536 and 11,536, respectively, restricted
shares of common stock were excluded from the computation of the
weighted average shares.
Diluted
net loss per common share is calculated giving effect to all
dilutive potential common shares that were outstanding during the
period. Diluted potential common shares generally consist of
incremental shares issuable upon exercise or conversion of stock
options and warrants and shares issuable from convertible
securities, as well as nonvested restricted shares.
In
computing diluted loss per share for the years ended May 31, 2017
and May 31, 2016, no effect has been given to the common shares
issuable at the end of the period upon the conversion or exercise
of the following securities as their inclusion would have been
anti-dilutive:
|
|
|
|
|
Stock
options
|
981,475
|
526,976
|
|
Warrants
|
2,731,523
|
967,934
|
|
Preferred
stock
|
1,361,837
|
1,906,404
|
|
Convertible
debt
|
520,548
|
-
|
|
Total
|
5,595,383
|
3,401,314
|
NOTE 11 – COLLABORATIVE AND OTHER RELATIONSHIPS
Research and Development Reimbursements
In
connection with our business strategy, we may enter into research
and development and other collaboration agreements. Depending on
the arrangement, we may record payments as advances, funding
receivables, payable balances or non-product income with our
partners, based on the nature of the cost-sharing mechanism and
activity within the collaboration.
On
September 29, 2016, the Company entered into an amendment (the
“MTA Amendment”) to a previously executed pilot
materials transfer agreement (the “MTA” and together
with the Amendment, the “Research Agreement”) with
Celgene Corporation (“Celgene”), to conduct a mutually
agreed upon pilot research project (the “Pilot
Project”). The MTA Amendment provides for milestone payments
to the Company of up to approximately $973,000. Under the terms of
the Research Agreement, Celgene will provide certain proprietary
materials to the Company and the Company will evaluate
Celgene’s proprietary materials in the Company’s
metastatic cell line and animal nonclinical models. The milestone
schedule calls for Celgene to pay the Company approximately
$487,000 upon execution of the MTA Amendment, which the Company has
received, and the balance in accordance with the completion of
three (3) milestones to Celgene’s reasonable satisfaction.
The term of the Research Agreement is one (1) year, unless extended
by the parties. Either party may terminate the Research Agreement
with thirty (30) days prior written notice.
The Company recognizes the upfront payment as a
deferred research and development reimbursement in the Consolidated
Balance Sheet and will amortize the deferred research and
development reimbursement as incurred over the term of the Research
Agreement. For the three months ended May 31, 2017, the Company
recorded
approximately
$133,000 in deferred research and
development reimbursement, and, at May 31, 2017, the Company had a
deferred research and development reimbursement amount of
approximately $65,000.
The
Company will recognize deferred research and development
reimbursement for each subsequent milestone in the period in which
the milestone is achieved. As of May 31, 2017, none of the
milestones have been achieved.
Research Collaboration Revenue
We currently do not sell any products and do not
have any product-related revenue.
From time to time, we may
enter into
research and development
collaboration arrangements, in which we are reimbursed for either
all or a portion of the research and development costs incurred. We
record these payments as revenue in the statement of operations. We
recognize revenue upon delivery and acceptance of the test results
or other deliverables.
NOTE 12 – SUBSEQUENT EVENTS
Celgene Research Agreement
On
June 16, 2017, the Company received payment of approximately
$243,000 from Celgene for satisfactory completion of the second
milestone pursuant to the Research Agreement between the
parties.
Private Placement
On
June 23, 2017, pursuant to the initial closing of a private
placement, the Company issued an aggregate of 359,348 shares of
common stock and approximately 229,363.2 shares of Series A-2
Preferred, convertible into 2,293,632 shares of common stock and
repriced an aggregate of 474,829 warrants, for an aggregate
purchase price of approximately $2.14 million. After deducting
placement agent fees and other offering expenses, the Company
received net proceeds of approximately $2.0 million. Additionally,
in connection with the private placement, the Company will issue an
aggregate of 136,830 placement agent warrants with a term of five
years, an exercise price equal to $1.27 per share, and a cashless
exercise provision.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses payable by us
relating to the sale of our securities being registered hereby. All
amounts are estimates except the SEC registration fee. The expenses
of issuance and distribution are set forth below.
|
SEC
filing fee
|
$
1,167
|
|
Legal
expenses
|
$
10,000
*
|
|
Accounting
expenses
|
$
10,000
*
|
|
Miscellaneous
|
$
5,000
*
|
|
Total
|
$
26,167
*
|
* Estimate
Item 14. Indemnification of Directors and Officers.
We are a Nevada corporation and generally governed by the Nevada
Private Corporations Code, Title 78 of the Nevada Revised Statutes,
or NRS.
Section 78.138 of the NRS provides that, unless the
corporation’s Articles of Incorporation provide otherwise, a
director or officer will not be individually liable unless it is
proven that (i) the director’s or officer’s acts or
omissions constituted a breach of his or her fiduciary duties, and
(ii) such breach involved intentional misconduct, fraud, or a
knowing violation of the law. Our Articles of Incorporation provide
that no director or officer shall be personally liable to the
corporation or any of its stockholders for damages for any breach
of fiduciary duty as a director or officer except (i) for acts or
omissions that involve intentional misconduct or a knowing
violation of law by the director, (ii) for conduct violating the
NRS, or (iii) for any transaction from which the director will
personally receive a benefit in money, property, or services to
which the director is not legally entitled.
Section 78.7502 of the NRS permits a company to indemnify its
directors and officers against expenses, judgments, fines, and
amounts paid in settlement actually and reasonably incurred in
connection with a threatened, pending, or completed action, suit,
or proceeding, if the officer or director (i) is not liable
pursuant to NRS 78.138, or (ii) acted in good faith and in a manner
the officer or director reasonably believed to be in or not opposed
to the best interests of the corporation and, if a criminal action
or proceeding, had no reasonable cause to believe the conduct of
the officer or director was unlawful. Section 78.7502 of the NRS
also precludes indemnification by the corporation if the officer or
director has been adjudged by a court of competent jurisdiction,
after exhaustion of all appeals, to be liable to the corporation or
for amounts paid in settlement to the corporation, unless and only
to the extent that the court determines that in view of all the
circumstances, the person is fairly and reasonably entitled to
indemnity for such expenses and requires a corporation to indemnify
its officers and directors if they have been successful on the
merits or otherwise in defense of any claim, issue, or matter
resulting from their service as a director or officer.
Section 78.751 of the NRS permits a Nevada company to indemnify its
officers and directors against expenses incurred by them in
defending a civil or criminal action, suit, or proceeding as they
are incurred and in advance of final disposition thereof, upon
determination by the stockholders, the disinterested board members,
or by independent legal counsel. Section 78.751 of NRS requires a
corporation to advance expenses as incurred upon receipt of an
undertaking by or on behalf of the officer or director to repay the
amount if it is ultimately determined by a court of competent
jurisdiction that such officer or director is not entitled to be
indemnified by the company if so provided in the corporations
articles of incorporation, bylaws, or other agreement. Section
78.751 of the NRS further permits the company to grant its
directors and officers additional rights of indemnification under
its articles of incorporation, bylaws, or other
agreement.
Section 78.752 of the NRS provides that a Nevada company may
purchase and maintain insurance or make other financial
arrangements on behalf of any person who is or was a director,
officer, employee, or agent of the company, or is or was serving at
the request of the company as a director, officer, employee, or
agent of another company, partnership, joint venture, trust, or
other enterprise, for any liability asserted against him and
liability and expenses incurred by him in his capacity as a
director, officer, employee, or agent, or arising out of his status
as such, whether or not the company has the authority to indemnify
him against such liability and expenses.
Our Articles of Incorporation and Bylaws implement the
indemnification provisions permitted by Chapter 78 of the NRS by
providing that we shall indemnify our directors and officers to the
fullest extent and under all circumstances permitted by the NRS
against expense, liability, and loss reasonably incurred or
suffered by them in connection with their service as an officer or
director. Our Articles of Incorporation also provide
that we will indemnify our directors and officers to the fullest
extent permitted by the NRS and shall advance reasonable costs and
expenses incurred with respect to any proceeding to which a person
is made a party as a result of being a director or officer in
advance of final disposition of such proceeding without regard to
any limitations set forth in the NRS 78.7502. We may purchase and
maintain liability insurance, or make other arrangements for such
obligations or otherwise, to the extent permitted by the
NRS.
At the present time, there is no pending litigation or proceeding
involving a director, officer, employee, or other agent of ours in
which indemnification would be required or permitted. We are not
aware of any threatened litigation or proceeding that may result in
a claim for such indemnification.
Item 15. Recent Sales of Unregistered Securities.
The information below lists all of the securities issued by us
during the past three years, which were not registered under the
Securities Act:
1.
Between
December 31, 2016 and August 31, 2017, we issued five-year warrants
to purchase an aggregate of 112,500 shares of Common Stock with an
exercise price of $3.00 per share to a consultant for
services.
2.
Between
June 23, 2017 and August 3, 2017, pursuant to a private placement
with accredited investors we issued an aggregate of (i) 811,158
shares of Common Stock, (ii) 229,363.2 shares of Series A-2
Preferred Stock, convertible into 2,293,632 shares of Common Stock,
and (iii) reduced the exercise price of outstanding warrants to
purchase an aggregate of 536,434 shares of Common Stock from $3.00
to $2.00 per share, for aggregate gross proceeds of approximately
$2,57 million. Additionally, we issued warrants to purchase an
aggregate of 162,486 shares of Common Stock with an exercise price
of $1.27 per share to placement agents and/or their designees. Cova
Capital acted as placement agent in connection the private
placement.
3.
Between
March 31, 2015 and June 30, 2017, we issued an aggregate of 85.9436
shares of Series B Preferred Stock as paid in kind (PIK)
dividends.
4.
On
April 4, 2017, we issued an aggregate of 100,000 shares of Common
Stock to certain members of our Board for services.
5.
On
April 4, 2017, we issued stock options to purchase an aggregate of
55,000 shares of Common Stock to members of our management team.
The options were issued pursuant to the 2012 Incentive Plan. These
options have a strike price of $3.00 per share and are subject to
certain time-based milestone vesting.
6.
On
February 15, 2017, we issued a five-year warrant to purchase 75,618
shares of Common Stock with an exercise price of $3.00 per share to
a board member and former chief executive officer in connection
with a settlement of outstanding obligations pursuant to a
consulting agreement.
7.
On
January 17, 2017, we issued (i) a convertible note and (ii)
five-year warrant to purchase 100,000 shares of Common Stock with
an exercise price of $3.00 per share in connection with the
exchange and cancellation of a non-convertible OID promissory note
and a non-convertible promissory note.
8.
On
January 13, 2017, we issued stock options to purchase an aggregate
100,000 shares of Common Stock to a consultant. The options were
issued pursuant to the 2012 Incentive Plan. These options have a
strike price of $3.00 per share and are subject to certain
performance milestone vesting.
9.
Between
August 31, 2016 and October 30, 2016, pursuant to a private
placement with accredited investors, we issued an aggregate of (i)
2,388,163 shares of Common Stock, (ii) 70,540.8 shares of Series
A-2 Preferred Stock, convertible into 705,408 shares of Common
Stock, and (iii) five-year warrants to purchase up to 1,546,792
shares of Common Stock with an exercise price of $3.00 per share
for aggregate gross proceeds of $2,602,500, plus the exchange of
(a) $648,000 of non-convertible promissory notes, (b) $65,000 of
accounts payable, (c) $553,000 of non-convertible OID promissory
notes, and (d) $2,601,464 stated value of Series B Preferred.
Additionally, we issued warrants to purchase an aggregate of
108,958 shares of Common Stock with an exercise price of $3.00 per
share to placement agent and/or their designees. Cova Capital and
Sutter Securities acted as non-exclusive placement agents in
connection the private placement.
10.
In
August 2016, we issued five-year warrants to purchase up to 45,459
shares of Common Stock with an exercise price of $2.00 per share in
connection with the amendment and extension of the non-convertible
OID promissory notes originally issued between February 15, 2016
and March 15, 2016.
11.
On
July 7, 2016, we issued (i) stock options to purchase an aggregate
of 440,000 shares of common stock to members of our management
team; (ii) stock options to purchase an aggregate 240,000 shares of
common stock to consultants, and (iii) stock options to purchase an
aggregate of 100,000 shares of common stock to a member of our
Board. The options were issued outside of the 2012 Incentive Plan.
The stock options have an exercise price of $2.00 per share and are
subject to certain time-based and performance milestone
vesting.
12.
Between
May 26, 2016 and June 12, 2016, pursuant to a private placement
with accredited investors, we issued an aggregate of (i) 247,500
shares of Common Stock, and (ii) five-year warrants to purchase up
to 123,750 shares of Common Stock with an exercise price of $3.00
per share for gross proceeds of $495,000. Additionally, we issued
warrants to purchase an aggregate of 24,750 shares of Common Stock
with an exercise price of $3.00 per share to placement agents
and/or their designees. Wainwright acted as lead placement agent in
connection the private placement and Cova Capital acted as a select
dealer with Wainwright.
13.
On
May 26, 2016, we issued stock options to purchase an aggregate of
100,000 shares of Common Stock to the Vice Chairman of our Board
with a strike price of $2.19 per share. The options were issued
outside of the 2012 Incentive Plan. 50,000 stock options are
subject to annual milestone vesting and 50,000 stock options are
subject to performance milestone vesting.
14.
On
April 26, 2016, we issued an aggregate of 25,000 shares of Common
Stock to a consultant for services and reduction of certain
accounts payable.
15.
Between
February 12, 2016 and March 16, 2016, pursuant to a private
placement with accredited investors, we issued an aggregate of (i)
non-convertible OID promissory notes with a principal amount of
$750,000, and (ii) five-year warrants to purchase up to 89,095
shares of Common Stock with an initial exercise price of $8.25 per
share for gross proceeds of $625,000.
16.
On
February 12, 2016, we issued five-year warrants to purchase up to
43,636 shares of Common Stock with an initial exercise price of
$8.25 per share in connection with the amendment and extension of
the non-convertible promissory note originally issued on July 31,
2015.
17.
On
February 3, 2016, we issued stock options to purchase an aggregate
of 45,500 shares of Common Stock with a strike price of $3.55 per
share to employees and stock options to purchase 10,000 shares of
Common Stock with a strike price of $3.55 per share to a
consultant. These options were issued pursuant to the 2012
Incentive Plan. An aggregate of 13,875 options vested immediately
and 41,625 options are subject to certain milestone
vesting.
18.
On
August 25, 2015, we issued five-year warrants to purchase up to
9,134 shares of Common Stock with an exercise price of $8.25 per
share to a consultant for services.
19.
On
August 21, 2015, we issued an aggregate of 6,667 shares of Common
Stock to a consultant for services.
20.
On
July 31, 2015, pursuant to a private placement with an accredited
investor, we issued (i) an aggregate non-convertible promissory
note with a principal amount of $1.2 million, and (ii) five-year
warrants to purchase up to 43,636 shares of Common Stock with an
initial exercise price of $8.25 per share. Dolphin Mgmt. Services,
Inc. acted as placement agent in connection with the private
placement. In connection with the private placement we issued
five-year warrants to purchase an aggregate of 5,600 shares of
Common Stock with an exercise price of $10.50 per share to a
placement agent.
21.
On
June 30, 2015, we issued stock options to purchase an
aggregate of 5,001 shares of Common Stock with a strike price of
$8.25 per share to employees vesting over three years. These
options were issued pursuant to the 2012 Incentive
Plan.
22.
On
June 17, 2015, we issued stock options to purchase an aggregate of
60,000 shares of Common Stock with a strike price of $8.25 per
shares to Douglas A. Hamilton pursuant to his employment agreement.
10,000 stock options vested immediately and 50,000 stock options
are subject to certain milestone vesting. These options were issued
pursuant to the 2012 Incentive Plan.
23.
On
June 17, 2015, we issued stock options to purchase an aggregate of
26,667 shares of Common Stock with a strike price of $8.25 per
share to Dr. Oscar Bronsther in connection with his separation and
release agreement that vested immediately and stock options to
purchase an aggregate of 10,000 shares of Common Stock with a
strike price of $8.25 in connection with his consulting agreement
that are subject to certain milestone vesting. These options were
issued outside of the 2012 Incentive Plan.
24.
On
June 16, 2015, we issued an aggregate of 6,667 shares of Common
Stock to a consultant for services.
25.
On
May 31, 2015, we issued five-year warrants to purchase an aggregate
of 556 shares of Common Stock with an exercise price of $15.00 per
share and five-year warrants to purchase an aggregate of 695 shares
of Common Stock with an exercise price per share of $18.75 to a
consultant for services.
26.
On
May 18, 2015, we issued stock options to purchase 20,000 shares of
Common Stock strike price of $8.25 per share to each of the four
independent members of our Board. The options will vest annually as
follows based upon each Board member continued Board
service: 6,667 options will vest at the one-year anniversary;
6,667 will vest at the two-year anniversary; and 6,666 will vest at
the three-year anniversary of the issuance date. The options were
issued outside of the 2012 Incentive Plan.
27.
On
April 2, 2015, we issued an aggregate of 6,667 shares of Common
Stock to a consultant for investor relations
services. On May 1, 2015, we issued an aggregate of
6,667 shares of Common Stock to a consultant for investor relations
services. The consultant has agreed not to sell or
dispose the shares before December 31, 2015.
28.
On
March 1, 2015, we issued stock options to purchase an aggregate of
6,667 shares of Common Stock to a consultant with a strike price of
$11.25 per share. These stock options were issued outside of the
2012 Incentive Plan.
29.
On
March 10, 2015, we issued an aggregate of 8,000 shares of Common
Stock to a consultant for services.
30.
On
January 29, 2015, we issued an aggregate of 3,837 shares of Common
Stock to a consultant for services.
31.
On
January 29, 2015, we issued stock options to purchase an aggregate
of 8,068 shares of Common Stock to members of our scientific and
clinical advisory boards with a strike price of $22.50 per share,
and stock options to purchase an aggregate of 1,602 shares of
Common Stock to members of our scientific and clinical advisory
boards with a strike price of $8.10. These stock options were
issued pursuant to the 2012 Incentive Plan.
32.
Between
December 31, 2014 and March 31, 2015, pursuant to a private
placement of Series B Preferred Stock with accredited investors, we
issued (i) 616.0451 shares of Series B Preferred Stock, convertible
into 410,707 shares of Common stock, (ii) Series B warrants to
purchase 30,334 shares of Common Stock with an exercise price of
$8.25, (iii) Series A warrants to purchase 308,027 shares of Common
Stock with an exercise price of $10.50. Wainwright acted as lead
placement agent in connection the Series B Preferred Stock Private
Placement. Additionally, in connection with the Series B Preferred
Stock Private Placement we issued Series A warrants to purchase an
aggregate of 30,378 shares of Common Stock with an exercise price
of $10.50 per share to placement agents and/or their
designees.
33.
On
October 24, 2014, pursuant to the October 2014 Private Placement,
we issued 374,257 shares of Series A Preferred Stock, convertible
into 24,951 shares of Common Stock.
34.
On
October 14, 2014, we issued an aggregate of 34,989 shares of Common
Stock to certain members of our board of directors and management.
These shares of Common Stock were issued outside of the 2012
Incentive Plan.
35.
On
October 14, 2014, we issued stock options to purchase an aggregate
of 40,000 shares of Common Stock to certain members of our
management team with a strike price of $16.50 per share. These
stock options were issued outside of the 2012 Incentive
Plan.
36.
On
October 10, 2014, we issued 13,334 shares of Common Stock pursuant
to entering into a purchase agreement and registration rights
agreement with Lincoln Park Capital Fund, LLC.
The offers, sales and issuances of the securities described in
paragraphs 1, 2, 3, 4, 6,7, 9, 10, 12, 14, 15, 16, 18, 19, 20, 24,
25, 27, 29, 30, 32, 33 and 36 were deemed to be exempt from
registration under the Securities Act in reliance on Rule 506 of
Regulation D in that the issuance of securities to the accredited
investors did not involve a public offering. The recipients of
securities in each of these transactions acquired the securities
for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends
were affixed to the securities issued in these transactions. Each
of the recipients of securities in these transactions was an
accredited investor under Rule 501 of Regulation D.
The offers, sales and issuances of the securities described in
paragraphs 5, 8, 11, 13, 17, 21, 22, 23, 26, 28, 31, 34, and 35
were deemed to be exempt from registration under the Securities Act
in reliance on Rule 701 in that the transactions were under
compensatory benefit plans and contracts relating to compensation
as provided under Rule 701. The recipients of such securities were
our employees, directors or bona fide consultants and received the
securities under our 2012 Incentive Plan. Appropriate legends were
affixed to the securities issued in these transactions. Each of the
recipients of securities in these transactions had adequate access,
through employment, business or other relationships, to information
about us.
Item 16. Exhibits and Financial Statement Schedules.
|
Exhibit No.
|
Description
|
|
|
Share
Exchange Agreement dated February 27, 2012 (Incorporated by
reference to our Current Report on Form 8-K filed with the
Commission on May 25, 2012).
|
|
|
|
|
|
Articles
of Incorporation of MetaStat, Inc., as amended (Incorporated by
reference to our Current Report on Form 8-K filed with the
Commission on March 21, 2012).
|
|
|
|
|
|
Certificate
of Designation of Rights and Preferences of the Series A Preferred
Stock dated June 30, 2014 (Incorporated by reference to our Current
Report on Form 8-K filed on July 2, 2014).
|
|
|
|
|
|
Amended
and Restated Certificate of Designation of the Preferences, Rights
and Limitations of the Series B Preferred Stock filed on December
31, 2014 (Incorporated by reference to our Current Report on Form
8-K filed with the Commission on April 2, 2015).
|
|
|
|
|
|
Amended
and Restated By-laws (Incorporated by reference to our Current
Report on Form 8-K filed with the Commission on November 23,
2015).
|
|
|
|
|
|
Form
of Investor Warrant dated February 27, 2012 (Incorporated by
reference to our Current Report on Form 8-K filed with the
Commission on March 21, 2012).
|
|
|
|
|
|
Form
of Warrant issued to certain affiliates dated February 27, 2012
(Incorporated by reference to our Current Report on Form 8-K filed
with the Commission on March 21, 2012).
|
|
|
|
|
|
Form
of Investor Warrant dated May 1, 2012 (Incorporated by reference to
our Current Report on Form 8-K filed with the Commission on May 7,
2012).
|
|
|
|
|
|
Form
of May 2014 Convertible Promissory Note (Incorporated by reference
to our Annual Report on Form 10-K filed with the Commission on June
13, 2014).
|
|
|
|
|
|
Form
of Warrant issued to Holders of May 2014 Convertible Promissory
Notes (Incorporated by reference to our Annual Report on Form 10-K
filed with the Commission on June 13, 2014).
|
|
|
|
|
|
Form
of Investor Warrant dated June 30, 2014 (Incorporated by reference
to our Current Report on Form 8-K filed with the Commission on July
2, 2014).
|
|
|
|
|
|
Form
of Series A Warrant dated December 31, 2014 (Incorporated by
reference to our Current Report on Form 8-K filed with the
Commission on January 7, 2015).
|
|
|
|
|
|
Form
of Series B Warrant dated December 31, 2014 (Incorporated by
reference to our Current Report on Form 8-K filed with the
Commission on January 7, 2015).
|
|
|
|
|
|
Form
of Amended and Restated Series A Warrant dated March 27, 2015
(Incorporated by reference to our Current Report on Form 8-K filed
with the Commission on April 2, 2015).
|
|
|
|
|
|
Form
of August 2015 Promissory Note (Incorporated by reference to our
Current Report on Form 8-K filed with the Commission on August 5,
2015).
|
|
|
|
|
|
Form
of Amendment No. 1 to August 2015 Promissory Note (Incorporated by
reference to our Current Report on Form 8-K filed with the
Commission on February 19, 2016).
|
|
|
|
|
|
Form
of August 2015 Warrant (Incorporated by reference to our Current
Report on Form 8-K filed with the Commission on August 5,
2015).
|
|
|
|
|
|
Form
of OID Promissory Note (Incorporated by reference to our Current
Report on Form 8-K filed with the Commission on February 19,
2016).
|
|
|
|
|
|
Form
of OID Warrant (Incorporated by reference to our Current Report on
Form 8-K filed with the Commission on February 19,
2016).
|
|
|
|
|
4.15*
|
Form
of Warrant dated May 26, 2016.
|
|
|
|
|
|
Opinion
of Sherman & Howard L.L.C.
|
|
|
|
|
|
Form
of Securities Purchase Agreement dated February 27, 2012
(Incorporated by reference to our Current Report on Form 8-K filed
with the Commission on May 25, 2012).
|
|
|
|
|
|
Form
of Registration Rights Agreement dated February 27, 2012
(Incorporated by reference to our Current Report on Form 8-K filed
with the Commission on March 21, 2012).
|
|
|
|
|
|
License
Agreement with AECOM, MIT, Cornell and IFO-Regina dated August 26,
2010 (Incorporated by reference to our Current Report on Form 8-K
filed with the Commission on August 13, 2012).
|
|
|
|
|
|
Second
Amended and Restated 2012 Omnibus Securities and Incentive Plan
(Incorporated by reference to our Definitive Proxy Statement
on Schedule 14A filed with the Commission on May 29,
2015).
|
|
|
|
|
|
Form
of Consultant Non-Qualified Stock Option Agreement (Incorporated by
reference to our Current Report on Form 8-K filed with the
Commission on March 21, 2012).
|
|
|
|
|
|
Form
of Employee Non-Qualified Stock Option Agreement (Incorporated by
reference to our Current Report on Form 8-K filed with the
Commission on March 21, 2012).
|
|
|
Form
of Securities Purchase Agreement dated May 1, 2012 (Incorporated by
reference to our Current Report on Form 8-K filed with the
Commission on May 7, 2012).
|
|
|
|
|
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Form
of Registration Rights Agreement dated May 1, 2012 (Incorporated by
reference to our Current Report on Form 8-K filed with the
Commission on May 7, 2012).
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Sponsored
Research Agreement with AECOM and Cornell University, dated April
2011 (Incorporated by reference to our Current Report on Form 8-K
filed with the Commission on May 25, 2012).
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“Second”
License Agreement with AECOM effective March 2012 (Incorporated by
reference to our Current Report on Form 8-K filed with the
Commission on August 13, 2012).
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“Third”
License Agreement with AECOM effective March 2012 (Incorporated by
reference to our Current Report on Form 8-K filed with the
Commission on August 13, 2012).
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Consulting
Agreement of Oscar L. Bronsther dated June 17, 2015 (Incorporated
by reference to our Current Report on Form 8-K filed with the
Commission on June 18, 2015).
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Separation
and Release Agreement of Oscar L. Bronsther dated June 17, 2015
(Incorporated by reference to our Current Report on Form 8-K filed
with the Commission on June 18, 2015).
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Employment
Agreement of Daniel Schneiderman dated May 24, 2013 (Incorporated
by reference to our Annual Report on Form 10-K filed with the
Commission on June 13, 2014).
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Form
of May 2014 Convertible Note and Warrant Purchase Agreement
(Incorporated by reference to our Annual Report on Form 10-K filed
with the Commission on June 13, 2014).
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Diagnostic License Agreement with the Massachusetts Institute of
Technology and its David H. Koch Institute for Integrative Cancer
Research at MIT and its Department of Biology, AECOM, and
Montefiore Medical Center as of December 7, 2013 (Incorporated by
reference to our Current Report on Form 8-K, as amended, initially
filed with the Commission on December 12, 2013).
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Therapeutic License Agreement with the Massachusetts Institute of
Technology and its David H. Koch Institute for Integrative Cancer
Research at MIT and its Department of Biology, AECOM, and
Montefiore Medical Center as of December 7, 2013 (Incorporated by
reference to our Current Report on Form 8-K, as amended, initially
filed with the Commission on December 12, 2013).
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Form
of Securities Purchase Agreement dated June 30, 2014 (Incorporated
by reference to our Current Report on Form 8-K filed with the
Commission on July 2, 2014).
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Form
of Registration Rights Agreement dated June 30, 2014 (Incorporated
by reference to our Current Report on Form 8-K filed with the
Commission on July 2, 2014).
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Antibody
License Agreement with MIT dated June 2, 2014 (Incorporated by
reference to our Quarterly Report on Form 10-Q filed with the
Commission on July 15, 2014).
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Memorandum
of Understanding dated July 14, 2014 (Incorporated by reference to
our Current Report on Form 8-K filed with the Commission on July
17, 2014).
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Amendment
No. 1 to Memorandum of Understanding dated October 12, 2014
(Incorporated by reference to our Quarterly Report on Form 10-Q
filed with the Commission on October 15, 2014).
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Employment
Agreement with Douglas Hamilton dated June 17, 2015 (Incorporated
by reference to our Current Report on Form 8-K filed with the
Commission on June 18, 2015).
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Form
of Securities Purchase Agreement dated October 10, 2014
(Incorporated by reference to our Current Report on Form 8-K filed
with the Commission on October 14, 2014).
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Form
of Registration Rights Agreement dated October 10, 2014
(Incorporated by reference to our Current Report on Form 8-K filed
with the Commission on October 14, 2014).
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Form
of Securities Purchase Agreement dated October 24, 2014
(Incorporated by reference to our Current Report on Form 8-K filed
with the Commission on October 30, 2014).
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Form
of Registration Rights Agreement dated December 31, 2014
(Incorporated by reference to our Current Report on Form 8-K filed
with the Commission on January 7, 2015).
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Form
of Registration Rights Agreement dated December 31, 2014
(Incorporated by reference to our Current Report on Form 8-K filed
with the Commission on January 7, 2015).
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Form
of Amended and Restated Securities Purchase Agreement dated March
27, 2015 (Incorporated by reference to our Current Report on Form
8-K filed with the Commission on April 2, 2015).
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Form
of Amended and Restated Registration Rights Agreement dated March
27, 2015 (Incorporated by reference to our Current Report on Form
8-K filed with the Commission on April 2, 2015).
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License, Development and Commercialization Agreement by and between
MetaStat, Inc., MetaStat BioMedical, Inc., and ASET Therapeutics
LLC, dated November 25, 2014 (Incorporated by reference to our
Current Report on Form 8-K filed with the Commission on January 13,
2015).
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Form
of Note Purchase Agreement dated June 30, 2014 (Incorporated by
reference to our Current Report on Form 8-K filed with the
Commission on August 5, 2015).
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Form
of OID Note Purchase Agreement (Incorporated by reference to our
Current Report on Form 8-K filed with the Commission on February
19, 2016).
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Form of Subscription Agreement dated May 26, 2016 (Incorporated by
reference to our Annual Report on Form 10-K filed with the
Commission on May 31, 2016)
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Form of Registration Rights Agreement dated May 26, 2016
(Incorporated by reference to our Annual Report on Form 10-K filed
with the Commission on May 31, 2016).
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Form of Subscription Agreement in connection with the 2016 Unit
Private Placement (Incorporated by reference to our Current Report
on Form 8-K filed with the Commission on October 17,
2016).
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Form of Registration Rights Agreement in connection with the 2016
Unit Private Placement (Incorporated by reference to our Current
Report on Form 8-K filed with the Commission on October 17,
2016).
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Pilot Materials Transfer Agreement between MetaStat, Inc. and
Celgene Corporation dated August 22, 2016 (Incorporated by
reference to our Current Report on Form 8-K filed with the
Commission on October 6, 2016).
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First Amendment to Pilot Materials Transfer Agreement between
MetaStat, Inc. and Celgene Corporation dated September 29, 2016
(Incorporated by reference to our Current Report on Form 8-K filed
with the Commission on October 6, 2016).
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Form of Convertible Note dated January 17, 2017 (Incorporated by
reference to our Current Report on Form 8-K filed with the
Commission on January 23, 2017).
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Form of Warrant dated January 17, 2017 (Incorporated by reference
to our Current Report on Form 8-K filed with the Commission on
January 23, 2017).
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Form of Exchange Agreement dated January 17, 2017 (Incorporated by
reference to our Current Report on Form 8-K filed with the
Commission on January 23, 2017).
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Form of Subscription Agreement dated June 23, 2017 (Incorporated by
reference to our Current Report on Form 8-K filed with the
Commission on June 27, 2017).
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Subsidiaries
of the Registrant (Incorporated by reference to our Annual Report
on Form 10-K filed with the Commission on May 28,
2013).
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Consent
of EisnerAmper LLP.
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Consent
of Sherman & Howard L.L.C. (included in Exhibit
5.1).
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101.
INS**
|
XBRL
Instance Document.
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101.
SCH**
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XBRL
Taxonomy Extension Schema.
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101.
CAL**
|
XBRL Taxonomy Extension Calculation Linkbase.
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101.
DEF**
|
XBRL Taxonomy Extension Definition Linkbase.
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101.
LAB**
|
XBRL Taxonomy Extension Label Linkbase.
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101.
PRE**
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XBRL Taxonomy Extension Presentation Linkbase.
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* Previously filed.
† Confidential treatment has been granted with respect to
portions of this exhibit.
†† Confidential treatment has been granted with respect
to portions of this exhibit.
** Pursuant to Rule 406T of Regulation S-T, the XBRL (Extensible
Business Reporting Language) information included in Exhibit 101
hereto is deemed furnished and not filed or part of a registration
statement or prospectus for purposes of Sections 11 or 12 of the
Securities Act of 1933, as amended, is deemed not filed for
purposes of Section 18 of the Securities Exchange Act of 1934, as
amended, and otherwise is not subject to liability under these
sections.
Item 17. Undertakings.
(a).
The undersigned registrant hereby undertakes:
(1).
To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration
statement:
(i).
To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii).
To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more
than 20 percent change in the maximum aggregate offering price set
forth in the “Calculation of Registration Fee” table in
the effective registration statement.
(iii).
To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2). That, for the purpose of determining
any liability under the Securities Act of 1933, each such post-
effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the
initial
bona
fide
offering
thereof.
(3).
To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4).
That for the purpose of determining any liability under the
Securities Act of 1933 in a primary offering of securities of the
undersigned registrant pursuant to this registration statement,
regardless of the underwriting method used to sell the securities
to the purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the
undersigned registrant will be a seller to the purchaser and will
be considered to offer or sell such securities to such
purchaser:
(i).
Any preliminary prospectus or prospectus of the undersigned
registrant relating to the offering required to be filed pursuant
to Rule 424;
(ii).
Any free writing prospectus relating to the offering prepared by or
on behalf of the undersigned registrant or used or referred to by
the undersigned registrant;
(iii).
The portion of any other free writing prospectus relating to the
offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the
undersigned registrant; and
(iv).
Any other communication that is an offer in the offering made by
the undersigned registrant to the purchaser
(b).
The undersigned hereby undertakes to provide to the underwriter at
the closing specified in the underwriting agreements, certificates
in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each
purchaser.
(c).
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
(d).
The undersigned registrant hereby undertakes that:
(1).
For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
(2).
For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona
fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-1 and has
duly caused this registration statement or amendment thereto to be
signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Boston, State of Massachusetts, on October 5,
2017.
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METASTAT, INC.
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By:
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/s/ Douglas A. Hamilton
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Name:
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Douglas A. Hamilton
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Title:
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President and Chief Executive Officer (principal executive,
accounting and financial officer)
|
In accordance with the requirements of the Securities Act, this
Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
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/s/ Douglas A. Hamilton
|
|
October 5, 2017
|
|
Douglas A. Hamilton
|
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|
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President, Chief Executive Officer and Director
(principal executive, accounting and financial
officer)
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/s/ Jerome B. Zeldis
|
|
October 5, 2017
|
|
Jerome B. Zeldis
|
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|
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Chairman of the Board of Directors
|
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/s/ Paul Billings
|
|
October 5, 2017
|
|
Paul Billings
|
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Director
|
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